BILL ANALYSIS �
AB 2671
Page 1
Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 2671 (Jobs, Economic Development, and the Economy) - As Amended:
March 26, 2012
SUBJECT : Small Business Financial Development Corporations
SUMMARY : Makes the 2007 program enhancements permanent by removing
the sunset on the maximum allowable leverage of reserve funds under
the Small Business Loan Guarantee Program (SBLGP). More
specifically, this bill deletes the sections of the law that would
become effective January 1, 2013 that set the maximum reserve of four
dollars for every one dollar of loan guaranteed. The effect of this
change is to make the five dollars for every one dollar guarantee the
permanent maximum reserve. The Director of the SBLGP has the
discretion to set a lesser leverage amount for the overall program
and for any individual small business financial development
corporation (FDC).
EXISTING LAW :
1)Establishes the SBLGP within the Business, Transportation and
Housing Agency (BTH) for the purpose of assisting small businesses
in obtaining long-term loans or lines of credit from conventional
financial institutions, which small businesses would not otherwise
qualify for without the guarantee. Under this program, FDCs act as
financial intermediaries between the state, the small business, and
the financial institution.
2)Establishes the California Small Business Expansion Fund (Expansion
Fund) for the purpose of retaining the moneys which separately
capitalize the SBLGP and paying out defaulted loan guarantees
issued under the SBLGP. Each account within the Expansion Fund is
legally separate and is prohibited from securing loan guarantees or
other obligations of another FDC. The state is not liable or
obligated beyond the funds allocated and deposited in an individual
trust fund account within the Expansion Fund.
3)Authorizes the Director of the SBLGP to:
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a) Reallocate moneys between individual accounts based on which
corporations most effectively use the guarantee funds; and
b) Recommend whether the Expansion Fund and individual FDC trust
fund accounts are to be leveraged, and if so, how much the funds
may be leveraged.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : According to the author, "AB 2671 will serve as
the vehicle for the Assembly Jobs, Economic Development, and the
Economy Committee omnibus bill on access to capital and economic
development issues. The current provisions remove a sunset in order
to retain existing law. As California slowly moves out of the
recession, maintaining financing options for small businesses is
essential."
2)California small business : California's dominance in many economic
areas is based, in part, on the significant role small businesses
play in the state's $1.9 trillion economy. Businesses with less
than 100 employees comprise nearly 98% of all businesses, and are
responsible for employing more than 37% of all workers in the
state.
Among other advantages, small businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. California small businesses comprised 96% of
the state's 60,000 exporters in 2009, which accounted for over 44%
of total exports in the state. Nationally, small businesses
represented only 31.9% of total exports. These numbers include the
export of only goods and not services.
Historically, small businesses have functioned as economic engines,
especially in challenging economic times. During the nation's
economic downturn from 1999 to 2003, microenterprises (businesses
with fewer than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than 50
employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting for
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nearly 64% of all new employment growth. More recently, the
federal Small Business Administration's Small Business Economy
2011, states that small businesses nationally outperformed large
firms in net job creation nearly three out of four times from 1992
through 2010 when private-sector employment rose.
During this current economic downturn, however, small business
owners have been especially hard hit. Equifax has reported that
bankruptcies in California rose by 81% in 2009, as compared to 44%
nationally. This trend continued in 2010 where the Equifax report
stated that while in general bankruptcies were down across the
nation including some regions in the west, small business
bankruptcies in California accounted for almost 20% of all small
business bankruptcies in the nation.
3)Small Business Loan Guarantee Program : The SBLGP enables a small
business to obtain a term loan or line of credit when it cannot
otherwise qualify for a loan on its own. The state, working
through 11 FDCs, offers direct loans or loan guarantees that a
qualifying small business borrower could not otherwise obtain.
Applicants must meet the definition of a small business (100 or
fewer employees) with the specific market rate loan terms and
interest rates being negotiated between the borrower and the
lender. Proceeds of the loan must be used primarily in California
for any standard business purpose applicable to the applicant's
business. The guarantee program provides guarantees covering up to
90% of the loan, but not exceeding $500,000. The guarantee program
allows a business to not only obtain a loan but to also establish
credit with a lender. The business is then more likely to obtain
additional financing on its own.
