BILL ANALYSIS �
Bill No: SB
1465
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Staff Analysis
SB 1465 Author: Yee
As Amended: April 9, 2012
Hearing Date: April 10, 2012
Consultant: Paul Donahue
SUBJECT
Agriculture and Renewable Energy Export Loan Guarantee
Financing Program
DESCRIPTION
This bill would establish the California Agriculture and
Renewable Energy Export Loan Guarantee Financing Program
within the California Pollution Control Financing Authority
(CPCFA).<1> CPCFA is directed to do the following to
implement the program:
1)Adopt regulations to establish the criteria determining
which exporters and export transactions<2> will be
eligible for loan guarantees under the program, which
shall ensure:
a) Borrowers have a minimum equity interest in the
business.
b) That loan guarantees are extended exclusively to
support the export of goods, services, and
agricultural commodities or renewable energy products
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<1> The CPCFA, within the Office of the State Treasurer,
provides financial assistance in a variety of forms,
including tax exempt bonds for qualifying waste and
recycling facilities, grants and loans to clean up
contaminated lands, small business loan assistance and tax
exempt bonds for certain industrial facilities.
<2>
The program is required to conform to international trade
agreements of the U.S.
SB 1465 (Yee) continued
PageB
produced or grown primarily in the state by companies
or agricultural enterprises commercially domiciled in
California.
c) That financing assistance using state funds shall
be extended only if assistance is part of a state
match required for participation in public or private
financing, or it adequate financing assistance is not
readily available in a timely manner.
2)CPCFA shall adopt collateral or security requirements to
ensure reasonable expectation of the full repayment of
loan guarantees, and shall consider and approve or reject
any and all loan guarantees under the program, except
that the CPCFA executive director may approve loan
guarantees under $100,000, subject to ratification by
CPCFA.
3)The CPCFA shall: (a) consult with the Governor's office
to ensure the loan guarantee programs aren't duplicative
of each other; (b) secure a delegated line of authority
from the United States Export-Import bank;(c) develop a
streamlined application and review process, (d) publish
an annual report on the program; and (d) create advisory
groups.
4)The CPCFA may charge fees, in amounts it determines, for
loan guarantees provided by the program. Fees go into the
Export Development Fund, which is described below.
5)Loan guarantees made by CPCFA must be secured by no less
than 25% reserve in the Export Development Fund. CPCFA
may require a higher reserve.
6)A loan guarantee shall not exceed any of the following:
a) 90% of the required financing. (However, the CPCFA
may guarantee a higher percentage of the required
financing if there is evidence of lender credit
exposure and adequate analysis of foreign commercial
and political risk.)
b) One million dollars ($1,000,000).
c) The lesser of two years, or the useful life of the
product.
SB 1465 (Yee) continued
PageC
7)The bill expressly provides that the loan guarantee
program shall be implemented only to the extent that
funding is available.
CPCFA Executive Director : This bill instructs the
executive director of CPCFA to administer the loan
guarantee program, and provide export finance training for
those involved in export finance assistance, including
training sessions required by other public or private
entities. The executive director has the following
specific responsibilities:
1)To certify that exporters who borrow more than $200,000
create at least one job for each increment, and retain
those jobs through the repayment period for the loan, and
that exporters borrowing less than $200,000 retain all
jobs through repayment of the loan.
2)To guarantee loans on qualified export transactions,
pursuant to CPCFA regulations.
3)To seek public and private funding sources for the
purpose of guaranteeing loans.
4)To establish a network of contacts among those public and
private organizations that provides technical assistance
and financial support of exporting.
5)To coordinate the efforts of the program with programs
and goals of the U.S. Export-Import Bank, the U.S. Dept.
of Commerce, the Small Business Administration, and other
private and public programs designed to provide export
assistance and financing.
6)To provide administrative assistance to the Export
Financing Advisory Board.
Export Financing Advisory Board : The purpose of the board
is to advise the CPCFA on trends and opportunities in
export financing. The board has 11 members:
1 member appointed by the Secretary of Food and
Agriculture who is knowledgeable about, and experienced
in, the exporting and export finance needs of CA
agriculture.
SB 1465 (Yee) continued
PageD
4 members representing export firms, two each appointed
by the Governor and the Speaker of the Assembly, who are
experienced in exporting, knowledgeable about the needs
and problems of small and entrepreneurial exporters, and
actively employed with an exporting firm, export trading
company, or export management company.
4 members representing financial institutions, 2 each
appointed by the Governor and the Senate Committee on
Rules, who shall be experienced in export financing,
knowledgeable about the export financing needs and
problems of small and entrepreneurial exporters, and
actively employed with financial institutions.
2 members, one each appointed by the Treasurer and the
Controller, who shall be accomplished credit evaluation
representatives experienced in analyzing financial
statements, such as loan applications, and in evaluating
the creditworthiness of the types of loans, loan
guarantees, and firms that are likely to come before the
board.<3>
The Export Development Fund : The Fund is created in the
State Treasury for the purpose of receiving (a) state,
federal, and nonpublic moneys; (b) fees earned by the
program; (c) recoveries and collections on claims paid; and
(d) money received from the return of investments of money
in the Fund.
