BILL ANALYSIS
AB 2437
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2437 (V. Manuel Perez) - As Amended: April 28, 2010
Policy Committee: Jobs, Econ.
Development and the Economy Vote: 6 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates the California Manufacturing Competitiveness
Loan and Loan Guarantee Program under the authority of the
California Industrial Development Financing Advisory Commission.
Specifically, this bill:
1)Requires the California Industrial Development Financing
Advisory Commission (CIDFAC) to establish the California
Manufacturing Competitiveness Loan and Loan Guarantee Program
for purpose of attracting, retaining and expanding
manufacturing facilities with more than 200 employees.
2)Allows CIDFAC to make loans or provide lines of credit for the
purpose of acquiring, constructing, or rehabilitating
facilities.
3)Establishes a maximum loan limit of $5 million and a maximum
loan guarantee of $10 million.
4)Establishes a $5,000 nonrefundable application fee and an
administrative fee equal to one-half of one percent of the
total requested guarantee amount.
5)Sunsets this loan program on January 1, 2016.
FISCAL EFFECT
1)Loan Program .
a) Assuming an average loan request of $2.5 million, if 25
businesses applied for the loan each year, a continuous
AB 2437
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appropriation of $62.5 million GF would be needed.
b) A conservative default rate of 5% on these loans would
cost over $3 million GF per year.
c) There is no available federal funding or private funding
for this program; therefore the loans would need to be GF
loans.
d) Assuming a fee of $5,000 paid to the commission for
every guarantee that is completed, if 25 firms sought these
guarantees each year, the fee would generate $125,000 in
revenue and a 0.5% annual fee on 25 $2.5 million loans
would generate an additional $300,000 to administer the
program.
2)Loan Guarantee Program .
a) Assuming an average investment of $5 million, and the
fact that state funds can be leveraged four-to-one, if 25
businesses applied for assistance, $31.25 million GF would
be needed.
b) A conservative default rate of 5% on these loans would
cost approximately $1.5 million GF per year.
c) There is no available federal funding or private funding
for this program; therefore the loan guarantees would need
to be secured with GF.
d) Assuming a fee of $5,000 paid to the commission for
every guarantee that is completed, if 25 firms sought these
guarantees each year, the fee would generate $125,000 in
revenue to cover the cost of the program.
3)One-time costs associated with developing the loan program
would be approximately $200,000 GF. On-going administrative
costs, in the range of $200,000 could be covered by fee and
administrative revenue.
COMMENTS
1)Purpose . The purpose of this legislation is to create a loan
program that will prove to be an enticement for manufacturers
who may be looking at locating their businesses in California.
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The program is limited to large manufacturers and establishes
a preference for loan applications that are developed jointly
by manufacturers and the unions that represent their
employees. In addition, it prioritizes companies that offer
higher paying, skilled jobs.
2)Related Legislation . In 2007, AB 1431 (Arambula) proposed
creating an Early Stage Investment Guarantee Program. That
bill was held on this committee's Suspense File.
Also in 2007, AB 1455 (Arambula) proposed creating a loan
program for small businesses operating in newly created Air
Quality Zones. That bill was amended by this committee to
remove the loan program.
Finally, in 2007, AB 1506 (Arambula) established business
incentives to encourage businesses to purchase new equipment
that result in measurable reductions of greenhouse gas (GHG).
Those incentives included a loan guarantee program to provide
loans and loan guarantees for capital expenditures that reduce
GHG emissions and generate renewable energy and a loan program
within the California Infrastructure and Economic Development
Bank (I-Bank) to make loans for equipment at interest rates
that are below market rates if the proceeds are used to
purchase or retrofit equipment that will result in a
measurable reduction in GHG emissions. Both of those loan
programs were removed from the bill by this committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081