BILL ANALYSIS �
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|Hearing Date:June 23, 2014 |Bill No:AB |
| |495 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 495Author:Campos
As Amended:January 23, 2014 Fiscal: Yes
SUBJECT: Community investment.
SUMMARY: Establishes the California Community Investment Program
within the Governor's Office of Business and Economic Development
(GO-Biz), tasked with creating an inventory of low-income
neighborhoods, public interments, state and local programs, and
sources of public-sector finance; coordinate public-sector financial
investment and public programs to assist low-income communities to
become business, development, and investment ready; develop criteria
for determining the type of economically, socially, and
environmentally responsible businesses and real estate developments to
assist in starting-up, locating, and growing in low-income
neighborhoods; establish a broad array of incentives to encourage
responsible businesses and real estate developments to grow in low
income neighborhoods and to encourage investment in low income
neighborhoods.
Existing law:
1)Establishes GO-Biz within the Governor's Office for the purpose of
serving as the lead state entity for economic strategy and marketing
of California on issues relating to business development, private
sector investment and economic growth. GO-Biz also serves as the
administrative oversight for the California Business Investment
Service and the Office of the Small Business Advocate. (Government
Code (GC) �� 12096 - 12098.5)
2)Authorizes under the Bergeson-Peace Infrastructure and Economic
Development Bank Act (Act) the creation of the Infrastructure and
Economic Development Bank (I-Bank) within Business, Transportation
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and Housing Agency (BTH), to promote economic revitalization, enable
future development, and encourage a healthy climate for jobs in
California.
(GC � 63000 et seq.)
This bill:
1) Creates the California Community Investment Program (CCII Program)
to be administered by GO-Biz.
2) Makes findings and declarations regarding California's high poverty
rates, with nearly a quarter of residents living in poverty; the
lack of public sector monies available to solve the problems of
low-income neighborhoods, which constitute domestic emerging
markets with significant purchasing power and location efficiencies
challenged by social, public safety, broadband, and physical
infrastructure problems that contribute to market prejudices that
lead to disinvestment; the need for low-income neighborhoods to
become business, development, and investment-ready through
partnerships that generate coordinated, focused, effective human
services, public safety, broadband, workforce, education, and
physical infrastructure; the role of private sector investments,
"triple bottom-line" (TBL) investments, that generate market-rate
returns to investors, but are also committed to improving economic,
social, and environmental conditions and characteristics for the
existing residents in these neighborhoods; the ability of these TBL
investments to reduce poverty and improve the social and
environmental dynamics of low-income neighborhoods; and, the
location of many low-income neighborhoods at transit hubs and
characteristics of these neighborhoods that make them a more
climate friendly development option.
3) States legislative intent to establish the CCII Program to assist
low-income neighborhoods by encouraging private sector investment
consistent with the economic development and community improvement
strategies of the cities, counties, and regions where they are
located; that such private sector investment is accomplished
without permanent displacement of existing residents in low-income
neighborhoods; and, that state agencies cooperate with the
California Community Investment Program to align their resources to
transform low-income neighborhoods and to attract private
investments into these neighborhoods..
4) Provides for the following definitions:
a) Poverty is the supplemental poverty measure, established by
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the United States Census Bureau in 2013 to incorporate cost of
living in the established rate of poverty.
b) TBL investment funds include, but are not limited to, equity
and debt investment vehicles that pursue market and above market
rates of financial return while at the same time producing good
living wage jobs, affordable housing, and other economic, social,
and environmental benefits for the residents of the communities
where the investments are made.
5)States that the purpose of the CCII Program is to:
a) Encourage private sector investment in low-income
neighborhoods to improve the economic, environmental, and social
conditions for the existing residents, thereby helping improve
the overall economic, environmental, and social well-being for
California.
b) Serve investors, employers, corporate executives, business
owners, and site location consultants who are considering
low-income neighborhoods for business investment and expansion.
c) Coordinate state programs and funding resources that can be
used to address poverty reduction in California and to assist
low-income neighborhoods to become business, development, and
investment ready.
6)Requires the CCII Program to be supported and staffed by GO-Biz
using existing resources. Requires the Director of GO-Biz to
establish and implement a process for creating public education
programs and providing technical assistance to private sector
investors.
7)Provides that the CCII Program is governed by a 14 member California
Community Investment Council (Council) comprised of:
a) Six persons appointed by the Governor, three with private
sector business or investment expertise, two with community
development expertise, and one representative of organized labor.
b) Four members of the Legislature, two from the Senate appointed
by the Senate Committee on Rules; one from each of the two
political parties with the most representatives in the Senate.
