BILL ANALYSIS Ó
AB 901
Page 1
Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 901 (V. Manuel Perez) - As Introduced: February 17, 2011
SUBJECT : Implementation of Small Business Jobs Act
SUMMARY : Expands the definition of eligible financial
institution for participation under the California Capital
Access Loan Program (CalCAP) a program receiving $90 million
dollars in federal and state funding for small business
assistance. Specifically, this bill :
1)Defines "financial institution" to include small business
financial development corporations or microenterprises
development organizations, as specified.
2)Updates the requirement that financial institutions provide
the Standard Industrial Classification (SIC) Code, and instead
will now provide the North American Industry Classification
System (NAICS).
3)Requires, as part of the CalCAP annual report that the
programmatic results include, but are not limited, to the
following:
a) Number of total outstanding loans issued;
b) Number of new loans issued since the prior year's
report;
c) Number of businesses served, jobs created and retained,
as well as a breakdown of businesses served by industry
sector; and
d) Geographic distribution of the loans for the reporting
period.
EXISTING LAW :
1)Establishes CalCAP for the purpose of providing a small
business loss reserve account program through participating
financial institutions.
2)Requires a loss reserve account be established for each
financial institution working with CalCAP, specifies that the
account is fee driven, and that all moneys in the account are
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the exclusive property of California Pollution Control
Financing Authority (CPCFA).
3)Requires the CPCFA to report annually to the Governor and
Legislature describing the financial condition and
programmatic results of the CalCAP.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the bill : According to the author, "AB 901 helps
to ensure that there are not technical hurdles that impede the
successful delivery of the state and federal Small Business
Jobs Acts of 2010 that will provide $174 million in new
dollars for California small businesses.
Some of these funds will be administered through federal
agencies, such as the Small Business Administration, while
others will be awarded and implemented through existing state
programs, such as the Capital Access Loan Program.
Collectively, these programs offer unique, new financing and
technical assistance opportunities to California's small
businesses.
In addition, AB 901 adds accountability provisions related to
how the funds are used, by specifying that the programmatic
reports include the total number of businesses served, jobs
created, jobs retained, the geographic distribution of the
loans, and the types of businesses served."
2)The Federal Small Business Jobs Act of 2010 : The Federal
Small Business Jobs Act of 2010 creates the Small Business
Lending Fund Program that directs the Secretary of the
Treasury to make capital investments in eligible institutions
in order to increase the availability of credit for small
businesses, to amend the Internal Revenue Code of 1986 to
provide tax incentives for small business job creation, and
for other purposes. Of the $505 billion dollars to be
distributed nationally, California is scheduled to receive
$168 million which will be administered through two state
programs the CalCAP in the Treasurer's Office and the
California Small Business Loan Guarantee Program in the
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California Business, Transportation and Housing Agency (BTH).
3)California Capital Access Program for Small Businesses:
CalCAP was established by legislation enacted in 1994. The
program assists small businesses in obtaining loans through
participating financial institutions through a loss reserve
account model, which is described in the following comment.
The objective of the program is to incentivize financial
institutions to provide small businesses with the capital to
maintain and grow their business. 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. While eligible, there are limitations on
real estate loans and loan refinancing.
The maximum loan amount is $2.5 million. The maximum premium
lenders will pay is $100,000 (per borrower). Lenders set the
terms and conditions of the loans and decide which loans to
enroll into CalCAP. Loan fees, which are used to capitalize
the loan reserve account, are set by the lender and are in the
range of 2% to 3.5% of the total loan amount. Loans can be
short- or long-term, have fixed or variable rates, be secured
or unsecured, and bear any type of amortization schedule.
Moneys to operate CalCAP originally came from excess program
fees charged to applicants working with CPCFA relative to the
issuance of private activity bonds. In 2009, CalCAP enrolled
523 loans to California small business owners, 335 were to
microenterprises totaling $4.7million. As of December 31,
2009, the total number of loans enrolled in the program since
1994 is 7,858.
As of December 31, 2009, CalCAP lenders have cumulatively
loaned over $1.35 billion since the program's inception in
1994. The amount of enrolled loans in 2009 totaled $45.8
million and they created/affected 1,620 jobs in California.
