BILL ANALYSIS �
SB 225
Page 1
Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
SB 225 (Simitian) - As Amended: June 29, 2011
SENATE VOTE : 40-0
SUBJECT : California Pollution Control Financing Authority:
Capital Access Loan Program
SUMMARY : Authorizes the California Pollution Control Financing
Authority (CPCFA) to establish a loss reserve accounts program
for the purpose of financing truck leases, through the terminal
rental adjustment clause (TRAC) leasing mechanism.
Specifically, this bill :
1)Authorizes the establishment of loss reserve accounts for the
purpose of including the TRAC lease financing mechanism within
California Capital Access Loan Program's (CalCAP) group of
loss reserve account programs, which will enable the lease
purchase of 2007 or newer heavy duty diesel trucks by small
businesses.
2)Prohibits the use of CPCFA funds for the TRAC leasing program.
3)Authorizes the executive director to establish conditions for
the TRAC leasing loss reserve accounts program.
4)Defines the term "terminal rental adjustment clause."
EXISTING LAW :
1)Establishes CalCAP for the purpose of providing a small
business loss reserve accounts program through participating
financial institutions.
2)Requires a loss reserve account be established for each
financial institution working with CalCAP, specifies that the
account is fee driven, and that all moneys in the account are
the exclusive property of CPCFA.
3)Authorizes CalCAP to establish alternative provisions, as
necessary, to enable CalCAP to participate in programs with
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other funding sources. (i.e. entering into MOUs with other
state entities).
4)Requires the CPCFA to report annually to the Governor and
Legislature describing the financial condition and
programmatic results of CalCAP.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the bill : According to the author, "SB 225 makes
terminal rental adjustment clause (TRAC) leases, used by small
trucking businesses, eligible for the California Capital
Access Program (CalCAP). In so doing SB 225 expands financing
for upgrades that improve air quality and are required by Air
Resources Board (ARB) regulations."
2)California Capital Access Program for Small Businesses:
CalCAP was established by legislation enacted in 1994. The
program assists small businesses in obtaining loans through
participating financial institutions via a loss reserve
account model, which is described in a following comment.
The objective of the program is to incentivize financial
institutions to provide small businesses with the capital to
maintain and grow their business. Loans can be used to
finance the acquisition of land, construction or renovation of
buildings, purchase of equipment, other capital projects and
working capital. While eligible, there are limitations on
real estate loans and loan refinancing.
The maximum loan amount is $2.5 million. The maximum premium
lenders will pay is $100,000 (per borrower). Lenders set the
terms and conditions of the loans and decide which loans to
enroll into CalCAP. Loan fees, which are used to capitalize
the loan reserve account, are set by the lender and are in the
range of 2% to 3.5% of the total loan amount. Loans can be
short- or long-term, have fixed or variable rates, be secured
or unsecured, and bear any type of amortization schedule.
Moneys to operate CalCAP originally came from excess program
fees charged to applicants working with CPCFA relative to the
issuance of private activity bonds. In 2010, CalCAP enrolled
943 loans to California small business owners; of those 602
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were to microenterprises totaling $10.3 million. As of
December 31, 2010, the total number of loans enrolled in the
program since 1994 is 8,801 with cumulative loan amounts of
over $1.97 billion. In 2010, CalCAP enrolled over $59 million
out of approximately $62 million in loans; 44% went towards
the purchase of CARB compliant trucks and retrofits. Finally,
CalCAP loans crated/affected 2,045 jobs in California last
year.
3)California Air Resources Board and CalCAP : In May 2009,
California Air Resources Board (CARB) entered into a
Memorandum of Understanding (MOU) with CalCAP to help in the
financing of new or newer diesel trucks. As part of the MOU,
CARB transferred to CalCAP $44.3 million to establish the
Heavy Duty On-Road Truck Program. CARB agreed to contribute
20% for the first $5 million and 14% for any subsequent loan
enrollments toward a participating lender's loss reserve
account in order to finance the purchase of compliant heavy
duty diesel trucks, diesel exhaust retrofits of 2007 vehicles
or newer, and Smartway aerodynamic technologies. Eligible
trucking companies have fewer than 40 trucks, fewer than 100
employees, and less than $10 million in annual revenue.
CARB recently established stricter air quality regulations for
reducing emissions of particulate matter, nitrogen oxides, and
pollutants, making the CalCAP/CARB loss reserve account
program even more essential. In reviewing the challenges in
meeting these new regulations, CARB and the industry
recognized the need to provide more flexible access to cleaner
vehicles.