Two from the Assembly appointed by the Speaker of the Assembly;
one from each of the two political parties with the most
representatives in the Assembly. States that members of the
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Legislature are nonvoting members of the Council and shall
participate in the activities of the Council only to the extent
that their participation is compatible with their respective
positions as Members of the Legislature.
c) The Treasurer.
d) The Controller.
e) The Secretary of the Business, Consumer Services, and Housing
Agency.
f) The Director GO-Biz, who shall serve as Chair of the Council.
8)Provides that the CCII Program develop and annually update a
database of low-income neighborhoods, known as California Community
Investment Neighborhoods (CCII Neighborhoods) with relevant
information about socioeconomic demographic data, descriptions of
pertinent characteristics to inform private sector investments, such
as local land use plans and zoning or other development
designations, and commitments from local governments to support
private sector investments.
9)Requires the Council to adopt criteria whereby an eligible
low-income neighborhood can become a CCII Neighborhood.
10)Requires the CCII Program to compile and maintain a current
inventory of California public sector funding resources and
financing mechanisms that may be allocated to or utilized in
low-income neighborhoods and coordinate public sector financial
investment and public programs to assist low-income communities that
are eligible CCII Neighborhoods to become business, development, and
investment ready and to attract private sector TBL fund investments.
11)Requires the CCII Program to develop and adopt criteria for
identifying eligible TBL investment funds that will serve as
partners and invest in enterprises and employers that generate
permanent living wage jobs, including investments to assist in
starting-up, locating, and expanding employers in low-income
neighborhoods.
12)Requires the CCII Program to develop and adopt criteria for
eligible TBL investment funds that invest in real estate
developments to assist in constructing, expanding, renovating, and
rehabilitating buildings in low-income neighborhoods that
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accommodate all allowed, land use approved and permitted by the
local government, land use regulations.
13)Requires the CCII Program to establish overall TBL goals and
standardized metrics for economic, social, and environmental
outcomes that shall be accepted by all eligible investment funds and
gather evidence and conduct public forums to identify a broad array
of incentives that will encourage TBL fund investments in low-income
neighborhoods.
14)Requires the CCII Program to establish and convene regular meetings
of the California Community Investment Network comprised of
organizations and institutions with expertise and resources to
advise Council and eligible investment fund managers.
15)Requires biannual reporting to the Legislature and the Governor on
the status and progress of the CCII Program and performance goals
and TBL outcomes.
16)Provides that the CCII shall encourage significant private sector
commitment, cooperation, and collaboration to invest private capital
in low-income neighborhoods through eligible TBL equity investment
funds with the goal of obtaining, by January 1, 2019, at least $1
billion of new investment by TBL funds in TBL real estate
developments and businesses located in low-income California
neighborhoods.
FISCAL EFFECT: This bill is keyed "fiscal" by Legislative Counsel.
According to the Assembly Committee on Appropriations analysis dated
January 23, 2014, this bill will result in estimated administrative
costs of approximately $500,000 in General Fund monies.
COMMENTS:
1. Purpose. This bill is sponsored by the Author . According to the
Author, "poverty is increasing in California, and the state lacks a
coordinated economic development strategy to bring social equity
private investment to low-income neighborhoods. The Author cites
the supplemental poverty measure, established by the U.S. Census
Bureau in 2013, to incorporate cost of living in the establishment
of the rate of poverty, which determined that the rate of poverty
in California is 23.5%, which means that nearly nine million people
are poor. According to the Author, low-income neighborhoods face
challenges in accessing capital and one way to address poverty is
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to increase public and private investment in resource-poor
neighborhoods through TBL investing.
The Author cites work of The Bay Area Family of Funds, a regional
effort to attract private capital into low and moderate-income
neighborhoods that leverages its investments in these communities
through projects that promote smart growth, address poverty,
support local businesses and clean up contaminated sites with
market-based solutions. According to the Author, The Bay Area
Family of Funds has raised over $215 million for double and TBL
investments through four separate funds: the Bay Area Smart Growth
Funds I & II, the Bay Area Equity Fund, and the California
Environmental Redevelopment Fund. The Funds' investors consist of
banks, foundations, pension funds, insurance companies,
individuals, and other corporations.
The Author notes that TBL investing promotes a market or
above-market rate of economic return, environmental protection, and
social equity. But, according to the Author, "private investment
won't flow into low-income neighborhoods unless the state can help
underwrite the risk of crime, poverty, low job skills, and poor
infrastructure. While the state has numerous programs aimed at
reducing poverty and promoting economic development, none of this
is organized or coordinated. AB 495 seeks to provide a structure
within state government to coordinate public investment so that it
complements and encourages TBL investing into low-income
neighborhoods."
