Existing law establishes the Capital Access Loan Program for Small Businesses, which is administered by the California Pollution Control Financing Authority, to assist qualifying small businesses in financing the costs of complying with environmental mandates and the remediation of contamination on their properties. Under the program, the authority may enter into contracts with participating financial institutions and is required to establish a loss reserve account with participating financial institutions. Existing law authorizes a participating financial institution that experiences a default on a qualified loan enrolled in the Capital Access Loan Program to obtain reimbursement from the authority by submitting a claim for reimbursement for a specified amount of the loss covered by that loan, subject to certain procedures.

Existing law also establishes other capital access loan programs that are administered by the authority, including the California Americans with Disabilities Small Business Capital Access Loan Program and the California Seismic Safety Capital Access Loan Program.

Under the Small Business Financial Assistance Act of 2013, the California Infrastructure and Economic Development Bank, within the Governors Office of Business and Economic Development, administers specific programs relating to small business, either administered directly by the bank or under contract with small business financial development corporations. Existing law establishes within the bank the California Small Business Finance Center and authorizes the center to administer programs to assist businesses seeking new capital resources under the Small Business Financial Assistance Act of 2013, and establishes other related provisions. The act establishes the program manager as the manager of the California Small Business Finance Center, and requires each small business financial development corporation formed pursuant to the act to submit specified information to the program manager related to their activities. Existing law requires the program manager, no later than January 1 of each year, to prepare and submit to the Governor and the Legislature a report for the preceding fiscal year ending June 30 containing the financial product activity of each small business financial development corporation formed. Existing law establishes the Small Business Expansion Fund in the State Treasury, and continuously appropriates specified moneys into the fund for purposes related to the Small Business Financial Assistance Act of 2013.

This bill would create the Capital Access Reserve Fund in the State Treasury Loan Loss Reserve Account in the California Small Business Expansion Fund to be under the administrative and management control of the California Small Business Finance Center within the bank. bank, and would continuously appropriate all moneys deposited into the account to the center for purposes of the Small Business Financial Assistance Act of 2013. By establishing a continuously appropriated fund, this bill would make an appropriation. The bill would require that the fund account be established and maintained by the bank for the benefit of qualified financial companies or financial institutions participating in one or more programs or the provisions of services as a lender in the loan loss reserve program or another program authorized pursuant to Small Business Financial Assistance Act of 2013. The bill would authorize funds to be held the program to hold funds in the loan loss reserve account in a financial institutions and companies institution or company that establish trust funds, establishes a trust fund, as specified. The bill would specify the purposes for which funds may be used. The bill would prescribe a process for the transfer of specified moneys, including those from the General Fund, held by the California Pollution Control Financing Authority to the Capital Access Reserve Fund. The bill would provide that moneys in the fund are continuously appropriated. By creating a continuously appropriated fund and providing for its funding, this bill would make an appropriation. The bill would authorize the creation of require the bank to create holding accounts and loss reserve accounts and would prescribe the purposes for which they may be used. The bill would require the bank to provide reports in the Legislature in this regard.

The bill would create the Capital Access Loan Program for Small Businesses, a loan loss reserve program, California Loan Loss Reserve Program for Small Business, a loan loss reserve and credit enhancement program, within the Small Business Financial Assistance Act of 2013. The bill would provide for the transfer of the loss reserve loan portfolio of the California Capital Access Loan Program, administered by the California Pollution Control Financing Authority, to the bank California Small Business Finance Center for purposes of the California Loan Loss Reserve Program for Small Business, pursuant to a specified process. The bill would authorize the bank to contract with a qualified financial company or financial institution to participate as a lender in the program program, and would state a specified priority for loans to be enrolled. The bill would require the bank to develop directives and requirements to implement the program. The bill would provide for the maintenance of regulations adopted by the California Pollution Control Financing Authority in connection with the management and control of loan loss reserve funds, as specified. The bill would prescribe a process pursuant to which a financial company or institution participating as a lender may withdraw from the program. The bill would also provide for the transfer of the collateral support loan portfolio of the California Capital Access Loan Program, administered by the California Pollution Control Financing Authority, to the bank pursuant to a specified process. The bill would make conforming and technical changes.

Existing law establishes the Capital Access Loan Program for Small Businesses, which is administered by the California Pollution Control Financing Authority, to assist qualifying small businesses in financing the costs of complying with environmental mandates and the remediation of contamination on their properties. Under the program, the authority may enter into contracts with participating financial institutions and is required to establish a loss reserve account with participating financial institutions. Under existing law, Existing law authorizes a participating financial institution that experiences a default on a qualified loan enrolled in the Capital Access Loan Program may to obtain reimbursement from the authority by submitting a claim for reimbursement for a specified amount of the loss covered by that loan, subject to certain procedures.

Existing law also establishes other capital access loan programs that are administered by the authority, including the California Americans with Disabilities Small Business Capital Access Loan Program and the California Seismic Safety Capital Access Loan Program.

Under the Small Business Financial Assistance Act of 2013, the California Infrastructure and Economic Development Bank, within the Governors Office of Business and Economic Development, administers specific programs relating to small business, either administered directly by the bank or under contract with small business financial development corporations. Existing law establishes within the bank the California Small Business Finance Center and authorizes the center to administer programs to assist businesses seeking new capital resources under the Small Business Financial Assistance Act of 2013, and establishes other related provisions.

This bill would transfer the administration of specified loans to qualified small businesses under the Capital Access Loan Program for small businesses from the California Pollution Control Financing Authority to the California Small Business Finance Center, and would make conforming changes to that effect. This bill would provide that the authority will continue to administer other capital access loan programs that do not exclusively relate to loans given to qualified small businesses, including the California Americans with Disabilities Small Business Capital Access Loan Program and the California Seismic Safety Capital Access Loan Program. create the Capital Access Reserve Fund in the State Treasury to be under the administrative control of the California Small Business Finance Center within the bank. The bill would require that the fund be established and maintained by the bank for the benefit of financial companies or financial institutions participating in one or more programs or the provisions of services authorized pursuant to Small Business Financial Assistance Act of 2013. The bill would authorize funds to be held in financial institutions and companies that establish trust funds, as specified. The bill would specify the purposes for which funds may be used. The bill would prescribe a process for the transfer of specified moneys, including those from the General Fund, held by the California Pollution Control Financing Authority to the Capital Access Reserve Fund. The bill would provide that moneys in the fund are continuously appropriated. By creating a continuously appropriated fund and providing for its funding, this bill would make an appropriation. The bill would authorize the creation of holding accounts and loss reserve accounts and would prescribe the purposes for which they may be used. The bill would require the bank to provide reports in the Legislature in this regard.

(1)Existing law establishes the Capital Access Loan Program, which is administered by the California Pollution Control Financing Authority, to assist qualifying small businesses in financing the costs of complying with environmental mandates and the remediation of contamination on their properties. Under the program, the authority may enter into contracts with participating financial institutions and is required to establish a loss reserve account with participating financial institutions. Under existing law, a participating financial institution that experiences a default on a qualified loan enrolled in the Capital Access Loan Program may obtain reimbursement from the authority by submitting a claim for reimbursement for a specified amount of the loss covered by that loan, subject to certain procedures. Existing law requires a financial institution, if it decides to enroll a qualified loan in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made. Existing law, commencing April 1, 2017, requires a participating financial institution, when making a qualified loan that will be enrolled under existing law, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

(2)Existing law requires the authority, when depositing the fees described above into the loss reserve account, to contribute matching funds, if available, subject to certain requirements. Existing administrative regulations authorize the authority to recapture contributions corresponding to a qualified loan if that loan has matured or if 5 years from the date the loan was enrolled have passed, whichever is earlier. Existing law establishes certain other programs administered by the authority that follow the terms and conditions for the Capital Access Loan Program, along with additional program-specific requirements, including provisions that authorize the recapture from the loss reserve account the authoritys contribution for each enrolled loan upon a prescribed date, to be deposited in a fund established for the purpose of the program and applied to future program and administrative expenditures.

This bill would similarly authorize the authority, with regard to the Capital Access Loan Program, to recapture, on or before after July 1, 2018, and annually thereafter, on or before July 1, 2019, from a loss reserve account established by the authority for a participating financial institution, the authoritys contribution for each enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first, to be deposited in the California Capital Access Fund and applied to future small business capital access program and administrative expenditures. The bill would prohibit the authority from recapturing its contribution from a loss reserve account unless the balance remaining in that loss reserve account following recapture is greater than a minimum threshold that is calculated as specified percentages of the outstanding principal balance of certain loans enrolled in that account. The bill would limit the application of the recapture provisions and the use of recaptured funds described above to loans made with contributions from specified sources.

(1)Existing law establishes the Capital Access Loan Program for small businesses, Program, which is administered by the California Pollution Control Financing Authority, which provides loans through participating financial institutions to qualifying small businesses. The authority is required to create a loss reserve account for each financial institution. to assist qualifying small businesses in financing the costs of complying with environmental mandates and the remediation of contamination on their properties. Under the program, the authority may enter into contracts with participating financial institutions and is required to establish a loss reserve account with participating financial institutions. Under existing law, a participating financial institution that experiences a default on a qualified loan enrolled in the Capital Access Loan Program may obtain reimbursement from the authority by submitting a claim for reimbursement for a specified amount of the loss covered by that loan, subject to certain procedures. Existing law requires a financial institution, if it decides to enroll a qualified loan in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made. Existing law, commencing April 1, 2017, requires a participating financial institution, when making a qualified loan that will be enrolled under existing law, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

(2)Existing law requires the authority, when depositing the fees described above into the loss reserve account, to contribute matching funds, if available, subject to certain requirements. Existing administrative regulations authorize the authority to recapture contributions corresponding to a qualified loan if that loan has matured or if 5 years from the date the loan was enrolled have passed, whichever is earlier. Existing law establishes certain other programs administered by the authority that follow the terms and conditions for the Capital Access Loan Program, along with additional program-specific requirements, including provisions that authorize the recapture from the loss reserve account the authoritys contribution for each enrolled loan upon a prescribed date, to be deposited in a fund established for the purpose of the program and applied to future program and administrative expenditures.

This bill would similarly authorize the authority, with regard to the Capital Access Loan Program, to recapture, on or before July 1, 2018, and annually thereafter, from a loss reserve account established by the authority for a participating financial institution, the authoritys contribution for each enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first, to be deposited in the California Capital Access Fund and applied to future small business capital access program and administrative expenditures. The bill, with specific exceptions, bill would prohibit the authority from recapturing its contribution from a loss reserve account unless the balance remaining in that loss reserve account following recapture is greater than 20% of the total amount in the account. a minimum threshold that is calculated as specified percentages of the outstanding principal balance of certain loans enrolled in that account. The bill would limit the application of the recapture provisions and the use of recaptured funds described above to loans made with contributions from specified sources.

(1)Existing law establishes the Capital Access Loan Program for small businesses, administered by the California Pollution Control Financing Authority, which provides loans through participating financial institutions to qualifying small businesses. The authority is required to create a loss reserve account for each financial institution. Existing law requires a financial institution, if it decides to enroll a qualified loan in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made. Existing law, commencing April 1, 2017, requires a participating financial institution, when making a qualified loan that will be enrolled under existing law, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

(2)Existing law establishes certain other programs administered by the authority that follow the terms and conditions for the Capital Access Loan Program, along with additional program-specific requirements, including provisions that authorize the recapture from the loss reserve account the authoritys contribution for each enrolled loan upon a prescribed date, to be deposited in a fund established for the purpose of the program and applied to future program and administrative expenditures.

This bill would similarly authorize the authority, with regard to the Capital Access Loan Program, to recapture, from a loss reserve account established by the authority for a participating financial institution, the authoritys contribution for each enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first, to be deposited in the California Capital Access Fund and applied to future small business capital access program and administrative expenditures. The bill, with specific exceptions, would prohibit the authority from recapturing its contribution from a loss reserve account unless the balance remaining in that loss reserve account following recapture is greater than 20% of the total amount in the account. The bill would also prohibit these recaptured contributions from being applied to other specified programs. limit the application of the recapture provisions to loans made with contributions from specified sources.

(1)Existing law establishes the Capital Access Loan Program for small businesses, administered by the California Pollution Control Financing Authority, which provides loans through participating financial institutions to qualifying small businesses. The authority is required to create a loss reserve account for each financial institution. Existing law requires a financial institution, if it decides to enroll a qualified loan in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made. Existing law, commencing April 1, 2017, requires a participating financial institution, when making a qualified loan that will be enrolled under existing law, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

(2)Existing law establishes certain other programs administered by the authority that follow the terms and conditions for the Capital Access Loan Program, along with additional program-specific requirements, including provisions that authorize the recapture from the loss reserve account the authoritys contribution for each enrolled loan upon a prescribed date, to be deposited in a fund established for the purpose of the program and applied to future program and administrative expenditures.

This bill would similarly authorize the authority, with regard to the Capital Access Loan Program, to recapture, from a loss reserve account established by the authority for a participating financial institution, the authoritys contribution for each enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first, to be deposited in the California Capital Access Fund and applied to future program and administrative expenditures. The bill, with specific exceptions, would prohibit the authority from recapturing its contribution from a loss reserve account unless the balance remaining in that loss reserve account following recapture is greater than 20% of the total amount of the outstanding loans enrolled in the account. The bill would also prohibit these recaptured contributions from being applied to other specified programs.

(1)Existing law establishes the Capital Access Loan Program for small businesses, administered by the California Pollution Control Financing Authority, which provides loans through participating financial institutions to qualifying small businesses. The authority is required to create a loss reserve account for each financial institution. The act Existing law requires a financial institution, if it decides to enroll a qualified loan under the act in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made. Existing law, commencing April 1, 2017, requires a participating financial institution, when making a qualified loan that will be enrolled under existing law, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal amount of the loan subject to that loan, but not more than 3 12 % of the principal amount amount, for deposit in the loss reserve account.

(1)Existing law establishes the Capital Access Loan Program for small businesses, administered by the California Pollution Control Financing Authority, which provides loans through participating financial institutions to qualifying small businesses. The authority is required to create a loss reserve account for each financial institution. The act requires a financial institution, if it decides to enroll a qualified loan under the act in order to obtain the protection against loss provided by its loss reserve account, to notify the authority in writing, as specified, within a specified number of days after the date on which the loan is made.

