BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1393 (Burke) - California Pollution Control Financing
Authority
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|Version: June 30, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 24, 2015 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1393 would expand the statutory authority of the
California Pollution Control Financing Authority (CPCFA) to
participate in alternative funding source programs, as
specified.
Fiscal
Impact: By authorizing new financing programs, this bill would
likely result in increased participation and loan activity. To
the extent that this bill resulted in nonabsorbable
administrative workload for CPCFA, costs would be funded through
interagency agreements, thereby increasing costs to those
participating agencies, and the associated special funds. The
AB 1393 (Burke) Page 1 of
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amount is unknown, but is potentially in the low hundreds of
thousands of dollars annually.
Background: Created in 1972, and located in the State Treasurer's Office,
CPCFA provides financial assistance for participating parties
seeking to build pollution control facilities. It administers
the following programs:
The "Cal Reuse" program, which issues low-interest loans
up to $500,000 to clean up contaminated sites.
The Rate Reduction Bond Program, which authorizes joint
power authorities to issue rate reduction bonds to finance
publicly owned utility projects until December 31, 2020
Conduit bond programs, whereby CPCFA issues bonds and
lends the proceeds to businesses to acquire, construct, or
install pollution control, waste disposal, and resource
recovery facilities.
The California Capital Access Program, (CalCAP), which
insures loans made by participating financial institutions
to small businesses. CalCAP is a form of loan portfolio
insurance which may provide up to full coverage on certain
loan defaults. Each lender is entirely liable for its loan
losses; however, those losses can be reimbursed from each
lender's loan loss reserve account, but the lender takes
losses once their specific reserve account is depleted.
The loss reserve accounts are built through contributions
made by the borrower, lender, and CPCFA.
Prior to 2010, CalCAP was funded from small business assistance
fees collected from its bond issuance; however, the Legislature
appropriated $6 million to the program from the General Fund in
2010. CalCAP loans can be used to buy land, construct or
renovate buildings, purchase equipment, and fund other projects
and working capital. Maximum loan amounts are $2.5 million. In
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recent years, CalCAP has grown significantly due to federal
funding under the State Small Business Credit Initiative: CPCFA
received $27.8 million in 2011, the same amount again in 2013,
and is likely to receive the same amount for the third time in
2015. In 2014, CalCAP recruited 10 new lenders to participate in
the various programs, and 43 lenders enrolled loans. CalCAP
lenders enrolled 3,491 loans totaling $247 million in 2014, an
increase of about 8 percent in the number of loans and 20
percent in the amount of money loaned compared with 2013.
CPCFA also administers a loan loss reserve program funded by the
Air Resources Board (ARB) to assist owners and operators of
small fleets of heavy-duty diesel trucks achieve early
compliance with ARB's Statewide Truck and Bus Regulation
designed to reduce diesel particulate matter emission.
Additionally, the California Energy Commission selected CPCFA to
provide financial incentives to both lenders and borrowers to
purchase and install electric vehicle charging stations at
California businesses. The program provides rebates to
borrowers who participate, and may provide lenders with up to
100 percent coverage on certain loan defaults.
Proposed Law:
This bill would (1) specify that CPCFA can provide financial
assistance in the form of loans, grants, credit enhancement, and
any other incentive to leverage private capital, and (2)
authorize CPCFA to provide loan loss reserves to any person,
company, corporation, public agency, partnership, or firm
engaged in activities in furtherance of a public or quasi-public
entity's policy objectives in the state that require financing.
As part of its participation with financial institutions to
provide loan loss reserves, the measure would allow CPCFA to
adopt the policies of those financial institutions, which it
must adopt publicly.
Staff
Comments: CPCFA is one of nine independent financing
authorities, is chaired by the State Treasurer, and was part of
the broader modernization of the State Treasurer's Office under
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Jesse Unruh. With the Tax Reform Act of 1986 and the rise in
the use of private activity bonds, CPCFA played a major role in
establishing a cost-effective means for using tax exempt bonds
to fund important pollution control projects and facilities.
More recently, however, pollution control private activity bonds
are not as much in demand and its own annual reports indicate
that CPCFA's work on brownfields has lessened. The most active
program at the CPCFA is CalCAP. This bill would leverage
CalCAP's current statutory authority and financing expertise to
help other public and private entities meet their respective
financing needs. In implementing these statutory changes, CPCFA
would obtain broad program authority in order to respond to
current and potential future financial opportunities.
CalCAP was statutorily established 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 percent of the default,
if the account has sufficient funds. 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.
The State Treasurer is sponsoring this bill to authorize CPCFA
to develop another financial arrangement with ARB. Specifically,
CPCFA would 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 bill would
provide CPCFA with greater program flexibility to assist the ARB
and other public and private entities. However, to the extent
that increased workload results, increased CPCFA administration
costs would be funded via interagency agreements, thus
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increasing costs to the corresponding partnering agencies, and
the special funds associated with programs whose activities are
funded through CPCFA..
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