BILL ANALYSIS Ó
AB 2619
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2619 (V. Manuel Perez) - As Amended: April 18, 2012
SUBJECT : Start-Up California Impact Investment Fund program.
SUMMARY : Creates the Start-Up California Impact Investment Fund
Program within the California Infrastructure and Economic
Development Bank (I-Bank) to provide startup equity funds to
startup firms and small businesses. Specifically, this bill :
1)Allows the I-Bank to make expenditures from the startup equity
fund account.
2)Requires the I-Bank to consult with the appropriate agencies and
investors who impact investment policies that target businesses
in lower income communities, emerging money managers, or
emerging domestic markets.
3)Requires after the consultation that the I-Bank shall adopt an
investment policy and establish criteria, priorities and
guidelines for the selection of start-up firms and small
businesses that receive start-up equity funds from the I-Bank.
4)Provides that the criteria, priorities, and guidelines shall, at
a minimum, do all of the following:
a) Encourage the establishment of startup firms and growth of
early stage small businesses.
b) Offer financial opportunities to emerging money managers.
c) Encourage mentoring relationships of emerging money
managers by equity asset managers with proven track records,
including having been in business for more than 5 years and
having raised three or more equity funds of five hundred
million dollars or more. This may include the I-Bank
partnering with investors, such as CalPERS and CalSTRS.
d) Support business development in lower income areas of the
state.
e) Require reporting of the social and environmental impacts
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of the investments on an annual basis.
f) Encourage business development that includes the export of
products from California.
g) Encourage businesses that are manufacturing overseas to
bring production lines back to the United States and products
to be made in California.
5)Allows the I-Bank to contract with professional equity fund
managers who have demonstrated expertise in emerging domestic
market investments and impact investment mandates to implement
the Start-Up California Impact Investment Fund program.
6)Requires the I-Bank to adopt guidelines and policies for
overseeing these contracts.
7)Defines "equity financing" as the shares of common or preferred
stock issued by a startup firm or small business to the bank in
exchange for capital.
8)Defines "Startup equity funds" as money and resources invested
in startup firms and small businesses with exceptional growth
potential. In exchange for this capital, the bank receives an
equity stake in the firm or business represented by shares of
common or preferred stock.
9)Defines "emerging domestic market" as business enterprises with
grown potential, which, due to their geographic location, have
historically faced capital constraints due to systemic
undervaluation as a result of imperfect market information.
10)Defines "emerging money manager" as a money manager on his or
her first or second fund iteration.
11)Defines "impact investments' as investments made in companies,
organizations, and funds with the intention to generate
financial risk adjusted returns, as well as measurable social
and environmental impacts.
12)Establishes that Startup equity funds created by the I-Bank are
legal investments for all trust funds, the funds for all
insurance companies, banks, both commercial and savings, trust
companies, executors, administrators, trustees, and other
fiduciaries, for state and local pension funds.
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13)Provides liability shall not be incurred by the I-Bank or the
state as related to a startup equity fund beyond the money that
is available for expenditure in the startup equity fund account.
14)Requires the I-Bank, before November 2 of each year, to submit
to the Governor and the Joint Legislative Budget Committee a
report that shall include all of the following:
a) A summary of the investment firms that were awarded
startup equity fund moneys, including their industry sector
and geographic focus and a list of the investments made with
the startup equity fund moneys by asset manager, including
the size of each investment, and the type of firm, by
industry sector and geographic location of headquarters that
received an investment. The summary shall also include a
description of the expected direct and indirect employment
impact of the investments.
15)Makings various findings and declarations.
EXISTING LAW
1)Establishes the I-Bank, within Business Transportation and
Housing (BTH). I-Bank is governed by a five-member Board of
Directors. The I-Bank was created in 1994 to promote economic
revitalization, enable future development, and encourage a
healthy climate for jobs in California. The I-Bank operates
pursuant to the Bergeson-Peace Infrastructure and Economic
Development Bank Act. The I-Bank has broad authority to issue
tax-exempt and taxable revenue bonds, provide financing to
public agencies, provide credit enhancements, acquire or lease
facilities, and leverage State and Federal funds. The I-Bank's
current programs include the Infrastructure State Revolving
Fund (ISRF) Program, 501(c)(3) Revenue Bond Program, Industrial
Development Revenue Bond Program, Exempt Facility Revenue Bond
Program and Governmental Bond Program. ŬGovernment Code Section
63000 et seq.].
FISCAL EFFECT : Unknown.
COMMENTS :
The mission of the I-Bank is to finance public infrastructure and
private development that promote economic development, revitalize
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communities and enhance quality of life for Californians. The
I-Bank has extremely broad statutory powers to issue revenue
bonds, make loans and provide credit enhancements for a wide
variety of infrastructure and economic development projects and
other government purposes.
The I-Bank oversees 5 programs:
1) Infrastructure State Revolving Fund Program
The Infrastructure State Revolving Fund (ISRF) Program provides
low-cost financing to public agencies for a wide variety of
infrastructure projects. ISRF Program funding is available in
amounts ranging from $250,000 to $10,000,000, with terms of up
to 30 years. Interest rates are fixed for the term of the
financing.