Until April 1, 2017, the act requires a participating financial institution, when making a qualified loan that will be enrolled under the act, to require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account. Commencing April 1, 2017, the act requires a participating financial institution, when making a qualified loan that will be enrolled under the act, to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 12 % of the principal amount, for deposit in the loss reserve account.

This bill would instead require the qualified business to which the loan is made to pay a fee of not less than 1% of the principal amount of the loan subject to that principal amount for deposit in the loss reserve account.

(2)If matching funds are not available under a federal capital access program or other source, existing law requires the authority to transfer to the loss reserve account an amount that is not less than the amount of the fees paid by the participating financial institution, as specified. If matching funds are available under a federal capital access program or other source, existing law requires the authority to transfer to the loss reserve account the amount required by that federal program or other source, as specified.

If matching funds are not available to the authority, the bill would authorize a participating financial institution with an existing loss reserve account to continue to enroll qualified loans to qualified businesses under the program and would require the participating financial institution to pay to the authority a specified enrollment processing fee and a claims processing fee for all claims for reimbursement for losses incurred as a result of qualified loan defaults.

(3)This bill would authorize a participating financial institution to withdraw from the program upon specified written notice to the authority. Upon receipt of a notice of withdrawal from the program, after all outstanding claims have been paid, the bill would require the authority to make specified calculations and distributions related to the remaining loss reserve account balance.

Date of Hearing: August 8, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 551

Author:(Hueso) – As Amended Ver:June 21, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill transfers the California Pollution Control Financing Authority’s California Capital Access Program (CalCAP) for Small Business Program and CalCAP Collateral Support Program portfolios and associated funding to the Small Business Finance Center, which is under the California Infrastructure and Economic Development Bank (IBank), by January 1, 2020. It requires the IBank to create a Capital Access Reserve Fund and authorizes the Small Business Finance Center to create and administer the Capital Access Loan Program for Small Businesses, a loan-loss reserve program. The bill requires the IBank to develop directives and requirements to implement the program. It also requires the Small Business Finance Center to provide two program reports to the Legislature documenting the transfer.

FISCAL EFFECT:

1. According to Governor’s Office of Business and Economic Development (GO-Biz), the parent agency for IBank, minor and absorbable one-time General Fund (GF) costs to facilitate the transfer.
2. According to GO-Biz, ongoing GF costs of about $650,000 for six positions at the Small Business Finance Center to manage and administer Capital Access Loan Program for Small Businesses. These positions will evaluate and approve documentation for lenders, enforce compliance and eligibility, lead audits of loans and lenders, provide training and support to financial institutions, track pending applications, balance and reconcile bank statements, and produce reports. (Some of these costs could be covered by federal funds, as the California Pollution Control Financing Authority has used federal funds to cover about 25% of administrative costs associated with the program in the past.)
3. According to the California Pollution Control Financing Authority, one-time GF costs of about $3 million, which represents the amount of funding owed to the California Pollution Control Financing Authority’s bond fund. (Federal rules allow the authority to use certain federal funding to cover the only direct costs of administering CalCAP programs. The authority has borrowed about $600,000 annually since the 2010-11 fiscal year from their bond fund to cover indirect and other costs, such as program outreach. The use of bond funds for these purposes is contingent on the funds being repaid over time.)
4. According to the California Pollution Control Financing Authority, one-time GF costs of about $400,000 to engage tax attorneys to determine how to avoid potential tax liability associated with the authority’s use of bond funds for CalCAP. (The IRS allowed the authority to use bond revenues to fund the programs and it is unclear what the transfer of the program’s portfolios would mean for tax liability.)
5. According to the California Pollution Control Financing Authority, one-time GF costs in the low hundreds-of-thousands of dollars to hire additional staff for one year to facilitate the transfer, provide already committed funding to develop an online loan enrollment application, and enable data transfer.

COMMENTS:

1. California Pollution Control Financing Authority. The California Pollution Control Financing Authority is a state agency within the California State Treasurer’s Office. It is governed by a board of three members: the state treasurer, the state controller, and the director of the Department of Finance. In addition to issuing tax-exempt private activity bonds to certain waste and recycling projects, the authority also administers set of programs known as CalCAP. They include the CalCAP for Americans With Disabilities Act Financing Program, which helps small businesses comply with federal Americans with Disabilities Act requirements, and the CalCAP Electric Vehicle Charging Station Financing Program, which creates more charging stations for electric vehicles. The CalCAP for Small Business Program and the CalCAP Collateral Support Program both encourage financial institutions to make loans to small businesses. The CalCAP for Small Business Program is a “loan loss reserve” that incentivizes lenders to loan to small businesses by providing up to 100% coverage on certain loan defaults. The lender, borrower, and state each provide a portion of funding for the loss reserve account, which can be held by the lender or the California Pollution Control Financing Authority. The CalCAP Collateral Support Program is a credit enhancement program that provides cash to cover the collateral shortfall of a loan made by a lender to a small business.
2. Funding for CalCAP for Small Businesses and CalCAP Collateral Support Program. The California Pollution Control Financing Authority has operated CalCAP for Small Businesses since 1994. Traditionally, the authority funded the program using bond revenues, within the constraints of IRS rules, since the bonds the California Pollution Control Financing Authority issues are tax-exempt. In 2010, the state provided $6 million GF to support CalCAP programs, and in 2011, as part of the federal Small Business Jobs Act of 2010, the California Pollution Control Financing Authority was awarded about $85 million. Of these funds, the authority put about $20 million into the CalCAP for Small Business Program and the remaining $65 million into a new program: the CalCAP Collateral Support Program. The federal rules allow states to re-deploy funds toward other purposes once all funds become unencumbered from their original, federally approved purposes.
3. Loss Reserve Account Recapture. Historically, the California Pollution Control Financing Authority would collect only interest and income earned on its loan reserve accounts and allowed lenders to keep the state’s principal contribution to the loan reserve account on its books. In July 2017, the California Pollution Control Financing Authority adopted regulations requiring lenders to commit to the state “recapturing,” or, taking back its contributions to the loss reserve account when a loan has matured. In the case of the CalCAP for Small Business Program, according to the California Pollution Control Financing Authority, the action was taken to sustain the program and make additional loans, as all of the federal funding for the program had been disbursed. California is the first state to use a recapture provision for a capital access program.
4. IBank and the Small Business Finance Center. The IBank is under GO-Biz and has broad authority to issue tax-exempt and taxable revenue bonds and provide financing, with the goal of promoting employment and economic growth. It is governed by a five-member board of directors, which includes the state treasurer and the director of the Department of Finance. One division of the IBank is the Small Business Finance Center, established in 2013. At the same time the state created the center, it transferred from a defunct agency the Small Business Loan Guarantee Program and associated funding. Through the Small Business Loan Guarantee Program, the Small Business Finance Center provides loan guarantees and direct loans to small businesses experiencing capital access barriers.
5. Arguments in Support. The sponsor of this bill is the Opportunity Fund, a lending organization. Other supporters include the California Bankers Association and the California Credit Union League.

A key concern of proponents for keeping portfolios and funding for the CalCAP for Small Business Program and CalCAP Collateral Support Program at the California Pollution Control Financing Authority is its use of recapture provisions. They posit the provisions make participation less attractive to lenders and are unnecessary. Specifically, although they cannot access the funding the state contributed to the loss reserve account, lenders indicate the recapture policy diminishes their reserves, therefore increasing a lender’s loan underwriting risk. In other words, keeping the state’s contribution to the loss reserve account on a lender’s books improves the lender’s fiscal condition, whether or not the lender can access the funds. They suggest the California Pollution Control Financing Authority could use funds from other sources, such as the CalCAP Collateral Support Program or fees, to avoid using recapture. Proponents indicate they have reached an impasse with the California Pollution Control Financing Authority with regard to the recapture provisions, and they believe the program must be moved to a new agency to continue to attract and retain small business lenders. They cite data suggesting the volume of lenders has recently decreased.

In addition, proponents believe the transfer would provide more oversight and control by the Legislature and administration over how the program funds are spent, especially now that the federal funds are no longer tied to their original federal uses. (The Small Business Finance Center is under GO-Biz, which is under the governor’s administration, while the California Pollution Control Financing Authority is under the State Treasurer’s Office, which is a constitutionally autonomous office.)

Lastly, proponents contend, the Small Business Finance Center would be a more appropriate place for the portfolios and funds, given its mission and singular focus on small business.

1. Arguments in Opposition. Opponents of the bill include the state treasurer and state controller.

With regard to recapture provisions, the California Pollution Control Financing Authority indicates it does not believe lenders will stop using the program as a result of the recapture provision, and reference data suggesting the volume of loans is increasing as compared to last year.

The opponents indicate the independence of the California Pollution Control Financing Authority is an asset and provides a public process with which stakeholders may engage.

Lastly, opponents indicate the California Pollution Control Financing Authority has successfully administered CalCAP since the 1990s and is a national model for small business lending. They argue transferring the portfolios and funding to the Small Business Finance Center is unnecessary and costly to the state.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: June 19, 2018

ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY

Sharon Quirk-Silva, Chair

SBPCA Bill Id:SB 551

Author:(Hueso) – As Amended Ver:June 13, 2018

SENATE VOTE: 39-0

SUBJECT: Capital Access Loan Program for Small Businesses

SUMMARY: Transfers certain funding and loan portfolios from the California Pollution Control Financing Authority (CPCFA) to the Small Business Finance Center administered by the California Infrastructure and Economic Development Bank (IBank). Specifically, this bill:

1. Legislative Findings: Makes findings and declarations that include, but are not limited to:
   1. In October 2010, US Congress passed and the President signed the Small Business Jobs Act. Among other things, the act created the State Small Business Credit Initiative (SSBCI), which allowed expenditures up to $1.5 billion for state sponsored small business finance programs. California utilized its federal SSBCI money to capitalize three programs: a loan guarantee program, a loan loss reserve program, and a collateral support program;
   2. In February 2011, CPCFA was allocated approximately $84 million pursuant to the SSBCI for use by the authority in administering the California Capital Access Program for Small Business (CalCAP for Small Business) and the CalCAP Collateral Support program;
   3. On April 25, 2017, the State Treasurer’s office alerted the public and interested stakeholders that the federal moneys allocated to California to support CalCAP were near exhaustion, as were the 2010 General Fund moneys appropriated to expand CalCAP. In order to avoid shutting down CalCAP, CPCFA adopted regulations to recapture some funds it had previously contributed to CalCAP;
   4. On May 30, 2017, AB 964 (Calderon), relating to CalCAP and the establishment of the California Affordable Clean Vehicle Program, was amended to remove “for Small Businesses” from the title of the Capital Access Loan Program to read “Capital Access Loan Program;” and
   5. Without direction from the Legislature, a distinct possibility exists that federal funds that were allocated for the purpose of assisting small businesses might be redirected to support programs separate and apart from small business assistance, which runs counter to the intent set forth in the federal Small Business Jobs Act of 2010.
2. More Legislative Findings: Makes legislative declarations and expresses legislative intent that include, but are not limited to:
   1. It is appropriate, as federal program funding expires, or as the funds have been fully disbursed, that the portfolio of CalCAP for Small Business and the portfolio of the Collateral Support program be transferred from the CPCFA to the California Small Business Finance Center within the IBank; and
   2. Nothing in this act shall impede the ability of the CPCFA to operate the California Capital Access Program with other program funds, as well as to administer the California Americans with Disabilities Small Business Capital Access Loan Program, as specified, and the California Seismic Safety Capital Access Loan Program, as specified.
3. Capital Access Reserve Fund: Establishes the Capital Access Reserve Fund within the State Treasury under the administrative control of the California Small Business Finance Center within the IBank for the purpose of receiving state, federal, or local government moneys and other public or private moneys to make loans, credit enhancements, and other financial products, as specified. Related provisions in the bill include, but are not limited to:
   1. Providing similar provisions and authorities as those provided to the California Small Business Expansion Fund, an existing fund that is authorized to hold collateral and other moneys administered by the California Small Business Finance Center;
   2. Specifying that the money in the Capital Access Reserve Fund is continuously appropriated without regard to fiscal years, for the purposes of this chapter; and
   3. Limiting state and bank liability and obligation to only those moneys allocated in the Capital Access Reserve Fund for these purposes.
4. Transfer of Funds: Requires the transfer of specified federal and state funds from the CPCFA to the Capital Access Reserve Fund, which is under the administrative control of the California Small Business Finance Center. Related provisions in the bill include, but are not limited to:
   1. Specifying that these funds include all federal and state funds the source of which was the federal SSBCI or the 2010 General Fund appropriation under Assembly Bill 1632 of the 2009–10 Regular Session, Chapter 731 of the Statutes of 2010, including funds that have been returned to or recaptured by the CPCFA and are currently under its control;
   2. Requiring, for the purpose of initiating the transfer, that the IBank board adopt a resolution providing the terms and conditions of the transfer. The IBank may confer with the CPCFA on the terms and conditions of the resolution;
   3. Requiring the CPCFA to provide requested information in a timely manner and, upon adoption of the resolution, transfer the moneys; and
   4. Providing that the final transfer of the funds shall occur no later than January 1, 2020.
5. Contracts with Lenders: Authorizes the IBank program manager to enter into a contract between the IBank and any financial institution or financial company in connection with one or more programs or financial products, as specified.
6. Loss Reserve Accounts: Authorizes the IBank to create one or more loss reserve accounts in the Capital Access Reserve Fund or a trust fund for a financial institution or financial company participating as a lender in the Capital Access Loan Program for Small Businesses. Related provisions in the bill include, but are not limited to:
   1. Specifying that funding in the account is to be used for the following purposes:
      1. Depositing all required fees paid by the financial company or financial institution, and the small business;
      2. Depositing contributions made by the state and, if applicable, the federal government or other sources; and

• • 1. Covering losses on enrolled loans sustained by a financial company or financial institution by disbursing funds accumulated in the loss reserve account;
  1. Requiring the IBank to manage all moneys in a loss reserve account, as specified;
  2. Requiring all interest or income earned on money credited to a loss reserve account to be deemed to be part of the loss reserve account; and
  3. Authorizing the IBank to withdraw from a loss reserve account all, or a portion, of the interest or other income that has been credited to the account.

