Amended in Assembly June 29, 2016

Amended in Assembly June 2, 2016

Amended in Senate April 4, 2016

Senate Bill No. 936

Introduced by Senator Hertzberg

(Coauthors: Senators Anderson, Cannella, Huff, and Wieckowski)

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

February 2, 2016

An act to amend begin insert Section 63089.1 of, and to amend end insert and repeal Sections 63089.5, 63089.60, 63089.61, and 63089.62 begin delete of end delete begin insert of, end insert 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.

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 begin delete government as, end delete begin insert government, as end insert specified, until January 1, 2018, and 4 times thereafter.

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 begin delete government as, end delete begin insert government, as end insert specified, would apply that increased amount indefinitely, and would make conforming changes.

begin insert

Existing law requires the program manager under the guidance of the executive director of the California Infrastructure and Economic Development Bank, to, among other things, authorize the distribution, transfer, and withholding of moneys in the expansion fund and trust funds.

end insert begin insert

This bill would also require the program manager to leverage moneys in the expansion fund and trust funds.

end insert

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

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

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 63089.1 of the end insert begin insert Government Code end insert begin insert is
amended to read: end insert

63089.1.  

(a) The program manager acting under the guidance
of the executive director shall do all of the following:

(1) Administer this chapter.

(2) Enter into a contract between the bank and each corporation
for services to be provided by the corporations for one or more
programs or financial products under this chapter and Chapter 1
(commencing with Section 14000) of Part 5 of Division 3 of Title
1 of the Corporations Code.

(3) In accordance with available resources, allow the use of
branch offices for the purposes of making these programs under
this chapter accessible to all areas of the state.

(4) Require each corporation to submit an annual written plan
of operation.

(5) Authorize the distribution, transfer, begin insert leverage, end insert and
withholding of moneys in the expansion fund and trust funds.

(6) Authorize the investment of expansion and trust fund
moneys.

(7) Oversee the operations of one or more programs authorized
pursuant to this chapter and by Section 8684.2.

(8) Act as liaison between corporations, other state and federal
agencies, lenders, and the Legislature.

(9) Act as secretary to the California Small Business Board, and
attend meetings of the California Small Business Board and the
bank board.

(b) The program manager may attend and participate at
corporation meetings. The program manager or his or her designee
shall be an ex officio, nonvoting representative on the board of
directors and loan committees of each corporation. The program
manager shall confer with the board of directors of each corporation
as appropriate and necessary to carry out his or her duties, but in
no case shall the program manager confer less than once each fiscal
year.

(c) In accordance with available resources, assist corporations
in applying for public and private funding opportunities, and in
obtaining program support from the business community.

begin delete SECTION 1. end delete

begin insert SEC. 2. end insert   

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

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 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
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 SEC. 2. end delete

begin insert SEC. 3. end insert   

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

begin delete SEC. 3. end delete

begin insert SEC. 4. end insert   

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

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 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
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 SEC. 4. end delete

begin insert SEC. 5. end insert   

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

begin delete SEC. 5. 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 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. 6. end delete

begin insert SEC. 7. 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. 7. 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 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. 8. end delete

begin insert SEC. 9. end insert   

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