BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 1533 Hearing Date: July 6, 2015 ----------------------------------------------------------------- |Author: |Committee on Jobs, Economic Development, and the | | |Economy | |----------+------------------------------------------------------| |Version: |May 13, 2015 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Sarah Mason | |: | | ----------------------------------------------------------------- Subject: Infrastructure financing. SUMMARY: Revises the definition of economic development facilities and port facilities for purposes of the Bergeson-Peace Infrastructure and Economic Development Bank Act and authorizes the California Infrastructure and Economic Development Bank to administer and expend certain federal funds. Existing law: 1)Establishes GO-Biz within the Governor's Office for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. GO-Biz also serves as the administrative oversight for the California Business Investment Service and the Office of the Small Business Advocate. (Government Code (GC) §§ 12096 - 12098.5) 2)Requires the Director of GO-Biz to administer the Economic Adjustment Assistance Grant (Assistance Grant) funded through the United States Economic Development Administration under Title IX of the Public Works and Economic Development Act of 1965 (Grant No. 07-19-02709 and 07-19-2709.1). (GC § 12098.7) 3)Enacts the California Small Business Financial Development AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 2 of ? Corporation Law (FDC Law) with the intention of promoting the economic development of small businesses by making available capital, general management assistance, and other resources, including loan services, personnel, and business education to small business entrepreneurs, including women and minority owned businesses, for the purpose of promoting the health, safety, and social welfare of the citizens of California, to eliminate unemployment of the economically disadvantaged of the state, and to stimulate economic development, employment, minority group, women, and disabled persons entrepreneurship. (Corporations Code §§ 14000-14024) 4)Authorizes under the Bergeson-Peace Infrastructure and Economic Development Bank Act (Act) the creation of the Infrastructure and Economic Development Bank (I-Bank) within GO-Biz, to promote economic revitalization, enable future development, and encourage a healthy climate for jobs in California. (GC § 63000 et seq.) 5)Defines "Economic development facilities" for purposes of the Act as real and personal property, structures, buildings, equipment, and supporting components thereof that are used to provide industrial, recreational, research, commercial, utility, or service enterprise facilities, community, educational, cultural, or social welfare facilities and any parts or combinations thereof, and all facilities or infrastructure necessary or desirable in connection therewith, including provision for working capital, but shall not include any housing. (GC § 63010 (g)) 6)Defines "Executive director" as the Executive Director (ED) of the I-Bank. (GC § 63010 (i)) 7)Defines "Port facilities" for purposes of the Act as docks, harbors, ports of entry, piers, ships, small boat harbors and marinas, and any other facilities, additions, or improvements in connection therewith. (GC § 63010 (q) (7)) 8)Enacts the Small Business Financial Assistance Act of 2013 and 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 AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 3 of ? including: a) Loan guarantees and other credit enhancements; b) Direct loans and other debt instruments; c) Disaster loan guarantees; and d) Surety bond guarantees. (GC §§63088-63089.98) 9)Establishes the California Small Business Expansion Fund (Expansion Fund) for the purpose of retaining the moneys which separately capitalize the Small Business Loan Guarantee Program (SBLGP) and paying out defaulted loan guarantees issued under the SBLGP. States findings and declarations that the SBLGP has enabled participating small businesses that do not qualify for conventional business loans or Small Business Administration loans to secure funds to expand their businesses. These small businesses would not have been able to expand their businesses in the absence of the program. The program has also provided valuable technical assistance to small businesses to ensure growth and stability. (GC § 63089.70) This bill: 1) Adds "goods movement" to the definition of economic development facilities above. 2) Adds "railports" to the definition of port facilities above. 3) Defines "goods movement-related infrastructure" for purposes of public development facilities under the Act as port facilities, roads, rail and other facilities and projects that move goods, energy and information. 4) Shifts administration of the Assistance Grant from GO-Biz to the I-Bank. 5) Makes other technical changes. AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 4 of ? FISCAL EFFECT: This bill is keyed "fiscal" by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated May 27, 2015, this bill will result in administrative costs to the I-Bank, not likely to exceed $150,000, to administer grant funds as specified. COMMENTS: 1. Purpose. The Author is the Sponsor of this bill. According to the Author, over a decade ago, California received $2 million from the federal Economic Development Agency through an Economic Adjustment Assistance Grant, which provides funding to serve economically-distressed communities, and the Sudden and Severe Economic Dislocation Grant Program, which provides capital to businesses in economically-distressed areas. According to the Author, in 2008 the federal funds were deposited in the Small Business Expansion Fund and the then-Business, Transportation, and Housing Agency (BTH) was given oversight responsibility. The Governor's Reorganization Plan (GRP) 2, submitted to the Legislature in 2012, eliminated the BTH. The technical clean-up bills to GRP2 transferred the California Small Business Expansion Fund (including the federal funds) and the program authority to oversee the federal funds to the I-Bank's parent agency, the Governor's Office of Business and Economic Development (GO-Biz). According to the Author, at the same time that the GRP2 bills were going through, AB 1247 passed. This established the Small Business Finance Center at the I-Bank and transferred the Small Business Expansion Fund to the I-Bank which resulted in the Expansion Fund being under the I-Bank and the program authority being under GO-Biz. According to the Author, AB 1533 proposes a more streamlined