1. Holding Accounts: Authorizes the creation of one or more holding accounts in the Capital Access Reserve Fund to accommodate the temporary or permanent transfer of funds pursuant to requirements and directives adopted by the IBank board relating to the suspension and termination of a financial institution's or financial company's participation in a program or offering of a service, as specified.
2. Capital Access Loan Program: Establishes the Capital Access Loan Program for Small Businesses, a loan loss reserve program, under the administrative control of the California Small Business Finance Center. Related provisions in the bill include, but are not limited to:
   1. Authorizing the IBank to contract with any financial company or financial institution for the purpose of serving as a lender in the Capital Access Loan Program for Small Businesses;
   2. Requiring that a program priority be placed on loans and microloans that benefit low-income areas and women- and minority-owned businesses;
   3. Requiring the IBank to develop directives and requirements to implement the Capital Access Loan Program for Small Businesses, including, but not limited to:
      1. The initiation of new and extension of existing agreements to participate in the program;
      2. The filing of claims for reimbursement for losses incurred as a result of qualified loan defaults;
      3. The terms and conditions for a financial company or financial institution to assign, transfer, pledge, or securitize all or a portion of any enrolled loan or loss reserve account, pursuant to directives and requirements developed by the IBank;
      4. The terms and conditions by which the program manager may temporarily suspend and terminate a contract with a financial institution or financial company for cause, including provisions for appeals; and
      5. Annual reporting requirements on the use and outcomes of the program;
   4. Limiting the liability of the state and the IBank to the financial institution or financial company under contract to only the amount of money credited to the loss reserve account of the financial institution and financial company under contract; and
   5. Establishing a process whereby a financial company or financial institution is authorized to withdraw from the Capital Access Loan Program for Small Businesses, including, but not limited to, providing written notice to the IBank that all loans secured by its loss reserve account have been repaid, that there are no pending claims for reimbursement for losses incurred as a result of loan defaults, and that the financial company or financial institution waives all rights to submit claims for reimbursement for losses incurred, as specified.
3. Transfer of Loan Portfolios: Transfers the loss reserve loan portfolio and the collateral support loan portfolio of the California Capital Access Loan Program administered by the CPCFA to the IBank. Related provisions in the bill include, but are not limited to:
   1. Limiting loans transferred to only those which were secured by state funds received by CPCFA in a 2010 general fund appropriation, as specified, and federal funds awarded to the state pursuant to the SSBCI, as specified;
   2. Specifying that the loan portfolio transfers are to be initiated by the IBank board adopting resolutions which provide for the terms and conditions of the transfers;
   3. Authorizing the IBank to confer with the CPCFA in developing the resolutions and requiring the CPCFA to provide requested information in a timely manner; and
   4. Requiring the CPCFA to transfer the portfolios upon the adoption of the resolutions. Both loan portfolios are required to be transferred no later than January 1, 2020.
4. Transitioning Regulations: Specifies that all related regulations adopted by the CPCFA pursuant to the California Capital Access Program and the Collateral Support Program are to remain in effect until the IBank board adopts directives and requirements addressing those issues. The bill sets a September 1, 2019, deadline for the IBank to adopt the directives and requirements.
5. Progress Report: Requires a progress report be made to the Legislature on the implementation of the transfer of funds and loan portfolios, as specified. The first report is due no later than July 1, 2019, and the last letter is to be submitted no later than July 1, 2020.

EXISTING LAW:

1. Establishes the Governor's Office of Business and Economic Development (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.
2. Establishes the IBank within GO-Biz and authorizes it to undertake a variety of infrastructure related financial activities, including, but not limited to, the administration of the Infrastructure State Revolving Fund ISRF, the oversight of the Small Business Finance Center, and the issuance of tax-exempt and taxable revenue bonds.
3. Establishes the CPCFA with specified powers and duties, and authorizes it to approve financing for pollution control projects and facilities, administer a loss reserve program to serve the credit needs of small businesses, and provide grants and loans to remediate brownfields, among other activities.
4. Establishes CalCAP for the purpose of providing a small business loss reserve account program through participating financial institutions. In implementing the program, CPCFA is authorized to establish a loss reserve account for each financial institution with which the authority makes a contract. The loss reserve account shall consist of moneys paid as fees by borrowers and the financial institution, moneys transferred to the account from CPCFA's Small Business Assistance Fund, any matching federal moneys, and any other moneys provided by the authority or other source.

FISCAL EFFECT: Unknown

POLICY FRAMEWORK: California was allocated $168.4 million from the federal government through the SSBCI under the federal Small Business Jobs Act of 2010. These funds were split between two state entities which coordinated the implementation of their separate programs to ensure that the state drew down all applicable dollars in a timely fashion and met the very particular federal requirements.

The federal Allocation Agreement expired in March 2017, and all federal funds have been fully obligated or expended. Under the terms of SSBCI, all federal restrictions on the use of the moneys are removed, leaving the only restrictions being those that the state has placed upon itself and those contained in previously entered into contracts.

A key policy question before the Legislature is how these moneys should be re-deployed to meet the financial needs of small businesses. Since the initial conversations about the possible uses for the federal allocation, a number of organizational changes have occurred within the state, including the establishment of a Small Business Finance Center within GO-Biz and the IBank and the transfer of one-half of the state's SSBCI allocation to the new center.

SB 551 proposes to move the other half of funds, including related loan portfolios, to the Small Business Finance Center. The author and sponsor, Opportunity Fund, believe that the transfer represents the best decision based on the current operations of the small business programs and for the future discussions on re-deploying upwards of $50 million as it becomes available for extending existing and developing new small business financial products. The California State Treasurer, who Chairs CPCFA, opposes the transfer and has expressed concerns that it could undermine other financial products CPCFA administers on behalf of other agencies and may undercut its ability to expend the $20 million it is holding to capitalize two additional loss reserve programs.

The Comment section of the analysis includes information on JEDE's first review of SB 551 (June 2017) when the author tried to broker a compromise between the lender community and the CPCFA on how to continue the program following the completion of the federal funding cycle. In addition, the Comment section includes background on the CalCAP-related financial products; the establishment of the Small Business Finance Center; and how SB 511 proposes to transfer the funds and management of the loan portfolios. A statement of the State Treasurer's opposition and the author's response are included in Comment 9. Technical amendments are proposed in Comment 11.

COMMENTS:

1. Second Review of SB 551 by JEDE: As SB 551 passed JEDE in June of 2017 on a 6 to 0 vote, the measure proposed to codify the limited recapture of state moneys that were deposited in a small business loss reserve account held by a private financial institution participating in the CalCAP for Small Business program. Existing law limits recapture by CPCFA to only interest and income earned on the account, which was generally used to cover CPCFA administrative costs with the remaining amount available for other program-related activities.

At the same time that SB 551 was moving through the Legislature, CPCFA was proposing to adopt a similar, but not identical, regulatory change to allow for expanded recapture provisions, including setting mandatory annual sweeps of principal and interest and committing all recaptured funds toward the ongoing operation of the loss reserve program. The impetus for these expanded recapture provisions, according to CPCFA, was the otherwise imminent shutdown of the CalCAP for Small Business program due to a lack of substantial new funding.

How Loss Reserve Programs Work

The loss reserve account serves as a revenue pool for a participating lender to be reimbursed for the value of a defaulted loan that has been enrolled in CalCAP. The lender may only be reimbursed to the extent that moneys are available in the account.

As each loan is enrolled in CalCAP, the financial institution, the borrower, and the state each contribute funds. These moneys remain in the loss reserve account to offset future losses.

For his part, Senator Hueso had introduced SB 551 to help negotiate a compromise between CPCFA and the lender community, many of whom felt the CPCFA proposed recapture provisions were too aggressive. Opportunity Fund, a national leader among community development financial institutions and sponsor of SB 551, was particularly concerned that a shutdown of the program could have a serious impact on the microenterprise owners which have very limited financial options in the marketplace.

In July 2017, SB 551 was set to be heard in Assembly Committee on Banking and Finance. Prior to the hearing, the California Bankers Association, among other stakeholder groups, expressed growing concerns that any recapture of CPCFA's principal contribution to the loss reserve account could jeopardize the fiscal integrity of the whole account. As these new recapture provisions were not included in the initial CalCAP lender agreements, financial institutions argued, they would not have considered this possible circumstance when underwriting loans for inclusion in the program. Based on these concerns, Senator Hueso pulled the bill from the Assembly Banking Committee hearing and made SB 551 a two-year bill.

At CPCFA's July 18, 2017, meeting, the recapture changes were agendized, discussed, and approved utilizing its authority to adopt emergency regulations. Based on the official minutes from the meeting, previously submitted public comments were discussed as part of that hearing, including concerns that CPCFA lacked the statutory authority to recapture more than interest earned on the loss reserve accounts. The CPCFA's executive director cited three Health and Safety Code sections, including 44559.2(e); 44559.3(c); and 44559.3(d), which, the board was told, provided CPCFA with the ability to adopt policies to increase sustainability of the program. Additionally, the executive director stated that the lack of specific statutory authority found in statutes related to other CalCAP programs "in no way limits discretion of the Authority to do the same in legacy programs."

With the CalCAP for Small Business regulation amended, lenders were required to affirm their election to the new recapture provisions and remit the required funds or "be deemed ineligible to submit loan enrollments on or after August 15, 2017."

Following the CPCFA’s July 2017 meeting, the author requested that SB 551 be withdrawn from the Assembly Committee on Banking and Finance and returned to the Assembly Committee on Jobs, Economic Development, and the Economy, where further work could be undertaken. In September 2017, the recapture provisions were removed from the bill and replaced with legislative intent to transfer CalCAP to the Small Business Finance Center where the other SSBCI program was located.

1. California's use of Federal SSBCI Funds: In 2011, California received a significant allocation of federal funds through the SSBCI, a program established under the federal Small Business Jobs Act of 2010. Under the initial federal Allocation Agreement, $168.4 million was divided equally between the CalCAP for Small Business program administered through CPCFA and the Small Business Loan Guarantee Program administered through the Business Transportation and Housing Agency (BTH) and later the IBank under the Governor's Reorganization Plan GRP2.

Receipt of these funds was very timely as debt markets were frozen and state resources were very limited for these two small business credit enhancement programs. In fact, both CPCFA and BTH were short on revenues to operate their programs and had received General Fund appropriations in 2010, with $6 million being approved for CalCAP and $20 million for Small Business Loan Guarantee Program; AB 1632, Chapter 731, Statutes of 2010. Unfortunately for small business borrowers, BTH's $20 million was eliminated in the following year's budget.

Due to federal accounting practices and slight variations in federal SSBCI loss reserve and guarantee program requirements, CPCFA and the IBank each established new reserve accounts and adopted new federal versions of their programs. Once CPCFA and the IBank received the federal funds, the program priorities for each of the programs were to use the federal funds first and leave the state funds for either nonconforming loans or for use when the federal moneys had been exhausted.

Over the course of the six program years (2011 to 2017), the state amended the federal Allocation Agreement several times, and in the latter years, CPCFA sought authorization to administer a third credit enhancement program, a Collateral Support Program. CPCFA used the federal funds as follows: Loss Reserve Program ($20 million) and a Collateral Support Program ($65 million).

The federal Allocation Agreement expired in March 2017. Both CPCFA and the IBank report that all federal funds have been expended or allocated, meaning that as these moneys become unencumbered from their current loans the moneys can be re-deployed. As an example, funds in the Collateral Support Program could be used to continue enrolling loans under the CalCap for Small Business program or be used to fill another small business financing gap.

In preparation for the reuse of these federal funds, SB 551 proposes to transfer the loan portfolios and current cash reserves related to the SSBCI allocation and the $6 million appropriated in 2010. This transfer is supported by a number of lenders and organizations representing lenders who are or were participating in the CalCAP for Small Business program, including the California Bankers Association, the California Credit Union League, CDC Small Business Finance, and California Association for Micro Enterprise Opportunity. The transfer is opposed, as noted earlier by the California State Treasurer, who chairs CPCFA.

Below are 2017 SSBCI funded program activities for CPCFA, which represents only a partial year, as first time federal funding was exhausted in August of 2107 (3^rd quarter of the program year).

• SSBCI Funds Loan Volume – In 2017 CalCAP enrolled 1,706 loans to California small business owners using SSBCI funds, bringing the total number of CalCAP loans funded by SSBCI up to 10,127.
• SSBCI Funds Loan Dollars – CalCAP lenders loaned approximate $71 million in 2017, bringing the total loaned since the SSBCI program began to approximately $468 million.
• SSBCI Funds Loan Contributions – CPCFA contributed $2.5 million of SSBCI funds to loss reserve accounts for enrolled CalCAP loans in 2017. Total loan contributions since inception are $17 million, which represents the full federal allocation for the loan loss reserve program.

1. Transferring Portfolio and Funding: Rather than mandating the immediate transfer of funds and related loan portfolios, SB 551 set a process that can be controlled by the IBank in order to maintain the integrity and financial viability of the transferred assets.

To initiate the transfer of cash deposits and the loan portfolios related to the SSBCI and General Fund moneys, the IBank board is required to adopt a resolution outlining the terms and conditions of the transfers. The bill provides that the IBank may consult with and receive information from CPCFA prior to adopting the resolution. SB 551 does, however, set an outside timeline of January 1, 2020.

All CPCFA program regulations are to remain in place, under the provisions of SB 551, until the IBank board adopts directives and requirements related to the oversight and management of the program. As noted previously and described later in the analysis, some portions of federal funding related to the Collateral Support Program may become available within the next year. Given that $65 million in federal funds were committed to the Collateral Support Program, this money could be substantial.

1. The Small Business Finance Center: The Small Business Finance Center was established in 2013, following the implementation of the Governor's Reorganization Plan GRP2, which transferred the IBank and the Small Business Loan Guarantee Program from the soon to be defunct Business, Transportation, and Housing Agency to GO-Biz.

That same year, AB 1247 modified the GRP2 proposal for the placement of the Small Business Loan Program and established the Small Business Finance Center within the IBank; AB 1247 (Median and Bocanegra), Chapter 537, Statutes of 2013. It was the authors' intent that the center could become a multipurpose small business financing entity. To accomplish this objective, the statutory framework of the Small Business Finance Center was drafted to be different from those of many departments. While the Small Business Loan Guarantee Program was specifically codified within the administrative control of the Small Business Center, general statutory authority was also provided for the IBank board to approve and modify a range of financial products, including loans and other debt instruments, as well as loan guarantees and other credit enhancements.

