BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 981|
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THIRD READING
Bill No: AB 981
Author: Hueso (D)
Amended: 9/2/11 in Senate
Vote: 21
SENATE GOVERNMENTAL ORGANIZATION COMM. : 12-0, 6/14/11
AYES: Wright, Anderson, Calderon, Cannella, Corbett, De
Le�n, Evans, Hernandez, Padilla, Strickland, Wyland, Yee
NO VOTE RECORDED: Berryhill
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 75-0, 5/26/11 (Consent) - See last page
for vote
SUBJECT : California Pollution Control Financing
Authority: Capital
Access Loan Program
SOURCE : State Treasurer Bill Lockyer
DIGEST : This bill provides additional incentives within
the California Capital Access Program to encourage lenders
to lend to small businesses. Specifically, this bill (1)
expands the financial institution definition to include
insured depository institutions, insured credit unions, and
community development financial institutions, (2)
authorizes the California Pollution Control Financing
Authority (CPCFA) to withdraw a portion of the interest or
other income that has been credited to the loss reserve
CONTINUED
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account, and (3) requires CPCFA to contribute an amount not
less than 150 percent of the amount of the fees paid by the
participating financial institution if the business is
located within a severely affected community.
Senate Floor Amendments of 9/2/11 insert provisions to
avoid chaptering out conflicts between this bill and AB 90
(V. Manuel Perez).
ANALYSIS :
Existing law:
1. Establishes the California Capital Access Program
(CalCAP), which operates a small business loss reserve
account program through participating financial
institutions.
2. Requires CPCFA to establish a loss reserve account for
each financial institution, specifies that the account
is fee driven and that all moneys in the account are the
exclusive property of CPCFA.
3. Requires CPCFA to transfer to the loss reserve account
an amount equal to 150 percent of the amount of the fees
paid by the participating financial institution, if the
business is located in a severely affected community.
4. Requires CPCFA to report to the Governor and Legislature
on the financial condition and programmatic results of
CalCAP.
This bill provides additional incentives within CalCAP to
encourage lenders to lend to small businesses.
Specifically, this bill:
1. Expands the financial institution definition to include
insured depository institutions, insured credit unions,
and community development financial institutions.
2. Authorizes CPCFA to withdraw a portion of the interest
or other income that has been credited to the loss
reserve account.
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3. Requires CPCFA to contribute an amount not less than 150
percent of the amount of the fees paid by the
participating financial institution if the business is
located within a severely affected community.
Background
CalCAP has traditionally been funded using fee revenues
charged by the California Pollution Control Financing
Authority (CPCFA) to private companies that receive the
benefit of tax-exempt bonds. These revenues were adequate
to sustain the CalCAP program through 2006. However,
increased use of the program in combination with declining
revenues led to necessary statutory and regulatory changes
to constrain the program. The changes allowed CalCAP to
continue at a reduced level as compared to prior years.
One of the statutory changes allowed CalCAP to reduce the
amount contributed to loan loss reserves from the combined
lender and borrower contribution to a minimum of just the
lender contribution (SB1311, 2008). Prior to the change,
the lender and borrower would contribute between 2% and
3.5% and CalCAP would contribute 4% to 7% of loan value.
Under the statutory change, the CalCAP minimum was dropped
to 2%. Health and Safety Code Section 44559.4(d) sets the
CalCAP contribution at 150 percent of the lender
contribution in severely affected communities.
The CalCAP statute (Health and Safety Code Section
44559.1(d)) allows community development financial
institutions to be lenders in the program. However, the
state statute limits community development financial
institutions to non-profit community development financial
institutions. The federal Small Business Jobs Act of 2010
(HR 5297) provided funds for state level loan assistance
programs such as CalCAP. HR 5297 uses a definition of
small business lenders that does not distinguish between
for-profit and non-profit community development financial
institutions. By regulation, CalCAP is authorized to adapt
to the federal definition when federal funds are used.
CalCAP has done this. With the regulation change,
for-profit community development financial institutions are
now allowed to use federal funds flowing through CalCAP,
but are not allowed to use state funds for loans that don't
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fit the federal criteria and they are not allowed to
receive added benefits in severely affected communities.
