BILL ANALYSIS Ó
AB 1393
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 1393
(Burke) - As Introduced February 27, 2015
SUBJECT: California Pollution Control Financing Authority
SUMMARY: Expands the ability of the California Pollution
Control Financing Authority (CPCFA) to offer loan loss reserve
and other credit enhancements beyond small businesses.
Specifically, this bill:
1)Allows the CPCFA to participate in an alternative funding
source program which could include implementing loan loss
reserve programs to benefit any person, company, corporation,
public agency, partnership, or firm engaged in activities in
California that requires financing.
2)Permits the CPCFA to offer financial assistance to include
grants, loans, and credit enhancements.
3)Makes other conforming changes.
EXISTING LAW:
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1)Establishes the CPCFA with specified powers and duties.
(Health and Safety Code, Sections 44500 et seq.)
2)Provides that it is the intent of the Legislature to ensure
that the state, through the CPCFA, may make maximum, efficient
use of capital access programs enacted by all federal and
state agencies, as well as funding available from any
governmental program whose goals may be advanced by providing
funding to the Capital Access Loan Program (CalCAP).
a) In furtherance of this intent, and notwithstanding any
other provision of this article, when the contributions
required pursuant to Health and Safety Code Section 44559.4
(read below) are entirely funded by a source other than the
authority, the authority may, by regulation adopted
pursuant to subdivision (b) of Section 44520, establish
alternate provisions as necessary to enable the authority
to participate in the alternative funding source program.
(Health and Safety Code 44559.11)
3)Authorizes the CPCFA to establish loss reserve accounts for
financial institutions to participate in the CalCAP which
provides loans to qualifying small businesses. (Health and
Safe Code, Section 44559.4)
4)Allows the CPCFA or any other agency implementing a small
business or brownfield site financing assistance program
pursuant to an interagency agreement with the CPCFA, may adopt
regulations relating to small business or brownfield site
financing as emergency regulations in accordance with Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2 of the Government Code. (Health and Safety Code 44520)
5)Defines "loss reserve account" as an account in the State
Treasury or any financial institution that is established and
maintained by the CPCFA for the benefit of a financial
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institution participating in CalCAP for the purposes of the
following: (Health and Safety Code, 44559.1)
a) Depositing all required fees paid by the participating
financial institution and the qualified business;
b) Depositing contributions made by the state and, if
applicable, the federal government or other sources; and,
c) Covering losses on enrolled qualified loans sustained by
the participating financial institution by disbursing funds
accumulated in the loss reserve account.
FISCAL EFFECT: Unknown.
COMMENTS:
The CPCFA has been providing low-cost innovative financing to
California businesses since 1972. As a "conduit issuer" of
tax-exempt private activity bonds, CPCFA is able to facilitate
low cost financing to qualified waste and recycling projects.
Other projects to control pollution and improve water supply can
qualify for tax-exempt financing as allowed by federal tax law.
Examples of recent assistance include projects to purchase
clean-air vehicles by waste companies, construct and operate
anaerobic digesters, recycle used oil, convert animal waste to
clean burning fuel, and develop construction and demolition
debris recycling programs.
In addition, CPCFA administers CalCAP which helps participating
financial institutions extend credit to small businesses through
microloans and larger loans for start-up, expansion and working
capital up to $20 million. CalCAP was established through
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legislation in 1994 (AB 253, Bronshvag).
The CalCAP loan loss reserve program established through AB 253
was principally funded from the CPCFA's own revenues from fees
collected on its bond issuances, and the statute set forth
eligibility criteria for qualified lenders, borrowers and loan
purposes. In addition, as part of the CalCAP statute, CPCFA has
the ability to modify the program structure and criteria if the
funds are from a source entirely other than CPCFA's own monies,
known as an Independent Contributor. The regulations
implementing the Independent Contributor permit the funding
entity, which can be a public or private entity, to set program
standards and modify the loan loss reserve criteria to further
its policy objectives.
