BILL ANALYSIS �
SB 225
Page 1
Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 225 (Simitian) - As Introduced: February 9, 2011
SENATE VOTE : 40-0
SUBJECT : California Pollution Control Financing Authority:
Capital Access Loan Program.
SUMMARY : Allows the California Pollution Control Financing
Authority (CPCFA) to establish loss reserve accounts for the
purposes of the terminal rental adjustment clause (TRAC)
leasing, if funds are available for contribution into the loss
reserve account from any source other than the CPCFA.
Specifically, this bill:
1)Prohibits the CPCFA from contributing any funds into a loss
reserve account created under this measure.
2)Allows the executive director to establish conditions for TRAC
leasing loss reserve accounts created under this measure.
EXISTING STATE LAW
1)Establishes the CPCFA with specified powers and duties.
(Health and Safety Code, Sections 44550 et seq.)
2)Defines "California Capital Access Fund" as a fund created
within the (CPCFA) to be used for the purposes of the program.
(Health and Safety Code, Section 44559.1)
3)Authorizes CPCFA to establish loss reserve accounts for
financial institutions to participate in the California
Capital Access Loan Program (CalCAP) which provides loans to
qualifying small businesses. (Healthy and Safe Code, Section
44559.4)
4)Defines "loss reserve account" as an account in the State
Treasury or any financial institution that is established and
maintained by the CPCFA for the benefit of a financial
institution participating in CalCAP for the purposes of the
following: (Health and Safety Code, 44559.1)
SB 225
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a) Depositing all required fees paid by the participating
financial institution and the qualified business;
b) Depositing contributions made by the state and, if
applicable, the federal government or other sources; and,
c) Covering losses on enrolled qualified loans sustained by
the participating financial institution by disbursing funds
accumulated in the loss reserve account.
5)Defines "Executive Director" as the Executive Director of the
CPCFA. (Health and Safety Code, Section 44559.1)
EXISTING FEDERAL LAW
1)Defines "TRAC" as a provision of an agreement which permits or
requires the rental price to be adjusted upward or downward by
reference to the amount realized by the lessor under the
agreement upon sale or other disposition of such property.
a) Definition also establishes a special rule for lessee
dealers to also include a provision of an agreement which
requires a lessee who is a dealer in motor vehicles to
purchase the motor vehicle for a predetermined price and
then resell such vehicle where such provision achieves
substantially the same results. (United States Code, 7701
(h) (3) of Title 26)
FISCAL EFFECT : Unknown.
COMMENTS :
What a TRAC is: In the typical automobile lease, at the end of
the lease term the lessee often has the option to purchase the
vehicle or the vehicle is sold to a third party. Commercial
automobile lessors use a provision called a "terminal rental
adjustment clause" or "TRAC" in the lease contract to establish
an expected value for the vehicle at the end of the lease term.
In general, a TRAC provision provides that at the end of the
lease term the total rental payment for the vehicle can be
adjusted upward or downward, depending upon the condition of the
vehicle at the end of the lease, in order to make up for any
difference between the projected value of the vehicle estimated
at the beginning of the lease and the actual value of the
vehicle upon lease termination.
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Uses of TRAC: A TRAC provision is frequently used in commercial
fleet leases to provide a financial incentive for the
lessee/user, who is the party to the transaction best able to
maintain the vehicle, to keep it in good repair. If the lessee
abuses the vehicle so that it is worth less than its projected
value, the lessee is responsible for that difference in value at
the end of the lease. If the vehicle is sold for more than the
projected value, the lessee is rebated the excess. The
flexibility to adjust the cost of the lease at the end of the
lease term allows lessors to offer lower monthly rates on
vehicle leases. The potential for cost savings is also
attractive to commercial vehicle lessees.
BACKGROUND:
CalCAP makes it easier for small businesses to obtain financing
through participating financial institutions. CalCAP provides
funds for the financial institution to place in a "loan loss
reserve" account. With these funds available, financial
institutions are more comfortable lending to businesses and
typically offer more favorable terms than the business would
otherwise qualify for.
On December 12, 2008, the California Air Resources Board (ARB)
approved a new regulation to significantly reduce emissions from
existing on-road diesel vehicles operating in California. The
regulation requires affected trucks and buses to meet
performance requirements between 2011 and 2023. By January 1,
2023 all vehicles must have a 2010 model year engine or
equivalent.
In addition, the ARB developed a regulation to reduce greenhouse
gas emissions produced by heavy-duty tractors that pull 53-foot
or longer box-type trailers by making them more fuel efficient.
The CalCAP program is working with the ARB to make it easier for
truck owners to obtain financing to meet the new requirements.
The maximum loan amount is $1.5 million. Businesses that are
eligible must have 100 or fewer employees and $10 million or
less in annual revenues and business with 40 or fewer heavy-duty
diesel vehicles in the fleet. The business must meet the
lending criteria established by financial institutions but the
availability of CalCAP funding should make it easier for
financial institutions to approve a loan.
SB 225
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SB 225 allows eligible companies who use TRAC leases to
participate in CalCAP.
According to the Author, in the trucking industry the TRAC lease
is a common form of financing. Specifically for trucks, it is
often less expensive and offers some tax benefits compared to
typical loans. Under existing law, however, the CPCFA is unable
to include TRAC leases among the financing tools available under
CalCAP.
SUGGESTED AMENDMENTS :
1)On page 1, line 4-5, delete , "the purposes of terminal rental
adjustment clause (TRAC) leasing" and insert "a terminal
rental adjustment clause"
2)On page 2, line 5-6, delete, "TRAC leasing loss reserve
accounts created" and insert "loss reserve accounts for a
terminal rental adjustment clause"
REGISTERED SUPPORT / OPPOSITION :
Support
California trucking Association
Clean Fleets Coalition
Pena's Disposal, Inc.
South Tulare-Richgrove Refuse Services, Inc.
Westside Waste Management Co, Inc.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081