BILL ANALYSIS Ó
AB 1393
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Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 1393
(Burke) - As Introduced February 27, 2015
SUBJECT: California Pollution Control Financing Authority
SUMMARY: Expands the authority and program focus of the California
Pollution Control Financing Authority (CPCFA) from providing financial
assistance to address the control and remediation of pollution and the
capital access challenges of small businesses to offering unlimited
types of financial products to an expansive list of public and private
entities, as specified. Specifically, this bill:
1)Expands the type of financial assistance CPCFA can offer to support
a broad range of pollution control project financing activities from
loans and the issuance of bonds and notes to any type of financial
assistance including, but not limited to, grants, loans, credit
enhancements, and other incentives.
2)Expands the types of financial products that CPCFA can offer under
the alternative funding source program of the California Capital
Access Program (CalCAP) including, but not limited to, a loss
reserve program that benefits any person, company, corporation,
public agency, partnership, or firm engaged in activities in the
state that requires financing.
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3)Expands CPCFA's authority to adopt new program guidelines using
emergency regulation authority from its loan loss reserve program to
any financial assistance program using a funding source other than
the CPCFA including, but not limited to, a loss reserve program that
benefits any person, company, corporation, public agency,
partnership, or firm engaged in activities in the state that require
financing.
4)Strikes obsolete program authority and associated provisions
relating to a grant and loan program for neighborhoods with high
poverty or unemployment levels for the purpose of assisting cities
and counties in developing and implementing growth policies and
programs that reduce pollution hazards, promote infill development,
and to revitalize these communities. These provisions sunset on
January 1, 2012.
5)Makes other technical and conforming changes.
EXISTING LAW:
1)Establishes the CPCFA with specified powers and duties, and
authorizes the authority to approve financing for pollution control
projects and facilities, administer a loss reserve program for small
businesses, and provide grants and loans to remediate brownfields.
2)Defines "participating party" for the purposes of financing
pollution control, remediation, and elimination projects to mean any
person, company, corporation, public agency, partnership, firm, or
other entity or group of entities engaged in operations within this
state that requires financing.
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3)Establishes CalCAP for the purpose of providing a small business
loss reserve account program through participating financial
institutions. As part of implementing the program, the CPCFA
establishes a loss reserve account for each participating financial
institution.
4)Authorizes CalCAP to adopt alternative loss reserve programs using a
funding source other than those of the CPCFA.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
The CPCFA is one of nine independent financing authorities, chaired by
the State Treasurer. Initially established in 1975, the CPCFA was as
part of the broader modernization of the State Treasurer's Office
under State Treasurer Jesse Unruh. With the Tax Reform Act of 1986
and the rise in the use of private activity bonds, the CPCFA was able
to play a major role in establishing a cost-effective means for using
tax exempt bonds to fund important pollution control projects and
facilities.
Today, however, pollution control private activity bonds are not as
much in demand and the CPCFA's work on brownfields has lessened,
according to its annual reports. The most active program at the CPCFA
is CalCAP. AB 1393 proposes to leverage CalCAP's current statutory
authority and financing expertise to help other public and private
entities meet their unique financing needs. In implementing these
statutory changes, CPCFA is requesting very broad program authority in
order to respond to current and potential future financial
opportunities.
The Comment section of the analysis includes additional information on
CPCFA and its reduced mission-related programs, the increasing success
of the CalCAP Program, and examples of the types of initiatives
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currently being undertaken through CPCFA's alternative funding source
programs. The analysis comments also raise issues about the scale of
the proposed program flexibility. Amendments are recommended in
comment 6 of the analysis to provide greater program transparency and
accountability within the broader financial assistance framework.
COMMENTS:
1)Author's Purpose: According to the author, "The California Capital
Access Program (CalCAP) provides loans to qualifying small
businesses that might not otherwise be able to obtain a loan. In
addition to their support for small businesses, their financing has
been critical for several of our clean air and energy efficiency
programs. For example, the Air Resources Board has utilized CalCAP
to help businesses invest in newer, cleaner trucks, and, together
with the California Energy Commission, the program will also provide
financing for electric vehicle charging stations.
AB 1393 will build on the success of the CalCAP program and allow
the program to provide loans and credit enhancement to individual
consumers. If we're going to meet our carbon emission reduction
goals, we'll need to broaden our outreach and support. By expanding
CalCAP, California will be able to partner with financial
institutions to help the programs funded by our Cap and Trade
resources reach communities and consumers that may never have been
able to reduce their carbon footprint and energy use without a
little help."
