BILL ANALYSIS �
AB 796
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 796
AUTHOR: Blumenfield
AMENDED: May 11, 2011
FISCAL: Yes HEARING DATE: July 6, 2011
URGENCY: No CONSULTANT: Peter Cowan
SUBJECT : FINANCIAL ASSISTANCE: CLEAN TECHNOLOGY
SUMMARY :
Existing law :
1)Establishes the California Pollution Control Financing
Authority (CPCFA) with specified powers and duties, and
authorizes CPCFA to approve financing for projects or
pollution control facilities to prevent or reduce
environmental pollution. (Health and Safety Code �44550 et
seq.).
2)Authorizes CPCFA, through the California Capital Access
Program (CalCAP), to establish loss reserve accounts at
participating financial institutions that provide loans to
qualifying small businesses. (�44559 et seq.).
3)Authorizes CPCFA to make use of funds provided by federal
capital access programs or other sources. (��44559.4 and
44559.11).
4)Defines "loss reserve account" as an account in the State
Treasury or any financial institution that is established
and maintained by the CPCFA for the benefit of a financial
institution participating in CalCAP for the purposes of the
following (�44559.1):
a) Depositing all required fees paid by the participating
financial institution and the qualified business.
b) Depositing contributions made by the state and, if
applicable, the federal government or other sources.
AB 796
Page 2
c) Covering losses on enrolled qualified loans sustained
by the participating financial institution by disbursing
funds accumulated in the loss reserve account.
5)Sets a limit of $100,000 on the combined contribution to the
loss reserve account by the lender and single borrower over
a three-year period. (�44559.3).
6)Establishes the California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) within the
State Treasurer's Office and authorizes it to issue revenue
or prepayment bonds to industry for the purpose of promoting
the development and utilization of alternative energy
sources and the development and commercialization of
advanced transportation technologies. (Public Resources
Code �26000 et seq.).
7)Authorizes the 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.
CAEATFA must 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.
(�26011.8).
8)Establishes the Renewable Resources Trust Fund (RRTF) with
up to $65.5 million per year collected from a customer
surcharge to support renewable energy programs administered
by the State Energy Resources Conservation and Development
Commission. (Public Utilities Code �399 et seq.).
This bill :
1) Increases the combined amount that can be deposited into an
individual loss reserve account over a three-year period to
two hundred thousand dollars ($200,000), if the matching
contribution from the authority is funded exclusively with
specific federal funds.
AB 796
Page 3
2) Defines "California-based entity" to be either:
a) A corporation or other business organized for the
transaction of business in California that has its
headquarters in California and manufactures in
California the product in an eligible technology that
qualifies for the incentive or award, as determined by
the authority.
b) A corporation or other business organized for the
transaction of business that has an office for
transaction in California and substantially manufactures
in California the product in an eligible technology that
qualifies for the incentive or award, as determined by
the authority.
3) Defines several categories of "eligible technology"
including:
a) Technology that conserves or produces heat or energy
in any form that does not expend or use conventional
energy fuels, and that uses any of the following
electrical generation technologies: biomass, solar
thermal, photovoltaic, wind, and geothermal.
b) Ultralow emission equipment for energy generation
based on thermal energy systems such as natural gas
turbines and fuel cells.
c) Advanced transportation vehicles, fuels, or
infrastructure.
d) Advanced electric distributive generation technology
or energy storage technologies and their component
materials.
4) Requires CAEATFA to establish a Clean Energy and Jobs
Incentive Program (CEJIP) for eligible California-based
entities for the development and expansion of manufacturing
facilities or the installation of eligible technologies.
5) Requires CEJIP to provide a loan loss reserve account and
support to participating loan institutions for the
AB 796
Page 4
financial assistance of clean technology manufacturing
development and expansion. Also specifies that CEJIP:
a) Must evaluate applications based on need, job
development benefit, environmental benefit, and
financial risk.
b) Prioritize lender applicants that are working with
borrowers that have been offered financial assistance to
relocate to another state or other countries.
c) Establish a process for allowing applicant lenders to
become participating financial institutions if the
applicant meets federal and state requirements for a
financial institution and the borrower meets specified
conditions.
6) Lender applicants must at a minimum certify that borrowers
have secured or made applications for all applicable
licenses or permits needed to conduct business including
appropriate environmental review, are a California-based
entity that is developing an eligible technology, and that
the applicant and borrower would not be able to enter into
a loan without the loan loss reserve support.
7) Specifies that upon appropriation of the Legislature,
CAEATFA may use federal funds as authorized by federal law,
state funds, including the Renewable Resource Trust Fund,
or private funds to develop the program. Use of the
Renewable Resource Trust Fund is restricted to eligible
renewable energy resources, as defined in Public Utilities
Code �399.12.
COMMENTS :
1) Purpose of Bill . According to the author, the purpose of
the bill is "to ensure clean energy technology companies
have incentive to stay and expand in California. The
industry has made it clear that financing is a significant
component that steers them away to more affordable
locales/economies. The aspect of financing that is the
greatest burden for these companies is addressed in CalCAP
but limited to small businesses. Because CalCAP is so
AB 796
Page 5
successful, we believe that loan loss reserves can provide
the same benefits to clean technology using a proven,
low-risk financing methodology that is needed in the
industry."