2. Triple Bottom Line Investing. In traditional business accounting,
the "bottom line" is the sum of revenue minus expenses, which is
either a loss or a profit. The term originated from the notion
that the profit is always shown at the very bottom of the statement
of revenue and expenses. In the last 50 years, social and
environmental justice groups have struggled to bring a broader
definition of "bottom line" into public consciousness. The concept
of TBL is designed to bring about other bottom lines, often
paraphrased as "profit, people, and planet." These other bottom
lines are social and environmental concerns that provide a societal
benefit. TBL accounting gained attention in the mid-1990s when
John Elkington, an authority on corporate responsibility and
sustainability, came up with TBL as a way to measure the
sustainability outcomes of corporate America. Andrew W. Savitz,
author of The Triple Bottom Line and formerly a lead partner
running PricewaterhouseCoopers' sustainability consulting practice,
has said the TBL "captures the essence of sustainability by
measuring the impact of an organization's activities on the world?
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including both its profitability and shareholder values and its
social, human and environmental capital." There is no universal
standard method for calculating the TBL nor is there a universal
standard for the measures that compromise the three TBL categories.
TBL investing has gained legitimacy over the last decade as
private investors attempt to align their investment portfolios with
socially responsible goals.
3. Social Impact Financing. A number of bills, with a seemingly
similar intent as this bill to better coordinate government to
bring about funding for important social and community programs,
have been proposed in the 2013-14 session to increase California's
use of what is known as Social Innovation Financing. Social Impact
Partnerships (SIP), also known as "Social Impact Bonds (SIBs),"
"Social Innovation Financing (SIF)," and "Pay for Success
Contracts" are a financing mechanism for social programs operated
and administered by non-government organizations (NGOs). The NGO
enters into a contract with a local, state or federal government
agency to administer a specific program, including goals and
quantifiable target results with a set time frame by which they
must be achieved. The NGO pays for the entire up-front costs of
providing the service and if the service meets the agreed upon
quantifiable results in the specified time frame; the NGO is in
turn reimbursed by the government for the cost of the service plus
an agreed upon rate of financial return. If the goals are not met,
the government does not reimburse the NGO and no public monies are
expended. In essence, nonprofit organizations deliver a program
and government only pays if a program succeeds.
SIF is seen as having a number of benefits, including:
Transferring risk away from government and taxpayers, in
that public entities are not subject to repay for services if
the outside organization is unable to achieve the desired
outcome.
An ability to fund preventive services that may provide
cost savings to government money down the road.
An ability to overcome the "silo" problem in government
where agencies may find it difficult to pool resources or
direct money toward effective programs.
According to a recent New York Times article, projects would allow
social activists and philanthropists to be more effective with
their donations and there may be opportunities to put private
venture capital and market discipline and innovation to work
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solving social problems that government so far has found
intractable.
1. Governor's Office of Business and Economic Development (GO-Biz).
In February 2010, the Little Hoover Commission undertook a review
of the state's economic and workforce development programs. In its
final report, Making up for Lost Ground: Creating a Governor's
Office of Economic Development, it analyzed the status and
effectiveness of current programs since the 2003 demise of the
Technology, Trade and Commerce Agency and recommended the creation
of a new governmental entity to fill the void left by the
dismantled agency.
The report called for a single entity that would promote greater
economic development, foster job creation, serve as a policy
advisor and deliver specific services (i.e., permitting, tax,
regulatory, and other information) directly to the California
business community. In April 2010, Governor Schwarzenegger issued
Executive Order S-05-10 as a means to operationalize the report
recommendations including the creation of the Governor's Office of
Economic Development (GOED).
In October 2011, the Governor signed AB 29 (cited and described
below), which effectively codified GOED and changed its name to
GO-Biz, effective January 1, 2012. Since its inception, the office
has served over 3,000 businesses, 95% of which are small. The most
frequent types of assistance include help with permit streamlining,
starting a businesses, relocation and expansion of businesses, and
regulatory challenges.
In March 2012, the Governor initiated a reorganization process to
realign the state's administrative structure. Key changes include
dismantling of the Business, Transportation and Housing Agency
(BTH) and the shifting of a number of key programs and services to
GO-Biz including the Small Business Loan Guarantee Program, the
California Travel and Tourism Commission, the California Film
Commission, the Film California First Program and the
Infrastructure and Economic Development Bank (I-Bank). GO-Biz also
administers the "Made In California" program for the purpose of
encouraging consumer product awareness and to foster the purchases
of products manufactured in California. GO-Biz now has authority
for undertaking international trade and foreign investment
activities, including establishing any international trade and
investment office ( AB 2012 , Perez, Statutes of 2012). GO-Biz has
partnered with the Bay Area Council to open a California-China
Trade and Investment office in Shanghai's downtown Yangpu district
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and is authorized under current law to accept private monies to
establish, fund and operate these offices.