2)Independent Financing Authorities: The CPCFA is one of nine
independent financing authorities including the:
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California Alternative Energy and Advanced Transportation
Financing Authority
California Educational Facilities Authority
California Health Facilities Financing Authority
California Healthy Food Financing Initiative Council
California Industrial Development Financing Advisory Commission
California Pollution Control Financing Authority
California School Finance Authority
California Tax Credit Allocation Committee
California Transportation Financing Authority
In general, each of the authorities is governed by a core set of
three board members: The State Controller, the Department of
Finance, and the State Treasurer, who serves as the Chair of each
of these boards. In some cases, the core set of members serve as
the entirety of the financing authority board. In other cases, the
core members are joined by additional state officials based on one
or more missions of the authority. The Chair of the Energy
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Commission and the President of the Public Utilities Commission
are, as an example, members of the California Alternative Energy
and Advanced Transportation Financing Authority.
While a majority of these boards were initially established to serve
specific public works and private sector bond financing functions,
their current activities have grown far beyond the construction of
schools, hospitals, and pollution control facilities. Over the
years, as financial markets changed and the Legislature saw
opportunities to create niche programs, the core missions of the
financing authorities expanded and additional financing authorities
were even created.
Today, the missions of the various financing authorities sometimes
overlap, as well as the tools the financing authorities have been
provided. In March 2015 the California Energy Commission approved
spending AB 118 funds for the Electric Vehicle Charging Station
Financing Program and will be using the CPCFA as its finance
administrator. Mission-wise, this partnership seems more
appropriate for the California Alternative Energy and Advanced
Transportation Financing Authority.
However, given CPCFA's demonstrated ability to design financial
products that both meet the requirements of the public agency and
the private sector it is not surprising that the Energy Commission
and the Air Resource's Board (ARB) have chosen CPCFA.
Organizationally, however, it draws into question why the state
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needs nine separate authorities or whether the current programs
could be divvied up more effectively between six financing
authorities.
1)California Pollution Control Financing Authority: The CPCFA was
established in 1972 as an independent financing authority for the
purpose of providing a revenue bond based method of efficiently
financing pollution control facilities. CPCFA's role as a conduit
revenue bond issuer has expanded over the years to also include a
now defunct sustainable communities grant program; CalCAP, a small
business loss reserve program; and the California Recycle
Underutilized Sites Program, which provides grants and loans to
support the remediation of brownfield sites.
One component of CPCFA's funding is provided through an assessment
on large businesses that utilize the CPCFA as a conduit bond issuer.
Bond issuance fees vary based on the size of business and the size
of the issuance. The maximum fee is 0.0066 on the face value of the
bonds. These fees are then redirected by the CPCFA board for
mission-related purposes. Small businesses, as an example, can
receive up to $205,000 towards the cost of their own bond issuance.
In 2013, the CPCFA board voted to waive the fee, as tax exempt bond
financing began to weaken. In May 2015, the CPCFA board will vote
on extending the waiver of the fee to the end of 2015. Currently,
CPCFA's has $3.5 billion in unused carryover tax exempt authority
and a cash balance of $15.3 billion within its bond program.
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In 2014, the CPCFA's California Pollution Control Tax Exempt Bond
Financing Program received 6 applications for a total of $198
million. Final resolutions were approved for six projects including
financing for Athens Services ($138 million), Mill Valley Refuse
Services, Inc ($4.7 million), and Sierra Pacific Industries ($30
million). Eight bond issues were sold in 2014 for a total amount of
$260.6 million.
Total bonds sold over the lifetime of the program: $14
billion
Outstanding bonds (3/31/2015): $3 billion
Another key program of the CPCFA is the California Recycle
Underutilized Sites Program, which was developed to encourage and
assist in the redevelopment of brownfield sites. As initially
conceived, the CPCFA would be one of three public entities funding
brownfield remediation projects. Today, those other programs have
been brought in-house resulting in the CPCFA financing both the
assessment and a remediation of the brownfields project. The
assessment component provides low-cost loans to finance professional
site assessments and the remediation component provides low-cost
loans and grants to finance brownfield clean-up activities. Since
inception, 74 projects have been funded for a total of $59 million
including 44 assessment loans and 29 grants and one loan to finance
remediation work. In the first quarter of 2014, $2.5 million was
awarded to brownfield projects.
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According to the program's 2013 Annual Report, the financing of
brownfield clean-up projects is slowing for a variety of reasons
including the complexity and risks associated with the work. CPCFA
staff transferred $4 million of assessment loan funds back to its
general purpose fund to support other programs in 2013.
4)California Capital Access Program for Small Businesses: CalCAP was
established by legislation enacted in 1994 for the purpose of
incentivizing financial institutions to provide small businesses
with the capital to maintain and grow their business. The program
uses a portfolio-based credit enhancement model, whereby a loss
reserve fund is established with the participating lender to offset
potential losses of enrolled small business loans.
