Amended in Senate April 4, 2016

Senate Bill No. 936

Introduced by Senator Hertzberg

(Coauthors: Senators begin delete Anderson end delete begin insert Anderson, Cannella, Huff, end insert and Wieckowski)

(Coauthors: Assembly Members begin delete Dodd and Hadley end delete begin insert Dodd, Cristina  end insert begin insert Garcia, Hadley, Irwin, Kim, and Rodriguez end insert )

February 2, 2016

An act to amend and repeal Sections begin delete 63089.61 end delete begin insert 63089.5, 63089.60, 63089.61, end insert and 63089.62 of the Government Code, relating to business.

LEGISLATIVE COUNSEL’S DIGEST

SB 936, as amended, Hertzberg. California Small Business Expansion Fund: corporate guarantees.

Existing law, the Small Business Financial Assistance Act of 2013, establishes the California Small Business Expansion Fund, a continuously appropriated fund that includes General Fund moneys. The act requires guarantees made by small business financial development corporations to be backed by funds on deposit in the corporation’s trust fund account or by receivables due from funds loaned from the corporation’s trust fund account to another fund in state government, as specified, and requires these loan guarantees to be secured by a reserve of at least 20%, until January 1, 2018, and 25% thereafter, as specified.

This bill would reduce the required reserve to 10% indefinitely and would make conforming changes with respect to related statements of legislative intent.

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Existing law prohibits the amount of guarantee liability outstanding at any one time from exceeding 5 times the amount of funds on deposit in the expansion fund plus any receivables due from funds loaned from the expansion fund to another fund in state government as, specified, until January 1, 2018, and 4 times thereafter.

end insert begin insert

This bill would increase that maximum amount to 10 times the amount of funds on deposit in the expansion fund plus any receivables due from funds loaned from the expansion fund to another fund in state government as, specified, would apply that increased amount indefinitely, and would make conforming changes.

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Section 63089.5 of the end insert begin insert Government Code end insert begin insert , as
added by Section 4 of Chapter 537 of the Statutes of 2013, is
amended to read: end insert

63089.5.  

(a) There is hereby continued in existence in the State
Treasury the California Small Business Expansion Fund. All or a
portion of the funds in the expansion fund may be paid out, with
the approval of the Department of Finance, to a financial institution
or financial company that will establish a trust fund and act as
trustee of the funds.

(b) The expansion fund and the trust fund shall be used for the
following purposes:

(1) To pay defaulted loan guarantee or surety bond losses, or
other financial product defaults or losses.

(2) To fund direct loans and other debt instruments.

(3) To pay administrative costs of corporations.

(4) To pay state support and administrative costs.

(5) To pay those costs necessary to protect a real property
interest in a financial product default.

(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government moneys,
and other public or private moneys to make loans, guarantees, and
other financial products that the California Small Business Finance
Center or a financial development corporation is authorized to
provide. The program manager shall provide written notice to the
Joint Legislative Budget Committee and to the Chief Clerk of the
Assembly and the Secretary of the Senate who shall provide a copy
of the notice to the relevant policy committees within 10 days of
any nonstate funds being deposited in the expansion fund. The
notice shall include the source, purpose, timeliness, and other
relevant information as determined by the bank board.

(d) (1) One or more accounts in the expansion fund and the
trust fund may be created by the program manager for corporations
participating in one or more programs authorized under this chapter
and Section 8684.2. Each account is a legally separate account,
and shall not be used to satisfy loan guarantees or other financial
product obligations of another corporation except when the
expansion fund or trust fund is shared by multiple corporations.

(2) The program manager may create one or more holding
accounts in the expansion fund or the trust fund, or in both, to
accommodate the temporary or permanent transfers of funds
pursuant to Section 63089.3.

(e) The amount of guarantee liability outstanding at any one
time shall not exceed begin delete five end delete begin insert 10 end insert times the amount of funds on deposit
in the expansion fund plus any receivables due from funds loaned
from the expansion fund to another fund in state government as
directed by the Department of Finance pursuant to a statute enacted
by the Legislature, including each of the trust fund accounts within
the trust fund.

begin delete

(f) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2018, deletes or extends that date.

end delete

begin insert

begin insert SEC. end insert begin insert 2. end insert   

end insert

begin insert Section 63089.5 of the end insert begin insert Government Code end insert begin insert , as amended
by Section 8 of Chapter 132 of the Statutes of 2014, is repealed. end insert

begin delete

63089.5.  

(a) There is hereby continued in existence in the State
Treasury the California Small Business Expansion Fund. All or a
portion of the funds in the expansion fund may be paid out, with
the approval of the Department of Finance, to a financial institution
or financial company that will establish a trust fund and act as
trustee of the funds.

(b) The expansion fund and the trust fund shall be used for the
following purposes:

(1) To pay defaulted loan guarantee or surety bond losses, or
other financial product defaults or losses.

(2) To fund direct loans and other debt instruments.

(3) To pay administrative costs of corporations.

(4) To pay state support and administrative costs.

(5) To pay those costs necessary to protect a real property
interest in a financial product default.

(c) The expansion fund and trust fund are created solely for the
purpose of receiving state, federal, or local government moneys,
and other public or private moneys to make loans, guarantees, and
other financial products that the California Small Business Finance
Center and a small business financial development corporation are
authorized to provide.