As small businesses have different financial needs and business circumstances, having a range of financial products available is important. As an example, the loan guarantee model has been shown to be most useful for mid-to-larger size loans, while the loss reserve model is very effective in facilitating microloans.

In fiscal year 2016-17, there were 252 guarantees made on a total loan package of $206.6 million with a loan guarantee amount of $74.1 million. The leverage amount of SSBCI moneys vary under the Small Business Loan Guarantee Program based on the assessed risk in the loan portfolio. Borrowers reported that 6,847 jobs were created or retained during 2016-17. By law, the reserve amount could be as low as 10%, meaning $10 is in reserve for every $100 of loans guaranteed.

In 2016-17, 17 new lenders agreed to participate in the Small Business Loan Program. As of May 2018, there were 84 participating lenders.

The SBLGP is over 30 years old and has historically maintained a low default rate which is a testament to the diligence and skill of the small business financial development corporations which manage the program locally under a contract with the IBank. In 2016-17, the net loss reserve rate was 1.59%.

1. California Capital Access Program for Small Businesses: CalCAP for Small Business program was established through legislation enacted in 1994 for the purpose of incentivizing financial institutions to provide small businesses with the capital to maintain and grow their businesses.

The program uses a portfolio-based credit enhancement model, whereby a loss reserve account is established to offset losses incurred in connection with small business loans enrolled in the program. Funding in the loss reserve account consists of moneys paid by the participating borrower and financial institution, with CPCFA matching these contributions.

Unlike a loan guarantee which ensures payment on a certain percentage of the defaulted loan (80% in the guarantee program), under the loss reserve fund model, the amount of the default payment is based on the amount of funds available in the reserve account. This means a lender could potentially recover 100% of the value of the defaulted loan, if sufficient moneys are in the account. The model encourages lenders to maintain good underwriting practices because utilization of the loss reserve too often can quickly draw-down the reserve leaving little for other potential defaults of enrolled loans within the portfolio.

CalCAP loans can be used for working capital and to finance the acquisition of land, construction or renovation of buildings, the purchase of equipment, other capital projects. There are some limitations on real estate loans and loan refinancing. The maximum loan amount is $2.5 million. 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 loss 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.

In 2017, participating lenders enrolled 2,271 small business loans for $91 million, representing $99 million in total loan dollars. The average size loan in 2017 was $43,682 and loans were enrolled from businesses located in 44 counties. In 2017, loans enrolled in CalCAP helped to create 1,052 new jobs and retain 9,445 existing jobs.

Of the 2,271 total loans made in 2017, 1,771 were microloans representing $20 million of the $91 million of loans. These figures demonstrate the unique ability of loss reserve programs to serve the small-size financing needs of owner operators and microbusinesses.

Between 1994 and the close of 2017, 68 lenders participated in CalCAP for Small Business program. In 2016, 39 lenders participated in the program and by the close of the 2017 report period, there were 20 participating lenders. As of May 31, 2018, there were 15 participating lenders in the CalCAP for Small Business program.

CPCFA processed and approved 130 claims for $3.8 million from lenders against their loss reserve account in 2017. This represents a 6% default rate in 2017, up from 5% in 2016. Below is a chart showing 2017 loan activities by industry sector.

Moneys to operate CalCAP originally came from excess bond issuance fees. From 2004 to 2010, about $35 million was allocated by CPCFA to finance the CalCAP for Small Business Program. In 2010, CalCAP received its first General Fund moneys, $6 million as part of a comprehensive $32 million small business budget proposal, and in 2011, CalCAP was selected to administer a portion of federal funds for a small business access to capital program. It is staff's understanding that CalCAP for Small Business Program currently operates exclusively on funds received from federal and non-CPCFA sources.

1. Collateral Support Program: The Collateral Support Program was approved in January 2013 by the US Treasury. As noted earlier, it comprises the largest component of federal SSBCI money being administered through CPCFA, $65 million of the approximately $85 million in total funds.

Under the collateral support model, a business which would otherwise be turned down by a lender due to insufficient collateral becomes eligible after a supplementary cash deposit is made with the lender. These supplementary funds serve as partial collateral against a potential loss. In the event the borrower defaults on the loan, the lender generally collects against the borrower’s collateral first and then collects against the cash deposit for any remaining loss.

Under CPCFA's program, after making the initial deposit with the lender, CPCFA is later able to recapture a portion of these funds as the business pays down the loan. This is important because collateral support programs can require significantly more capital to operate than loan loss reserve programs.

Two examples of how the amount of collateral support may be determined by a lender, as explained in the SSBCI best practices report, are as follows: "When applied to working capital loans or lines of credit, the amount of collateral support can be determined as the difference between the proposed loan amount and the value the lender assigns to the working capital assets such as accounts receivable and inventory. For loans to finance fixed assets, collateral support can fill the financing gap between the amount a bank is willing to lend against the assets without credit enhancement and the borrower’s equity contribution."

In 2017, CPCFA enrolled 38 loans to 37 individual businesses owners. The average loan size was $746,987 with the largest loan being $11.8 million. These loans were supported with $7 million in cash deposits.

Fifteen of the 38 loans were in "severely disadvantaged areas" and CPCFA paid additional cash deposits of $375,000. In 2017, the Collateral Support Program helped to create 165 new jobs and retain 336 existing jobs. Below is a chart showing loans supported through the Collateral Support Program by industry sector.

1. Loss Reserve Model and other Programs: Since its inception in 1994, the CalCAP loss reserve model has been used in a number of other targeted credit enhancement programs. Resource- and environmental-related state agencies have contracted with CPCF to administer programs on their behalf, including the California Air Resources Board. Each of these credit enhancement programs requires separate capitalization. Among CalCAP's programs capitalized by other funding sources, the authority operates or has the authority to operate:

• The On-Road Heavy-Duty Diesel Vehicle Program for small business truck owners ($127.3 million available with $107.3 received by CPCFA);
• A Proposition 1B Loan Assistance Program to help finance 2007 or newer heavy-duty diesel or LNG fueled trucks;
• The Electrical Vehicle Charging Station Financing Program ($2 million pilot);
• A program to assist small businesses in making facility upgrades to meet Americans with Disabilities Act (ADA) requirements ($10 million capitalization); and
• A program to assist small businesses and homeowners make seismic safety related improvements ($10 million capitalization).

According to the 2016-17 CPCFA report to the Legislature on all of the CalCAP programs, the separately capitalized programs represented 62% of enrolled loans and approximately 72% of loan amounts in 2017; 3,860 of 6,169 total loans; and $261.5 million of the $359.5 million in active CalCAP-type loss reserve programs.

1. Loss of Small Business Focus: In April of 2015, the JEDE Committee heard AB 1393 (Burke) which proposed to expand the authority and program focus of the CPCFA from providing financial assistance to addressing the control and remediation of pollution and the capital access challenges of small businesses.

Under the provisions of the bill, CPCFA would have had the ability to offer unlimited types of financial products to an expansive list of public and private entities, including, but not limited to, a loss reserve program that benefits any person, company, corporation, public agency, partnership, or firm engaged in activities in the state that require financing. The JEDE Committee expressed concern that expanding the scope of the bill would dilute CPCFA's focus on small businesses.

The committee analysis proposed amendments to define the specific scope of the expansion and the author committed to making amendments in Assembly Appropriations, but AB 1393 ultimately died in the Senate Committee on Appropriations. Budget Trailer Bill language was, however, adopted to authorize CPCFA to implement an alternative loan reserve program using moneys provided by a public source or quasi-public source. In implementing this alternative loss reserve program, CPCFA is authorized through the Budget Trailer Bill to "establish alternate provisions as necessary to enable the authority to participate in the alternative funding source program." From an implementation position, the budget language is counter to the limits the JEDE Committee placed on AB 1393.

Supporters of SB 551 have also expressed concerns that the broad expansion of loss reserve account programs represents a dilution of CPCFA's focus on small business. These supporters include over 30 organizations and financial institutions, including, but not limited to, the following small business organizations: NFIB, Small Business Majority, Small Business California, and Small Manufacturers Association of California.

CPCFA disputes this charge and has offered a number of examples of their commitment to small business, which are included in the following Comment.

1. Summary of Opposition: The following is a statement submitted by the California State Treasurer regarding his opposition.

“SB 551 would create the potential for redundancy and impede my offices ability to effectively run our most effective small business program. The CalCAP program, which was established in 1994 by CPCFA has been a success by any measure, mobilizing over $3 billion to more than 35,000 businesses in 56 counties and every industrial sector.

"Last year, CalCAP helped create 3,475 new jobs and retain 15,072 existing jobs, and leveraged $18 in private lending for every $1 in public funds. Forty-six percent of the portfolio was invested in disadvantaged communities.

"Under my leadership, the CalCAP program has adopted important improvements that have been replicated by state agencies and legislators to find new and creative ways to fund hard-to-fund businesses. The instability that would be caused under this bill to our proven programs is concerning especially at a time when our state is trying to spur small business and job growth.”

In addition, the CPCFA sent a list of the ways the authority has supported small businesses, several of which are provided below.

• Since 1981, CPCFA has been an effective facilitator of financing for small businesses, establishing a Small Business Assistance Fund by collecting fees from large corporate issuers of tax-exempt bonds to reimburse the costs shouldered by small business issuers.
• Due to its leadership, CPCFA converted these fees to fund the CalCAP for Small Business Program in 1994.
• CPCFA has reprogrammed federal funding previously dedicated to energy efficiency projects to supplement the program funds for CalCAP for Small Business and Collateral Support.
• In its 2017 rulemaking, the current administration ensured that all funds recaptured under the sustainability provisions of CalCAP for Small Business and Collateral Support Program are returned for use in those same programs.
• In 2017, 78% of the loans enrolled in CalCAP for Small Business were under $50,000. Microlending organizations have applauded the CalCAP model for reaching micro-enterprise so effectively.

1. Author Response to Opposition: The following is the author's statement in response to the opposition letter sent to the Committee regarding SB 551:

"While we respect the concerns raised by the State Treasurer’s Office, we believe that they fail to grasp the primary objective and intent of SB 551. SB 551 does not seek to abolish the California Capital Access Loan Program (CalCAP) but simply seeks to transfer already-expended federal SSBCI funds and associated loan portfolios to the California Infrastructure Economic Development Bank’s (IBank) Small Business Finance Center, whose statutory mission is to provide financial assistance to small businesses. This is consistent with conditions attached to receipt of federal SSBCI funding. The existing CalCAP program located at the State Treasurer’s Office will remain in place.

"From the outset our office has attempted to work with the State Treasurer’s Office to develop a sound strategy to ensure the continued success for the CalCAP program. Last year, after the introduction of SB 551 we sought to work with the State Treasurer’s Office in an effort to help ensure long term sustainability of CalCAP. SB 551 originally authorized lenders to enroll loans against their existing loss reserve account balances without state contributions, empowering lenders to assess risk and underwrite loans based on loss reserve balances.

"In addition, the State Treasurer’s Office was authorized to charge servicing fees, reducing the need for recapture. The State Treasurer’s Office opposed these changes. Instead and to the detriment of the program the State Treasurer’s Office elected to sweep funds retroactively from lenders’ loss reserve accounts. This recapture policy increases lenders’ loan underwriting risk due to diminishing reserves, and discourages continued lender participation, calling into question long term program sustainability.

"Many small businesses and other stakeholders overwhelmingly support transferring these federal small business financial assistance funds to strengthen the California entity that the Legislature created specifically to support financing of small, micro and start-up businesses."