Unlike a loan guarantee which ensures payment in the case of default
on a certain percentage of the value of the loan, under the loss
reserve fund model, the lender has access to the full loss reserve
account and can recover 100% of the default, if sufficient moneys
are in the account. The model encourages lenders to maintain good
underwriting practices because using the loss reserve often can
quickly draw-down the reserve leaving little for other potential
defaults within the portfolio.
CalCAP loans can be used to finance the acquisition of land,
construction or renovation of buildings, the purchase of equipment,
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other capital projects and working capital. There are some
limitations on real estate loans and loan refinancing. The maximum
loan amount is $2.5 million. The maximum premium lenders will pay
is $100,000 (per borrower). Lenders set the terms and conditions of
the loans and decide which loans to enroll into CalCAP. Loan fees,
which are used to capitalize the loan reserve account, are set by
the lender and are in the range of 2% to 3.5% of the total loan
amount. Loans can be short- or long-term, have fixed or variable
rates, be secured or unsecured, and bear any type of amortization
schedule.
In 2013, CalCAP had 38 lenders enrolled in the loss reserve program.
These lenders enrolled 3,236 small business loans, representing
$205 million in loans. This was a 39% increase in the number of
loans and a 63% increase in the amount of money loaned from the
prior year. Approximately $32 million was deposited into
participating lenders' loan loss reserve accounts. CPCFA processed
and approved 109 claims from lenders against their loss reserve
accounts with $2.6 million paid out as a result. According to the
State Treasurer's website (04/26/2015), since inception, CalCAP has
enrolled 17,202 loans. The average CalCAP loan was $60,988.
Moneys to operate CalCAP originally came from excess bond issuance
fees, discussed in a prior comment. From 2004 to 2010, about $35
million was used to finance CalCAP. In 2010, CalCAP received its
first General Fund moneys as part of a comprehensive $32 million
small business budget proposal and in 2011 CalCAP was chosen to
administer a portion of federal funds for a small business access to
capital program. Currently, CalCAP operates almost exclusively on
funds received from its alternative funding source loss reserve
program.
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CalCAP is currently or has operated a number of alternative funding
source programs for the ARB including the On-Road Heavy-Duty Diesel
Vehicle Program for small business truck owners and a Proposition 1B
Loan Assistance Program to help finance 2007 or newer heavy-duty
diesel or LNG fueled trucks. As noted earlier in the analysis, the
Energy Commission has recently approved an MOU with CPCFA to help
finance electric vehicle charging stations.
According to the CPCFA, one of the reasons the State Treasurer
(sponsor) sought the introduction of AB 1393 was to pursue another
financial arrangement with the ARB. This time to have CPCFA
administer an alternative funding source program involving
residential customers. Under CPCFA's current statutory structure,
the alternative funding source program could narrowly be interpreted
to only allow small business loss reserve programs with only minor
alternation. The CPCFA seeks greater program flexibility to assist
the ARB and other public and private entities through the
implementation of AB 1393.
5)State Small Businesses Credit Initiative: In October 2010, Congress
passed and the President signed the Small Business Jobs Act. Among
other things, the Act created the State Small Business Credit
Initiative (SSBCI), which is authorized to expend up to $1.5 billion
for state sponsored small business finance programs. Over the life
of this program, every federal dollar must be matched by $10 from
the private sector -- the deadline for using the funds is September
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2017. Also, funding for program administration, outreach, and
oversight is primarily the responsibility of the state.
Under the SBCCI funding formula, California is eligible to receive
up to $168 million, which is the largest amount of any state.
California uses its moneys to capitalize the Small Business Loan
Guarantee Program at the I-Bank's Small Business Finance Center and
the California Capital Access Program (CalCAP) loan loss reserve
program and a collateral support program administered through the
California Pollution Control Financing Authority.
California has received $110 million of the total $168 million
available and, as of June 30, 2014, the state has encumbered roughly
$87.6 million with approximately $40.6 million set aside to cover
loan guarantees; $7.2 million deposited with private financial
institutions through the CalCap and $39.8 million used for the
collateral support program. Approximately $2.4 million has been
used for direct administrative costs, resulting in a cumulative
2.18% administrative cost per dollar allocated by the U.S. Treasury.
Since inception, 47,202 jobs have been created (7,372 jobs) or
retained (39,830 jobs) by the close of 2013. 2014 job impacts were
2,228 new jobs and 13,931 retained jobs.
One of the unique features of the federal SSBIC program is that once
the state meets the 10:1 leverage, the state is authorized to reuse
those funds for other purposes. Under AB 1393, the CPCFA would be
authorized, unless federal regulations prohibited, to use those
federal funds to benefit any person, company, corporation, public
agency, partnership, or firm engaged in activities in California
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that requires financing. As currently drafted, there would be very
limited control on the re-use of those funds. While clearly not the
intent of the sponsor or the CPCFA, as currently drafted the bill is
overly broad.
