BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 894
Author: V. Manuel Pérez (D)
Amended: 8/30/11 in Senate
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMM. : 12-1, 6/28/11
AYES: Wright, Berryhill, Calderon, Cannella, Corbett, De
León, Evans, Hernandez, Padilla, Strickland, Wyland, Yee
NOES: Anderson
SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 7/6/11
AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez,
Kehoe,
La Malfa, Liu
SENATE APPROPRIATIONS COMMITTEE : 9-0, 8/25/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Runner, Steinberg
ASSEMBLY FLOOR : 77-0, 5/31/11 - See last page for vote
SUBJECT : State government: economic development
SOURCE : California Labor Federation
DIGEST : This bill authorizes 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
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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. This bill establishes 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. This bill requires each applicant to pay a
nonrefundable fee that covers the full cost of
administering the program. This bill also requires 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. This bill
authorizes the expenditure of available American
Reinvestment and Recovery Act funds, as specified, through
the new program created by this bill.
ANALYSIS : The California Industrial Development
Financing Act authorizes cities, counties, cities and
counties, and redevelopment agencies to establish
industrial development authorities that are authorized to
issue industrial development bonds, the proceeds of which
may be used to fund capital projects of private enterprise
under terms and conditions specified in the act. The Act
establishes the California Industrial Development Financing
Advisory Commission and grants it various powers relating
to industrial development bonds.
This bill authorizes 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. This bill
establishes the Manufacturing Program Account within the
Industrial Development Fund to receive funding from the
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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. This bill requires each
applicant to pay a nonrefundable fee that covers the full
cost of administering the program. This bill also requires
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. This
bill authorizes the expenditure of available American
Reinvestment and Recovery Act (ARRA) funds, as specified,
through the new program created by this bill.
Comments
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 this bill 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. This 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.
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This 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 does not 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 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. This 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.
The federal action would be needed prior to the
implementation of this bill. While no bill has been
introduced during the 112th Congress, United States 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 percent. If future federal legislation
contains a similar match requirement, there would be
significant cost pressures on various state funds.
Prior Legislation
AB 2437 (V. Manuel Perez), 2009-10 Session, was vetoed by
Governor Schwarzenegger. The veto message stated: "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
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higher costs to employers as a result of the prevailing
wage requirements on projects financed under this bill."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Loans and loan Unknown major costs through
1/1/17, to Special*
guarantees the extent funds are available.
Substantial
cost pressures to fund the program.
CIDFAC One-time costs of $221 to implement
theSpecial*
administration program. Ongoing costs would
be offset by
fees. Actual costs would depend upon
require-
ments of federal legislation providing
funding.
* Manufacturing Program Account
SUPPORT : (Verified 8/30/11)
California Labor Federation (source)
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Manufacturers and Technology Association
California Small Business Development Centers
California Teamsters Public Affairs Council
CDC Small Business Finance
Communications Workers of America, AFL-CIO, District 9
Engineers and Scientists of California
Inland Empire Economic Partnership
International Longshore and Warehouse Union
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Professional and Technical Engineers, Local 21
UNITE HERE!
United Food and Commercial Workers Union, Western States
Council
Yuba Sutter Economic Development Corporation
OPPOSITION : (Verified 8/30/11)
Associated Builders and Contractors of California
Department of Finance
ARGUMENTS IN SUPPORT : The author notes that the
manufacturing industry sector has struggled in recent
years. The California Manufacturers and Technology
Association estimates that California lost 633,000
manufacturing jobs from 2001 through November 2010.
This bill proposes design a flexible state program in order
to maximize the ability of manufacturers and the state to
access federal funds. The bill precludes the establishment
of the program prior to moneys becoming available. Under
the American Recovery and Reinvestment Act, many of the
state-level applications had only a six-week turn around,
which resulted in funding proposals that were not
necessarily reflective of the state's highest priorities.
The author also notes that a robust manufacturing sector
has many benefits, including high wage jobs and a
multiplier effect on other industries and businesses. As
an example, the Milken Institute estimates that every job
created in manufacturing supports 2.5 jobs in other
sectors. In some industry sectors, such as the electronic
computer manufacturing, the multiplier effect is 16 to one.
The California Labor Federation states that this bill "will
establish the California Manufacturing Competitiveness Act
of 2011 for the purpose of supporting the expansion of
California's manufacturers and the creation and retention
of good jobs through low-interest loans."
ARGUMENTS IN OPPOSITION : Associated Builders and
Contractors of California (ABC California) writes: "AB 894
provides for a comprehensive economic development and loan
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program for California manufacturing operations and others
seeking to become more competitive in the global
marketplace. ABC California is strongly supportive of that
goal. However, as currently written, proposed new
subsection (g) of Government Code 91603 instructs the
California Industrial Development Financing Advisory
Commission to give priority to loan applications submitted
jointly with a labor union. ABC California believes that
all applicants should have the same opportunity to apply
and receive funds from this program regardless of their
union or non-union status. ABC California believes that,
with the state unemployment rate continuing to hover near
thirteen percent, all Californians deserve increased job
opportunities. ABC California would be able to remove
opposition if that particular provision is removed from AB
894."
ASSEMBLY FLOOR : 77-0, 5/31/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Campos, Carter, Cedillo,
Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hernández, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Charles Calderon, Gorell, Mansoor
PQ:mw 8/30/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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