1. Proposed Amendments: The Committee may wish to consider the following amendments:
   1. Clarify the differences between a financial company or financial institution which is participating as a lender verses a trustee for state monies held in a trust fund outside the state treasury;
   2. Delete the establishment of a new fund and, instead, establish an account within the existing Small Business Expansion Fund;
   3. Streamline the operation of the loss reserve program by more specifically identifying which actions a program manager may undertake as compared to the IBank board;
   4. Specify that funds in the loss reserve accounts are the exclusive property of the IBank and that administrative costs may be paid from the interest earned on the accounts;
   5. Clarify the program priority to be loans and microloans that benefit low-income areas of the state and underserved business ownership groups, including women- and minority-owned businesses;
   6. Conform the reporting requirements with other annual reports of the Small Business Center;
   7. Modify and update the details in the legislative intent; and
   8. Make other related technical and nonsubstantive changes.
2. Related Legislation: Below is a list of related legislation from current and previous legislative sessions relating to CalCAP:
   1. Current Session:
      1. AB 964 (Calderon, Gonzalez Fletcher, Gomez, and Cervantes) California Affordable Clean Vehicle Program: This bill changes the name of an article within the Health and Safety Code from "Capital Access Program for Small Business" to "Capital Access Program." Consistent with this change, the bill establishes the California Affordable Clean Vehicle Program within the Capitol Loan Access Program to assist low-income individuals in purchasing or leasing zero-emission vehicles or plug-in hybrid electric vehicles for personal or commercial use by providing affordable financing mechanisms. Status: Pending in the Senate Committee on Appropriations.
      2. AB 1547 (Quirk-Silva) Community Development Financing Reforms: This bill modifies definitions, updates eligible activities to reflect market conditions, and streamlines processes of programs administered through the California Capital Access ADA Program, California Capital Access Program Seismic Safety Program, California Industrial Development Financing Advisory Commission, California Alternative Energy and Advanced Transportation Financing Authority, Sales & Use Tax Exclusion Program, and PACE Loss Reserve Program. Status: Pending in the Senate Committee on Business, Professions, and Economic Development.
      3. AB 1553 (Cervantes) Direct Payments to Borrowers: This bill authorizes the use of moneys in the California Americans with Disabilities Act Small Business Capital Access Loan Program (ADA program) fund for payments to participating financial institutions or borrowers to provide incentives to participate in the ADA program. The bill also allows small business assistance funds to include contributions and nonreimbursable payments made directly to borrowers or participating programs. Status: Signed by the Governor, Chapter 644, Statutes of 2017.
   2. Prior Sessions:
      1. AB 29 (John A. Pérez, Feuer and V. Manuel Pérez) Office of Business and Economic Development: This bill established GO-Biz to include a newly codified California Business Investment Services Program and the existing Office of the Small Business Advocate. Status: Signed by the Governor, Chapter 475, Statutes of 2011.
      2. AB 796 (Blumenfield) Matching Funds: This bill, as it related to the CPCFA, would have increased the maximum contribution by the financial institution to $200,000, if the matching contribution made by CPCFA were funded exclusively from funds made available pursuant to the federal Small Business Jobs Act of 2010. The bill would also have limited the amount of matching funds used for deposits exceeding $100,000 to not more than 50% of the available funds. Status: Vetoed by the Governor, 2012, for provisions unrelated to CPCFA.
      3. AB 901 (V. Manuel Pérez) Expand Financial Partners and Reporting Requirements: This bill expanded the CalCAP definition of financial institution and increased reporting requirements. CalCAP is one of the programs which received millions of dollars in federal and state funding for small business through the federal Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 483, Statutes of 2011.
      4. AB 981 (Hueso) Expand Financial Partners: This bill expanded the CalCAP definition of a financial institution, authorized the withdrawal of a lower portion of the interest or other income from a loss reserve account to cover program costs, and required additional financial assistance to qualified businesses in severely affected communities, such as areas with high unemployment. CalCAP is one of the programs which received millions of dollars in federal and state funding for small businesses through the federal Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 484, Statutes of 2011.
      5. AB 1247 (Medina and Bocanegra) Small Business Finance Center: This bill establishes the California Small Business Finance Center at the IBank, within the Governor’s Office of Business and Economic Development, and transfers the authority to administer the small business loan guarantee program and other related programs to the California Small Business Finance Center. Status: Signed by the Governor, Chapter 537, Statutes of 2013.
      6. AB 1632 (Blumenfield) Small Business Capital Infusion: This bill provided the necessary statutory changes in the area of job creation and small business development in order to implement the 2010 Budget Act. The bill transferred $32.4 million from the General Fund to support four small business and jobs programs that exist in current law. The funding appropriated in this bill went to the Small Business Loan Guarantee Program ($20 million); California Capital Access Fund ($6 million); Small Business Development Centers ($6 million); and the Federal Technology Centers ($350,000). Status: Signed by the Governor, Chapter 731, Statutes of 2010.
      7. SB 225 (Simitian) Loss Reserve Accounts Trucking: This bill authorized the authority to establish loss reserve accounts for the purposes of terminal rental adjustment clause leasing, if funds are available for contribution into the loss reserve account from any source other than the authority. Status: Signed by the Governor, Chapter 492, Statutes of 2011.
      8. SB 832 (Senate Committee on Environmental Quality) Code Maintenance: This bill revised the Revenue and Tax Code definitions of "project" and "pollution control facility" to conform with those used by the California Pollution Control Financing Authority Act under its sales and use tax exclusion program and includes public agencies within the definition of a "participating party" that is eligible for financial assistance in connection with the projects designed to control or eliminate environmental pollution. Status: Signed by the Governor, Chapter 643, Statutes of 2009.
      9. SB 1311 (Simitian) Changes in Deposits and Withdrawals: This bill reduced the CalCAP monetary contribution of the CPCFA to an amount equal to the amount of fees paid by a participating financial institution. The bill also authorizes the withdrawal of interest or other income from the loss reserve accounts for the purpose of offsetting administrative costs and contributions. Status: Signed by the Governor, Chapter 401, Statutes of 2008.
3. Double Referral: The Assembly Committee on Rules has assigned SB 551 to both the Assembly Committee on Jobs, Economic Development, and the Economy and the Assembly Committee on Banking and Finance (B&F). Should this measure pass JEDE, the bill will be referred to B&F for further policy review.

REGISTERED SUPPORT / OPPOSITION:

Support

Opportunity Fund (sponsor)

ACCION San Diego

Arcata Economic Development Corporation

California Asian Pacific Chamber of Commerce

California Association for Micro Enterprise Opportunity (CAMEO)

California Association of Competitive Telecommunications Companies

California Black Chamber of Commerce

California Hispanic Chamber of Commerce

California Metals Coalition

CDC Small Business Finance

Coalition of Small and Disabled Veteran Businesses

Economic Development Financing Corp

Flasher Barricade Association

Golden Gate Business Association

Golden Gate Restaurant Association

Greater Geary Boulevard Merchants Association

Mainstreet Launch

National Association of Women Business Owners, Sacramento Valley

National Federation of Independent Businesses (NFIB), California Chapter

North East Mission Business Association

Northern California Independent Booksellers Association

Northern California Community Loan Fund

PACE Finance Corporation

Pacific Enterprise Bank

Plumbing Heating Cooling Contractors of California

Sacramento Metropolitan Chamber of Commerce

San Diego County Hispanic Chamber of Commerce

San Francisco Builders Exchange

San Francisco Chamber of Commerce

San Francisco Locally Owned Merchants Alliance

Sierra Business Council

Small Business California

Small Business Finance Fund

Small Business Majority

Small Business Network

Small Manufacturers Association of California

Opposition

John Chiang, California State Treasurer and Chair of California Pollution Control Financing Authority

Analysis Prepared by:

Date of Hearing: June 19, 2018

ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY

Sharon Quirk-Silva, Chair

SBPCA Bill Id:SB 551

Author:(Hueso) – As Amended Ver:June 13, 2018

SENATE VOTE: 39-0

SUBJECT: Capital Access Loan Program for Small Businesses

SUMMARY: Transfers certain funding and loan portfolios from the California Pollution Control Financing Authority (CPCFA) to the Small Business Finance Center administered by the California Infrastructure and Economic Development Bank (IBank). Specifically, this bill:

1. Legislative Findings: Makes findings and declarations that include, but are not limited to:
   1. In October 2010, US Congress passed and the President signed the Small Business Jobs Act. Among other things, the act created the State Small Business Credit Initiative (SSBCI), which allowed expenditures up to $1.5 billion for state sponsored small business finance programs. California utilized its federal SSBCI money to capitalize three programs: a loan guarantee program, a loan loss reserve program, and a collateral support program;
   2. In February 2011, CPCFA was allocated approximately $84 million pursuant to the SSBCI for use by the authority in administering the California Capital Access Program for Small Business (CalCAP for Small Business) and the CalCAP Collateral Support program;
   3. On April 25, 2017, the State Treasurer’s office alerted the public and interested stakeholders that the federal moneys allocated to California to support CalCAP were near exhaustion, as were the 2010 General Fund moneys appropriated to expand CalCAP. In order to avoid shutting down CalCAP, CPCFA adopted regulations to recapture some funds it had previously contributed to CalCAP;
   4. On May 30, 2017, AB 964 (Calderon), relating to CalCAP and the establishment of the California Affordable Clean Vehicle Program, was amended to remove “for Small Businesses” from the title of the Capital Access Loan Program to read “Capital Access Loan Program;” and
   5. Without direction from the Legislature, a distinct possibility exists that federal funds that were allocated for the purpose of assisting small businesses might be redirected to support programs separate and apart from small business assistance, which runs counter to the intent set forth in the federal Small Business Jobs Act of 2010.
2. More Legislative Findings: Makes legislative declarations and expresses legislative intent that include, but are not limited to:
   1. It is appropriate, as federal program funding expires, or as the funds have been fully disbursed, that the portfolio of CalCAP for Small Business and the portfolio of the Collateral Support program be transferred from the CPCFA to the California Small Business Finance Center within the IBank; and
   2. Nothing in this act shall impede the ability of the CPCFA to operate the California Capital Access Program with other program funds, as well as to administer the California Americans with Disabilities Small Business Capital Access Loan Program, as specified, and the California Seismic Safety Capital Access Loan Program, as specified.
3. Capital Access Reserve Fund: Establishes the Capital Access Reserve Fund within the State Treasury under the administrative control of the California Small Business Finance Center within the IBank for the purpose of receiving state, federal, or local government moneys and other public or private moneys to make loans, credit enhancements, and other financial products, as specified. Related provisions in the bill include, but are not limited to:
   1. Providing similar provisions and authorities as those provided to the California Small Business Expansion Fund, an existing fund that is authorized to hold collateral and other moneys administered by the California Small Business Finance Center;
   2. Specifying that the money in the Capital Access Reserve Fund is continuously appropriated without regard to fiscal years, for the purposes of this chapter; and
   3. Limiting state and bank liability and obligation to only those moneys allocated in the Capital Access Reserve Fund for these purposes.
4. Transfer of Funds: Requires the transfer of specified federal and state funds from the CPCFA to the Capital Access Reserve Fund, which is under the administrative control of the California Small Business Finance Center. Related provisions in the bill include, but are not limited to:
   1. Specifying that these funds include all federal and state funds the source of which was the federal SSBCI or the 2010 General Fund appropriation under Assembly Bill 1632 of the 2009–10 Regular Session, Chapter 731 of the Statutes of 2010, including funds that have been returned to or recaptured by the CPCFA and are currently under its control;
   2. Requiring, for the purpose of initiating the transfer, that the IBank board adopt a resolution providing the terms and conditions of the transfer. The IBank may confer with the CPCFA on the terms and conditions of the resolution;
   3. Requiring the CPCFA to provide requested information in a timely manner and, upon adoption of the resolution, transfer the moneys; and
   4. Providing that the final transfer of the funds shall occur no later than January 1, 2020.
5. Contracts with Lenders: Authorizes the IBank program manager to enter into a contract between the IBank and any financial institution or financial company in connection with one or more programs or financial products, as specified.
6. Loss Reserve Accounts: Authorizes the IBank to create one or more loss reserve accounts in the Capital Access Reserve Fund or a trust fund for a financial institution or financial company participating as a lender in the Capital Access Loan Program for Small Businesses. Related provisions in the bill include, but are not limited to:
   1. Specifying that funding in the account is to be used for the following purposes:
      1. Depositing all required fees paid by the financial company or financial institution, and the small business;
      2. Depositing contributions made by the state and, if applicable, the federal government or other sources; and

• • 1. Covering losses on enrolled loans sustained by a financial company or financial institution by disbursing funds accumulated in the loss reserve account;
  1. Requiring the IBank to manage all moneys in a loss reserve account, as specified;
  2. Requiring all interest or income earned on money credited to a loss reserve account to be deemed to be part of the loss reserve account; and
  3. Authorizing the IBank to withdraw from a loss reserve account all, or a portion, of the interest or other income that has been credited to the account.

1. Holding Accounts: Authorizes the creation of one or more holding accounts in the Capital Access Reserve Fund to accommodate the temporary or permanent transfer of funds pursuant to requirements and directives adopted by the IBank board relating to the suspension and termination of a financial institution's or financial company's participation in a program or offering of a service, as specified.
2. Capital Access Loan Program: Establishes the Capital Access Loan Program for Small Businesses, a loan loss reserve program, under the administrative control of the California Small Business Finance Center. Related provisions in the bill include, but are not limited to:
   1. Authorizing the IBank to contract with any financial company or financial institution for the purpose of serving as a lender in the Capital Access Loan Program for Small Businesses;
   2. Requiring that a program priority be placed on loans and microloans that benefit low-income areas and women- and minority-owned businesses;
   3. Requiring the IBank to develop directives and requirements to implement the Capital Access Loan Program for Small Businesses, including, but not limited to:
      1. The initiation of new and extension of existing agreements to participate in the program;
      2. The filing of claims for reimbursement for losses incurred as a result of qualified loan defaults;
      3. The terms and conditions for a financial company or financial institution to assign, transfer, pledge, or securitize all or a portion of any enrolled loan or loss reserve account, pursuant to directives and requirements developed by the IBank;
      4. The terms and conditions by which the program manager may temporarily suspend and terminate a contract with a financial institution or financial company for cause, including provisions for appeals; and
      5. Annual reporting requirements on the use and outcomes of the program;
   4. Limiting the liability of the state and the IBank to the financial institution or financial company under contract to only the amount of money credited to the loss reserve account of the financial institution and financial company under contract; and
   5. Establishing a process whereby a financial company or financial institution is authorized to withdraw from the Capital Access Loan Program for Small Businesses, including, but not limited to, providing written notice to the IBank that all loans secured by its loss reserve account have been repaid, that there are no pending claims for reimbursement for losses incurred as a result of loan defaults, and that the financial company or financial institution waives all rights to submit claims for reimbursement for losses incurred, as specified.
3. Transfer of Loan Portfolios: Transfers the loss reserve loan portfolio and the collateral support loan portfolio of the California Capital Access Loan Program administered by the CPCFA to the IBank. Related provisions in the bill include, but are not limited to:
   1. Limiting loans transferred to only those which were secured by state funds received by CPCFA in a 2010 general fund appropriation, as specified, and federal funds awarded to the state pursuant to the SSBCI, as specified;
   2. Specifying that the loan portfolio transfers are to be initiated by the IBank board adopting resolutions which provide for the terms and conditions of the transfers;
   3. Authorizing the IBank to confer with the CPCFA in developing the resolutions and requiring the CPCFA to provide requested information in a timely manner; and
   4. Requiring the CPCFA to transfer the portfolios upon the adoption of the resolutions. Both loan portfolios are required to be transferred no later than January 1, 2020.
4. Transitioning Regulations: Specifies that all related regulations adopted by the CPCFA pursuant to the California Capital Access Program and the Collateral Support Program are to remain in effect until the IBank board adopts directives and requirements addressing those issues. The bill sets a September 1, 2019, deadline for the IBank to adopt the directives and requirements.
5. Progress Report: Requires a progress report be made to the Legislature on the implementation of the transfer of funds and loan portfolios, as specified. The first report is due no later than July 1, 2019, and the last letter is to be submitted no later than July 1, 2020.

EXISTING LAW:

1. Establishes the Governor's Office of Business and Economic Development (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.
2. Establishes the IBank within GO-Biz and authorizes it to undertake a variety of infrastructure related financial activities, including, but not limited to, the administration of the Infrastructure State Revolving Fund ISRF, the oversight of the Small Business Finance Center, and the issuance of tax-exempt and taxable revenue bonds.
3. Establishes the CPCFA with specified powers and duties, and authorizes it to approve financing for pollution control projects and facilities, administer a loss reserve program to serve the credit needs of small businesses, and provide grants and loans to remediate brownfields, among other activities.
4. Establishes CalCAP for the purpose of providing a small business loss reserve account program through participating financial institutions. In implementing the program, CPCFA is authorized to establish a loss reserve account for each financial institution with which the authority makes a contract. The loss reserve account shall consist of moneys paid as fees by borrowers and the financial institution, moneys transferred to the account from CPCFA's Small Business Assistance Fund, any matching federal moneys, and any other moneys provided by the authority or other source.