In 2010-11, approximately $5 million was made available for loan
guarantees under the SBLGP, which leveraged $13 million in small
business loans. During this period, 99 guarantees were provided,
creating and/or retaining 595 jobs. As noted in these numbers,
2010-11 was a slow year in providing guarantees; in the current
year (2011-12), however, the program has demonstrated higher volume
with 38 guarantees within the first quarter.
As of the close of the first quester of 2011-12, the outstanding
loan portfolio was $37 million in total reserves covering $ 215
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million in total loans, representing 1,548 in outstanding
guarantees.
4)Reorganization : The Governor's 2012-13 proposed budget included a
discussion on how the state would be better served if certain state
programs, departments and agencies were reorganized. On March 30,
2012, the Governor submitted the reorganization plan that was
outlined in his proposed budget to the Little Hoover Commission,
which included a number of proposals of importance to the economic
development community. According to the Governor's Office, the
reorganization plan is far-reaching and represents his continued
commitment to streamline state government. Among other items, the
reorganization plan proposes:
Dismantling BTH and the State and Consumer Services Agency
(SCS) and moving programs to other existing and new agencies.
Overall, the number of state agencies is reduced from 12 to 10;
and
Moving the following programs to the Governor's Office of
Business and Economic Development:
o Small Business Loan Guarantee Program;
o The California Travel and Tourism Commission;
o The California Film Commission;
o The Film California First Program; and
o The Infrastructure and Economic Development Bank.
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.
1)Amendments : Committee staff understands that the author will
propose amendments to repeal Corporations Code Section14069.6 that
requires the now defunct Technology, Trade and Commerce Agency to
prepare a 1998 report.
2)State Small Business Credit Initiative and future amendments : The
State Small Business Credit Initiative (SSBCI) is one initiative of
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the 2010 federal Small Business Jobs Act. Funded at $1.5 billion,
the SSBCI is designed to strengthen existing and jump start new
state small business finance programs. Nationally, these federal
moneys are expected to leverage an addition $11 billion in private
sector investments.
California is eligible to receive up to $168 million in federal
funds, which the state has opted to provide through two programs -
the California Capital Access Program (Cal Cap) and the SBLGP.
Through this federal funding, the two programs have been able to
leverage the following results for California small business:
CalCap: Total lending $54,397,000 = 912 loans / SSBCI
contribution = $1,825,000
SBLGP: Total lending Over $20 million / SSBCI contribution =
$6,500,000
Total face value of loans = $86.0 million = 1,022 loans
AB 2671 is a committee omnibus bill, which currently does not
impact these moneys. The Committee is, however, closely monitoring
the use of these funds and may propose programmatic modifications
to how the state utilizes these moneys as the session progresses.
1)Related legislation : Below is a list of related legislation.
a) AB 610 (Price) Extended Leverage of Program Dollars : This
bill enhances the Small Business Loan Guarantee Program's
ability to leverage existing program dollars increasing its
ability to serve more small businesses' financial needs per
year. Status: The bill was signed by the Governor, Chapter
601, Statutes of 2007.
b) AB 1104 (Aghazarian) Allowable Investments of Program
Dollars : This bill makes modifications to the Small Business
Loan Guarantee Program relating to small business disaster
guarantees and eligible investments of SBLGP funds. Status:
The bill was signed by the Governor, Chapter 624, Statutes of
2007.
c) AB 1431 (Arambula) Priority for Early Stage Businesses : This
bill would have established the Early Stage Investment Guarantee
Program, administered through the Small Business Loan Guarantee
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Program, for the purpose of assisting small businesses in
attracting investors during the early years of their company's
growth, as specified. Status: The bill was held in Assembly
Appropriations Committee in 2008.
REGISTERED SUPPORT / OPPOSITION :
Support
Assembly Committee on Jobs, Economic Development, and the Economy
(sponsor)
The Association of Financial Development Corporations
Opposition
None Received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090