BILL ANALYSIS Ó
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 901 (M. Perez) Hearing Date: July 6,
2011
As Amended: June 27, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would establish the California Small Business
Development Center Program, as specified; revise the definition
of a financial institution for purposes of the Capital Access
Loan Program for small business (CalCAP); and would increase the
amount that may be deposited by a participating financial
institution into an individual CalCAP loan loss reserve account
to $200,000 over a three year period, as specified.
DESCRIPTION
1. Would establish the California Small Business Development
Center (SBDC) Program, for the purpose of expanding and
supporting the further development of the state's network of
services to small businesses; identify the duties of a SBDC;
and direct the California SBDC Program to work in
collaboration with the Small Business Advocate, the
California Small Business Board within the Business,
Transportation and Housing Agency (BT&H), the California
Economic Strategy Panel, the Employment Training Panel, the
California Workforce Investment Board, and other state
economic and workforce development programs, to the extent
feasible.
a. Would make findings and declarations related to the
importance of small businesses to a vital state economy
and the role of the California SBDC in facilitating the
success of small business.
b. Would define an administrative lead center as the
entity with which the federal Small Business
Administration (SBA) contracts to administer federal
program funds pursuant to the federal Small Business
Development Center Act of 1980, and would require an
administrative lead center to oversee and provide
AB 901 (M. Perez), Page 2
assistance to each SBDC within its area.
c. Would create the SBA Account within the California
Economic Development Fund, and would authorize moneys in
the SBA Account to be expended by the Secretary of BT&H,
upon appropriation by the Legislature, for the sole
purpose of providing state matching funds to SBDCs, to
match federal funds provided under the Small Business
Development Center Act of 1980.
d. In any year in which state revenue is expended to
support the California SBDC Program, would require the
administrative lead center that oversees a region in
which state revenues are expended to report to the
Governor, the Legislature, and BT&H on the activities of
the California SBDC Program in its region. The report
would have to include, at a minimum, the number of
businesses assisted, the number of employees employed by
those businesses, the number of jobs created, the number
of jobs retained, the amount of state tax dollars
generated from those businesses, the industry sectors of
the businesses assisted, and the amount of federal
funding allocated to the regional center during the
reporting period. Would require BT&H to post this
information on its Internet Web site.
e. Would authorize SBDCs to charge reasonable fees for
the training services they provide.
2. Would amend the definition of a financial institution for
purposes of the California Capital Access Fund to
additionally include a small business financial development
corporation or microenterprise development organization that
meets standards established by the California Pollution
Control Financing Authority (the authority).
3. Would augment the items that must be included in the CalCAP
annual report, which the authority must send to the Governor
and Legislature, to additionally include all of the
following for all loans outstanding on the date the report
is issued and for new loans issued since the prior report:
the total number of businesses served, jobs created, jobs
retained, the geographic distribution of the loans, and the
breakdown of businesses served by industry sector.
4. Would authorize a financial institution that participates
AB 901 (M. Perez), Page 3
in the CalCAP program to deposit up to $200,000 into an
individual loss reserve account over a three year period, in
connection with a single borrower or any group of borrowers
among which a common enterprise exists, if the matching
contribution made by the authority is funded exclusively
from funds made available pursuant to the federal Small
Business Jobs Act of 2010 (Public Law 111-240).
EXISTING LAW
5. Provides for the CalCAP program, administered by the
authority (Health and Safety Code Section 44559 et seq.),
authorizes the authority to contract with eligible financial
institutions for the purpose of allowing the financial
institutions to participate in CalCAP, requires the
authority to establish a loss reserve account for each
financial institution with which the authority makes a
contract, and caps the amount that may be deposited by any
single participating financial institution into any
individual loss reserve account over a three-year period, in
connection with any single borrower or any group of
borrowers among which a common enterprise exists, at
$100,000.
COMMENTS
1. Background and Discussion: The author introduced AB 901,
to aid in the successful implementation of the Federal and
State Small Business Jobs Acts of 2010 (Public Law 111-240
and AB 1632, Chapter 731, Statutes of 2010). This bill
makes three changes to the CalCAP program and formally
recognizes the California SBDC Program in statute.
a. CalCAP Program: The CalCAP Program was authorized
in 1994, to help small businesses obtain loans for which
they would otherwise be ineligible. CalCAP is run by the
California Pollution Control Financing Authority (the
authority), and, until last year, had received all of its
funding from the sale of bonds by the authority. Last
year, the program was augmented with a $6 million
infusion of General Fund money (AB 1632, J. Perez,
Chapter 731, Statutes of 2010).
