BILL ANALYSIS                                                                                                                                                                                                    Ó



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       Date of Hearing:  April 29, 2015


          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY


                                Eduardo Garcia, Chair


       AB 1533  
       (Committee on Jobs, Economic Development, and the Economy) As  
       Introduced March 24, 2015


       SUBJECT:  Infrastructure financing


       SUMMARY:  Makes a number of technical changes to the definition  
       section of the code relating to the Infrastructure and Economic  
       Development Bank (I-Bank).  In addition, the bill makes conforming  
       changes to the operation and programs of the small business financial  
       development corporations consistent with the Governor's Reorganization  
       Plan 2 (GRP 2) and other legislation from 2013.   


       EXISTING LAW:   


       1)Establishes the I-Bank within the Governor's Office of Business and  
         Economic Development (GO-Biz) and authorizes it to undertake a  
         variety of infrastructure related financial activities including,  
         but not limited to, the administration of a revolving loan fund,  
         oversight of the Small Business Finance Center, and the issuance of  
         tax-exempt and taxable revenue bonds.

       2)Establishes the Small Business Finance Center within the I-Bank for  
         the purpose of assisting businesses seeking capital resources not  
         otherwise available in the private markets including:









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          a)   Loan guarantees and other credit enhancements;

          b)   Direct loans and other debt instruments;

          c)   Disaster loan guarantees; and 

          d)   Surety bond guarantees.



       FISCAL EFFECT:   Unknown


       POLICY ISSUE FRAME:


       This is the I-Bank code maintenance bill from the Assembly Committee  
       on Jobs, Economic Development, and the Economy.  The bill contains  
       technical and conforming changes to prior legislative actions. 


       COMMENTS:   


       1)Updating Definitions:  Existing law includes an extended list of  
         definitions for the operation of the I-Bank including definitions  
         related to the types of:



              Financial actions the I-Bank is authorized to undertake  
            including bond purchase agreements, financial assistance, and  
            loan agreement



              Projects the I-Bank is authorized to finance including  
            economic development facilities, education facilities and public  
            development facilities.








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         AB 1533 reorganizes the placement of certain definitions, clarifies  
         some definitions, and updates cross references within the I-Bank's  
         definition code sections.


       1)Reorganization Update:  Over a decade ago, California received $2  
         million from the federal Economic Development Agency through an  
         Economic Adjustment Assistance Grant, which funds  
         economically-distressed communities, and the Sudden and Severe  
         Economic Dislocation Grant Program, which provides capital to  
         businesses in economically-distressed areas. 
          


         In 2008 the federal funds were deposited in the Small Business  
         Expansion Fund and the Business, Transportation, and Housing Agency  
         (BTH) was given oversight responsibility.  GRP 2, submitted to the  
         Legislature in 2012, eliminated BTH.  The technical clean-up bills  
         to GRP2 transferred the California Small Business Expansion Fund  
         (including the federal funds) to the I-Bank and the program  
         authority to oversee the federal funds to I-Bank's parent agency,  
         GO-Biz.  


          


         AB 1533 proposes a more streamlined organization structure for the  
         federal funds by authorizing the I-Bank to oversee both the money  
         and program implementation responsibility.  According to the Author,  
         this shift is recommended because the:













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              I-Bank already operates under the purview of GO-Biz, meaning  
            GO-Biz will still have oversight



              I-Bank already has authority to provide direct loans and  
            guarantees to businesses seeking capital, meaning they are well  
            equipped to appropriately expend the funds



              I-Bank already has primary responsibility for the funds in the  
            California Small Business Expansion Fund 



       1)Infrastructure and the Economy:  World class infrastructure plays a  
         key role in business attraction, as multinational companies  
         consistently rank the quality of infrastructure among their top four  
         criteria in making investment decisions.  Research shows that U.S.  
         infrastructure has been in decline while infrastructure in other  
         countries is rapidly increasing.  The 2012-13 Global Competitiveness  
         Report by the World Economic Forum places U.S. infrastructure 25th  
         in the world, down from 23rd in 2010 and 7th in 2000.  



