BILL ANALYSIS
AB 1556
Page 1
Date of Hearing: January 13, 2010
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Norma Torres, Chair
AB 1556 (Committee on Jobs, Economic Development and the
Economy) - As Amended: January 4, 2010
SUBJECT : Community development: grants
SUMMARY : Requires the Department of Housing & Community
Development (HCD) to approve local "financial intermediaries"
that grantees that receive Community Development Block Grants
(CDBG) funds for local revolving loan funds must use to
administer the loan fund. Specifically, this bill :
1)Defines an "approved financial intermediary" as a nonprofit
organization, governmental office, or a financial development
corporation with direct lending experience that is certified
by HCD to underwrite and administer a revolving loan for one
or more eligible cities or counties.
2)States the Legislature's intent that HCD establish a process
for certifying financial intermediaries, that have the
following characteristics:
a) a high level of proficiency in economic development
lending;
b) knowledge of the federal CDBG program;
c) ability to comprehend, interpret, and apply federal
regulations;
d) expert knowledge of community-based and economic
development lending programs;
e) leadership ability; and
f) organization, administrative and management skills.
1)Allows that the approved financial intermediary may be an
employee of the grantee, consultant, or economic development
lending organization procured and contracted by the grantee.
2)Requires HCD to maintain a record of approved financial
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intermediaries.
EXISTING LAW
1)Requires that 30% of the annual federal Small Cities Community
Development Block Grant funds be set aside for economic
development projects and programs as specified (Health &
Safety Code Section 50827).
2)Authorizes HCD to set aside specified amounts from the
economic development set aside within CDBG for a reservation
of funds to establish or enhance local revolving loan fund
programs (Health & Safety Code Section 50832.1).
FISCAL EFFECT : Unknown
COMMENTS :
Background : HCD administers the Small Cities Community
Development Block Grant Program (CDBG) for smaller cities and
counties that do not receive a direct allocation of CDBG funds
from the federal Department of Housing & Urban Development
(HUD). State law requires that 30% of the funding within the
state CDBG program must be set aside for economic development
activities. Within the economic development set-aside, HCD has
discretion to award funds to revolving loan funds administered
at the local level by grantees. Under the current process,
cities apply for funds and receive an award for their local
revolving loan fund, they then submit the actual loan to HCD,
who underwrites the loan and, if approved, disburses the funds
to local grantees. In 2009, the average-size loan made by local
revolving loan funds was $80,000 and loans ranged in size from
$10,000 to $245,000.
The California Association for Local Economic Development
(CALED), which represents public and private organizations that
are involved in economic development contends that this process
is slow and can result in the loss of opportunities for small
business development. In order to expedite the underwriting
process and distribute funds out more quickly, CALED supports
allowing local grantees to underwrite the loans themselves or
use local qualified financial intermediaries that HCD approves
to do so.
This bill would require a local grantee who receives an award of
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CDBG funds for a revolving loan fund to use an approved
financial intermediary, which could be a nonprofit organization,
government office, or financial development corporation with
direct lending experience that has been approved by HCD to
administer the local revolving loan fund. The bill includes a
list of possible criteria that HCD could use to evaluate the
qualifications of a financial intermediary to underwrite loans;
however, HCD would have discretion in determining the benchmarks
for approving a financial intermediary. The criteria, in the
intent language of the bill, includes a high level of
proficiency in economic development lending; knowledge of the
federal CDBG program; expert knowledge of community-based and
economic development lending programs; and the ability to
comprehend, interpret and apply federal regulations. Cities
and counties could use a government office to administer the
loan fund, which some may do already.
Several state and federal programs use local financial or
economic development organizations to facilitate economic
development. The Small Business Guarantee Program (SBGP)
approves financial development corporations, which use state
funding leveraged with other funds to provide a loan guarantee
for small businesses that cannot qualify for conventional loans
on their own. Financial development corporations are one of the
eligible entities HCD could approve under this bill to
administer local revolving loan funds.
The administrative fees for the CDBG program are capped. If a
local revolving loan fund decided to use a financial
intermediary that charged more than the administrative fee
covered, the local government would have to cover any additional
costs on its own.
Purpose of the bill : According to the author, this bill would
provide flexibility to the small cities portion of the federal
CDBG program and would allow CDBG grant money to 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 communities sooner.
Staff comments : The committee may wish to consider if the
policy proposed by this bill should be included in budget
discussions this year. The Business, Transportation and Housing
Agency oversees both HCD and the SBGP. There may be
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opportunities to use the expertise of SBGP staff to approve
local financial intermediaries who can administer local
revolving loan funds and create greater efficiencies at both the
local and the state level.
Committee Amendment :
The committee recommends the following word change, which would
clarify that the city or county that operates the revolving loan
fund could use an employee as the financial intermediary and
does not have to "contract" outside of the city or county.
On page 4, line 5 strike "contract with" and insert "use"
Double Referred : The Assembly Committee on Rules referred AB
1556 to the Committee on Jobs, Economic Development, and the
Economy and Housing and Community Development. The bill passed
the Assembly Committee on Jobs, Economic Development, and the
Economy on January 6, 2010, by a vote of 7 to 0.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association for Local Economic Development (CALED)
Chabin Concepts, Chico
City of Colusa
Department of Business Assistance and Housing Development, City
of Oroville
Economic Development Corporation of Shasta County, Redding
Economic Development & Financial Corporation, Ukiah
Glenn County Planning & Public Works Agency, County of Glenn
Tehama Economic Development Corporation, Red Bluff
Tri-County Economic Development Corporation, Chico
Yuba-Sutter Economic Development, Yuba City
Opposition
None on file.
Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085