CalCAP is a loan guarantee program, rather than a direct
lending program. Small businesses that fall outside of
traditional lending or underwriting criteria can apply
AB 901 (M. Perez), Page 4
for CalCAP loans from participating financial
institutions. The participating financial institutions
establish all of the terms and conditions of the CalCAP
loans (i.e., these terms and conditions are not set by
the authority, nor in statute).
The maximum loan amount currently available under the
CalCAP program is $2.5 million, although no loan of that
size has been made since 2008, and most loans are far
smaller (the average size loan in 2010 was $82,500, and
the maximum loan was $1 million). Loans may be short- or
long-term, have fixed or variable rates, be secured or
unsecured, and carry any type of amortization schedule.
Loan proceeds may be used to finance the acquisition of
land, construct or renovate buildings, purchase
equipment, or for other capital projects or working
capital.
Once it decides to approve a CalCAP loan, a participating
financial institution establishes a loan loss reserve
account, whose size it sets based on the creditworthiness
of the borrower. Funds in the loan loss reserve account
are available for use by the financial institution to
backfill itself for possible losses resulting from the
loan. Borrowers, lenders, and the authority are each
required to contribute to each CalCAP loan loss reserve
account. Amounts contributed by borrowers and lenders
are identical, are established by the lender, and
currently range from 2% to 3.5% of the loan amount,
depending on the lender's perception of the borrower's
creditworthiness. The amount contributed by the
authority equals or slightly exceeds the contributions
made by the lender and borrower (higher amounts may be
contributed by the authority, if the loan is being made
in a "severely affected community"). The authority's
contributions currently range from 2% to 3.5% of the loan
amount in areas not deemed to be severely affected
communities, and from 3% to 5.25% in severely affected
communities.
Once the authority contributes to an individual loan loss
reserve account, it has no further financial exposure in
connection with the loan; any losses experienced by a
financial institution, which are not covered by the loan
loss reserve account, are borne by the financial
institution.
AB 901 (M. Perez), Page 5
Provision of the bill that adds two types of entities to
those entities that may be approved by the authority as
CalCAP participating financial institutions: Under
existing law, a wide range of financial institutions,
both depository and non-depository, are eligible to apply
to the authority for approval as participating CalCAP
financial institutions. As of June 14, 2011, 51
financial institutions were on the authority's list of
CalCAP lenders, ranging from small community development
centers and community development financial institutions,
to small community banks and credit unions, to large,
multinational banks.
This bill would add two additional types of financial
institutions (small business financial development
corporations and microenterprise development
organizations) to the list of entities eligible to apply
to the authority for approval to become participating
financial institutions. The author's office indicates
that these two types of organizations have relationships
with a range of small businesses that might not seek out
loans from other types of participating financial
institutions. Thus, expanding the definition of a
financial institution to include these types of entities
could expand the availability of CalCAP loans to a wider
constituency.
Provision of the bill that increases the information that
must be included in the authority's annual CalCAP report:
The additional information that will be added to the
annual CalCAP report includes the total number of
businesses served by the CalCAP program, jobs created,
jobs retained, the geographic distribution of CalCAP
loans, and the breakdown of businesses served by industry
sector. The author believes that this additional
information can be used by the authority to better
evaluate the impact of the program. Staff believes that
this information may be valuable for helping to identify
constituencies that are not currently being served by the
program.
Provision of the bill that would raise the loan loss
reserve contribution amount to $200,000: At present,
existing law caps the combined amount that may be
deposited by a financial institution into a loan loss
AB 901 (M. Perez), Page 6
reserve account at $100,000 per borrower or group of
borrowers across a common enterprise. This combined
amount includes contributions from both the lender and
the borrower. This bill proposes to increase the
$100,000 cap to $200,000, if the matching contribution
made by the authority is made with federal funds made
available through the federal Small Business Jobs Act of
2010.
According to the State Treasurer's Office (the entity in
which the authority is housed), doubling the size of
contributions that may be made by a financial institution
to a loan loss reserve account from $100,000 to $200,000
has the effect of increasing the maximum allowable loan
limit from $2.5 million to $5 million. (The $5 million
amount is derived by assuming that the most creditworthy
borrowers will be asked to contribute 2% to the loan loss
reserve account. An equal amount would be contributed by
the financial institution. Thus, the combined amount
that would be deposited by the financial institution into
the loan loss reserve account would equal 4% of the loan
amount. $200,000 represents 4% of $5 million.)
b. California SBDC Program: California SBDCs are
private entities funded through a combination of federal,
state, and private moneys, which exist to help
entrepreneurs grow their businesses. The work of the
centers is organized around six geographic regions, each
of which is headed by an administrative lead center.
