BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 1537 Hearing Date: June 15,
2015
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|Author: |Committee on Jobs, Economic Development, and the |
| |Economy |
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|Version: |March 25, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Sarah Mason |
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Subject: Small Business Financial Assistance Act of 2013:
reports.
SUMMARY: Expands the reporting requirements of the California
Small Business Finance Center to include the geographic location
of businesses assisted by its programs.
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)Enacts the California Small Business Financial Development
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
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 2 of ?
the state, and to stimulate economic development, employment,
minority group, women, and disabled persons entrepreneurship.
(Corporations Code §§ 14000-14024)
3)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.)
4)Requires the I-Bank to submit a report to the Governor and
Legislature not later than November 1 of each year containing
information relating to the I-Bank fund and programs. (GC §
63035)
5)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
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)
6)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)
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 3 of ?
7)Requires the FDCs to report annually on their activities
financed through the Small Business Finance Center. (GC §
63089.97)
8)Requires the I-Bank to prepare an annual report to the
Governor and the Legislature that includes the information
provided by the FDCs. (GC § 63089.98)
This bill:
1) Adds a list by city and county of the number and dollar value
of all credit enhancements and debt instruments the
corporation entered into during the report year, and that are
outstanding at the close of the fiscal year to the reporting
requirements of FDCs to the Small Business Finance Center.
2) Adds geographic distribution by city and county of the direct
loans, guarantees, and other financial products awarded and
outstanding at the close of the fiscal year to the reporting
requirements of the I-Bank to the Governor and Legislature.
FISCAL EFFECT: This bill is keyed fiscal by Legislative
Counsel. According to the Assembly Committee on Appropriations
Committee analysis dated May 13, 2015, this bill will result in
absorbable costs to GO-Biz up to $100,000.
COMMENTS:
1. Purpose. This bill is sponsored by the Assembly Committee on
Jobs, Economic Development and the Economy (JEDE). According
to JEDE, when the small business finance development
corporations (FDCs) were initially designated, the
designation was for a geographic region. JEDE states that
today, the FDCs have varying geographic regions including
some that work statewide and that without more information on
their financing activities, it is difficult for the public
and Legislature to evaluate whether all areas of the state
are being served. Some FDCs serve small businesses across the
state or within larger and sometimes overlapping geographic
areas in the state. This change in program delivery
necessitates a change in reporting and this bill expands
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 4 of ?
reporting requirements for all programs offered through the
Small Business Finance Center, including the Small Business
Loan Guarantee Program, to include the city and county where
the business is located.
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
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 5 of ?
In California" program for the purpose of encouraging
consumer product awareness and to foster the purchases 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
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 6 of ?
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 $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. Small Business Loan Guarantee Program. The SBLGP enables a
small business to obtain a term loan or line of credit when
it cannot otherwise qualify for a loan on its own. The
state, working through 11 FDCs, offers direct loans or loan
guarantees that a qualifying small business borrower could
not otherwise obtain. Historically, the state has provided
for a portion of the FDCs administrative costs through an
annual payment that has ranged from $120,000 to $418,000 a
year. FDCs are paid an additional fee per loan based on a
percentage of the loan value.
Applicants must meet the definition of a small business (100
or fewer employees) with the specific market rate loan terms
and interest rates being negotiated between the borrower and
the lender. Proceeds of the loan must be used primarily in
California for any standard business purpose applicable to
the applicant's business. The guarantee program provides
guarantees covering up to 90% of the loan, but not exceeding
$500,000. The guarantee program allows a business to not
only obtain a loan but to also establish credit with a
lender. The business is then more likely to obtain
additional future financing on its own.
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 7 of ?
5. Small Business Jobs Act and Federal Guarantee Program.
According to information provided by JEDE, in October 2010,
Congress passed and the President signed the Small Business
Jobs Act (Jobs Act). Among other things, the Jobs Act
created the State Small Business Credit Initiative (SSBIC),
which is authorized to expend up to $1.5 billion for state
sponsored small business finance programs. Over the life of
the program, every federal dollar must be matched by $10
private sector dollars.
