BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 894 (V.M. Perez)
Hearing Date: 08/15/2011 Amended: 07/13/2011
Consultant: Mark McKenzie Policy Vote: GO 12-1; G&F 9-0
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BILL SUMMARY: AB 894 would authorize the California Industrial
Development Financing Advisory Commission (CIDFAC) to establish
and administer the California Manufacturing Competitiveness Loan
and Loan Guarantee Program until January 1, 2017. CIDFAC would
establish guidelines for implementation of the program, adopt
procedures and criteria for evaluating applicants and
participating financial institutions, and develop a process for
reviewing applications and for ongoing monitoring of loans, loan
guarantees, and lines of credit. The bill would establish the
Manufacturing Program Account within the Industrial Development
Fund to receive funding from the federal government,
foundations, and other public or private sources, excluding the
General Fund. Once sufficient funds are available to implement
and administer the program, CIDFAC would make loans or lines of
credit available to companies for purposes of acquiring,
constructing, or rehabilitating manufacturing facilities and
equipment, as specified. The bill requires each applicant to
pay a nonrefundable fee that covers the full cost of
administering the program. AB 2437 would also require CIDFAC,
beginning October 1, 2012 and annually thereafter, to either
post on its website or report to the Legislature on specified
activities and impacts of the program.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Loans and loan guarantees Unknown major costs through
January 1, Special*
2017 to the extent funds are available.
Substantial cost pressures to fund the
program
CIDFAC administration One-time costs of $221 to implement the
Special*
program. Ongoing costs would be offset
by fees. Actual costs would depend upon
AB 894 (V.M. Perez)
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requirements of federal legislation
providing funding
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* Manufacturing Program Account
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
This bill is intended to provide a framework for a loan and loan
guarantee program that would allow California to submit a timely
application for any federal funds that may become available for
state manufacturing loan programs. The program established by
AB 894 provides a preference for loan applications that are
jointly developed by manufacturers and the unions that represent
their employees. In addition, it prioritizes companies that
offer higher paying skilled jobs. The bill also provides an
incentive for California manufacturers to stay in this state by
requiring any company with an outstanding loan to pay the loan
in full at least six months prior to relocating out of the state
and to repay any subsidized amounts.
CIDFAC would not be allowed to implement the Manufacturing
Competitiveness Loan and Loan Guarantee Program until it adopts
a resolution finding that sufficient revenues are available in
the Manufacturing Program Account to cover the costs of
implementing the program, including appropriate oversight costs.
The resolution must also find that there is sufficient
expertise, either at CIDFAC or through a contract, to assess the
credit risk of applicants and the aggregate credit risk of the
commission for the program. CIDFAC indicates that on-time costs
associated with developing the program would be approximately
$221,000. The bill requires applicants to pay a fee to fully
cover the cost of administering the program. It is unclear how
many manufacturers would ultimately apply to the program, but if
25 firms applied for funds in a given year, fees would need to
be set at around $8,000 per application to fully cover estimated
ongoing administrative costs of approximately $200,000.
There are currently no funds available for this new program, and
it doesn't appear that federal funding will be available in the
near future. As such, the bill creates substantial special fund
cost pressures to fund the program. For example, if 25
applicants were eligible for a loan of $3 million each, the
AB 894 (V.M. Perez)
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program would need $75 million in funding to operate. Any
repayments would be deposited back into the Manufacturing
Program Account for payment of any administrative costs and for
future loans and loan guarantees. The bill also limits the
maximum amount of guarantee liability outstanding at one time to
five times the amount of funds on deposit. While this reserve
requirement would mitigate risk, it would also reduce the amount
of funding available for assistance.
Staff notes that federal action would be needed prior to the
implementation of this bill. While no bill has been introduced
during the 112th Congress, U.S. Senator Sherrod Brown previously
sponsored S.1617, the Investments for Manufacturing Progress and
Clean Technology (IMPACT) Act, which would have provided five
years of funding for grants to states that have established a
manufacturing revolving loan program. The IMPACT Act would have
required a state match of 20%. If future federal legislation
contains a similar match requirement, there would be significant
cost pressures on various state funds.
Staff notes that this bill is nearly identical to AB 2437 (V.M.
Perez), which was vetoed by Governor Schwarzenegger in 2010.
The veto message states the following:
While I am supportive of providing California's
manufacturers with greater borrowing opportunities to make
capital investments, I believe the proper location of this
economic development program is in the Governor's Office of
Economic Development. In addition, this bill would create
new higher costs to employers as a result of the prevailing
wage requirements on projects financed under this bill.