BILL ANALYSIS �
AB 2523
Page 1
ASSEMBLY THIRD READING
AB 2523 (Hueso)
As Amended May 29, 2012
Majority vote
ECONOMIC DEVELOPMENT 4-2 BANKING & FINANCE 8-3
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|Ayes:|V. Manuel P�rez, Beall, |Ayes:|Eng, Achadjian, Fuentes, |
| |Block, Hueso | |Mitchell, Roger |
| | | |Hern�ndez, Lara, Perea, |
| | | |Torres |
|-----+--------------------------+-----+--------------------------|
|Nays:|Grove, Morrell |Nays:|Wagner, Harkey, Morrell |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|Fuentes, Blumenfield, | | |
| |Bradford, Charles | | |
| |Calderon, Campos, Davis, | | |
| |Gatto, Ammiano, Hill, | | |
| |Lara, Mitchell, Solorio | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Donnelly, | | |
| |Nielsen, Norby, Wagner | | |
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SUMMARY : Authorizes the California Infrastructure and Economic
Development Bank (I-Bank) to enter into participation loan
agreements with financial institutions for the purpose of
expanding capital opportunities for small businesses. Among
other requirements, this bill :
1)Specifies that eligible participating financial institutions
include banks, savings and loan associations, credit unions,
as well as nonprofit organizations that serve as financial
intermediaries or microbusiness lenders, as defined.
2)Limits implementation of this measure until an appropriation
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is made to finance the loan participation program.
3)Expands the I-Bank's existing reporting requirements to
include information on bill-related activities.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the bill will become operative when funds are
available so there are not immediate costs, but the bill will
provide cost pressure on the General Fund. When implemented the
I-Bank will incur costs estimated at approximately $5 million to
develop and administer the small business participation loan
program.
COMMENTS : California currently provides several loan and credit
enhancement programs designed to encourage private financial
institutions to offer loans to small businesses. These programs
include, but are not limited to, the California Capital Access
Program, administered through the State Treasurer's Office, and
the Small Business Loan Guarantee Program, administered through
the Business, Transportation and Housing Agency (BTH) and a
statewide network of small business financial development
corporations.
This bill expands these financing options by authorizing the
I-Bank to purchase a portion of one loan or a package of loans
through a financial instrument called a participation loan
agreement. Under a participation loan agreement, one lender
takes the lead in initiating the loan with the borrower, with
additional lenders purchasing a portion of the loan from the
lead lender.
Changing Financial Markets
From being reserved for only the most complex and large size
loans, the use of multi-lender financing is becoming a common
structure for addressing the capital needs of small businesses.
These types of transactions can take many forms including
participation loan agreements, as proposed in this bill.
One of the key factors impacting the ability of a financial
institution to provide loans is the lender's capitalization. In
general, federal law and regulation allow a financial
institution to loan $100 for every $1 of money held in reserve.
Once the initial loan is given, the lender must hold a certain
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amount of money in reserve until the debt is repaid. Regulators
carefully review lenders' financial records to ensure that
sufficient moneys are held in reserve and that lenders are
adhering to prescribed risk limitations. In the past few years,
the weakened conditions on some lenders' balance sheets has
resulted in discontinuing small business lines of credit,
choosing to not renew expiring loans, and tightening the
underwriting standards for new business loans. In short,
accessing the necessary capital to maintain and grow businesses
has become very difficult.
Without multi-lender financial structures, institutions can be
limited in their ability to meet the financial needs of a
customer. As one example, a growing business may need a loan
that would require a financial institution to loan an amount
that exceeds its lending limits. By bringing in one or more
additional lenders, the needs of the business can be effectively
met through its current lender without requiring the business to
undertake an extended search for a larger size lender that can
both accommodate the size of the loan and be willing to extend
the loan.
From the financial institution's perspective, multi-lender
financial structures offer a number of key advantages,
including, but not limited to, allowing an institution to
continue serving a long-time customer, offering new lending
opportunities to emerging and small community development
financial institutions, and providing diversification to the
institution's loan portfolio, which benefits the overall risk to
capital ratio.
Reorganization of 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 comprised of the
BTH Secretary (Chair), State Treasurer, Director of the
Department of Finance, Secretary of State and Consumer Services
Agency, and a Governor's appointee.
The day-to-day operations of the I-Bank are directed by the
Executive Director who is an appointee of the Governor and is
subject to confirmation by the California State Senate.
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Currently, the I-Bank has authority for 24 staff members. 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 public and private sector financing activities.
On May 3, 2012, the Governor submitted a reorganization plan to
the Legislature, which among other things, proposes to dismantle
BTH and move programs to other existing and new government
entities. The I-Bank is proposed to be relocated to the
Governor's Office of Business and Economic Development (GO-Biz),
with the Director of GO-Biz replacing the Secretary of BTH as
Chair of I-Bank. The newly established Secretary of
Transportation replaces the Secretary of State and Consumer
Services on the I-Bank board.
The Legislature now has 60 days to consider the plan. The plan
goes into effect unless the Legislature takes an action to
disapprove the plan with a majority of the Members in either
house voting. A repositioned I-Bank within GO-Biz offers a
range of cost effective and innovative options for advancing the
state's economic position.
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
FN: 0003993