BILL ANALYSIS �
AB 2523
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Date of Hearing: May 16, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2523 (Hueso) - As Amended: April 26, 2012
Policy Committee: JEDE Vote:4-2
Banking and Finance 8-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes a small business financing program in the
California Infrastructure and Economic Development Bank
(I-Bank). Specifically, this bill:
1)Authorizes the I-Bank to purchase participation interests in
loans made by financial institutions to small businesses. A
participation loan is when the state purchases a portion of a
loan made by a lender.
2)Requires the I-Bank to include in its annual report a summary
of the participation loan agreement program, including, but
not limited to, the number of jobs impacted and created, the
number of businesses assisted, the geographic areas the
businesses were located and the industry sectors of the
businesses served.
FISCAL EFFECT
The I-Bank will incur administrative costs estimated at
approximately $5 million to develop and administer the small
business participation loan program. To begin lending, the
Legislature will have to appropriate funds or the I-Bank will
have to divert funds from their infrastructure lending. As a
result, this bill creates General Fund pressure to fund the
program or support the I-bank.
COMMENTS
1)Purpose . According to the author, AB 2523 is needed to,
"broaden the scope of the I-bank and its current funding
AB 2523
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programs to further strengthen economic development of this
state. Small businesses are a vital component of California's
economy. Coordinating state-managed fund, in partnership with
financial institutions, will enhance the availability of
capital for California small business and farmers thus
contributing to sustainable job growth."
2)The I-Bank : The I-Bank was established in 1994 to promote
economic revitalization, enable future development, and
encourage a healthy climate for jobs in California. Housed
within BTH, it is governed by a five-member board of
directors. The I-Bank does not receive any ongoing General
Fund support, rather it is financed through fees, interest
income and other revenues derived from its financing
activities.
On March 30, 2012, the governor submitted a reorganization
plan to the Little Hoover Commission, which proposes to
dismantle BTH and relocate the I-Bank in the Governor's Office
of Business and Economic Development (GO-Biz). The Director
of GO-Biz will become the chair as Chair of I-Bank.
1)I-Bank financing. The I-Bank is a self-supporting
governmental entity that pays its cost of operations from
service fees and interest earnings on loans and investments.
The Infrastructure State Revolving Fund (ISRF) Program, a
direct loan program, was originally funded with seed money
from the State's General Fund in the late 1990's and early
2000's, and later funded with the proceeds of tax-exempt
revenue bonds described below. The I-Bank issued approximately
$150 million of tax-exempt revenue bonds secured by the ISRF
Program repayment revenues that provided additional ISRF
Program funding. The bank has leveraged the initial State
General Fund infusion to finance approximately $400 million in
infrastructure projects over the life of the program.
2)Background. Participation loans are considered loans that are
shared by a group of financial institutions that join together
to make a loan too big for any one of them alone. The
benefits of a participation loan program are:
a) The state benefits from seeing the financial institution
lender's credit analysis, though the state should also
conduct its own underwriting of each loan.
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b) The financial institution lender diversifies its risk by
sharing exposure with the state.
c) In a purchased participation, the financial institution
lender conducts all of the customer interaction, including
monthly invoicing, collections, and loan workouts.
Conversely the state takes on the risk and must do its own
underwriting to ensure the lender took into account the proper
level of risk and to keep the state from purchasing poor
quality loans with unacceptable risks of default.
1)There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081