BILL ANALYSIS Ó AB 2270 Page 1 Date of Hearing: April 27, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2270 (Bonta) - As Amended April 6, 2016 ----------------------------------------------------------------- |Policy |Jobs, Economic Development, |Vote:|9 - 0 | |Committee: |and the Economy | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 AB 2270 Page 2 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 AB 2270 Page 3 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 AB 2270 Page 4 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 AB 2270 Page 5 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