2. Related Legislation This Year. SB 593 (Lieu) would allow the
Governor to solicit and then submit three proposed SIPs to the
Legislature's budget committees for consideration to reduce
recidivism and improve outcomes in the child welfare system.
( Status : This bill is currently pending in the Assembly Committee
on Jobs, Economic Development and the Economy.)
AB 1178 (Bocanegra) of 2013-14 would have established the
California Promise Neighborhood Initiative to develop a system of
40 California promise neighborhoods throughout the state to support
children's development. ( Status: The bill was held in the
Assembly Committee on Appropriations.)
AB 1837 (Atkins) establishes the Governor's Office of Business and
Economic Development (GO-Biz) as the lead state entity for state
efforts related to social innovation financing and tasks GO-Biz
with providing technical assistance to local governments that are
exploring the creation of social innovation financing. ( Status:
This bill is also up in this Committee on June 23, 2014.)
3. Prior Related Legislation. SB 9 (Price) would have established the
Office of Social Innovation within GO-Biz to establish partnerships
with government agencies, private investors, nonprofit
organizations, and for-profit service providers to facilitate the
use of social impact bonds (SIBs), as defined, to address social
services needs to explore the use of social innovative financing in
the State of California. ( Status: The bill was never heard in a
policy committee.)
SB 431 (Price) of 2013 would have established the California
Socioeconomic Development Pods Program within the GO-Biz to
encourage the use of social innovative financing, as defined,
within blighted areas in the state and would have also created the
Pod Accelerator Fund, a continuously appropriated fund, within the
State Treasury, to receive moneys collected and received by GO-Biz
for the Program from gifts, bequests, or donations. ( Status: The
bill was held in the Senate Committee on Appropriations.)
AB 250 (Holden, Chapter 530, Statutes of 2013) codified and expands
the iHub Program at GO-Biz for the purpose of stimulating economic
development and job creation through the coordination of federal,
state and local innovation-supporting resources.
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AB 1072 (Fuentes) of 2011 would have created the California Promise
Neighborhoods Initiative in the then-Governor's Office of Economic
Development with the purpose of maximizing collective efforts
within a community to improve the health, safety, education and
economic development of each neighborhood. The bill directed GOED
to work with various agencies and departments and gives cities,
counties and school districts, in a promise neighborhood, priority
for certain programs, grants and funding. ( Status: The bill was
held in the Senate Committee on Appropriations.)
SB 732 (Steinberg, Chapter 729, Statutes of 2008), creates the
Strategic Growth Council and requires the Council to take certain
actions with regard to coordinating specified programs of member
state agencies, and requires the Council to manage and award grants
and loans to support the planning and development of sustainable
communities.
4. Arguments in Support. Supporters believe that this bill will
reduce private-sector investment risks by mobilizing public
leadership and existing government resources into low-income
neighborhoods where the TBL funds invest and that it fosters the
kind of public-private collaboration that is needed to attract
investment in California's poorest neighborhoods to benefit the
most disadvantaged residents.
5. Staff Comment. The Council created in this bill includes four
members of the Legislature. One responsibility of the CCII
Program, as governed by the Council is to "encourage significant
private sector commitment, cooperation, and collaboration to invest
private capital in low-income neighborhoods". With members of the
Legislature seeking and potentially soliciting private investments,
this bill could pose an issue for members related to behested
payments. When a payment or donation is made at the behest of an
elected official, including a member of the Senate or Assembly,
that in aggregate is equal to or exceeds $5000 in a calendar year
from the same source, the elected official must complete and file a
report regarding these payments or donations. The Author may wish
to delete the requirement for members of the Legislature to
participate as Council members or create an advisory committee that
members of the Legislature may serve on, so long as the advisory
committee does not have governing authority for the Council
including solicitation of investments.
SUPPORT AND OPPOSITION:
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Support:
4C Capital
Alliance for Community Development
Avante Mezzanine Partners
Bay Area Impact Investing Initiative
Breakthrough Communities
Bronze Investments
California Communities United Institute
California Emerging Technology Fund
Caymus Capital Group, LLC
DBL Investors
Economic Innovation International
Huntington Capital
Mays&Corrales
Nehemiah Corporation of America
Personal Insurance Federation of California (PIFC)
San Jose City Councilmember Ash Kalra
Seal Cove Financial
Strategic Development Solutions
Sustainable Enterprise Conference
Sustainable Systems, Inc.
Transom Capital Group
One individual
Opposition:
None on file as of June 18, 2014.
Consultant:Sarah Mason