1)Moneys in the Fund are continuously appropriated, without
regard to fiscal year.
2)Moneys in the Fund shall be paid out by the Treasurer on
warrants drawn by the Controller upon order of the CPCFA
for the purposes of this bill, including payment of
claims under loan guarantee and payments required by
state, federal, or private export programs conducted by
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<3> The appointing authorities are directed to make initial
board appointments on or before April 1, 2013. Upon
appointment of at least 7 members, the board may commence
formal action, but in no case shall this be later than June
1, 2013. Board members shall serve at the pleasure of the
appointing authority and board members serve without
compensation.
SB 1465 (Yee) continued
PageE
the CPCFA.
EXISTING LAW
The California Small Business Loan Guarantee Program is
administered by the Business, Transportation and Housing
Agency (BTH), and helps lenders make loans to borrowers who
cannot qualify for conventional financing.
Existing law establishes the Expansion Fund for the purpose
of paying out defaulted loan guarantees issued under the
Small Business Loan Guarantee Program (SBLGP). Under this
program, small business financial development corporations
act as financial intermediaries by using their SBLGP
funding allocation to secure loan and surety bond
guarantees and, under limited circumstances, direct loans.
Existing law directs BTH to undertake international trade
and investment activities and, as a condition of that
authority, directs the development and implementation of a
comprehensive international trade and investment strategy
(ITI Strategy.) All international trade and foreign
investment activities and funding are required to be
consistent with the ITI strategy.
BACKGROUND
1)Purpose : The author notes that, from 1985 to 2003, the
California Export Finance Office (CEFO) made money for
the state while it assisted California companies with
loan guarantees, and that the CEFO had a remarkable
record of success. The author notes that the program
reached a high of $10 million in state financing, but the
money generated additional funds, reaching almost $12
million, based on careful planning and good analysis of
loan guarantee applications. The author believes that
the State must better utilize trade experts to identify
advantageous trends and position California for further
success in the world market.
According to the bill's legislative findings and
declarations, the purpose of this bill is to restore the
agricultural and renewable energy manufacturing and
production sectors by retaining jobs and promoting job
growth in those sectors, while improving revenue
collections through an export financing loan guarantee
program.
SB 1465 (Yee) continued
PageF
2)Renewable energy loan guarantees have proven costly to
government : This bill would establish a loan guarantee
program for renewable energy products (and agricultural
commodities). Less than one year ago, Solar Trust of
America (STA) received a $2.1 billion loan guarantee from
the U.S. Department of Energy (DOE). In a press release
announcing the loan guarantee, the DOE stated that "l oan
guarantees play an important role in facilitating the
development and deployment of innovative technologies at
massive scope and scale?The project ?is expected to
create over 1,000 construction jobs and approximately 80
operations jobs."
Instead, on April 2, 2012, STA filed for bankruptcy.
Bloomberg news reported: "The company joins Energy
Conversion Devices Inc., a U.S. solar manufacturer that
suspended production last year; LSP Energy LP, the owner
of a natural-gas-fired power plant in Mississippi; Ener1
Inc., maker of lithium-ion batteries for plug-in electric
cars; solar-panel maker Solyndra LLC; and energy storage
company Beacon Power Corp. (BCONQ) in bankruptcy."
�http://tinyurl.com/7alj3ex]
Another California company, Solyndra, LLC, received a
$535 million loan guarantee from the DOE in 2009 as part
of a program to spur alternative energy growth. Solyndra
and the DOE had originally estimated that this government
guarantee of Solyndra's financing would help to create
4,000 new jobs. In early September 2011 the company
ceased all business activity, filed for Chapter 11
bankruptcy, and laid-off nearly all of its employees.
The federal government then had to pay back the loan it
had guaranteed.
SB 1465 (Yee) continued
PageG
3)Are existing programs sufficient in any event ?
a) The Small Business Loan Guarantee Program : The
SBLGP<4> helps lenders make loans to borrowers who
cannot qualify for conventional financing. According
to BTH, it gives businesses a chance to build good
working relationships with financial institutions.
Most small businesses are eligible to participate in
the program including corporations, partnerships, and
sole proprietorships. It must be a small business
with no more than 750 employees.
The proceeds can be used for any business purpose,
including start-up costs, working capital, business
procurement, franchise fees, equipment and inventory.
Funds can be used for real estate purposes related to
construction, renovation or tenant improvements of an
eligible place of business. Small Business Financial
Development Corporations act as financial
intermediaries by using their SBLGP funding allocation
to secure loan and surety bond guarantees.
b) State Trade and Export Promotion Grant Act : In
October 2010, as part of the federal Small Business
Jobs Act, Congress passed and the President signed The
State Trade and Export Promotion Grant Act (STEP)
which authorized $90 million in competitive grants to
fund state trade promotion programs over the next
three years. California is currently in the process
of applying for a share of the first $30 million in
STEP funds. The first $30 million round of funding
for states is available under the Small Business
Administration - administered STEP.
