BILL ANALYSIS �
AB 38
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 38 (Bradford) - As Amended: March 21, 2011
Policy Committee: Banking and
Finance Vote: 10-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a Banking Development District (BDD)
Program within the Department of Financial Institutions (DFI),
which would encourage the establishment of bank or credit union
branches and/or new bank services in specially designated
geographic locations where there is a need for banking services.
Specifically, this bill:
1)Requires DFI to develop and provide incentives to banks
participating in the program. Range of incentives may
include, but not be limited to, deposits of public funds at
below- market interest rates, and other incentives deemed
appropriate by a local agency.
2)Requires that a bank must apply in conjunction with a local
agency to participate in the BDD program
3)Requires DFI to report to the Treasurer on the BDD program.
The Treasurer may utilize the BDD program when promoting the
Treasurer's time deposit program.
4)Requires the Department of Financial Institutions to develop a
performance review process to ensure the effectiveness of
BDDs.
FISCAL EFFECT
1)The magnitude of state and local costs and/or revenue
reductions depends on the incentive package ultimately adopted
for the program. Incentives packages similar to those
provided in New York State's BDD program would result in GF
AB 38
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revenue reductions/costs exceeding $1 million annually.
2)Significant costs, likely totaling $250,000, to the Department
of Financial Institutions combined for administration,
marketing, performance reviews, and examination costs related
to the BDD program. Costs should decrease once the program
has been established.
COMMENTS
1)Purpose. The goal of AB 38 is to spur increased and enhanced
banking services in under-served communities. The desired
outcome is that more Californians will enter the financial
mainstream and build savings and wealth through participating
banks' offerings and marketing of appropriate transactional,
loan, and credit products that can lead to long-term wealth
building opportunities. Californians, now more than ever, may
distrust financial institutions because of the mortgage
meltdown. Recent statistics show, nationally, as many as 28
million people do not use banks. One in five low-income
Californians does not have a checking account and nearly half
of Californians do not have a savings account.
2)Background-New York program. This bill is patterned after the
New York BDD program, which was implemented in 1994 and
currently includes about 24 individual districts. In return
for locating or expanding operations in designated underserved
communities, participating banks receive various financial
incentives. For example the New York program makes over $100
million in public funds available for deposits in
participating branches at interest rates that are one-half
percentage point (and in some cases up to 0.9 percentage
points) below comparable market rates. Participating
financial institutions are also eligible for partial property
tax exemptions and, in certain instances, various
enterprise-zone tax and jobs incentives. Approval of similar
incentives in California would require subsequent legislation.
3)Incentives for banks. The bill charges DFI to develop a
package of incentives to help banks that participate in the
BDD program, but gives no other specific direction. The
provisions regarding incentives are unclear and need to be
redrafted:
AB 38
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a) This is a delegation of legislative authority to DFI to
design the program with little direction or restriction and
no required reporting to the Legislature.
b) The bill envisions incentives offered by local agencies
as deemed appropriate by the local agency and Treasurer.
The Treasurer should not have a role in determining local
incentives.
c) One of the possible incentives mentioned in the bill, is
access to interest bearing time deposits of public funds,
as deemed appropriate and approved by DFI. It is unclear
why DFI would be approving these time deposits at these
banks.
1)Previous legislation. AB 2581 (Bradford), 2009-2010
Legislative Session, would have established a BDD program
administered by DFI to encourage the establishment of banking
branches in and the provision of additional product lines or
services to, specified underserved areas. This bill was
vetoed by Governor Schwarzenegger. This bill is similar to an
earlier version of AB 1502 (Lieu) of 2007. The BDD provisions
of that measure were subsequently deleted and replaced with
provisions creating a financial literacy program.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081