FISCAL EFFECT: Unknown

POLICY FRAMEWORK: California was allocated $168.4 million from the federal government through the SSBCI under the federal Small Business Jobs Act of 2010. These funds were split between two state entities which coordinated the implementation of their separate programs to ensure that the state drew down all applicable dollars in a timely fashion and met the very particular federal requirements.

The federal Allocation Agreement expired in March 2017 and all federal funds have been fully obligated or expended. Under the terms of SSBCI, all federal restrictions on the use of the moneys are removed, leaving the only restrictions being those that the state has placed upon itself and those contained in previously entered into contracts.

A key policy question before the Legislature is how these moneys should be re-deployed to meet the financial needs of small businesses. Since the initial conversations about the possible uses for the federal allocation, a number of organizational changes have occurred within the state, including the establishment of a Small Business Finance Center within GO-Biz and the IBank and the transfer of one-half of the state's SSBCI allocation to the new center.

SB 551 proposes to move the other half of funds, including related loan portfolios, to the Small Business Finance Center. The author and sponsor, Opportunity Fund, believe that the transfer represents the best decision based on the current operations of the small business programs and for the future discussions on re-deploying upwards of $50 million as it becomes available for extending existing and developing new small business financial products. The California State Treasurer, who Chairs CPCFA, opposes the transfer and has expressed concerns that it could undermine other financial products CPCFA administers on behalf of other agencies and may undercut its ability to expend the $20 million it is holding to capitalize two additional loss reserve programs.

The Comment section of the analysis includes information on JEDE's first review of SB 551 (June 2017) when the author tried to broker a compromise between the lender community and the CPCFA on how to continue the program following the completion of the federal funding cycle. In addition, the Comment section includes background on the CalCAP-related financial products; the establishment of the Small Business Finance Center; and how SB 511 proposes to transfer the funds and management of the loan portfolios. A statement of the State Treasurer's opposition and the author's response are included in Comment 9. Technical amendments are proposed in Comment 11.

COMMENTS:

1. Second Review of SB 551 by JEDE: As SB 551 passed JEDE in June of 2017 on a 6 to 0 vote, the measure proposed to codify the limited recapture of state moneys that were deposited in a small business loss reserve account held by a private financial institution participating in the CalCAP for Small Business program. Existing law limits recapture by CPCFA to only interest and income earned on the account, which was generally used to cover CPCFA administrative costs with the remaining amount available for other program-related activities.

At the same time that SB 551 was moving through the Legislature, CPCFA was proposing to adopt a similar, but not identical, regulatory change to allow for expanded recapture provisions, including setting mandatory annual sweeps of principal and interest and committing all recaptured funds toward the ongoing operation of the loss reserve program. The impetus for these expanded recapture provisions, according to CPCFA, was the otherwise imminent shutdown of the CalCAP for Small Business program due to a lack of substantial new funding.

How Loss Reserve Programs Work

The loss reserve account serves as a revenue pool for a participating lender to be reimbursed for the value of a defaulted loan that has been enrolled in CalCAP. The lender may only be reimbursed to the extent that moneys are available in the account.

As each loan is enrolled in CalCAP, the financial institution, the borrower, and the state each contribute funds. These moneys remain in the loss reserve account to offset future losses.

For his part, Senator Hueso had introduced SB 551 to help negotiate a compromise between CPCFA and the lender community, many of whom felt the CPCFA proposed recapture provisions were too aggressive. Opportunity Fund, a national leader among community development financial institutions and sponsor of SB 551, was particularly concerned that a shutdown of the program could have a serious impact on the microenterprise owners which have very limited financial options in the marketplace.

In July 2017, SB 551 was set to be heard in Assembly Committee on Banking and Finance. Prior to the hearing, the California Bankers Association, among other stakeholder groups, expressed growing concerns that any recapture of CPCFA's principal contribution to the loss reserve account could jeopardize the fiscal integrity of the whole account. As these new recapture provisions were not included in the initial CalCAP lender agreements, financial institutions argued, they would not have considered this possible circumstance when underwriting loans for inclusion in the program. Based on these concerns, Senator Hueso pulled the bill from the Assembly Banking Committee hearing and made SB 551 a two-year bill.

At CPCFA's July 18, 2017, meeting, the recapture changes were agendized, discussed, and approved utilizing its authority to adopt emergency regulations. Based on the official minutes from the meeting, previously submitted public comments were discussed as part of that hearing, including concerns that CPCFA lacked the statutory authority to recapture more than interest earned on the loss reserve accounts. The CPCFA's executive director cited three Health and Safety Code sections, including 44559.2(e); 44559.3(c); and 44559.3(d), which, the board was told, provided CPCFA with the ability to adopt policies to increase sustainability of the program. Additionally, the executive director stated that the lack of specific statutory authority found in statutes related to other CalCAP programs "in no way limits discretion of the Authority to do the same in legacy programs."

With the CalCAP for Small Business regulation amended, lenders were required to affirm their election to the new recapture provisions and remit the required funds or "be deemed ineligible to submit loan enrollments on or after August 15, 2017."

Following the CPCFA’s July 2017 meeting, the author requested that SB 551 be withdrawn from the Assembly Committee on Banking and Finance and returned to the Assembly Committee on Jobs, Economic Development, and the Economy, where further work could be undertaken. In September 2017, the recapture provisions were removed from the bill and replaced with legislative intent to transfer CalCAP to the Small Business Finance Center where the other SSBCI program was located.

1. California's use of Federal SSBCI Funds: In 2011, California received a significant allocation of federal funds through the SSBCI, a program established under the federal Small Business Jobs Act of 2010. Under the initial federal Allocation Agreement, $168.4 million was divided equally between the CalCAP for Small Business program administered through CPCFA and the Small Business Loan Guarantee Program administered through the Business Transportation and Housing Agency (BTH) and later the IBank under the Governor's Reorganization Plan GRP2.

Receipt of these funds was very timely as debt markets were frozen and state resources were very limited for these two small business credit enhancement programs. In fact, both CPCFA and BTH were short on revenues to operate their programs and had received General Fund appropriations in 2010, with $6 million being approved for CalCAP and $20 million for Small Business Loan Guarantee Program; AB 1632, Chapter 731, Statutes of 2010. Unfortunately for small business borrowers, BTH's $20 million was eliminated in the following year's budget.

Due to federal accounting practices and slight variations in federal SSBCI loss reserve and guarantee program requirements, CPCFA and the IBank each established new reserve accounts and adopted new federal versions of their programs. Once CPCFA and the IBank received the federal funds, the program priorities for each of the programs were to use the federal funds first and leave the state funds for either nonconforming loans or for use when the federal moneys had been exhausted.

Over the course of the six program years (2011 to 2017), the state amended the federal Allocation Agreement several times, and in the latter years, CPCFA sought authorization to administer a third credit enhancement program, a Collateral Support Program. CPCFA used the federal funds as follows: Loss Reserve Program ($20 million) and a Collateral Support Program ($65 million).

The federal Allocation Agreement expired in March 2017. Both CPCFA and the IBank report that all federal funds have been expended or allocated, meaning that as these moneys become unencumbered from their current loans the moneys can be re-deployed. As an example, funds in the Collateral Support Program could be used to continue enrolling loans under the CalCap for Small Business program or be used to fill another small business financing gap.

In preparation for the reuse of these federal funds, SB 551 proposes to transfer the loan portfolios and current cash reserves related to the SSBCI allocation and the $6 million appropriated in 2010. This transfer is supported by a number of lenders and organizations representing lenders who are or were participating in the CalCAP for Small Business program, including the California Bankers Association, the California Credit Union Association, CDC Small Business Finance, and California Association for Micro Enterprise Opportunity. The transfer is opposed, as noted earlier by the California State Treasurer, who chairs CPCFA.

Below are 2017 SSBCI funded program activities for CPCFA, which represents only a partial year, as first time federal funding was exhausted in August of 2107 (3^rd quarter of the program year).

• SSBCI Funds Loan Volume – In 2017 CalCAP enrolled 1,706 loans to California small business owners using SSBCI funds, bringing the total number of CalCAP loans funded by SSBCI up to 10,127.
• SSBCI Funds Loan Dollars – CalCAP lenders loaned approximate $71 million in 2017, bringing the total loaned since the SSBCI program began to approximately $468 million.
• SSBCI Funds Loan Contributions – CPCFA contributed $2.5 million of SSBCI funds to loss reserve accounts for enrolled CalCAP loans in 2017. Total loan contributions since inception are $17 million, which represents the full federal allocation for the loan loss reserve program.

1. Transferring Portfolio and Funding: Rather than mandating the immediately transfer of funds and related loan portfolios, SB 551 set a process that can be controlled by the IBank in order to maintain the integrity and financial viability of the transferred assets.

To initiate the transfer of cash deposits and the loan portfolios related to the SSBCI and General Fund moneys, the IBank board is required to adopt a resolution outlining the terms and conditions of the transfers. The bill provides that the IBank may consult with and receive information from CPCFA prior to adopting the resolution. SB 551 does, however, set an outside timeline of January 1, 2020.

All CPCFA program regulations are to remain in place, under the provisions of SB 551, until the IBank board adopts directives and requirements related to the oversight and management of the program. As noted previously and described later in the analysis, some portions of federal funding related to the Collateral Support Program may become available within the next year. Given that $65 million in federal funds were committed to the Collateral Support Program, this money could be substantial.

1. The Small Business Finance Center: The Small Business Finance Center was established in 2013, following the implementation of the Governor's Reorganization Plan GRP2, which transferred the IBank and the Small Business Loan Guarantee Program from the soon to be defunct Business, Transportation, and Housing Agency to GO-Biz.

That same year, AB 1247 modified the GRP2 proposal for the placement of the Small Business Loan Program and established the Small Business Finance Center within the IBank; AB 1247 (Median and Bocanegra), Chapter 537, Statutes of 2013. It was the authors' intent that the center could become a multipurpose small business financing entity. To accomplish this objective, the statutory framework of the Small Business Finance Center was drafted to be different from that of many departments. While the Small Business Loan Guarantee Program was specifically codified within the administrative control of the Small Business Center, general statutory authority was also provided for the IBank board to approve and modify a range of financial products, including loans and other debt instruments, as well as loan guarantees and other credit enhancements.

As small businesses have different financial needs and business circumstances, having a range of financial products available is important. As an example, the loan guarantee model has been shown to be most useful for mid-to-larger size loans, while the loss reserve model is very effective in facilitating microloans.

In fiscal year 2016-17, there were 252 guarantees made on a total loan package of $206.6 million with a loan guarantee amount of $74.1 million. The leverage amount of SSBCI moneys vary under the Small Business Loan Guarantee Program based on the assessed risk in the loan portfolio. Borrowers reported that 6,847 jobs were created or retained during 2016-17. By law, the reserve amount could be as low as 10%, meaning $10 is in reserve for every $100 of loans guaranteed.

In 2016-17, 17 new lenders agreed to participate in the Small Business Loan Program. As of May 2018, there were 84 participating lenders.

The SBLGP is over 30 years old and has historically maintained a low default rate which is a testament to the diligence and skill of the small business financial development corporations which manage the program locally under a contract with the IBank. In 2016-17, the net loss reserve rate was 1.59%.

1. California Capital Access Program for Small Businesses: CalCAP for Small Business program was established through legislation enacted in 1994 for the purpose of incentivizing financial institutions to provide small businesses with the capital to maintain and grow their businesses.

The program uses a portfolio-based credit enhancement model, whereby a loss reserve account is established to offset losses incurred in connection with small business loans enrolled in the program. Funding in the loss reserve account consists of moneys paid by the participating borrower and financial institution, with CPCFA matching these contributions.

Unlike a loan guarantee which ensures payment on a certain percentage of the defaulted loan (80% in the guarantee program), under the loss reserve fund model, the amount of the default payment is based on the amount of funds available in the reserve account. This means a lender could potentially recover 100% of the value of the defaulted loan, if sufficient moneys are in the account. The model encourages lenders to maintain good underwriting practices because utilization of the loss reserve too often can quickly draw-down the reserve leaving little for other potential defaults of enrolled loans within the portfolio.

CalCAP 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 some limitations on real estate loans and loan refinancing. The maximum loan amount is $2.5 million. 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 loss 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.

In 2017, participating lenders enrolled 2,271 small business loans for $91 million, representing $99 million in total loan dollars. The average size loan in 2017 was $43,682 and loans were enrolled from businesses located in 44 counties. In 2017, loans enrolled in CalCAP helped to create 1,052 new jobs and retain 9,445 existing jobs.

Of the 2,271 total loans made in 2017, 1,771 were microloans representing $20 million of the $91 million of loans. These figures demonstrate the unique ability of loss reserve programs to serve the small-size financing needs of owner operators and microbusinesses.

Between 1994 and the close of 2017, 68 lenders participated in CalCAP for Small Business program. In 2016, 39 lenders participated in the program and by the close of the 2017 report period, there were 20 participating lenders. As of May 31, 2018, there were 15 participating lenders in the CalCAP for Small Business program.

CPCFA processed and approved 130 claims for $3.8 million from lenders against their loss reserve account in 2017. This represents a 6% default rate in 2017, up from 5% in 2016. Below is a chart showing 2017 loan activities by industry sector.

Moneys to operate CalCAP originally came from excess bond issuance fees. From 2004 to 2010, about $35 million was allocated by CPCFA to finance the CalCAP for Small Business Program. In 2010, CalCAP received its first General Fund moneys, $6 million as part of a comprehensive $32 million small business budget proposal, and in 2011 CalCAP was selected to administer a portion of federal funds for a small business access to capital program. It is staff's understanding that CalCAP for Small Business Program currently operates exclusively on funds received from federal and non-CPCFA sources.

1. Collateral Support Program: The Collateral Support Program was approved in January 2013 by the US Treasury. As noted earlier, it comprises the largest component of federal SSBCI money being administered through CPCFA, $65 million of the approximately $85 million in total funds.

Under the collateral support model, a business which would otherwise be turned down by a lender due to insufficient collateral becomes eligible after a supplementary cash deposit is made with the lender. These supplementary funds serve as partial collateral against a potential loss. In the event the borrower defaults on the loan, the lender generally collects against the borrower’s collateral first and then collects against the cash deposit for any remaining loss.

Under CPCFA's program, after making the initial deposit with the lender, CPCFA is later able to recapture a portion of these funds as the business pays down the loan. This is important because collateral support programs can require significantly more capital to operate than loan loss reserve programs.