Examples of loans not fitting federal criteria are loans
for non-profit organizations and assistance for the
un-covered portion of Small Business Administration loans.
Comments
Purpose of the bill . According to the author's office,
CalCAP recently received $84 million in funding from the
federal Small Business Lending Act of 2010. This funding
will greatly increase the lending ability of CalCAP and
increase access to capital for California businesses. In
fact, this funding is expected to help provide loan
portfolio insurance for an additional $1.5 to $2 billion in
loans.
The author's office notes that the proposed changes in this
bill will expand access to the benefits of CalCAP by
aligning CalCAP's regulations to the federal capital access
program. This alignment will allow CalCAP to maximize the
use of the $84 million allocated to CalCAP by the United
States Treasury. Additionally, the bill will help
encourage lending in high unemployment areas and other
distressed communities.
CalCAP . CalCAP was established by legislation enacted in
1994. Unlike other small business loan assistance
programs, CalCAP provides a form of portfolio insurance for
participating lenders. CalCAP will contribute funds to a
loan loss reserve account associated with a lender. The
lender and borrower also contribute funds. These funds are
pooled and can then be used to cover losses associated with
any enrolled loan that is charged off.
Loans to small businesses under the program can be used to
finance the acquisition of land, construction or renovation
of buildings, the purchase of equipment, other capital
projects and working capital. There are established
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
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are used to capitalize the loan reserve account, are fixed
by the lender and range from 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.
In 2009, CalCAP enrolled 523 loans to California small
business owners, 335 of which were made to microenterprises
totaling $4.7million. CalCAP loans in made 2009 totaled
$45.8 million.
Related Legislation
AB 1632 (Blumenfield), Chapter 731, Statutes of 2010,
specifies that severely affected communities includes areas
with unemployment above 110 percent of the statewide
average for purposes of expending allocated funds. Also
allows CalCAP to establish regulations necessary for
participation in programs associated with funds from other
sources.
SB 1311 (Simitian), Chapter 401, Statutes of 2008, permits
CalCAP to contribute an equal amount to an enrolled loan's
loss reserve account as the lender, and to withdraw all
accrued interest from enrolled loss reserve accounts to
assist with administrative cost.
SB 1119 (Alarcon), Chapter 756, Statutes of 1999,
authorized CPCFA to issue revenue bonds to assist
responsible parties pay their liability toward the clean-up
of federal Superfund sites. It also made other changes to
improve small businesses' access to capital under CPCFA's
program.
AB 253 (Bronshvag), Chapter 1163, Statutes of 1994,
expanded the CalCAP program to all small businesses instead
of only those industries with operations that adversely
affected the environment. Also, it provided greater risk
coverage for loans made to small businesses located in
geographic areas affected by military base closures or
aerospace downsizing.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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SUPPORT : (Verified 8/16/11)
State Treasurer Bill Lockyer (source)
ARGUMENTS IN SUPPORT : According to the State Treasurer,
"AB 981 would do three things: it would allow CalCAP to
provide added incentives for loans to businesses in high
unemployment areas and other distressed communities, would
allow CalCAP to make more lenders eligible to provide
assistance-specifically, for-profit community development
financial institutions, and would allow CalCAP to reduce
the amount of interest it takes from loan loss reserve
accounts to cover program costs."
In addition, the State Treasurer states, "Over the next few
years, CalCAP is projected to create over $1.3 billion in
small business lending. AB 981 makes changes that will
allow CalCAP to attract new lenders and better assist small
businesses in our most distressed communities."
ASSEMBLY FLOOR : 75-0, 5/26/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Carter,
Chesbro, Conway, Cook, Dickinson, Donnelly, Eng, Feuer,
Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani,
Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hall,
Harkey, Hayashi, Roger Hern�ndez, Hill, Huber, Hueso,
Huffman, Jeffries, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
P�rez, Portantino, Silva, Skinner, Smyth, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. P�rez
NO VOTE RECORDED: Campos, Cedillo, Davis, Gorell, Jones
PQ:mw 9/6/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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