Each lead center, in turn, has a director who oversees a
group of local service centers. There are 35 service
centers in California, each of which provides consulting
and training out of their center, and which also provides
outreach services to a variety of smaller communities.
In total, California SBDCs provide services to 105
communities in California. Each year, they serve over
50,000 small business owners through one-on-one
consulting, mentoring, and workshops.
California's SBDCs receive a total of $12 million in
funding from the federal Small Business Administration
annually. The lead centers then work together to secure
the non-federal funds required of these entities (a
portion of the federal funds must be returned, if the
SBDCs are unable to raise at least $6 million annually
AB 901 (M. Perez), Page 7
through non-federal sources). Through 2002, these
non-federal matching funds were provided by the state.
Since that time, California SBDCs have had to cobble
together funding from local entities, corporate
sponsorships, competitive one-time grants, and one-time
contracts with state entities. In 2010, $6 million in
funding for SBDCs was included in AB 1632 (Perez),
Chapter 731, Statutes of 2010.
The author of this bill is seeking to codify the California
SBDC Program, to help put SBDCs in a more direct
relationship with state agencies that want to work with
them on projects. Codifying the existence of SBDCs will
also allow the state to require these entities to share
their results with the state, which, in turn, will
benefit those in the state who wish to target small
business development and economic growth.
2. Multiple bills, multiple committees, same subject: As
summarized below in the "related legislation" section of
this bill, three different Assembly bills are proposing to
make similar sets of changes to the CalCAP program. AB 981
(Hueso) was heard and passed by the Senate Governmental
Organization Committee on June 14, 2011. AB 796
(Blumenfield) was double-referred to the Senate Governance
and Finance Committee and Senate Environmental Quality
Committee. It passed the Senate Governance and Finance
Committee on June 29, 2011, and is currently pending in the
Senate Environmental Quality Committee. AB 901 was referred
to the Senate Banking and Financial Institutions Committee.
Two of the bills (AB 901 and AB 796) contain an identical
provision - one which would increase the cap on allowable
financial institution contributions to CalCAP loan loss
reserve accounts to $200,000. That provision was added to
AB 796 on April 25, 2011 and to AB 901 on June 27, 2011.
Both the Senate Governance and Finance Committee and the
Senate Environmental Quality Committee analyses of AB 796
observe that this provision may be unnecessary, and express
concern that it could be harmful. There has been no request
from either the authority or small business stakeholders for
a higher CalCAP loan amount. (As noted earlier, out of 436
CalCAP loans made during 2010, the average loan size was
$82,500, and the maximum loan size was just over $1
million).
AB 901 (M. Perez), Page 8
Furthermore, authorizing larger loans may have the unintended
effect of crowding out the smaller businesses that currently
use the CalCAP loan program, in favor of larger businesses.
Without a demonstrated need for this language, and given the
possibility that it could harm the very same small
businesses it purports to help, staff suggests deleting this
provision from AB 901.
3. Summary of Arguments in Support: Myriad chambers of
commerce, small business development centers, and other
entities supportive of small business development and
economic growth support the bill as one component of the
state's efforts to bolster the state's economy.
4. Summary of Arguments in Opposition: None received.
5. Amendments: In addition to staff's suggestion that Section
5 of the bill be deleted (see discussion above), the
following technical amendments are recommended:
a. CalCAP Provisions:
i. The two types of entities being added
to the list of institutions that may become
participating CalCAP financial institutions are not
defined in the bill, and need to be, if the authority
is to know exactly who is, and is not, eligible to
participate.
According to the author's office, a definition of
small business financial development corporation
appears in the California Small Business Financial
Development Corporation Law (Corporations Code
Section 14000 et seq.) The codes lack a definition
for microenterprise development organization, but the
author wishes to add the following definition to
Government Code Section 13997.2: "Micro enterprise
development organization means a nonprofit or public
agency that provides self-employment training,
technical assistance, and access to microloans to
individual seeking to become self-employed or to
expand their current business."