Two examples of how the amount of collateral support may be determined by a lender, as explained in the SSBCI best practices report, are as follows: "When applied to working capital loans or lines of credit, the amount of collateral support can be determined as the difference between the proposed loan amount and the value the lender assigns to the working capital assets such as accounts receivable and inventory. For loans to finance fixed assets, collateral support can fill the financing gap between the amount a bank is willing to lend against the assets without credit enhancement and the borrower’s equity contribution."

In 2017, CPCFA enrolled 38 loans to 37 individual businesses owners. The average loan size was $746,987 with the largest loan being $11.8 million. These loans were supported with $7 million in cash deposits.

Fifteen of the 38 loans were in "severely disadvantaged areas" and CPCFA paid additional cash deposits of $375,000. In 2017, the Collateral Support Program helped to create 165 new jobs and retain 336 existing jobs. Below is a chart showing loans supported through the Collateral Support Program by industry sector.

1. Loss Reserve Model and other Programs: Since its inception in 1994, the CalCAP loss reserve model has been used in a number of other targeted credit enhancement programs. Resource- and environmental-related state agencies have contracted with CPCF to administer programs on their behalf, including the California Air Resources Board. Each of these credit enhancement programs requires separate capitalization. Among CalCAP's programs capitalized by other funding sources, the authority operates or has the authority to operate:

• The On-Road Heavy-Duty Diesel Vehicle Program for small business truck owners ($127.3 million available with $107.3 received by CPCFA);
• A Proposition 1B Loan Assistance Program to help finance 2007 or newer heavy-duty diesel or LNG fueled trucks;
• The Electrical Vehicle Charging Station Financing Program ($2 million pilot)
• A program to assist small businesses in making facility upgrades to meet Americans with Disabilities Act (ADA) requirements ($10 million capitalization);
• A program to assist small businesses and homeowners make seismic safety related improvements ($10 million capitalization).

According to the 2016-17 CPCFA report to the Legislature on all of the CalCAP programs, the separately capitalized programs represented 62% of enrolled loans and approximately 72% of loan amounts in 2017;, 3,860 of 6,169 total loans; and $261.5 million of the $359.5 million in active CalCAP-type loss reserve programs.

1. Loss of Small Business Focus: In April of 2015, the JEDE Committee heard AB 1393 (Burke) which proposed to expand the authority and program focus of the CPCFA from providing financial assistance to addressing the control and remediation of pollution and the capital access challenges of small businesses.

Under the provisions of the bill, CPCFA would have had the ability to offer unlimited types of financial products to an expansive list of public and private entities, including, but not limited to, a loss reserve program that benefits any person, company, corporation, public agency, partnership, or firm engaged in activities in the state that requires financing. The JEDE Committee expressed concern that expanding the scope of the bill would dilute CPCFA's focus on small businesses.

The committee analysis proposed amendments to define the specific scope of the expansion and the author committed to making amendments in Assembly Appropriations, but AB 1393 ultimately died in the Senate Committee on Appropriations. Budget Trailer Bill language was, however, adopted to authorize CPCFA to implement an alternative loan reserve program using moneys provided by a public source or quasi-public source. In implementing this alternative loss reserve program, CPCFA is authorized through the Budget Trailer Bill to "establish alternate provisions as necessary to enable the authority to participate in the alternative funding source program." From an implementation position, the budget language is counter to the limits the JEDE Committee placed on AB 1393.

Supporters of SB 551 have also expressed concerns that the broad expansion of loss reserve account programs represents a dilution of CPCFA's focus on small business. These supporters include over 30 organizations and financial institutions, including, but not limited to, the following small business organizations: NFIB, Small Business Majority, Small Business California, and Small Manufacturers Association of California.

CPCFA disputes this charge and has offered a number of examples of their commitment to small business, which are included in the following Comment.

1. Summary of Opposition: The following is a statement submitted by the California State Treasurer regarding his opposition.

“SB 551 would create the potential for redundancy and impede my offices ability to effectively run our most effective small business program. The CalCAP program, which was established in 1994 by CPCFA has been a success by any measure, mobilizing over $3 billion to more than 35,000 businesses in 56 counties and every industrial sector.

"Last year, CalCAP helped create 3,475 new jobs and retain 15,072 existing jobs, and leveraged $18 in private lending for every $1 in public funds. Forty-six percent of the portfolio was invested in disadvantaged communities.

"Under my leadership, the CalCAP program has adopted important improvements that have been replicated by state agencies and legislators to find new and creative ways to fund hard-to-fund businesses. The instability that would be caused under this bill to our proven programs is concerning especially at a time when our state is trying to spur small business and job growth.”

In addition, the CPCFA sent a list of the ways the authority has supported small businesses, several of which are provided below.

• Since 1981, CPCFA has been an effective facilitator of financing for small businesses, establishing a Small Business Assistance Fund by collecting fees from large corporate issuers of tax-exempt bonds to reimburse the costs shouldered by small business issuers.
• Due to its leadership, CPCFA converted these fees to fund the CalCAP for Small Business Program in 1994.
• CPCFA has reprogrammed federal funding previously dedicated to energy efficiency projects to supplement the program funds for CalCAP for Small Business and Collateral Support.
• In its 2017 rulemaking, the current administration ensured that all funds recaptured under the sustainability provisions of CalCAP for Small Business and Collateral Support Program are returned for use in those same programs.
• In 2017, 78% of the loans enrolled in CalCAP for Small Business were under $50,000. Microlending organizations have applauded the CalCAP model for reaching micro-enterprise so effectively.

1. Author Response to Opposition: The following is the author's statement in response to the opposition letter sent to the Committee regarding SB 551:

"While we respect the concerns raised by the State Treasurer’s Office, we believe that they fail to grasp the primary objective and intent of SB 551. SB 551 does not seek to abolish the California Capital Access Loan Program (CalCAP) but simply seeks to transfer already-expended federal SSBCI funds and associated loan portfolios to the California Infrastructure Economic Development Bank’s (IBank) Small Business Finance Center, whose statutory mission is to provide financial assistance to small businesses. This is consistent with conditions attached to receipt of federal SSBCI funding. The existing CalCAP program located at the State Treasurer’s Office will remain in place.

"From the outset our office has attempted to work with the State Treasurer’s Office to develop a sound strategy to ensure the continued success for the CalCAP program. Last year, after the introduction of SB 551 we sought to work with the State Treasurer’s Office in an effort to help ensure long term sustainability of CalCAP. SB 551 originally authorized lenders to enroll loans against their existing loss reserve account balances without state contributions, empowering lenders to assess risk and underwrite loans based on loss reserve balances.

"In addition, the State Treasurer’s Office was authorized to charge servicing fees, reducing the need for recapture. The State Treasurer’s Office opposed these changes. Instead and to the detriment of the program the State Treasurer’s Office elected to sweep funds retroactively from lenders’ loss reserve accounts. This recapture policy increases lenders’ loan underwriting risk due to diminishing reserves, and discourages continued lender participation, calling into question long term program sustainability.

"Many small businesses and other stakeholders overwhelmingly support transferring these federal small business financial assistance funds to strengthen the California entity that the Legislature created specifically to support financing of small, micro and start-up businesses."

1. Amendments: The Committee may wish to consider the following amendments:
   1. Clarify the differences between a financial company or financial institution which is participating as a lender verses a trustee for state monies held in a trust fund outside the state treasury;
   2. Delete the establishment of a new fund and, instead, establish an account within the existing Small Business Expansion Fund;
   3. Streamline the operation of the loss reserve program by more specifically identifying which actions a program manager may undertake as compared to the IBank board;
   4. Specify that funds in the loss reserve accounts are the exclusive property of the IBank and that administrative costs may be paid from the interest earned on the accounts;
   5. Clarify the program priority to be loans and microloans that benefit low-income areas of the state and underserved business ownership groups, including women- and minority-owned businesses;
   6. Conform the reporting requirements with other annual reports of the Small Business Center;
   7. Modify and update the details in the legislative intent; and
   8. Make other related technical and nonsubstantive changes.
2. Related Legislation: Below is a list of related legislation from current and previous legislative sessions relating to CalCAP:
   1. Current Session:
      1. AB 964 (Calderon, Gonzalez Fletcher, Gomez, and Cervantes) California Affordable Clean Vehicle Program: This bill changes the name of an article within the Health and Safety Code from "Capital Access Program for Small Business" to "Capital Access Program." Consistent with this change, the bill establishes the California Affordable Clean Vehicle Program within the Capitol Loan Access Program to assist low-income individuals in purchasing or leasing zero-emission vehicles or plug-in hybrid electric vehicles for personal or commercial use by providing affordable financing mechanisms. Status: Pending in the Senate Committee on Appropriations.
      2. AB 1547 (Quirk-Silva) Community Development Financing Reforms: This bill modifies definitions, updates eligible activities to reflect market conditions, and streamlines processes of programs administered through the California Capital Access ADA Program, California Capital Access Program Seismic Safety Program, California Industrial Development Financing Advisory Commission, California Alternative Energy and Advanced Transportation Financing Authority, Sales & Use Tax Exclusion Program, and PACE Loss Reserve Program. Status: Pending in the Senate Committee on Business, Professions, and Economic Development.
      3. AB 1553 (Cervantes) Direct Payments to Borrowers: This bill authorizes the use of moneys in the California Americans with Disabilities Act Small Business Capital Access Loan Program (ADA program) fund for payments to participating financial institutions or borrowers to provide incentives to participate in the ADA program. The bill also allows small business assistance funds to include contributions and nonreimbursable payments made directly to borrowers or participating programs. Status: Signed by the Governor, Chapter 644, Statutes of 2017.
   2. Prior Sessions:
      1. AB 29 (John A. Pérez, Feuer and V. Manuel Pérez) Office of Business and Economic Development: This bill established GO-Biz to include a newly codified California Business Investment Services Program and the existing Office of the Small Business Advocate. Status: Signed by the Governor, Chapter 475, Statutes of 2011.
      2. AB 796 (Blumenfield) Matching Funds: This bill, as it related to the CPCFA, would have increased the maximum contribution by the financial institution to $200,000, if the matching contribution made by CPCFA were funded exclusively from funds made available pursuant to the federal Small Business Jobs Act of 2010. The bill would also have limited the amount of matching funds used for deposits exceeding $100,000 to not more than 50% of the available funds. Status: Vetoed by the Governor, 2012, for provisions unrelated to CPCFA.
      3. AB 901 (V. Manuel Pérez) Expand Financial Partners and Reporting Requirements: This bill expanded the CalCAP definition of financial institution and increased reporting requirements. CalCAP is one of the programs which received millions of dollars in federal and state funding for small business through the federal Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 483, Statutes of 2011.
      4. AB 981 (Hueso) Expand Financial Partners: This bill expanded the CalCAP definition of a financial institution, authorized the withdrawal of a lower portion of the interest or other income from a loss reserve account to cover program costs, and required additional financial assistance to qualified businesses in severely affected communities, such as areas with high unemployment. CalCAP is one of the programs which received millions of dollars in federal and state funding for small businesses through the federal Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 484, Statutes of 2011.
      5. AB 1247 (Medina and Bocanegra) Small Business Finance Center: This bill establishes the California Small Business Finance Center at the IBank, within the Governor’s Office and Economic Development, and transfers the authority to administer the small business loan guarantee program and other related programs to the California Small Business Finance Center. Status: Signed by the Governor, Chapter 537, Statutes of 2013.
      6. AB 1632 (Blumenfield) Small Business Capital Infusion: This bill provided the necessary statutory changes in the area of job creation and small business development in order to implement the 2010 Budget Act. The bill transferred $32.4 million from the General Fund to support four small business and jobs programs that exist in current law. The funding appropriated in this bill went to the Small Business Loan Guarantee Program ($20 million); California Capital Access Fund ($6 million); Small Business Development Centers ($6 million); and the Federal Technology Centers ($350,000). Status: Signed by the Governor, Chapter 731, Statutes of 2010.
      7. SB 225 (Simitian) Loss Reserve Accounts Trucking: This bill authorized the authority to establish loss reserve accounts for the purposes of terminal rental adjustment clause leasing, if funds are available for contribution into the loss reserve account from any source other than the authority. Status: Signed by the Governor, Chapter 492, Statutes of 2011.
      8. SB 832 (Senate Committee on Environmental Quality) Code Maintenance: This bill revised the Revenue and Tax Code definitions of "project" and "pollution control facility" to conform with those used by the California Pollution Control Financing Authority Act under its sales and use tax exclusion program and includes public agencies within the definition of a "participating party" that is eligible for financial assistance in connection with the projects designed to control or eliminate environmental pollution. Status: Signed by the Governor, Chapter 643, Statutes of 2009.
      9. SB 1311 (Simitian) Changes in Deposits and Withdrawals: This bill reduced the CalCAP monetary contribution of the CPCFA to an amount equal to the amount of fees paid by a participating financial institution. The bill also authorizes the withdrawal of interest or other income from the loss reserve accounts for the purpose of offsetting administrative costs and contributions. Status: Signed by the Governor, Chapter 401, Statutes of 2008.
3. Double Referral: The Assembly Committee on Rules has assigned SB 551 to both the Assembly Committee on Jobs, Economic Development, and the Economy and the Assembly Committee on Banking and Finance (B&F). Should this measure pass JEDE, the bill will be referred to B&F for further policy review.