Under the funding formula, California is eligible to receive
up to $168 million, which is the largest amount of any state.
The next highest award is $97 million for Florida, with
every state that applies receiving a minimum of $13.1
million. March 31, 2017 is the deadline for reporting on all
SSBIC the funds. California has reached the threshold for
receiving all federal funding. According to the state
administering agency, there is no threat of a federal
claw-back of unused funds.
Funding is awarded to states in three tranches with
participating jurisdictions allowed to apply for the next
round of funding when 80% of their current funds are
expended. To date, California has received two of its three
allocations for a total of $110.8 million. Application to
the U.S. Treasury for the third and final tranche is expected
in April/May 2015.
California uses its moneys to capitalize the SBLGP
administered through the I-Bank and a loss reserve program
and collateral support program administered through the
California Pollution Control Financing Authority at the state
Treasurer's Office.
As of 12/31/14, California has encumbered $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 dollars allocated by
the U.S. Treasury.
In 2014, California encumbered $36.9 million of SSBCI funds.
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 8 of ?
Of this amount, approximately $12.9 million set aside to
cover loan guarantees; $2.2 million deposited with private
financial institutions through the CalCAP and $21.4 million
used for the collateral support program. In 2014, 1,630
loans were made to small businesses, which leveraged $192.6
million in private funds at a 19:1 ratio. Since inception,
$493.3 million in loans to small business were leveraged
(18:1 ratio). Since inception, 47,202 jobs have been created
(7,372) or retained (39,830) by the close of 2013. In 2014
job impacts were 2,228 new jobs and 13,931 retained jobs.
6. 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 201 (Holden, Chapter 529, Statutes of 2013) required the
director of the SBLGP to maintain a Web site that has
information on the programs administered through the
statewide network of small business FDCs.
AB 780 (Bocanegra) of 2013 would have appropriated $2 million
in General Fund monies to provide administrative support to
FDCs. ( Status: The bill was held in the Senate Committee on
Appropriations.)
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 2671 (Assembly Committee on Jobs, Economic Development and
the Economy, Chapter 648, Statutes of 2012) extended until
January 1, 2018, the sunset date on the maximum allowable
leverage of reserve funds necessary under the SBLGP.
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 9 of ?
AB 894 (V. Manuel Pérez, 2011) would have created the
California Manufacturing Competitiveness Loan and Loan
Guarantee Program to be administered by an advisory
commission within the State Treasurer's Office. ( Status: The
bill was vetoed by the Governor who stated that "the
objectives of this bill are excellent. However, the loan
programs it creates can be run by the state's Infrastructure
Bank, which already has authority and experience lending
directly to businesses.)
AB 901 (V. Manuel Pérez, Chapter 483, Statutes of 2011)
expanded the definition of financial institutions eligible to
participate in the California Capital Access Program (CalCAP)
and increased CalCAP reporting requirements.
AB 981 (Hueso, Chapter 484, Statues of 2011) provided
additional incentives within CalCAP to encourage lenders to
lend to small businesses.
AB 1556 (Assembly Committee on Jobs, Economic Development and
the Economy, 2010) would have required grantees of Community
Development Block Grant funds for local revolving loan
programs to contract with approved financial intermediaries.
( Status: The bill was held in the Assembly Committee on
Appropriations.)
AB 2437 (V. Manuel Pérez, 2010) would have established the
California Manufacturing Competitiveness Act of 2010 to
authorize the California Industrial Development Financing
Advisory Commission to make loans or lines of credit
available to companies, directly through a contract with a
participating financial institution. ( Status: The bill was
vetoed by the Governor who stated that the proper location of
program in the bill is GOED and the bill would create new
higher costs to employers as a result of the prevailing wage
requirements on projects financed under the bill.)
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
AB 1537 (Committee on Jobs, Economic Development, and the
Economy) Page 10 of ?
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 1431 (Arambula) of 2007 would have established the Early
Stage Investment Guarantee Program, administered by the SBLGP
to help small businesses attract private investors during the
early years of the businesses' growth. ( Status: The bill
was held in the Assembly Committee on Appropriations.)
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 9, 2015.
Opposition: None on file as of June 9, 2015.
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