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  







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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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