BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 796 HEARING: 6/29/11
AUTHOR: Blumenfield FISCAL: Yes
VERSION: 5/11/11 TAX LEVY: No
CONSULTANT: Miller
CALIFORNIA ALTERNATIVE ENERGY AND ADVANCED
TRANSPORTATION ACT
Changes the loan guarantee limit in the CalCAP program and
creates a new loan guarantee program for clean energy in
the CAEATFA program.
Background and Existing Law
I. California Alternative Energy and Advanced
Transportation Financing Authority: Assembly Bill 71
(Padilla, 2010) authorized the California Alternative
Energy and Advanced Transportation Financing Authority
(CAEATFA) to approve a sales and use tax exemption on
tangible personal property utilized for the design,
manufacture, production, or assembly of advanced
transportation technologies or alternative energy source
products, components or system until January 1, 2021. AB
71 requires CAEATFA to evaluate "project" applications for
the sales and use tax exemption based upon certain criteria
that encourages manufacturing facilities and jobs located
in California, and the reduction of greenhouse gases beyond
the reduction required by federal or state law or
regulation.
CAEATFA is a state authority at the State Treasurer's
Office and was created for the purpose of promoting the
development and utilization of alternative energy sources
and the development and commercialization of advanced
transportation technologies. Existing law authorizes the
Authority to finance projects utilizing alternative energy
sources and advanced transportation technologies using
lease revenue bonds. Existing law exempts CAEATFA from
paying the sales and use tax on tangible personal property
for green energy and renewable energy.
CAEATFA consists of five members: the Director of Finance,
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the Chairman of the California Energy Commission, the
President of the Public Utilities Commission, the
Controller, and the Treasurer.
II. The California Capital Access Program for Small
Businesses (CalCAP): The program was established in 1994.
The program assists small businesses in obtaining loans
through participating financial institutions. For eligible
businesses, CalCAP matches loss reserve account premiums
paid by borrowers and lenders on loans. The participating
financial institutions are entirely liable for loan losses,
which can be reimbursed through each lender's CalCAP loan
loss reserve fund.
CalCAP insures bank loans made to small businesses to
assist them in growing their business and encourages banks
and other financial institutions to make loans to small
businesses that fall just outside of most banks'
conventional underwriting standards. Loans can be used to
finance the acquisition of land, construction or renovation
of buildings, the purchase of equipment, other capital
projects and working capital. There are limitations on
real estate loans and loan refinancing. Qualified
financial institutions, such as a bank or credit union,
work with CalCAP to issue loans to small businesses.
The maximum loan amount is $2.5 million. The maximum
premium the California Pollution Control Financing
Authority (CPCFA) will pay is $100,000 per loan under the
loan loss reserve. The current program allows the
Treasurer's office to pay about 7%-12% of the loan loss.
Lenders set all the terms and conditions of the loans and
decide which loans to enroll into CalCAP. Lenders
determine the premium levels to be paid by the borrower and
lender. Loans can be short- or long-term, have fixed or
variable rates, be secured or unsecured, and bear any type
of amortization schedule. The lenders negotiate directly
with the Treasurer's office under the CalCAP program.
Loan Guarantee: CalCAP acts as a loan guarantee as
follows: a company that falls outside of traditional
lending or underwriting criteria either because the product
is new or the company's rating is not AAA, the bank would
work directly with CalCAP to insure that at least part of
the loan (7%-12%) would be repaid if the company were to
default.
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In 2006, the program enrolled 750 loans to California small
business owners, the highest amount of loan activity in the
program's history. In 2007, the program enrolled 704
loans. As of December 31, 2007, the total number of loans
enrolled in the program since 1994 is 6,817.
As of December 31, 2007, CalCAP lenders have cumulatively
loaned over $1.21 billion since the program's inception in
1994. The amount of enrolled loans in 2006 totaled $67.7
million and in 2007, totaled $76 million.
In addition, because of CalCAP's success, the program is
spending approximately $3 million annually for the funding
of loan loss reserve contributions and program
administration. CalCAP generates little to no revenue for
the CPCFA. Recent amendments to SB 1311 would generate
approximately $1.5 million a year for the CPCFA. The
changes are intended to allow the CPCFA the ability to
sweep all interest earning from the CalCAP loan loss
reserve accounts in order to use the funds to support
program administration and loss reserve contributions.