Instead of BTH, the California Community College
System applied for funds, under the auspices of the
Centers for International Trade Development.
California officials anticipate that a successful
California application would result in $3 million for
local and state collaborative trade promotion efforts.
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<4> On March 30, 2012, Governor Brown submitted a
comprehensive Reorganization Plan to the Little Hoover
Commission for review and recommendation. Among other
things, the plan would move the SBLGP from the BT&H Agency
to the Governor's Office of Economic Development.
SB 1465 (Yee) continued
PageH
c) California Capital Access Program (CalCAP) : This
program is administered by the CPCFA, and encourages
banks and other financial institutions to make loans
to small businesses that fall just outside of their
conventional underwriting standards. CalCAP is a form
of loan portfolio insurance which may provide up to
100% coverage on certain loan defaults. CalCAP insures
loans made to small businesses to assist them in
growing their business. Loans can be used to finance
the acquisition of land, construction or renovation of
buildings, the purchase of equipment, other capital
projects and working capital. There are limitations on
real estate loans and loan refinancing.
d) U.S. Export-Import (EXIM) Bank : The EXIM Bank is a
congressionally chartered bank whose mission is to
create and sustain U.S. jobs by financing sales of
U.S. exports to international buyers. The EXIM Bank
does not compete with private sector lenders, but
rather provides financing for transactions that would
otherwise not take place because commercial lenders
are either unable or unwilling to accept the political
or commercial risks inherent in the deal. The EXIM
Bank focuses on providing support to U.S. small
businesses for export of U.S. made products. From
October 2005 through September 2006 the EXIM Bank
authorized $3.2 billion in financing directly to U.S.
small businesses.
4)Eligibility criteria may need clarification : The bill
directs the CPCFA to adopt criteria establishing which
exporters and export transactions shall be eligible for
the loan guarantees. It states that the criteria shall
ensure that all loan guarantees will be extended
"exclusively to support the export of goods, services and
agricultural commodities or renewable energy products
produced or grown primarily in the state?"
It is the apparent intent of the author to limit the
program to small businesses which are exporting renewable
energy products and agricultural commodities. Thus, the
terms "goods" and "services" should be removed, and small
businesses should be referenced.
Suggested technical amendment to proposed Section 91702
of the Govt. Code :
SB 1465 (Yee) continued
PageI
"91702 (d) ?Pursuant to this subdivision, the
authority shall adopt regulations to ensure
that all of the following criteria are met:
(1) Borrowers have a minimum equity
interest in the business as determined by
the authority.
(2) The loan guarantees are extended
exclusively to support the export of goods,
services, and agricultural commodities or
renewable energy products produced or grown
primarily in the state by companies small
businesses or agricultural enterprises
commercially domiciled in the state, as
defined in subdivision (b) "
5)Difficulty of certifying job creation results : The bill
grants authority to the executive director of the CPCFA
to "certify that exporters who borrow more than $200,000
create at least one job for each increment thereof and
retain those jobs through the repayment period for the
loan," and that "exporters who borrow less than $200,000
retain all jobs through repayment of the loan." Setting
aside the appropriateness of the job creation standard in
the bill, the basis on which this certification is to be
made by the executive director is unclear, and so is the
timing of the certification.
The author and the Committee may wish to consider
obligating the beneficiary of the loan guarantee, not the
CPCFA executive director, to guarantee a specific job
creation target as a condition precedent to obtaining the
loan guarantee.
6)Support : Writing in support of the bill, Controller John
Chiang notes that the bill is based on the highly
successful former California Export Finance Office. He
notes that, over its nearly 20-year life, less than two
percent of borrowers defaulted, and that near its peak,
in 1999-2000, the CEFO issued loan guarantees for 18
export transactions valued at $28 million, creating 227
jobs in the state.
7)Opposition : The opponents argue that creation of this
SB 1465 (Yee) continued
PageJ
program is duplicative and establishes a competing
program to the existing California Small Business Loan
Guarantee Program (SBLGP). They agree that export
financing is an important factor in building California's
economy, but they do not believe it is fiscally prudent
for the state to maintain two programs in different
agencies providing the exact same services and competing
for diminishing state resources.
PRIOR/RELATED LEGISLATION
AB 1137 (Manuel Perez) 2011-12 Session . Establishes the
California Export Promotion and Gap Financing Program, and
authorizes the (BT&H) agency to apply for and receive
federal funding to implement a state and federal export
financing program. (Pending in Senate Appropriations
Committee)
AB 2524 (Yee) 2003-2004 Session . Would have reestablished
the Export Development Office (EDO) - formerly the
California Export Finance Office (CEFO) - to provide loan
guarantees to small and medium-sized California-based
export businesses. (Held on Suspense in Assembly
Appropriations )
SUPPORT:
John Chiang, California State Controller (sponsor)
OPPOSE:
Association of Financial Development Corporations
DUAL REFERRAL: Senate Governance and Finance Committee
FISCAL COMMITTEE: Senate Appropriations Committee
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