2) Loan loss reserve accounts . According to the Treasurer's
Office, the typical CalCAP loan loss reserve account
process works as follows: "When a lender's first loan is
enrolled, CalCAP establishes a loss reserve account for
that lender. Each time a loan is enrolled under CalCAP,
premiums are paid into the portfolio loss reserve account
and CalCAP matches the premiums. For instance, if the
lender and borrower each pay a 2% premium, CalCAP will
typically pay 4%. For this one loan a total of 8% is added
to the lender's loss reserve account for its entire CalCAP
portfolio. The more loans a lender makes, the more dollars
are deposited into the loss reserve account for its CalCAP
portfolio. Over time, as more loans are enrolled, a
lender's loss reserve account grows, providing 8% to 14%
loss coverage on a portfolio of loans that will likely only
experience a lower rate of loss. For example, if a lender
makes 10 loans totaling $500,000, the lender may have as
much as $60,000 in its loss reserve account (using an
average premium of 3% each from the lender and borrower, 6%
from the Authority). If one loan of $50,000 defaults, the
lender has immediate coverage of 100% of the loss. The
lender must return recoveries from the borrower, less
expenses, to the portfolio loss reserve account."
3) Raising the contribution limit . As part of the federal
American Recovery and Reinvestment Act, CalCAP was awarded
up to $84 million to be paid in three payments of $28
million. The conditions attached to these funds allow them
to be used for loans with a total value of up to $5
million. Current state statute limits the combined
contribution (the fees paid into the loan loss reserve
account by the lender and borrower) to $100,000. It also
requires the combined contribution to be no less than 4% of
the total loan value. These two restrictions limit the
maximum loan to $2.5 million. AB 796 doubles the
contribution limit, allowing for loans as large as $5
million.
AB 796
Page 6
Demand for loans through CalCAP exceeding current limits
may be limited. Most of the banks authorized to
participate in CalCAP are smaller banks that may lack the
liquidity to issue loans exceeding $2.5 million. Raising
the limit could have the effect of directing more of the
CalCAP funds to the few large participating banks, where it
would remain in loss reserve accounts until it is swept by
the bank or they cease participation in CalCAP. Demand for
loans at the current limit is minimal. From 2006 through
2008, 8 out of 1973 loans enrolled in CalCAP exceeded $2
million. In 2009 and 2010, 9 out of 948 loans exceeded $1
million (the cap was $1.5 million these two years). To
date this year, none of the 414 loans enrolled have
exceeded $2 million. The average enrolled loan amount
since 2006 has been approximately $110,000, thus the
exposure from a single $5 million dollar loan would be
equivalent to 45 average enrollments.
4) Assistance needed ? The new CEJIP established by AB 796
would expand CAEATFA to provide loan guarantees, in the
form of a loan loss reserve account, for renewable energy
and other forms of "clean technology." The state currently
incentivizes renewable energy through several demand side
programs such as the Renewable Standard Portfolio and
property tax exemptions. Additionally, the U.S. Department
of Energy has established, as part of the American Recovery
and Reinvestment Act, a loan guarantee program. To date it
has guaranteed $20.5 billion in loans for renewable energy
projects, $11.9 billion of which is for projects in
California. AB 71 (Padilla) Chapter 10, Statutes of 2010
authorized CAEATFA to approve sales and use tax exemptions
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.
With these substantial and nascent incentive programs, the
committee may wish to see some results from these programs
before further expanding CAEATFA.
5) Keeping it in California . The author's goal is to
incentivize clean technologies within the state of
California; however, AB 796 lacks the protections provided
AB 796
Page 7
in CalCAP statute for ensuring that assistance is provided
only to California companies, for business in California.
Under CalCAP a qualifying business must have "its primary
business location within the boundaries of the state"
whereas CEJIP minimally requires that a business maintain
an office and substantially manufacture an eligible
technology within the state. CalCAP is also restricted to
loans for "business activity that has its primary economic
effect in California." CEJIP has no such restriction.
6) How green is clean ? The defined "eligible technologies"
mirrors the language from SB 71. However, some of the
listed technologies reduce greenhouse gas emissions (GHG)
more than others. The committee may wish to narrow the
definition of eligible projects so that only those that
most effectively advance environmental goals qualify.
7) Manufacturing or installation ? AB 796 directs CAEATFA to
establish CEJIP "for the development and expansion of
manufacturing facilities or the installation of eligible
technologies." Yet, the definition of eligible businesses
requires them to be manufacturers. This begs the question:
how many of the eligible technologies are currently
manufactured in California and how many companies operate
in these sectors?
8) Sky's the limit . The new CEJIP, as established by AB 796,
sets no dollar limit for either the size of loans available
or the maximum proportion the state should contribute to
the loss reserve. This and several other features of the
final program are left to the Treasurer's office to
implement though regulation. The committee may wish to be
more specific in statute; it may also wish to consider
establishing a $5 million limit rather than expanding
CalCAP which is available to businesses whether they
produce clean technology or not.
9) Public goods charge . The bill refers to the "renewable
energy public goods charge" as a funding source, which
sunsets on January 1, 2012. There are two bills that
address the public goods charge, but neither considers
funding this new AB 796 program. AB 723 (Bradford) extends
the public goods charge, and is with the Senate Energy,
AB 796
Page 8
Utilities And Communications Committee. SB 35 (Padilla)
studies the public goods charge, and failed in the Assembly
Natural Resources on June 27, 2011.
10)Reporting back . The author's office is considering
amendments to include some provisions from AB 71. In
particular, a report by the Legislative Analyst's Office on
the effectiveness of this new program would provide for
better legislative oversight of the program. If the
committee believes AB 796 is needed, it should be amended
to include such a report.
11)Related bills . AB 901 (V. M. P�rez) on economic
development and small business contains a provision
identical to the CalCAP contribution limit increase in
Section 1 of AB 796. AB 901 will be heard in the Senate
Banking and Finance Committee July 6, 2011.
SOURCE : Assemblymember Blumenfield
SUPPORT : CALSTART, Clean Economy Network, Environmental
Defense Fund, Mohr-Davidow Ventures, Nanosolar,
Simbol Materials, Solaria, Union of Concerned
Scientists.
OPPOSITION : None on file