BILL ANALYSIS
AB 1556
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Date of Hearing: January 21, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1556 (Jobs) - As Amended: January 14, 2010
Policy Committee: Jobs, Econ
Development and the Economy Vote: 7 - 0
Housing and Community Development 6 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires grantees of Community Development Block Grant
(CDBG) funds for local revolving loan programs to contract with
approved financial intermediaries. Specifically, this bill:
1)Requires the Department of Housing & Community Development
(HCD) to certify local "financial intermediaries" that can be
used by grantees that receive Community Development Block
Grants (CDBG) funds.
2)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.
3)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.
4)Requires HCD to maintain a record of approved financial
intermediaries.
FISCAL EFFECT
1)One-time costs of approximately $100,000 GF for HCD to develop
a certification program.
2)First-year costs in excess of $3 million GF if 50 entities
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seek certification. On-going certification costs between
$300,000 and $1 million GF per year, depending on the number
of certifications.
COMMENTS
1)Purpose . 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. The author
notes that, "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)Community Development Block Grant (CDBG) 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 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.
3)Small Cities CDBG Program . HCD administers the Small Cities
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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.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081