The Independent Contributor provisions have attracted federal
and state agencies to CPCFA, to administer credit enhancement
programs on their behalf. Examples include: $84 million
allocated by the U.S. Treasury under the Federal State Small
Business Credit Initiative: $54 million allocated by the Air
Resources Board to fund the On-Road Heavy Duty Vehicle Air
Quality Loan Program; $2 million (pending) allocated from the
Energy Commission to establish the Electric Vehicle Charging
Station Financing Program; and several others. These programs
are examples of the ability of CPCFA to provide credit
enhancement programs to mobilize private capital in support of
state policy goals.
Need for the Bill
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According to the sponsor, the California State Treasurer, John
Chiang, the CPCFA fields requests from state agencies to
administer new alternative financing and credit enhancement
programs to encourage growth in the business sector, provide
economic relief, or to leverage private capital. In particular,
CPCFA has received repeated requests to develop pilot programs
to incentivize consumer loans to individuals and loans to public
or quasi-public entities. In addition, CPCFA has been examining
the potential for state agencies to utilize financing structures
which are different than loan loss reserves, but without clear
statutory authority, CPCFA is reluctant to pursue additional
financing options.
The objective of AB 1393 is to provide clarity regarding CPCFA's
authority to set up loan loss reserve programs for individual
consumers, to permit joint powers authorities and other public
entities to be the borrower or beneficiary of these programs,
and to create credit enhancement programs that vary from the
standard loan loss reserve structure.
In addition, the sponsor states, to maintain the success of
CalCAP, it must broaden its offerings to target and expand its
reach to help more people. By providing additional credit
enhancements to not only businesses but also individual
consumers, CalCAP can provide loans to those that need help the
most, whether that is rural farmers that need new wells for
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drought relief, or low income communities that could benefit
from clean efficient cars.
CalCAP
As of March 31, 2014:
Total Number Loans Enrolled Over Program Lifetime:
17,202
For the Period: 1/1/14 - 3/1/14: Total Loans All Programs
908 loans for $55,385,429
Micro-Loans Enrolled (Loans under $40,000)
438 loans for $8,084,947
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Average CalCAP Loan Amount
$60,998
CalCAP Small Business Program Loans
285 loans for $10,774,213
CalCAP Collateral Support Program Loans
6 loans for $5,950,000
CalCAP encourages banks and other financial institutions to make
loans to small businesses that have difficulty obtaining
financing. CalCAP is a form of loan portfolio insurance which
may provide up to 100% coverage on certain loan defaults. By
participating in CalCAP, lenders have available to them a proven
financing mechanism to meet the financing needs of California's
small businesses.
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Program Flexibility
CalCAP offers lenders a mechanism to provide loans to small
businesses that have difficulty obtaining financing. With CalCAP
portfolio insurance, a lender is able to cover portions of loans
that exceed the risk threshold normally set for business loans.
The Program allows:
Almost any small business loan, with a few exceptions.
Insurance on a lender's portfolio of loans. Funds are placed
in the loss reserve account as each CalCAP loan is enrolled.
A Lender to enroll all or a portion of a loan, enabling a
lender to cover loans beyond its conventional risk threshold
whether it is for the entire loan or only a portion.
Lenders to restructure loans by extending the terms of CalCAP
loans, amending covenants or releasing collateral.
Lenders to enroll up $2.5 million for loans as large as $5
million.
A maximum lender/borrower contribution for any single borrower
in a three year period of $100,000.
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Eligible Uses of Loan Proceeds
CalCAP insures loans made to small businesses to assist them in
growing their business. Loans can be used to finance the
acquisition of land, construction or renovation of buildings,
the purchase of equipment, other capital projects and working
capital. There are limitations on real estate loans and loan
refinancing.
Ineligible Uses of Loan Proceeds
CalCAP prohibits financing certain projects. Examples of
ineligible uses of loan proceeds include gambling facilities,
bars and adult entertainment businesses.
Terms
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The maximum loan amount is $5 million and the maximum enrolled
amount is $2.5 million. Each individual borrower is limited to a
maximum $2.5 million enrolled over a 3 year period. Lenders set
all the terms and conditions of the loans and decide which loans
to enroll into CalCAP. Lenders determine the premium levels to
be paid by the borrower and lender (within the parameters of the
Program). Loans can be short- or long-term, have fixed or
variable rates, be secured or unsecured, and bear any type of
amortization schedule.