Current statute only allows the CPCFA to sweep 50 percent
of the interest earnings to support program administration.
Last year, the Treasurer's Office received federal funding
for the CalCap program totaling $84 million over three
installments of $28 million each.
Existing law requires that all ratepayers within the
service area of an investor owned utility pay a public
goods charge based on the amount of electricity they use.
The charge funds the Renewable Resources Trust Fund, the
Public Interest Electricity Research Program, administered
by the State Energy Resources, Conservation, and
Development Commission, and complements the California
Public Utilities Commission's energy efficiency efforts.
The public goods charge sunsets on January 1, 2012 unless
extended.
Proposed Law
Section 1: Expands the CalCAP program. Assembly Bill 796
increases the maximum allowable loan size in the CalCAP
program to $2.5 million, from $5 million. The bill
requires that the increased loan loss reserve amount be
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entirely funded through new federal funds.
Section 2. Creates a new CalCAP- like program. Assembly
Bill 796 requires CAEATFA to establish the "Clean Energy
and Jobs Incentive Program" to provide loan loss reserves
as financial assistance to a participating financial
institution providing loans to California-based entities
for the development and expansion of manufacturing
facilities or the installation of "clean energy"
facilities. Under This program, CAEATFA would provide a
backstop for bank loans made to eligible California clean
technology projects.
This bill requires CAEATFA to evaluate projects based on
need, job development potential, environmental benefit, and
financial risk. This bill would allow CAEATFA to
prioritize lender-applicants who have been offered
financial assistance to relocate manufacturing facilities
to other states or counties.
The new loan loss guarantee program under CAEATFA sets no
limits but provides that it should be funded either through
the public goods charge or existing funds.
AB 796 provides that CalCAP shall promulgate regulations to
administer the program.
State Revenue Impact
No estimate.
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Comments
1. Purpose of the bill . According the author: AB 796
creates the Green Economy and Jobs Program. The program
will incentivize the clean energy and technology industry
to locate and expand their facilities in California by
establishing a low-risk financial tool designed to keep the
industry and its jobs in California.
Our state is home to the most cutting edge environmental
policy in the nation. Along with implementation of AB 32,
CA has enacted such laws as RPS, the Low Carbon Fuel
Standard and most recently SB 71, which provides a sales
and use tax exemption for clean tech manufacturing
equipment. These policies all speak to California's
long-term environmental goals, but most of these policies
do not focus on the near-term job creation and business
growth that California's clean economy needs now. To
effectively get businesses to the point that they can
utilize these policies, CA needs to help companies get out
of the starting gate. Square one is the point at which we
lose the most innovative, effective technologies due to
constraints on their ability to access capital to finance
manufacturing of their products here. AB 796 addresses
this stumbling block by offering access to a loan loss
reserve account for investors in the clean tech industry
that will open the door to private financing of their
production facilities
California is also home to the most innovative, advanced,
clean technology start-ups in the country. Other states
and countries are aggressively courting these companies in
order to benefit their economies. This bill will help
incentivize companies to remain in California by
authorizing the California Alternative Energy and Advanced
Transportation Authority CAEATFA to offer a loan loss
reserve to eligible companies - leveraging a small amount
of funds for large benefits to our economy and job
creation.
In addition to the new program, AB 796 will stimulate
California's small business industry by increasing the
maximum loan amount in the California Capital Access
Program (CalCAP) to $5M; this increase is funded by federal
dollars and will benefit the small businesses who qualify
under the federal regulations. This increase is a big
boost for small businesses at no cost to the state and at
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absorbable cost to the CalCAP program.
As the unemployment rate has reached 30% in California's
hardest hit communities, job growth in the green energy
industry is on the rise. Keeping these companies in
California will augment our environmental policies,
increase jobs, increase our tax base and boost our economy.
