BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2270 (Bonta) - California Infrastructure and Economic
Development Bank: surety bond program
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|Version: May 27, 2016 |Policy Vote: B., P. & E.D. 8 - |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2270 would modify an existing statewide surety bond
guarantee program for small business contractors within the
California Infrastructure and Economic Development Bank
(I-Bank).
Fiscal
Impact: The Governor's Office of Business and Economic
Development (GO-Biz) indicates that it would incur ongoing
General Fund costs of approximately $1.1 million for the I-Bank
to administer the program. Additionally, the bill would result
in a
one-time General Fund appropriation of at least $10 million in
order to guarantee the surety bonds.
AB 2270 (Bonta) Page 1 of
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Background: GO-Biz oversees the I-Bank, which administers the California
Small Business Finance Center (Center). The 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 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.
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 surety institution
assumes the contractor's responsibilities and completes the
project.
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.
Proposed Law:
This bill would do all of the following:
Expand and add specificity to an existing small business
contractor program (Program), which offers surety bond
guarantees to help businesses in obtaining surety bonds
through the private market.
Specifically identify disadvantaged business enterprises
as eligible applicants for the Program. Current law
authorizes any small business contractor, including, but
not limited to, women, minority, and disabled veteran
businesses as eligible applicants.
AB 2270 (Bonta) Page 2 of
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Authorize I-Bank to (1) assign all or part of the
Program to another state entity, but require I-Bank to
retain responsibility for reporting on the use and outcomes
of the Program, (2) establish one or more pilot projects
before adopting guidelines for a statewide Program, and (3)
establish new contractor relationships for the purpose of
implementing the Program, as specified.
Require that the Program include technical assistance,
as specified.
Related
Legislation:
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
under submission on the Suspense file of the Assembly
Appropriations Committee.
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 under submission on the Suspense file of the
Assembly Appropriations Committee.
Staff Comments: As noted previously, GO-Biz indicates that this
bill would result in ongoing General Fund costs of approximately
AB 2270 (Bonta) Page 3 of
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$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).
Additionally, the bill would result in a 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.
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