(d) One or more accounts in the expansion fund and the trust
fund may be created by the program manager for corporations
participating in one or more programs authorized under this chapter
and Section 8684.2. Each account is a legally separate account,
and shall not be used to satisfy loan guarantees or other financial
product obligations of another corporation except when the
expansion fund or trust fund is shared by multiple corporations.

(e) The amount of guarantee liability outstanding at any one
time shall not exceed four times the amount of funds on deposit
in the expansion fund plus any receivables due from funds loaned
from the expansion fund to another fund in state government as
directed by the Department of Finance pursuant to a statute enacted
by the Legislature, including each of the trust fund accounts within
the trust fund.

(f) This section shall become operative on January 1, 2018.

end delete

begin insert

begin insert SEC. end insert begin insert 3. end insert   

end insert

begin insert Section 63089.60 of the end insert begin insert Government Code end insert begin insert , as added
by Section 4 of Chapter 537 of the Statutes of 2013, is amended
to read: end insert

63089.60.  

(a) The program manager shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
program manager’s decision may be repealed or modified by the
executive director or the bank board.

(b) The amount of guarantee liability outstanding at any one
time shall not exceed begin delete five end delete begin insert 10 end insert times the amount of funds on deposit
in the expansion fund plus any receivables due from funds loaned
from the expansion fund to another fund in state government as
directed by the Department of Finance pursuant to a statute enacted
by the Legislature, including each of the trust fund accounts within
the trust fund.

begin delete

(c) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2018, deletes or extends that date.

end delete

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 63089.60 of the end insert begin insert Government Code end insert begin insert , as added
by Section 4 of Chapter 537 of the Statutes of 2013, is repealed. end insert

begin delete

63089.60.  

(a) The program manager shall recommend whether
the expansion fund and trust fund accounts are to be leveraged,
and if so, by how much. Upon the request of the corporation, the
program manager’s decision may be repealed or modified by the
executive director or the bank board.

(b) The amount of guarantee liability outstanding at any one
time shall not exceed four times the amount of funds on deposit
in the expansion fund plus any receivables due from funds loaned
from the expansion fund to another fund in state government as
directed by the Department of Finance pursuant to a statute enacted
by the Legislature, including each of the trust fund accounts within
the trust fund, unless the program manager has permitted a higher
leverage ratio for an individual corporation pursuant to subdivision
(b) of Section 63089.56.

(c) This section shall become operative on January 1, 2018.

end delete

begin delete SECTION 1. end delete

begin insert SEC. 5. end insert   

Section 63089.61 of the Government Code, as added
by Section 4 of Chapter 537 of the Statutes of 2013, is amended
to read:

63089.61.  

(a) The corporate guarantee shall be backed by
funds on deposit in the corporation’s trust fund account, or by
receivables due from funds loaned from the corporation’s trust
fund account to another fund in state government, as directed by
the Department of Finance pursuant to a statute enacted by the
Legislature.

(b) Loan guarantees shall be secured by a reserve of at least 10
percent to be determined by the program manager unless a higher
leverage ratio for an individual corporation has been approved
pursuant to subdivision (b) of Section 63089.56.

(c) The expansion fund and trust fund accounts shall be used to
guarantee obligations and other financial product obligations, to
pay the administrative costs of the corporations, and for other uses
pursuant to this chapter and Section 8684.2.

begin delete SEC. 2. end delete

begin insert SEC. 6. end insert   

Section 63089.61 of the Government Code, as added
by Section 4 of Chapter 537 of the Statutes of 2013, is repealed.

begin delete SEC. 3. end delete

begin insert SEC. 7. end insert   

Section 63089.62 of the Government Code, as added
by Section 4 of Chapter 537 of the Statutes of 2013, is amended
to read:

63089.62.  

(a) It is the intent of the Legislature that the
corporations make maximum use of their statutory authority to
guarantee loans and surety bonds, and administer other financial
products, including the authority to secure loans with a minimum
loan loss reserve of only 10 percent, unless the program manager
authorizes a higher leverage ratio for an individual corporation
pursuant to subdivision (b) of Section 63089.56, so that the
financing needs of small business may be met as fully as possible
within the limits of corporations’ trust fund account balance.

(b) Any corporation that serves an area declared to be in a state
of emergency by the Governor or a disaster area by the President
of the United States, the Administrator of the United States Small
Business Administration, or the United States Secretary of
Agriculture shall increase the portfolio of loan guarantees where
the dollar amount of the loan is less than one hundred thousand
dollars ($100,000), so that at least 15 percent of the dollar value
of loans guaranteed by the corporation is for those loans. The
corporation shall comply with this requirement within one year of
the date the emergency or disaster is declared. Upon application
of a corporation, the executive director may waive or modify the
rule for the corporation if the corporation demonstrates that it made
a good faith effort to comply and failed to locate lending
institutions in the region that the corporation serves that are willing
to make guaranteed loans in that amount.

begin delete SEC. 4. end delete

begin insert SEC. 8. end insert   

Section 63089.62 of the Government Code, as added
by Section 4 of Chapter 537 of the Statutes of 2013, is repealed.