4)CalCAP loss reserve account : Under the loan reserve account
model, CalCAP enrolls financial institutions into the program
and agrees to match loss reserve account premiums (fees) paid
by borrowers and lenders on eligible loans. As an example, if
the lender and the borrower each contribute an amount equal to
2% of the loan amount, CalCAP would contribute 4% into the
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loan reserve account. For eligible loans in "severely
affected areas," CalCAP would contribute an additional 50%,
making CalCAP's total contribution to the loss reserve account
150% of the lender's contribution.
In 2008, CPCFA determined it could not sustain the program at
the traditional contribution levels of CalCAP matching the
total contributions of the lender and borrower. Legislation
was enacted that reduced the minimum CalCAP contribution to an
amount equal to the lender contribution. Thus, each of the
three entities (CalCAP, lender and borrower) would contribute
between 2% and 3.5% to the loss reserve account. The language
in the 2008 bill allowed CalCAP to make a higher contribution
rate if CPCFA chose to do so. However, for severely affected
communities, the CalCAP contribution remained at 150% of the
amount of the lender contribution.
In late 2010, the Legislature passed (AB 1632, Chapter 731,
Statutes of 2010) to provide additional funds to CalCAP and to
expand the definition of severely affected communities to
include communities with high unemployment. With the $6
million in additional state funds, and later $84 million in
federal funds, the CPCFA Board approved increasing the
contributions to pre-2008 levels to encourage more small
business lending.
However, because the earlier legislation states that CalCAP
contributions would be set at 150% of lender contributions in
severely affected communities, CalCAP faced an odd dilemma.
CalCAP could raise the loss reserve contributions to historic
levels using state funds, but would have to provide a lower
contribution in severely affected communities. Specifically,
CalCAP contributions could be raised to 200% of lender
contribution outside of severely affected communities and 150%
of lender contributions inside severely affected communities.
Flexibility is needed so that CPCFA can more efficiently
administer CalCAP within the loss reserve account limits to
allow CPCFA to raise or reduce lender/borrower contributions
in severely affected communities when additional funds are
available.
The chart below provides a summary of contribution levels
described above.
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---------------------------------------------------------
| Comparison of CalCAP Contributions |
---------------------------------------------------------
|------------------------------+--------+--------+--------|
| | Lender |Borrower| CalCAP |
| |Contribu| |Contribu|
| | tion |Contribu| tion |
| | | tion | |
|------------------------------+--------+--------+--------|
|Pre-SB 1311 | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|Pre-SB 1311 SAC | 2-3.5% | 2-3.5% |6-10.5% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|SB 1311 (2008-late 2010) | 2-3.5% | 2-3.5% | 2-3.5% |
|------------------------------+--------+--------+--------|
|SB 1311 SAC | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Current State Funds | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
|Current State Funds SAC | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|State Funds with AB 981 | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|State Funds with AB 981 SAC | 2-3.5% | 2-3.5% |6-10.5% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Current Federal Funds | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|Current Federal Funds SAC | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Federal Funds with AB 981 | 2-3.5% | 2-3.5% |6-10.5% |
|using state funds for added | | | |
|SAC amount | | | |
---------------------------------------------------------
---------------------------------------------------------
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|SAC stands for Severely Affected Community |
|---------------------------------------------------------|
|Source: California Treasurer's Office |
---------------------------------------------------------
5)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.9 trillion economy.
Businesses with less than 100 employees comprise nearly 98% of
all businesses, and they are responsible for employing more
than 37% of all workers in the state.
Small- and medium-sized businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 57,461 companies that
exported goods from California in 2008, 96% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly two-fifths (44%) of California's
exports in 2008. Nationally, SMEs represented only 31% of
total exports. These numbers include the export of only goods
and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
less than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than
50 employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting
for nearly 64% of all new employment growth. According to a
2010 report from the California Senate Office of Research, in
2008 microenterprises employed four million people or 19% of
the state's employment. Common types of microenterprises
include engineering, computer system design, housekeeping,
construction, landscaping, and personnel services.
