BILL ANALYSIS Ó
AB 2270
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Date of Hearing: April 27, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2270 (Bonta) - As Amended April 6, 2016
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|Policy |Jobs, Economic Development, |Vote:|9 - 0 |
|Committee: |and the Economy | | |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill expands the existing authority of the California
Infrastructure and Economic Development Bank (I-Bank) to
maintain a surety bond program. Specifically, this bill:
1)Prohibits a corporation from guaranteeing a surety bond unless
it is determined there is a low probability that a financial
institution or private bonding company would grant a bond and
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the beneficiary demonstrates reasonable prospect of project
completion.
2)Expands those entities for which a corporation may act as a
guarantor on a surety bond to include disadvantaged business
enterprise contractors.
3)Requires the I-Bank to provide technical assistance to
contractors, including, assessments by surety and construction
experts; business plan development; workshops addressing
contractor bonding, bidding, job safety, and other topics that
would be beneficial to the participating contractor;
identification of, and assistance in obtaining, other
financial support and resources.
4)Authorizes the I-Bank to do the following with regard to
implementing a surety bond program:
a) Assign all or part of the surety program to another
state entity that agrees to implement the program
consistent with this bill and directives and requirements
adopted by the bank. If the I-Bank assigns all or a part of
the program to another state entity, the bank continues to
be responsible for reporting on the use and outcomes of the
program.
b) Establish one or more pilot projects before approving
directives and guidelines for a statewide surety bond and
small contractor assistance program.
c) Establish one or more non-state contracts, to the extent
deemed necessary by the I-Bank, based on there being an
insufficient number of corporations interested in, and
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qualified to, implement a surety bond program, including
the provision of technical assistance. Requires these
contractors to be subject to the applicable reporting
requirements of this bill and any other directive or
requirement set by the I-Bank
FISCAL EFFECT:
1)Ongoing General Fund costs of approximately $1.1 million for
the I-Bank to administer the program. These costs represent
$150,000 for one staff loan officer at the I-Bank and $861,000
for I-Bank to contract with the Financial Development
Corporations (FDCs) to administer the program and provide
statewide technical assistance. This arrangement is similar to
the General Fund support the I-Bank receives to administer the
Small Business Loan Guarantee Program (SBLGP).
2)One-time General Fund appropriation of at least $10 million in
order to guarantee the surety bonds. As a point of comparison,
the state dedicates $30 million to support the SBLGP.
COMMENTS:
1)Purpose. A surety bond is a three-party financial agreement
between a surety, the contractor, and the project owner, in
this case the state. The agreement binds the contractor to
comply with the terms and conditions of a contract. If the
contractor is unable to successfully perform the contract, the
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surety institution assumes the contractor's responsibilities
and completes the project.
According to the author, bonding is difficult for small
contractors to obtain. This bill is intended to help small,
disadvantaged, women, minority and disabled-veteran-owned
("target") business contractors overcome the bonding barrier
and in turn sustainably grow their businesses. By providing
technical assistance and collateral support for small
construction businesses hampered by lack of access to bonding,
the author states this bill will positively benefit
participating contractors, as well as the state agencies,
prime contractors, prospective workers they will employ and
the general economy.
2)Federal surety guarantee. The federal Small Business
Administration (SBA) offers a surety bond guarantee program
for small and emerging contractors that cannot otherwise
obtain surety bonds through regular commercial channels. The
SBA guarantee covers contracts up to $2 million. A contractor
applying for an SBA surety guarantee must qualify as a small
business, in addition to meeting specific eligibility criteria
for surety bonding.
3)Comments. The Governor's Office of Business and Economic
Development (GO-Biz) oversees the I-Bank which administers the
California Small Business Finance Center. The California Small
Business Finance Center administers programs to assist
businesses seeking new capital resources, including, but not
limited to, the SBLGP. The state currently has the authority
to operate a surety bond guarantee program through the Small
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Business Center at the I-Bank, but the bank does not currently
offer these guarantees. Funding for technical assistance and
collateral capitalization would be needed for the I-Bank to
provide these services.
4)Prior legislation.
a) AB 484 (Gipson) of 2015, proposed to authorize the Small
Business Finance Center, administered through the I-Bank,
to include insurance, coinsurance, and other forms of
surety among the types of financial products included in
programs administered by the I-Bank. This bill was held on
the Suspense file in this committee.
b) AB 1695 (Bass) of 2007 proposed to activate the Surety
Bond Guarantee Account, administered by the Small Business
Loan Guarantee Program, for the purpose of providing surety
bond guarantees for small businesses that provide services
on state and federally funded transportation projects. This
bill was held on the Suspense file in this committee.
Analysis Prepared by:Misty Feusahrens / APPR. / (916)
319-2081