AB 225 authorizes the expansion of the Heavy Duty On-Road
Truck Program to include financing of TRAC leases using the
loan loss reserve account model. This new leasing authority
is exclusive to the CARB diesel truck program and does not
apply to CalCAP's other financing programs. With additional
financing via TRAC leases, CARB and CalCAP will be able to
provide financial assistance to fleet truckers who must comply
with the new lower emissions standards but lack the resources
to purchase a new truck outright. The public will also
benefit by helping to remove older polluting trucks of the
road by January 1, 2012.
4)Terminal Rental Adjustment Clause Leases: TRAC leases, widely
used within the trucking industry, combine the advantages of
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leasing while retaining the option to purchase the leased
equipment at the end of the term. In this type of lease, the
purchase price for the equipment is set at the beginning of
the lease, allowing for flexibility in the monthly payment
depending on whether the trucker wants a higher monthly
payment with a lower payout amount or a lower monthly payment
with a larger payout amount. At the end of the lease the
lessee is given the option to purchase the vehicle or submit
it for sale. If the vehicle is sold above the agreed price,
the lessee is compensated, whereas if it is below the agreed
upon price the lessor is compensated.
This bill states that that CalCAP must not contribute any
funds into the TRAC loss reserve account. The Committee may
wish to clarify the type of funding to be excluded from the
TRAC lease model, such as any federal funding not specifically
earmarked for CARBs heavy duty truck program.
5)CalCAP loss reserve account : Under the original loan reserve
account model established in 1994, CalCAP enrolls financial
institutions into the program and agrees to match loss reserve
account premiums (fees) paid by borrowers and lenders on
eligible loans. As an example, if the lender and the borrower
each contribute an amount equal to 2% of the loan amount,
CalCAP would contribute 4% into the loan reserve account. For
eligible loans in "severely affected areas," CalCAP would
contribute an additional 50%, making CalCAP's total
contribution to the loss reserve account 150% of the lender's
contribution.
In 2008, CPCFA determined it could not sustain the program at
the original contribution levels which required CalCAP to
match the contributions of both the lender and borrower.
Legislation was enacted that reduced the minimum CalCAP
contribution to an amount equal to the lender contribution.
Thus, each of the three entities (CalCAP, lender and borrower)
would contribute between 2% and 3.5% to the loss reserve
account. The language in the 2008 bill allowed CalCAP to make
a higher contribution rate if CPCFA chose to do so. However,
for severely affected communities, the CalCAP contribution
remained at 150% of the amount of the lender contribution. AB
891 (Hueso), passed by this committee in May, 2011, proposes
to increase the state's commitment back to its historical high
for severely affected communities.
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6)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.
Small- and medium-sized 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. Of the over 57,461 companies that
exported goods from California in 2008, 96% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated nearly two-fifths (44%) of California's
exports in 2008. Nationally, SMEs represented only 31% of
total exports. These numbers include the export of goods only
and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
less 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 nearly 64% of all new employment growth. According to a
2010 report from the California Senate Office of Research, in
2008 microenterprises employed four million people or 19% of
the state's employment. Common types of microenterprises
include engineering, computer system design, housekeeping,
construction, landscaping, and personnel services.
7)Related Legislation : Below is a list of related legislation
from the current legislative session:
a) AB 796 (Blumenfield) California Alternative Energy and
Advanced Transportation Act : This bill increases the
maximum allowable loan size in the CalCAP program to $5
million, from $2.5 million. The bill also requires that
the increased loan loss reserve amount be entirely funded
through new federal funds and establishes the "Clean Energy
and Jobs Incentive Program" to provide loan loss reserves
as financial assistance to a participating financial
institution providing loans to California-based entities
for the development and expansion of manufacturing
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facilities or the installation of "clean energy"
facilities. Under this program, CAEATA would provide a
backstop for bank loans made to eligible California clean
technology projects. Status: Pending in Senate
Appropriations Committee in August 2011.
b) AB 901 (V. Manuel P�rez) Implementation of Small
Business Jobs Act : This bill codifies the Small Business
Development Centers and expands the definition of eligible
financial institution for participation under the
California Capital Access Loan Program (CalCAP), a program
receiving $90 million dollars in federal and state funding
for small business assistance. Status: Pending in Senate
Government and Finance in July 2011.
c) 981 (Hueso) California Pollution Control Financing
Authority: CalCAP : This bill requires the CPCFA to
contribute a minimum of 150% of the fees paid by
participating financial institutions, if the qualified
business is located within a severely affected community.
The bill would also authorize the use of a portion of the
interest or other income that has been credited to a loss
reserve account from a participating financial institution.
Status: Pending in Senate Appropriations Committee in
July 2011.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer
California Trucking Association
Clean Fleets Coalition
Pe�a's Disposal, Inc.
South Tulare - Richgrove Refuse, Inc.
Westside Waste Management Co., Inc.
Opposition
None on file
Analysis Prepared by : Toni Symonds & Mercedes Flores / J.,
E.D. & E. / (916) 319-2090
SB 225
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