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