In addition to adding that definition to the
AB 901 (M. Perez), Page 9
Government Code, AB 901 will require the following
amendments:
Page 7, line 28, after "corporation" insert: , as
defined in Chapter 1 of Part 5 of Division 3 of the
Corporations Code (Sections 14000 et seq.),
Page 7, line 29, after "organization" insert: , as
defined in Government Code Section 13997.2.
ii. This bill requires the authority to
include information in its annual report on all loans
outstanding as of the date the report is issued.
This requirement is unworkable, as it fails to allow
the authority sufficient time to compile information
about its loans before it is required to report on
their impacts. The author has agreed to an amendment
that would require the report to include information
on loans which are on its books as of the close of
the authority's fiscal year.
Page 12, lines 18 through 20, delete the language that
reads "for all outstanding loans on the date the
report is issued and new loans issued since the
report from the prior year," and insert the following
on line 22, after "sector": for all loans
outstanding as of the end of the authority's fiscal
year, and for new loans issued since the report for
the prior year
b. SBDC Provisions:
i. AB 901 requires each individual
administrative lead center to send a separate report
the Governor, Legislature, and BT&H in years in which
it receives state funding. It would be far more
helpful to users of the reports if the individual
administrative lead centers sent their reports to a
single entity (such as BT&H), and that entity
compiled the separate reports into a single report,
for distribution to the Governor and the Legislature.
ii. Some of the information required to be
included in the reports from administrative lead
centers may not always be available in all cases.
Staff suggests adding the words "To the extent this
AB 901 (M. Perez), Page 10
information is available" before the word "The" on
page 6, line 13.
c. Chaptering amendments are also necessary to address
overlaps between AB 901 and AB 981 (Hueso) and between AB
901 and AB 796 (Blumenfield). The author's office has
indicated a willingness to consider triple-jointing
language, but would prefer to see Section 5 of this bill
stricken from both this bill and AB 796. Striking that
provision from one or both bills would alleviate the need
to double-joint the two, and would leave AB 901 and AB
981 as the bills that require double-jointing.
6. Prior and Related Legislation:
a. AB 981 (Hueso): Would modify the CalCAP program by
revising the definition of a financial institution to
additionally include insured depository institutions,
insured credit unions, and for-profit community
development financial institutions; authorize the
authority to withdraw a portion, rather than all of the
interest credited to an individual loss reserve account
at a participating financial institution; and increase
the amount contributed by the authority to businesses
located in severely affected communities. Sponsored by
the State Treasurer's Office. Passed the Senate
Government Organization Committee. Pending a hearing in
the Senate Appropriations Committee.
b. AB 796 (Blumenfield): Like AB 901, would increase
the amount that can be deposited by a financial
institution participating in the CalCAP program into a
loan loss reserve account to $200,000, over a three-year
period, as specified, if the matching contribution made
by the authority is funded exclusively from funds made
available pursuant to the federal Small Business Jobs Act
of 2010. Would also create the Clean Energy and Jobs
Incentive Program, as specified. Pending in the Senate
Environmental Quality Committee.
c. SB 225 (Simitian): Would authorizes the authority
to establish CalCAP 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.
AB 901 (M. Perez), Page 11
d. AB 1632 (J. Perez), Chapter 731, Statutes of 2010:
Transferred a total of $32.4 million from the General
Fund to the California Small Business Expansion Fund,
California Capital Access Fund, and the California
Economic Development Fund, to support small businesses
and facilitate matching funds that would ensure a full
complement of federal funding for these programs.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Binderup Investments
Book Pointe Solutions
Bouchard Business Services
California Asian Pacific Chamber of Commerce
California Association for Micro Enterprise Opportunity
CDC Small Business Finance
Central Coast Small Business Development Center
City of Watsonville
Healings in Motion
Inland Empire Economic Partnership
Jennifer Micheli
John Nicoletti, Supervisor, Yolo County
Kendra Renee Jewelry Design
Los Angeles Regional SBDC Network
North Coast Small Busiess Development Center
Northeastern California Small Business Development Center
Northern California Small Business Development Center Program
Orange County/Inland Empire Regional SBDC Network
San Diego & Imperial Regional SBDC network
San Francisco Small Business Development Center
Silicon Valley Small Business Development Center
Siskiyou County Economic Development Council
Star Employment Agency Bookkeeping & Tax Services
University of California, Merced SBDC Regional Network
Woodland Chamber of Commerce
Yolo County Historical Museum (Gibson House)
Yuba-Sutter Economic Development Corporation
Yuba-Sutter Indo American Business Association
Opposition
None received
AB 901 (M. Perez), Page 12
Consultant: Eileen Newhall (916) 651-4102