BILL ANALYSIS
AB 1556
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Date of Hearing: January 6, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 1556 (Economic Development Committee) - As Amended: January
4, 2010
SUBJECT : Community Development Block Grants
SUMMARY : Requires grantees of Community Development Block
Grant (CDBG) funds for local revolving loan programs to contract
with approved financial intermediaries. Specifically, this bill :
1)Makes several declarations of legislative intent and findings
relating to small cities and counties receiving federal CDBG
money. Gives a short description of criteria that Housing and
Community Development (HCD) should consider when certifying an
approved financial intermediary.
2)Defines "approved financial intermediary" to mean a nonprofit
organization, government office, or a financial development
corporation with direct lending experience and is certified by
HCD to underwrite and administer a revolving loan fund for one
or more eligible city or county jurisdictions. The financial
intermediary may be an employee of the grantee, consultant, or
economic development lending organization procured and
contracted by the grantee.
3)Requires HCD to require cities and counties receiving funds to
operate local revolving loan programs to contract with an
approved financial intermediary to manage and/or administer
these revolving loan fund moneys.
4)Requires HCD to maintain records of the approved financial
intermediaries.
EXISTING LAW :
1)Designates HCD as the administrator of the small cities
portion of the federal CDBG program.
2)Provides Legislative intent that funds be provided to small
and rural counties to encourage new housing and meet local
economic development and needs.
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3)Requires HCD to allocate no less than 51% of CDBG funds for
providing or improving housing opportunities to low or
moderate income households.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose: According to the author, this bill would provide
flexibility to the small cities portion of the federal CDBG
Program and would allow that CDBG grant money could be
disbursed more quickly to local economic development projects.
During these hard economic times the ability to begin
economic development projects more quickly will help put
people back to work and revitalize the area sooner.
Concerns have been raised that small businesses have had to
contend with extended due diligence periods as loans were
sometimes underwritten at both the state and local level. HCD
has stated that they have been concerned that some local
jurisdictions did not have the technical capacity to review
loans. This bill addresses both the small business need for
faster loan processing and HCD's concern for having qualified
individuals review loan proposals.
2) California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with less than 100 employees comprise more than 99%
of all businesses and are responsible for employing more than
57% of all workers in the state.
As an example, small- and medium-sized businesses are crucial
to the state's international competitiveness and are an
important means for dispersing the positive economic impacts
of trade within the California economy. Of the over 52,000
companies that exported goods from California in 2006, 95%
were small- and medium-sized enterprises (SME) with fewer than
500 employees. These SMEs generated nearly half (44%) of
California's exports in 2006. Nationally, SMEs generated only
29% of total exports.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
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nation's economic downturn from 1999 to 2003, microenterprises
(businesses with less than five employees) created 318,183 new
jobs or 77% of all employment growth, while larger businesses
with more than 50 employees lost over 444,000 jobs. From 2000
to 2001, microenterprises created 62,731 jobs in the state,
accounting for nearly 64% of all new employment growth.
Unfortunately during the current recession, small business
have been especially hard hit with small business bankruptcies
up 81% for the 12 months ending September 2009, as compared to
the same period in the previous year. Nationally, bankruptcy
filings were up 44%, according to Equifax Inc.
Because of their importance in the state economy, small
business issues have been a particular focus of the Assembly
Committee on Jobs, Economic Development and the Economy (JEDE)
for the past several years. In March 2009, JEDE produced a
state economic recovery strategy that included several key
recommendations on the needs of small business, including
helping small businesses meet their short term capital needs.
In May 2009, JEDE held a special hearing to learn more about
how the recession was impacting small businesses and in
October, JEDE's review of the California Enterprise Zone
Program included a panel on how the program related to needs
of small business.
3) Community Development Block Grant Program : The CDBG Program
was established by federal law in 1974. Large and medium
sized municipalities are provided with allocations from the
federal Housing and Urban Development Department. States
administer allocations for the CDBG program for smaller cities
and counties on a competitive basis. California's small
cities CDBG program is administered by the Department of
Housing and Community Development. This state program
provides funding to counties with fewer than 200,000 residents
in unincorporated areas and cities with fewer than 50,000
residents that are not participants in the federal CDBG
Program.
The chart below presents recent proposed budget information
for the state's small cities CDBG Program.