organization structure for the federal funds by directing the I-Bank to oversee the money and program implementation responsibility. The Author states that the shift is recommended because the I-Bank already operates under the purview of GO-Biz, meaning GO-Biz will still have oversight; the 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 and; the AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 5 of ? I-Bank already has primary responsibility for the funds in the California Small Business Expansion Fund 2. Governor's Office of Business and Economic Development (GO-Biz). In February 2010, the Little Hoover Commission undertook a review of the state's economic and workforce development programs. In its final report, Making up for Lost Ground: Creating a Governor's Office of Economic Development, it analyzed the status and effectiveness of current programs since the 2003 demise of the Technology, Trade and Commerce Agency and recommended the creation of a new governmental entity to fill the void left by the dismantled agency. The report called for a single entity that would promote greater economic development, foster job creation, serve as a policy advisor and deliver specific services (i.e., permitting, tax, regulatory, and other information) directly to the California business community. In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED). In October 2011, the Governor signed AB 29 (cited and described below), which effectively codified GOED and changed its name to GO-Biz, effective January 1, 2012. Since its inception, the office has served over 3,000 businesses, 95% of which are small. The most frequent types of assistance include help with permit streamlining, starting a businesses, relocation and expansion of businesses, and regulatory challenges. In March 2012, the Governor initiated a reorganization process to realign the state's administrative structure. Key changes include dismantling of the Business, Transportation and Housing Agency (BTH) and the shifting of a number of key programs and services to GO-Biz including the Small Business Loan Guarantee Program, the California Travel and Tourism Commission, the California Film Commission, the Film California First Program and the Infrastructure and Economic Development Bank (I-Bank). GO-Biz also administers the "Made in California" program for the purpose of encouraging consumer product awareness and to foster the purchases of AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 6 of ? products manufactured in California. GO-Biz now has authority for undertaking international trade and foreign investment activities, including establishing any international trade and investment office ( AB 2012 , Perez, Statutes of 2012). GO-Biz has partnered with the Bay Area Council to open a California-China Trade and Investment office in Shanghai's downtown Yangpu district and is authorized under current law to accept private monies to establish, fund and operate these offices. In 2013, the Governor signed AB 1247 (Medina and Bocanegra, Chapter 537, Statutes of 2013) establishing a Small Business Finance Center within the I-Bank. Among other programs, the Small Business Finance Center offers direct loans, loan guarantees, letters of credit and surety bond guarantees and the I-Bank Board of Directors has the authority to approve new debt and credit enhancement programs to assist small businesses meet changing market needs. 3. 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), State Treasurer, Director Department of Finance, 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. 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 AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 7 of ? 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 $344 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. 4. Related Legislation This Year. AB 1537 (Assembly Committee on Jobs, Economic Development and the Economy) expands the reporting requirements of the California Small Business Finance Center to include the geographic location of businesses assisted by its programs. ( Status: The measure is pending in the Senate Committee on Appropriations.) 5. Prior Related Legislation. AB 2749 (Assembly Committee on Jobs, Economic Development and the Economy, Chapter 132, Statutes of 2014) made technical changes to the Government Code relating to the transfer of economic development related programs from the Business, Transportation and Housing Agency (BTH) to GO-Biz. AB 1247 (Medina, Chapter 537, Statutes of 2013) transferred the administration of the small business FDC managed programs from BTH to the California Infrastructure and Economic Development Bank (I-Bank) within GO-Biz. AB 2523 (Hueso) of 2012 authorized the I-Bank to enter into participation loan agreements and syndicated loan agreements with financial institutions for loans they make to small businesses. ( Status: The bill was held in the Senate Committee on Appropriations.) AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 8 of ? AB 1104 (Aghazarian, Chapter 624, Statutes of 2007) extended the authority of the Expansion Fund through a FDC to make small business loan guarantees in an area affected by a state of emergency within the state and declared a disaster by the President of the United States, or by the Administrator of the federal SBA, or by the United States Secretary of Agriculture. The bill also modified the provision authorizing the executive director of the Expansion Fund to request a trustee of a trust fund to invest funds in securities issued by the United States Treasury. AB 1695 (Bass) of 2007 would have appropriated $40 million from the State Highway Account to be placed within a newly created Surety Bond Guarantee Account within the Expansion Fund and required the FDC Director to establish and administer a surety bond guarantee account within to assist small contractors with obtaining the necessary bond and liability guarantees they need to compete for state infrastructure projects. ( Status: The bill was held in the Assembly Committee on Appropriations.) AB 3057 (Assembly Committee on Jobs, Economic Development and the Economy, 2006) would have extended the sunset from January 1, 2007 to January 1, 2012 on the Director of DOF's authority to transfer moneys in the Special Fund for Economic Uncertainties to the Expansion Fund, and made other technical changes. ( Status: The bill was held in the Senate Committee on Appropriations.) SUPPORT AND OPPOSITION: Support: None on file as of June 30, 2015. Opposition: None on file as of June 30, 2015. -- END -- AB 1533 (Committee on Jobs, Economic Development, and the Economy) Page 9 of ?