6)Proposed Amendments : Staff understand that amendments will be
offered which do the following:
a) Exempts non-profit small business lenders from the
California lending license requirement;
b) Requires CPCFA to contribute an amount not less than
$150 of the amount of the fees paid by the participating
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financial institution, if the business is located within a
severely affected community, as defined; and
c) Deletes the requirement that the CalCAP annual report
should include a number of new programmatic results.
7)Related Legislation : Below is a list of related legislation
from current and previous legislative sessions:
a. AB 981 (Hueso) : This bill requires the CPCFA to
contribute a minimum of 150% of the fees paid by
participating financial institutions, if the qualified
business is located within a severely affected community.
The bill would also authorize the use of a portion of the
interest or other income that has been credited to a loss
reserve account from a participating financial institution.
Status: Scheduled to be in the Assembly Committee on
Jobs, Economic Development and the Economy, May 3, 2011.
b. AB 1632 (Blumenfield) : This bill provides the necessary
statutory changes in the area of job creation and small
business development in order to implement the 2010 Budget
Act. The bill transfers $32.4 million from the General
Fund to support four small-business and jobs programs that
exist in current law. The funding appropriated in this
bill goes to the Small Business Loan Guarantee Program ($20
million); California Capital Access Fund ($6 million);
Small Business Development Centers ($6 million); and the
Federal Technology Centers ($350,000). Status: Signed by
the Governor, Chapter 731, Statutes of 2010.
c. SB 225 (Simitian) California Pollution Control Financing
Authority: Capital Access Loan Program : This bill
authorizes CPCFA to establish loss reserve accounts for the
purposes of terminal rental adjustment clause leasing, if
funds are available for contribution into the loss reserve
account from any source other than the authority. Status:
Pending in Assembly Rules Committee, May 2011.
d. SB 832 (Senate Committee on Environmental Quality) : This
bill revises, under the tax-related provisions, the terms
"project" and "pollution control facility", as defined in
the California Pollution Control Financing Authority Act
that are eligible for the sales and use tax (SUT) exclusion
and includes public agencies in the definition of
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"participating parties" that are eligible for financial
assistance in connection with the projects designed to
control or eliminate environmental pollution. Status:
Signed by the Governor, Chapter 463, Statutes of 2009.
e. SB 1311 (Simitian) : This bill reduces the monetary
contribution of the CPCFA to an amount equal to the amount
of fees paid by a participating financial institution.
Also provides that CPCFA may withdraw from the loss reserve
account all interest or other income that has been credited
to that account for the purpose offsetting administrative
costs and contributions. Status: Signed by the Governor,
Chapter 401, Statutes of 2008.
REGISTERED SUPPORT / OPPOSITION :
Support
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|Book Pointe Solutions |
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|Binderup Investments, Inc. |
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|Bouchard Business Services |
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|California Association for Local Economic Development |
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|California Association for Micro Enterprise Opportunity |
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|California Small Business Development Center |
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|California Small Business Development Center at Cabrillo College |
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|California Small Business Development Center Northern CA Regional |
|Network |
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|California Small Business Development Center Orange County/Inland |
|Empire Regional Network |
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|California Small Business Development Center, U.C. Merced Regional |
|Network |
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|California Small Business Development Center, City College of San |
|Francisco |
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|California Small Business Development Center, North Coast Center |
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|California Small Business Development Center, San Diego/Imperial |
|Regional Network |
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|California Small Business Development Center, Silicon Valley |
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|CDC Small Business Finance |
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|Gibson House |
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|Healings in Motion |
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|Inland Empire Economic Partnership |
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|Kendra Renee Handmade Jewelry |
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|Northern California Small Business Development Center, San Joaquin |
|Delta College |
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|Small Business Development Center, Los Angeles Regional Network |
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|Star Employment Agency |
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|Woodland Chamber of Commerce |
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|Yuba County, Supervisor - District Two |
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|Yuba Sutter Economic Development Corporation |
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|Yuba Sutter Indio American Business Association |
| |
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Opposition
None received
Analysis Prepared by : Toni Symonds/ Mercedes Flores / J.,
E.D. & E. / (916) 319-2090
AB 901
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