BILL ANALYSIS �
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THIRD READING
Bill No: SB 1116
Author: Leno (D)
Amended: 4/26/12
Vote: 21
SENATE BANKING & FINANCIAL INST. COMMITTEE : 6-0, 4/11/12
AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla
NO VOTE RECORDED: Walters
SENATE ENVIRONMENTAL QUALITY COMMITTEE : 6-0, 4/23/12
AYES: Simitian, Strickland, Hancock, Kehoe, Lowenthal,
Pavley
NO VOTE RECORDED: Blakeslee
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SUBJECT : California Pollution Control Financing
Authority
SOURCE : State Treasurer Bill Lockyer
DIGEST : This bill decreases, until April 1, 2017, the
minimum contribution required of borrowers who participate
in the Capital Access Loan Program (CalCAP) from 2% to 1%
of the principal amount of the loan, and increases the
length of time that a financial institution has in which to
apply to the California Pollution Control Financing
Authority to enroll a qualified loan in CalCAP.
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ANALYSIS : Existing law provides for CalCAP, administered
by the California Pollution Control Financing Authority
(Health and Safety Code Section 44559 et seq.), authorizes
the Authority to contract with eligible financial
institutions for the purpose of allowing those financial
institutions to participate in CalCAP, requires the
Authority to establish a loss reserve account for each
financial institution with which the Authority enters into
a contract, requires participating borrowers and
participating financial institutions to pay the same amount
into the lender's loan loss reserve account, and caps the
amount that may be deposited by any single participating
financial institution into any individual loan loss reserve
account over a three-year period, in connection with any
single borrower or any group of borrowers among which a
common enterprise exists, at $100,000.
This bill:
1. Decreases the minimum contribution required to be paid
into a CalCAP loan loss reserve account by a qualified
business borrower from 2% of the principal amount of the
loan to 1% of the principal amount of the loan. The
maximum required borrower contribution would remain at
3.5% of the principal amount of the loan.
2. Increases the length of time that a participating
financial institution has in which to enroll a qualified
loan in CalCAP, from 10 to 15 days after the date on
which the loan is made.
3. Sunsets on April 1, 2017.
Background
CalCAP was authorized in 1994, to help small businesses
obtain loans for which they would otherwise be ineligible.
CalCAP is run by the Authority, and, until 2010, had
received all of its funding from the sale of bonds by the
Authority. In 2010, the program was augmented with a $6
million infusion of General Fund money (AB 1632, J. Perez,
Chapter 731, Statutes of 2010) and with $84 million in
federal funds, via the aforementioned Small Business Credit
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Initiative Act of 2010.
CalCAP is a loan loss insurance program, rather than a
direct lending program. Small businesses that fall outside
of traditional lending or underwriting criteria can apply
for CalCAP loans from participating financial institutions.
The participating financial institutions establish all of
the terms and conditions of CalCAP loans (i.e., these terms
and conditions are not set by the Authority, nor in
statute).
The maximum loan amount currently available under CalCAP is
$2.5 million, although no loan of that size has been made
since 2008, and most loans are far smaller (the average
size loan in 2010 was $82,500, and the largest loan was $1
million). Loans may be short- or long-term, have fixed or
variable rates, be secured or unsecured, and carry any type
of amortization schedule. Loan proceeds may be used to
provide working capital, finance the acquisition of land,
construct or renovate buildings, purchase equipment, or for
other capital projects.
Once it decides to approve a CalCAP loan, a participating
financial institution establishes a loan loss reserve
account. Funds in the loan loss reserve account are
available for use by the financial institution to backfill
itself for possible losses resulting from the loan.
Borrowers, lenders, and the authority are all required to
contribute to each CalCAP loan loss reserve account.
Amounts contributed by borrowers and lenders are identical,
are established by the lender, and currently range from 2%
to 3.5% of the loan amount, depending on the lender's
perception of the borrower's creditworthiness.
The amount contributed by the Authority equals or slightly
exceeds the contributions made by the lender and borrower
(higher amounts may be contributed by the Authority, if the
loan qualifies for federal funds �not all loans do], or if
the loan is being made in a "severely affected community").
The authority's contributions currently range from 4% to
7% if the loan qualifies for federal funds and is not in a
severely affected community (from 6% to 10.5% if the loan
qualifies for federal funds and is in a severely affected
community). The Authority's contributions are lower, if
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the source of funds for its contribution comes only from
state funds (3% to 5.25% in non-severely affected
communities, and 5% to 8.75% in severely affected
communities).
Once the Authority contributes to an individual loan loss
reserve account, it has no further financial exposure in
connection with the loan; any losses experienced by a
financial institution, which are not covered by the loan
loss reserve account, are borne by the financial
institution.
Under existing law, a wide range of financial institutions,
both depository and non-depository, are eligible to apply
to the Authority for approval as participating CalCAP
financial institutions. As of March 22, 2012, 63 financial
institutions were on the authority's list of approved
CalCAP lenders, ranging from small community development
centers and community development financial institutions,
to small community banks and credit unions, to large,
multinational banks. To date, the Authority has enrolled
over 10,300 loans into CalCAP.
Comments
This bill is sponsored by the State Treasurer's Office
(STO), to increase borrower participation in CalCAP, and
enable the STO to expend the full amount of its $84 million
allotment of federal funds for CalCAP from the federal
State Small Business Credit Initiative Act of 2010. Any
portion of those federal funds which California fails to
spend by the end of 2016 will revert to the federal
government.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Minor and absorbable costs to the State Treasurer's
Office from the California Capital Access Fund (General
Fund/special fund/federal funds) beginning in 2013-14
through 2015-16 for the administration of CalCAP.
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Unknown, but potentially in the hundreds of thousands of
dollars or more, cost pressures to state funds within the
California Capital Access Fund (General Fund/special
fund/federal funds) beginning in 2013-14 through 2015-16
for increased participation in CalCAP.
SUPPORT : (Verified 5/24/12)
State Treasurer Bill Lockyer (source)
California Bankers Association
JJA:mw 5/24/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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