2. Remember Fanny Mae & Freddie Mac ? Both Fanny and
Freddie are examples of what happens when credit risk isn't
properly assessed; the federal government now backfills
these loans at more than $200 billion per year. This bill
increases the loan guarantee program under CalCAP from $2.5
million to $5 million loan amounts, an assurance the
private sector has declined to provide. When loans fall
out of the traditional lending structure, lenders will
sometimes seek state assurances through the CalCAP program
to back part of the loan. Through the program, the state
guarantees the lender between 7-12% of about a third of the
loan amount. an assurance the private sector has declined
to provide. It also creates a brand new loan loss reserve
program specifically for green technology. The State has
neither the risk assessment nor risk management to fully
analyze these types of loans and this bill provides a
blanket back stop without the long term considerations for
what it means to provide this type of certainty to private
loan holders. Can the state handle the pressure of
guaranteeing loans? Would a loan guarantee program impact
our credit rating? How would the loan guarantee programs
be backed or securitized? This bill does not answer these
questions. The bill does provide that the funding sources
should be limited to federal funds in part 1 (the CalCAP
program) and to available funds in part 2 (the new loan
loss reserve under CAETFA). The bill does not consider a
major default under which all loans have to be paid
immediately. The Committee may wish to consider whether
these questions require further research before advancing
the bill.
3. A solution searching for a problem . According to the
Treasurer's office, the current CalCAP program is
successful and there has been little demand for an
increased loan loss reserve amount. The CalCAP program
backs loans as small as $500 or as large as $2.5 million;
it's not clear that more is necessarily better. The
Committee may wish to consider whether this bill addresses
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any major public policy concern and whether the State
should increase its exposure as a credit guarantee.
4. Show some restraint . The new CAETFA program in this
bill has no dollar limit and is very broad in its inclusion
of green energy. The bill relies heavily on regulations to
ensure that the program works well. The Committee may wish
to consider establishing a $5 million limit similar to the
CalCAP program and also whether so many details should be
left to regulation or if the details should be worked out
in statute.
5. How much is enough ? The state subsidizing renewable
energy programs in a number of ways from the Renewable
Standard Portfolio (RPS) requirements to a solar exclusion
from property taxes. The federal government provides both
a federal investment and production credit for these same
products. By guaranteeing the demand side of these
products, the state has fixed demand and created a
guaranteed market. Therefore, each subsequent program the
state creates simply lowers the supply costs because demand
has already been fixed by the state. The committee may
wish to consider whether it makes sense to simply lower the
supply costs for laws that are already in place.
6. Show me some proof . AB 71 (Padilla, 2010) expanded the
CAETFA program for purposes of clean energy as well. That
bill was just enacted and we do not have any indication of
how well it works and whether it will meet its intended
goals. The Committee may wish to wait for further data on
that bill before expanding the program. If the Committee
does chose to expand the CAETFA program, this bill should
be amended to include a sunset and specific performance
measures to ensure that the bill meets its expectations.
7. Spending the same money twice . There are two bills
that address the public goods charge, which is set to
expire at the end of this year. Neither of these bills
considers this program for the funds from this tax.
1. AB 723 (Bradford): Extends the public goods charge.
This bill is set for hearing in the Senate Governance
& Finance Committee on June 29th.
2. SB 35 (Padilla): Studies the public goods charge.
This bill is in the Assembly.
8. Say what you mean . The bill needs two clarifying
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amendments:
1. The bill refers to the "renewable energy public
goods charge" which does not exist. Instead, the bill
should refer to the "renewable resource trust fund,"
the bill should be amended to make that change.
2. The bill amends the CAETFA program which includes
the sales and use tax exemption for clean technology.
The bill was inadvertently drafted to expand that
program. The bill should be amended to clarify that
it will not be an expansion of the existing sales and
use tax program.
9. Where next ? Should this bill pass out of this
committee, it has been referred to the Senate Committee on
Environmental Quality.
Assembly Actions
Assembly Natural Resources Committee: 6-3
Assembly Appropriations Committee:17-0
Assembly Floor: 62-14
Support and Opposition (6/23/11)
Support : CalSTART; Clean Economy Network; Davidow
Ventures; Environmental Defense Fund; Green California;
MOHR; Nanosolar; Simbol Materials
.
Opposition : Unknown.