         California's 2013 Infrastructure Report Card by the American Society  
         for Civil Engineers estimates that California's annual unfunded  
         infrastructure investment is $65 billion.  The impact of this lack  
         of investment is compounded by the substantial new infrastructure  
         investments made in other states and nations, including the  
         expansion of the Panama Canal. 





         Since the 1980's infrastructure to support economic development  








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         activities has focused on supporting specific areas of "industry  
         clusters" where multiple firms and organizations working in the  
         same, or similar, fields draw on each other's discoveries, products,  
         and in some cases workforces leading to a highly focused and  
         productive innovation center with prodigious output.  Silicon Valley  
         and Hollywood are archetypical examples, specializing in electronics  
         and cinema, respectively.





         Globalization is changing the economic paradigm, which makes the  
         linkages between regional economies more relevant and comparative  
         advantages are increasingly based on the quality and efficiency of  
         the technologies that link the location with other areas of the  
         world.  


       2)Background on the I-Bank:  The I-Bank was established in 1994 to  
         promote economic revitalization, enable future development, and  
         encourage a healthy climate for jobs in California.  Housed within  
         GO-Biz, it is governed by a five-member board of directors comprised  
         of the Director of GO-Biz (chair), the State Treasurer, the Director  
         Department of Finance, the Transportation Agency, and a Governor's  
         appointee.  The day-to-day operations of the I-Bank are directed by  
         the Executive Director who is an appointee of the Governor and is  
         subject to confirmation by the California State Senate.  Currently,  
         the I-Bank has authority for 25 staff members.
         The I-Bank does not receive any ongoing General Fund support, rather  
         it is financed through fees, interest income and other revenues  
         derived from its public and private sector financing activities.   
         According to its Comprehensive Annual Financial Report for the  
         fiscal year ended June 2013, its programs continued to provide  
         revenues sufficient to cover operating expenses.  












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         The I-Bank administers three programs:  (1) the Infrastructure State  
         Revolving Fund which provides direct low-cost financing to public  
         agencies for a variety of public infrastructure projects; (2) the  
         Conduit Bond Program which provides financing for manufacturing  
         companies, public benefit nonprofit organizations, public agencies  
         and other eligible entities; and (3) the Small Business Finance  
         Center which helps small businesses access private financing through  
         loan guarantees, direct loans, and performance bond guarantees.   
         There is no commitment of I-Bank or state funds for any of the  
         conduit revenue bonds.  Even in the case of default, the state is  
         not liable.





         Since its creation in 1994, the I-Bank has loaned, financed, or  
         participated in over $34 billion in infrastructure and economic  
         expansion projects.  This includes over $400 million to local and  
         state agencies, developing a high-level of expertise in the  
         financing of public infrastructure.  The I-Bank also serves as the  
         state's only general purpose financing authority with broad  
         statutory powers to issue revenue bonds, make loans, and provide  
         guarantees.  Over $33 billion in conduit revenue bonds have been  
         issued by the I-Bank since 2000.  





       3)Related Legislation:  Below is a list of related legislation from  
         current and previous legislative sessions:



          a)   AB 311 (V. Manuel Pérez) I-Bank California-Mexico Border  
            Assistance:  This bill would have expanded the role of the I-Bank  
            to include facilitating infrastructure and economic development  








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            financing activities within the California and Mexico border  
            region.  The bill would have also made related technical changes  
            to the definitions of eligible projects.  Status:  Died in the  
            Assembly Committee on Appropriations, 2014.

          b)   AB 1247 (Medina and Bocanegra) Small Business Finance Center:   
            This bill establishes the California Small Business Finance  
            Center at the I-Bank, within the Governor's Office of Business  
            and Economic Development, and transfers the authority to  
            administer the small business loan guarantee program and other  
            related programs to the I-Bank.  Status:  Signed by the Governor,  
            Chapter 537, Statutes of 2013.    
       


       REGISTERED SUPPORT / OPPOSITION:




       Support                              Opposition


       None received                        None received







       


       Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090












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