6)Proposed Amendments: Below is a list of amendments the author may
wish to consider when bringing the bill before the committee:
a) Define eligible types of financial assistance for pollution
control projects. [current bills says "including , but not
limited to"]
b) Define eligible types of financial assistance for the
alternative provisions of the loss reserve program. [current
bills says "including , but not limited to"]
c) Provide a policy focus for the non-small business programs
that may be offered through the alternative funding source
program, such as pollution control, natural resource
preservation, and/or renewable energy. [Current bill authorizes
the CPCFA to meet any financing need]
d) Define participating party for the alternative funding source
provisions of the loss reserve program. [To the extent that the
alternative program is going to be an increasing activity of
CPCFA, it would be helpful to have those statutory provisions be
more integrated into the overall statute.]
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e) Require notice to the Joint Budget Committee and the related
oversight policy committees when undertaking an alternative
funding source project including the source of the funding, the
public agency that is providing the capital, and legislative
reference, if appropriate.
f) Expand the existing CalCAP reporting requirement that relates
to small businesses to be expanded to include financing
activities related to the alternative funding source provisions.
g) Sunset the expanded authority on or before January 1, 2021.
7)Related Legislation: Below is a list of bills from the current and
prior sessions.
AB 826 (Gipson) Small Business Export Insurance: This bill
expands the types of financial products the Small Business
Finance Center, located within the California Infrastructure and
Economic Development Bank, may offer small business to include
insurance and co-insurance for the purpose of increasing export
activities. Status: Pending in the Assembly Committee on
Appropriations.
AB 850 (Nazarian) Publically Owned Utilities: 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
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customers' bills. While the bonds are issued by the local joint
power authorities, AB 850 included an additional state review
process by the California Pollution Control Financing Authority
(CPCFA). Status: Signed by the Governor, Chapter 636, Statutes
of 2013.
AB 901 (V. Manuel Pérez) Small Business Act Implementation:
This bill updates terms and makes clarifications to assist the
successful implementation of the federal and state small business
acts of 2010. Status: Signed by the Governor, Chapter 483,
Statutes of 2011.
AB 981 (Hueso) California Capital Access Program: This bill
modifies the California Capital Access Program (CalCAP),
administered through the California Pollution Control Finance
Authority (CPCFA), in order to encourage greater participation by
financial institutions in the small business credit program.
Status: Signed by the Governor, Chapter 484, Statutes of 2011.
AB 1632 (Blumenfield) Capitalization of the California Capital
Access Program: This bill provides the necessary statutory
changes in the area of job creation and small business
development in order to implement the 2010 Budget Act. The bill
transfers $32.4 million from the General Fund to support four
small-business and jobs programs that exist in current law. The
funding appropriated in this bill goes to the Small Business Loan
Guarantee Program ($20 million); California Capital Access Fund
($6 million); Small Business Development Centers ($6 million);
and the Federal Technology Centers ($350,000). Status: Signed
by the Governor, Chapter 731, Statutes of 2010.
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SB 225 (Simitian) California Capital Access Loan Program and
Truck Retrofit Financing: This bill authorizes the California
Pollution Control Financing Authority to establish a loss reserve
account program for the purposes of financing terminal rental
adjustment clause leases. Status: Signed by the Governor,
Chapter 492, Statutes of 2011.
SB 832 (Senate Committee on Environmental Quality): This bill
makes a number of changes to the program changes to the authority
and operations of the California Pollution Control Financing
Authority. Among other things, the bill modifies the terms
"project" and "pollution control facility", as defined in the
California Pollution Control Financing Authority Act that are
eligible for the sales and use tax exclusion and includes public
agencies in the definition of "participating parties" that are
eligible for financial assistance in connection with the projects
designed to control or eliminate environmental pollution. Status:
Signed by the Governor, Chapter 643, Statutes of 2009.
SB 1311 (Simitian) Loss Reserve Modification: This bill
reduces the monetary contribution of the California Pollution
Control Financing Authority to an amount equal to the amount of
fees paid by a participating financial institution. Also
provides that Authoirty may withdraw from the loss reserve
account all interest or other income that has been credited to
that account for the purpose offsetting administrative costs and
contributions. Status: Signed by the Governor, Chapter 401,
Statutes of 2008.
1)Double Referral: The Assembly Rules Committee has referred this
measure to the Assembly Committee on Banking and Finance (Banking)
and the Assembly Committee on Jobs, Economic Development and the
Economy. This measure passed Banking on an 11 to 0 vote.
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REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090