--------------------------------------------------------------
| Small Cities Community Development Block Grant |
--------------------------------------------------------------
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|---------+------------+------------+------------+------------|
| Fiscal | Staffing | Total |Administrati| Local |
| Year | (PYs) | Funding | ve | Assistance |
|---------+------------+------------+------------+------------|
| | | (in | | (in |
| | | thousands) | | thousands) |
|---------+------------+------------+------------+------------|
| | N/A | $57,834 | N/A | $54,869 |
| 2005/06 | | | | |
| | | | | |
|---------+------------+------------+------------+------------|
| " | | | | |
|---------+------------+------------+------------+------------|
| | N/A | $63,868 | N/A | $60,000 |
| 2006/07 | | | | |
| | | | | |
|---------+------------+------------+------------+------------|
| " | | | | |
|---------+------------+------------+------------+------------|
| | N/A | $64,219 | N/A | $60,000 |
| 2007/08 | | | | |
| | | | | |
|---------+------------+------------+------------+------------|
| | | | | |
|---------+------------+------------+------------+------------|
| 2008/09 | NA | | NA | ? |
|---------+------------+------------+------------+------------|
| | | | | |
|---------+------------+------------+------------+------------|
| Federal | NA | | NA | |
|Stimulus | | | | |
-------------------------------------------------------------
The primary objective of the CDBG Program is the development
of viable communities through the provision of decent housing
and suitable living environments, and by expanding economic
opportunities. Pursuant to federal law, at least 51% of a
CDBG project's beneficiaries must have incomes less than 80%
of the area median income. This is known as the Targeted
Income Group.
Each year the CDBG Program makes funds available to eligible
jurisdictions through several allocations, including:
General, Native American and Colonias; Economic Development -
Over the Counter; Economic Development - Enterprise; and
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Planning and Technical Assistance allocations.
General, Native American and Colonias Allocations : The
General, Native American and Colonias allocation is the
largest component of the CDBG program. One and one quarter
percent of state CDBG Program funds are awarded to projects
serving Native Americans who do not belong to a federally
recognized tribe or rancheria. Five percent is awarded to
non-entitlement California communities (colonias) located
within 150 miles of the California-Mexico border. Most of the
funds in this allocation are spent for housing, community, and
economic development projects serving lower-income households
in small, typically rural communities.
Economic Development - Enterprise Fund : This allocation is
intended to capitalize local businesses through grants and
revolving loan funds that provide working capital or provide
infrastructure assistance to businesses that create or
preserve private sector jobs for low and very low income
population. Grants and loans can be made up to $500,000.
Loan terms and conditions can be tailored to meet the
financial needs of each business.
Economic Development - Over the Counter : This allocation is
intended to capitalize a local business loan or finance a
public infrastructure project which will promote business
expansion and result in the creation and/or retention of
permanent private sector jobs. Eligible uses of funds include
business loans and grants to cities and towns for purchase of
land and existing improvements, construction and
rehabilitation of buildings and leasehold improvements,
purchase of equipment, inventory, furniture, fixtures,
materials and supplies, and working capital. Grants can be
made up to $500,000.
Planning and Technical Assistance : The grants made under this
allocation are available for both general and economic
development activities. The grants are intended to help
communities move projects from concept to reality. A total of
$70,000 is available annually to each eligible community --
$35,000 on the economic development side, and $35,000 for
general development projects. Typical activities include:
business development feasibility studies; business attraction
and retention plans; housing needs studies; marketing studies;
social service needs assessments; technical assistance for
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specific businesses; and infrastructure needs assessments.
4) Related legislation: Below are bills related to CDBG
revolving loan program.
a) AB 507 (Arambula) : This bill requires projects
selected for funding under the Infrastructure State
Revolving Fund Program (ISRF) to only be funded if the
project meets specified land use and economic development
criteria. Held in Assembly Committee on Appropriations.
b) AB 1410 (Bass) : This bill authorizes the Infrastructure
and Economic Development Bank to use certain federal CDBG
Program moneys to create credit enhancements, loan
guarantees, and low-interest loans, for the purpose of
offsetting program administration costs or to supplement
the State ISRF Program. In Assembly Committee on Jobs,
Economic Development and the Economy.
5) Double Referral : The Assembly Rules Committee referred this
bill to two policy committees. Should this measure pass the
Assembly Committee on Jobs, Economic Development and the
Economy, it will be referred to the Assembly Committee on
Housing and Community Development.
REGISTERED SUPPORT / OPPOSITION :
Support
Assembly Committee on Jobs, Economic Development, and the
Economy (Sponsor)
Association of Financial Development Corporations
California Association for Local Economic Development
Chabin Concepts & California Green Jobs Council Member
City of Colusa
City of Oroville
Economic Development Corporation of Shasta County
Economic Development and Financing Corporation
Glenn County Planning and Public Works Agency
Tehama Economic Development Corporation
Tri-County Economic Development Corporation
Yuba-Sutter Economic Development
3CORE
Opposition
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None received
Analysis Prepared by : Mercedes Flores/Toni Symonds/J., E.D. &
E./ (916) 319-2090