2) 501(c) (3) Revenue Bond Program
The 501(c) (3) Revenue Bond Program provides tax-exempt financing
to eligible nonprofit public benefit corporations for the
acquisition and/or improvement of facilities and capital assets.
Typical borrowers include cultural, charitable and recreational
organizations, research institutes and other types of
organizations that provide public benefits.
3) Industrial Development Revenue Bond Program
The Industrial Development Revenue Bond (IDB) Program provides
tax-exempt financing up to $10 million for qualified
manufacturing and processing companies for the construction or
acquisition of facilities and equipment. IDBs allow private
companies to borrow at low interest rates normally reserved for
state and local governmental entities.
4) Exempt Facility Revenue Bond Program
The Exempt Facility Revenue Bond Program provides tax-exempt
financing for projects that are government-owned or consist of
private improvements within publicly-owned facilities, such as
private airline improvements at publicly-owned airports.
5) Governmental Bond Program
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
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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.
According to the Author, "The Kaufman Foundation recently
published new research that shows more than 90% of all jobs
created between 1977 and 2005 came from small and early state
firms. Further, a lion's share of these jobs came from firms
operating for few than five years. Recent analysis also shows
that in the last two decades firms have remained significantly
smaller than before and that this trend is expected to continue
well into the post-recession economy. These new findings are
cause for many states to recommit to supporting a broader range of
financing programs, including direct loans, guarantees and credit
enhancements in partnership with private lenders and equity
financing in conjunction with experienced private sector financial
asset managers."
FEDERAL LEVEL
On April 5, 2012, President Obama signed into law the Jumpstart
Our Business Startups Act (JOBS Act) which represents the most
significant relaxation of the initial public offering and public
company reporting requirements to be enacted in recent times. The
JOBS Act provides significant revisions to certain securities laws
that affect private companies and to rules relating to access to
capital in unregistered offerings. These revisions will likely
increase capital flow to start-up companies that previously may
have been reluctant to enter the public markets due to regulatory
burdens. The JOBS ACT:
creates a transitional "on-ramp" for emerging growth companies
by reducing the disclosure requirements in their IPO
registration statement and reduces compliance and disclosure
requirements following the completion of an emerging growth
company's IPO;
eases prohibitions on general solicitation and general
advertising, allowing communication about an offering prior to
any filings being made with the SEC;
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raises the threshold at which a private company must report
with the SEC, from the current threshold of 500 shareholders of
record to either (i) 2,000 shareholders of record or (ii) 500
shareholders of record who are not accredited investors, with
higher thresholds for banks and bank holding companies;
adopts exemptions for certain "crowdfunding" transactions,
including preempting state securities laws by making securities
offered under exempt offerings "covered securities;" and
permits companies to conduct offerings to raise up to $50
million through a process similar to current Regulation A.
President Obama stated in his State of the Union Address on
January 24, 2012, "After all, innovation is what America has
always been about. Most new jobs are created in start-ups and
small businesses." "Startup America" is a White House initiative
to celebrate, inspire, and accelerate high-growth entrepreneurship
throughout the nation. This coordinated public/private effort
brings together an alliance of the country's most innovative
entrepreneurs, corporations, universities, foundations, and other
leaders, working in concert with a wide range of federal agencies
to dramatically increase the prevalence and success of America's
entrepreneurs.
This mission to promote entrepreneurship is a core component of
President Obama's national innovation strategy for achieving
sustainable growth and quality jobs. The core goals of Startup
America are to increase the number and scale of new high-growth
firms that are creating economic growth, innovation, and quality
jobs; celebrate and honor entrepreneurship as a core American
value and source of competitive advantage; and inspire and empower
an ever-greater diversity of communities and individuals to build
great American companies.
Overall, Startup America, through a full range of public and
private initiatives, is aimed at:
Expanding access to capital for high-growth startups throughout
the country;
Expanding entrepreneurship education and mentorship programs
that empower more Americans not just to get a job, but to create
jobs;
Strengthening commercialization of the about $148 billion in
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annual federally-funded research and development, which can
generate innovative startups and entirely new industries;
Identifying and remove unnecessary barriers to high-growth
startups; and,
Expanding collaborations between large companies and startups.
AB 2619 seems to fall in line with recent action taken at the
federal level to increase capital and equity to start ups and
small businesses.
REORGANIZATION OF THE I-BANK: On March 30, 2012, the Governor
proposed 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.
The Little Hoover Commission has 30 days to analyze the
reorganization plan and submit its recommendations to the Governor
and Legislature. The Legislature then 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
each house voting.
REGISTERED SUPPORT / OPPOSITION :
Support
Calexico County Enterprise Zone
California Association for Micro Enterprise Opportunity (CAMEO)
Coachella Valley Economic Partnership (CVEP)
Coachella Valley Enterprise Zone Authority (CVEZA)
Imperial Valley Enterprise Zone
Sacramento Black Chamber of Commerce
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
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