Eligible Lenders
Any federal or state-chartered bank, savings association,
certified Community Development Financial Institutions (CDFI),
or credit union is eligible to participate in CalCAP. A lender
must certify that it is in good standing with its regulatory
body (Federal Reserve, Federal Deposit Insurance Corporation
(FDIC), Comptroller of Currency, Thrift Supervision, National
Credit Union Administration (NCUA), or state banking authority).
Other lenders, such as micro business lenders and finance
companies may also be eligible.
How the Program Works
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When a lender's first loan is enrolled, CalCAP establishes a
loss reserve account for that lender. Each time a loan is
enrolled under CalCAP, premiums are paid into the loss reserve
account and CalCAP matches the premiums. For instance, if the
lender and borrower each pay a 2% premium, CalCAP will typically
pay 4%. For this one loan a total of 8% is added to the lender's
loss reserve account for its entire CalCAP portfolio.
Loan enrollment applications must be received at CalCAP within
15 business days of the "Date of First Disbursement" (Date of
Loan).
Businesses with addresses in High Unemployment Areas or
Enterprise Zones are located within a Severely Affected
Community (SAC). If the loan enrollment is for a business
located within a SAC it may qualify for an additional premium
equal to the amount of the lender premium.
The more loans a lender makes, the more dollars are deposited
into the loss reserve account for its CalCAP portfolio.
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How the Loss Reserve Account Grows
Over time, as more loans are enrolled, a loss reserve account
grows, providing up to 17.5% (with addition of SAC premium) loss
coverage on a portfolio of loans. For example, if a lender makes
10 loans totaling $500,000, the lender may have as much as
$60,000 in its loss reserve account (using an average premium of
3% each from the lender and borrower, 6% from the Authority). If
one loan of $50,000 defaults, the lender has immediate coverage
of 100% of the loss. The lender must return recoveries from the
borrower, less expenses, to the loss reserve account.
Eligible Small Businesses
The borrower's business must be in one of the industries
listed in the qualified Standard Industry Classification (SIC)
or the North American Industry Classification System (NAICS)
codes list.
The borrower's primary business and at least 51% of its
employees or business income, sales or payroll must be in
California.
The business activity resulting from the bank's loan must be
created and retained in California.
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The small business must be classified as a small business
under U.S. Small Business Administration guidelines (Title 13
of the Code of Federal Regulations) and have fewer than 500
employees.
Previous Legislation
AB 2749 (JEDE), Chapter 132, Statutes of 2014 made various
technical changes.
AB 850 (Nazarian) Chapter 636, Statutes of 2013 authorized joint
power authorities to issue rate reduction bonds to finance
publicly owned utility projects until December 31, 2020. The
bonds are to be secured by utility project property and repaid
through a separate utility project charge imposed on the utility
customers' bills. While the bonds are issued by the local joint
power authorities, AB 850 included an additional state review
process by the CPCFA.
AB 981 (Hueso), Chapter 484, Statutes of 2011 provided
additional incentives within CalCAP to encourage lenders to lend
to small businesses.
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AB 1632 (Blumenfield), Chapter 731, Statutes of 2010, specifies
that severely affected communities includes areas with
unemployment above 110 % of the statewide average for purposes
of expending allocated funds. Also allows CalCAP to establish
regulations necessary for participation in programs associated
with funds from other sources.
SB 1311 (Simitian), Chapter 401, Statutes of 2008, permits
CalCAP to contribute an equal amount to an enrolled loan's loss
reserve account as the lender, and to withdraw all accrued
interest from enrolled loss reserve accounts to assist with
administrative cost.
SB 1119 (Alarcon), Chapter 756, Statutes of 1999, authorized
CPCFA to issue revenue bonds to assist responsible parties pay
their liability toward the clean-up of federal Superfund sites.
It also made other changes to improve small businesses' access
to capital under CPCFA's program.
AB 253 (Bronshvag), Chapter 1163, Statutes of 1994, expanded the
CalCAP program to all small businesses instead of only those
industries with operations that adversely affected the
environment. Also, it provided greater risk coverage for loans
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made to small businesses located in geographic areas affected by
military base closures or aerospace downsizing.
Double Referral
This measure is double-referred to the Assembly Committee on
Jobs, Economic Development and the Economy.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer (Sponsor)
Opposition
None on file.
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Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
319-3081