REGISTERED SUPPORT / OPPOSITION:

Support

Opportunity Fund (sponsor)

ACCION San Diego

Arcata Economic Development Corporation

California Asian Pacific Chamber of Commerce

California Association for Micro Enterprise Opportunity (CAMEO)

California Association of Competitive Telecommunications Companies

California Black Chamber of Commerce

California Hispanic Chamber of Commerce

California Metals Coalition

CDC Small Business Finance

Coalition of Small and Disabled Veteran Businesses

Economic Development Financing Corp

Flasher Barricade Association

Golden Gate Business Association

Golden Gate Restaurant Association

Greater Geary Boulevard Merchants Association

Mainstreet Launch

National Association of Women Business Owners, Sacramento Valley

National Federation of Independent Businesses (NFIB), California Chapter

North East Mission Business Association

Northern California Independent Booksellers Association

Northern California Community Loan Fund

PACE Finance Corporation

Pacific Enterprise Bank

Plumbing Heating Cooling Contractors of California

Sacramento Metropolitan Chamber of Commerce

San Diego County Hispanic Chamber of Commerce

San Francisco Builders Exchange

San Francisco Chamber of Commerce

San Francisco Locally Owned Merchants Alliance

Sierra Business Council

Small Business California

Small Business Finance Fund

Small Business Majority

Small Business Network

Small Manufacturers Association of California

Opposition

John Chiang, California State Treasurer and Chair of California Pollution Control Financing Authority

Analysis Prepared by:

Date of Hearing: June 20, 2017

ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY

Sharon Quirk-Silva, Chair

SBPCA Bill Id:SB 551

Author:(Hueso) – As Amended Ver:June 12, 2017

SENATE VOTE: 39-0

SUBJECT: California Pollution Control Financing Authority: Capital Access Loan Program for Small Businesses

SUMMARY: Authorizes California Pollution Control Financing Authority (CPCFA), when administering the California Capital Access Loan Program (CalCAP), to annually recapture the state's contribution to a qualified loss reserve account for an enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first. Specifically, this bill:

1. Requires a qualified business to which a loan is made to pay a fee of not less than 1% of the principal loan, but not more than 3 ½ % of the principal amount, for deposit in the qualified loss reserve account. Existing law sets the minimum value of the fee at 2% of the principle loan value.
2. Authorizes CPCFA to annually recapture the authority's contribution for each enrolled loan, upon the maturation of the loan or after 5 years from the date of enrollment, whichever happens first.
3. Excludes from recapture any contributions on charged-off loans for which a claim has been approved by CPCFA.
4. Prohibits the authority from recapturing its contribution from a qualified loss reserve account unless the balance remaining in that qualified loss reserve account following recapture is greater than a minimum threshold that is calculated as a specified percentage of the outstanding principal balance of certain loans enrolled in that account. The percentage schedule is as follows:
   1. 14% percent for the 2018 calendar year;
   2. 13% for the 2019 calendar year;
   3. 12% for the 2020 calendar year;
   4. 11% for the 2021 calendar year; and
   5. 10% for the 2022 calendar year, and every year thereafter.
5. Limits the provisions of this bill to state contributions to qualified loss reserve accounts for which the revenue source was the federal Small Business Act of 2010 and a 2010 special state General Fund augmentation.

EXISTING LAW:

1. Establishes CPCFA with specified powers and duties, and authorizes the authority to approve financing for pollution control projects and facilities, administer a loss reserve program for small businesses, and provide grants and loans to remediate brownfields, among other activities.
2. Establishes CalCAP for the purpose of providing a small business loss reserve account program through participating financial institutions. In implementing the program, CPCFA is authorized to establish a loss reserve account for each financial institution with which the authority makes a contract. The loss reserve account shall consist of moneys paid as fees by borrowers and the financial institution, moneys transferred to the account from CPCFA's Small Business Assistance Fund, any matching federal moneys, and any other moneys provided by the authority or other source.
3. Authorizes CalCAP to adopt alternative loss reserve programs using a funding source other than those of the CPCFA.
4. Commencing April 1, 2017, requires a participating financial institution, when making a qualified loan to require the qualified business to which the loan is made to pay a fee of not less than 2% of the principal amount of the loan, but not more than 3 ½ % of the principal amount. These moneys are required to be deposited in the loss reserve account.
5. Provides that all moneys in a loss reserve account established pursuant to this article are the exclusive property of, and solely controlled by, the authority. All interest or income earned on moneys credited to the loss reserve account are considered to be part of the loss reserve account.
6. Authorizes CPCFA to withdraw from the loss reserve account all, or a portion of, the interest or other income that has been credited to the loss reserve account. Any withdrawal made pursuant to this subdivision may be made prior to paying any claim and shall be used for the sole purpose of offsetting costs associated with carrying out the program, including administrative costs and loss reserve account contributions.

FISCAL EFFECT: Unknown

POLICY FRAMEWORK:

This bill proposes to codify the recapture of state moneys that were deposited in a small business loss reserve account, which serves as a revenue pool for a participating lender to be reimbursed for the value of a defaulted loan that had been enrolled in CalCAP. The lender may only be reimbursed to the extent that moneys are available in the account. As each loan is enrolled in CalCAP, the financial institution, the borrower, and the state each contribute funds. Under SB 551, moneys in the loss reserve account contributed by the financial institution and the borrower remain in the account to offset future losses.

The impetus for this recapture is the otherwise imminent shutdown of the CalCAP, due to a lack of substantial new funds. For the past several years, CalCAP has relied on federal funds to make the state's share of the loss reserve contribution. These federal funds were awarded to California during the recession to assist small businesses access capital within otherwise frozen financial markets. One unique feature of the federal funds is their ability to be reused for any other purpose once the state fully expends them for the first time. According to CPCFA, these moneys are expected to be fully committed for their initial use period by the close of July 2017.

At the same time that SB 551 is moving through the Legislature, CPCFA is proposing to adopt similar, but not identical, recapture provisions. This bill will codify the recapture process, including setting mandatory annual sweeps and committing all recaptured funds toward the ongoing operation of the loss reserve program.

There are two primary policy questions. First, does the recapture policy have sufficient protections to ensure the financial viability of the loss reserve accounts? Second, is the continuation of CalCAP the highest and best use of limited small business revenues?

The analysis includes information on CalCAP; the $168 million in federal recession-response money; background on the unique nature of the recapture provisions; related legislation; and the potential deal between Opportunity Fund, the sponsor, and the CPCFA. Amendments are discussed in Comment 9.

COMMENTS:

1. California Capital Access Program for Small Businesses: CalCAP Loss Reserve Program was established through legislation enacted in 1994 for the purpose of incentivizing financial institutions to provide small businesses with the capital to maintain and grow their business.

The program uses a portfolio-based credit enhancement model, whereby a loss reserve account is established to offset losses incurred in connection with small business loans enrolled in the program. Funding in the loss reserve account consists of moneys paid by the participating borrower and financial institution, with CPCFA matching these contributions.

Unlike a loan guarantee which ensures payment on a certain percentage of the defaulted loan (80% in the state guarantee program), under the loss reserve fund model, the amount of the default payment is based on the amount of funds available in the reserve account. This means a lender could potentially recover 100% of the value of the defaulted loan, if sufficient moneys are in the account. The model encourages lenders to maintain good underwriting practices because utilization of the loss reserve too often can quickly draw-down the reserve leaving little for other potential defaults of enrolled loans within the portfolio.

CalCAP 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 some limitations on real estate loans and loan refinancing. The maximum loan amount is $2.5 million. 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 loss 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.

In 2016, CalCAP had 39 lenders enrolled in the CalCAP Loss Reserve Program, including: 23 state-chartered banks; 3 federally-chartered banks; 1 credit union; 9 non-profit CDFIs; 1 for-profit CDFI; and 2 community development corporations. These lenders enrolled 1,933 small business loans for $96 million, representing $106 million in total loan dollars. The average size loan was $55,037. Enrolled loans came from small business located in 44 California counties. Since 1994, CalCAP has enrolled 16,314 loans, representing cumulative loans of $1.68 billion. CPCFA processed and approved 96 claims from lenders against their loss reserve account in 2016. This represents a 5% default rate, which is an increase in payments of 116% from 2015.

Moneys to operate CalCAP originally came from excess bond issuance fees. From 2004 to 2010, about $35 million was allocated by CPCFA to finance the CalCAP Loss Reserve Program. In 2010, CalCAP received its first General Fund moneys as part of a comprehensive $32 million small business budget proposal and in 2011 CalCAP was chosen to administer a portion of federal funds for a small business access to capital program. Currently, CalCAP Loss Reserve Program operates exclusively on funds received from federal and non-CPCFA sources.

Among CalCAP's programs capitalized by other funding sources, the authority operates the On-Road Heavy-Duty Diesel Vehicle Program for small business truck owners; a Proposition 1B Loan Assistance Program to help finance 2007 or newer heavy-duty diesel or LNG fueled trucks; a program to assist small business make facility upgrades to meet Americans with Disabilities Act (ADA) requirements and a program to assist small businesses and homeowners make seismic safety related improvements.

1. Federal Funds under the Small Business Jobs Act: In 2011, California received significant federal funding through the State Small Business Credit Initiative (SSBIC), a program established under the federal Small Business Jobs Act of 2010. Under the federal funding formula, California received $168 million, which is the largest amount of any state.

One-half of California's moneys were directed toward the CPCFA to expand CalCAP and the other half went to capitalize a second and slightly modified Small Business Loan Guarantee Program that reflects the nuances of the federal requirements. Since receiving the federal funds, the priority of CalCAP and the SBLG Program have been to use the federal funds, rather than state funds. CPCFA uses SSBCI funds in two separate programs: Loss Reserve Program ($20 million) and a Collateral Support Program ($65 million). The CPCFA allocation numbers reflect additional federal funds awarded in December 2016 and a transfer from the Small Business Loan Guarantee Program in February 2017.

• SSBCI Funds Loan Volume – In 2016 CalCAP enrolled 1,889 loans to California small business owners using SSBCI funds, bringing the total number of CalCAP loans funded by SSBCI up to 8,730.
• SSBCI Funds Loan Dollars – CalCAP lenders loaned approximately $98 million in 2016 bringing the total loaned since the SSBCI program began to approximately $405 million.
• SSBCI Funds Loan Contributions – CPCFA contributed $3.9 million of SSBCI funds to loss reserve accounts for enrolled CalCAP loans in 2016.
• SSBCI Funds Jobs – During the period of January 1, 2016 through December 31, 2016 there were 1,054 jobs created and 9,665 jobs retained in California as a result of loans enrolled using SSBCI funds.
• SSBCI Loan Loss Claims – CalCAP processed and approved 96 claims filed by lenders against their Loan Loss Reserve Accounts, totaling $1.3 million in payments. The default rate for 2016 is 5%.

1. Running out of Funds: CPCFA anticipates using all available SSBCI funds by the close of July 2017 for the Loss Reserve Program and close of December 2017 for the Collateral Support Program. State revenues will likely be exhausted by the end of September 2017. The Authority recently announced plans to begin withdrawing money that it has contributed to the loan loss reserve accounts on an annual basis upon maturation of enrolled loans. This process is being referred to as "recapturing."

According to CPCFA, recapture policies are not common among loan loss reserve programs. In fact, based on their research of other loss reserve programs, including, but not limited to, other states' SSBCI capitalized programs, none had implemented broad-based recapture of funds as proposed in this bill. At a much smaller scale, CPCFA has annually swept interest earned within the loss reserve accounts and uses these moneys to offset CPCFA administrative costs.

The recapture concept, however, has been included in several of the newer CPCFA loss reserve style programs, including programs for financing structural building improvements for ADA compliance. By including these recapture provisions from the start of the program, participating lenders will be able to include this revenue scenario within their underwriting process. Those lenders participating in the general CalCAP Loss Reserve Program do not have this advantage.

1. Development of Recapture Provisions: In developing the schedule of recapture percentages for the general Loss Reserve Program, CPCFA states that it engaged, over a two-year period, with stakeholders, including financial institutions that were participating in the program. In general, many of the financial institutions want to move forward on a recapture process in order to ensure the continuation of the program. In implementing the recapture, lenders also commented that it should be done in such a way as to not harm the financial viability of the existing loss reserve account.

In addition to stakeholder discussions, the percentages proposed in SB 551 are based on a review of:

• Data on national loss reserve standards for small business lending by depository and non-depository financial institutions, credit unions, and Community Development Financial Institutions. This data suggested that these institutions anticipate a loss reserve of between 1% and 8%.
• Transaction documents from three lenders participating in CalCAP that sell portions of their portfolio as a means for raising additional loan revenues. These documents included provisions that not less than 10% would be retained in the loss reserve account in order to cover potential default.
• CalCAP reports from the period prior to the receipt of federal SSBIC funds, which found that the average aggregate loan loss reserve ranged from 10% to 15% of outstanding principal balance.

1. Statute will match Proposed Regulations: Under existing law, CPCFA has the authority to set terms and conditions for implementing CalCAP and that it may establish and maintain loss reserve accounts with any financial institution under any policies CPCFA may adopt. CPCFA states that they already have authority to implement recapture under these and other general CPCFA provisions. At their July 2017 meeting, CPCFA is proposing to adopt substantially similar recapture provisions as those in SB 551.

One area where the statute and proposed regulation will differ, however, is that the proposed regulation will allow an individual financial institution to opt-out of the recapture provisions. CPCFA believes that this option is important and reflects the different needs of financial institutions and their differing underwriting criteria used to select loans for enrollment in the loss reserve program.

If adopted, CPCFA anticipates being able to institute a recapture revenue sweep in August 2017, which could be as high as $8 million or $9 million, depending on the number of financial institutions that opt-out. For reference, total SSBCI funds committed to the loss reserve program are around $17 million. In future years, the amount of funds would be considerably less because of the initial year.

While CPCFA states they have the statutory ability to implement recapture and the proposed regulation is very similar to the provisions in SB 551, committee staff were told that the financial institutions preferred to have the recapture provisions in statute in order to ensure greater program stability.

1. Potential Deal and Compromise Agreement: As amended on June 12, 2017, SB 551 (Hueso) reflects compromise language negotiated between the author, sponsor (Opportunity Fund), and CPCFA. The bill both authorizes CPCFA to recapture of state contributions and prohibits CPCFA from recapturing its contribution if in doing so it would reduce the funds in the account to below the that in the percentage schedule: 14% in 2018, 13% in 2019, 12% in 2020, and 11% in 2021, and 10% in 2022 and in each year after.

According to the sponsor, CPCFA has pledged not to adopt previously planned and broader recapture provisions and, instead, adopt provisions similar to SB 551 with the 2017 recapture percentage being 15%. Committee staff contacted CPCFA and confirmed that the proposed regulations for the July 2017 meeting as substantially similar to those in the bill, except for the opt-out provision, as noted earlier.

A copy of the proposed regulation was, however, not available for review in time to prepare this analysis. Committee staff also contacted the State Treasurer's Office to confirm the deal/compromise, as the State Treasurer chairs CPCFA. The Treasurer's Office had not been briefed on the compromise (6/16/17).

1. Loss of Small Business Focus: In April of 2015, the JEDE Committee heard AB 1393 (Burke) which proposed to expand the authority and program focus of the CPCFA from providing financial assistance to address the control and remediation of pollution and the capital access challenges of small businesses.

Under the provisions of the bill, CPCFA would have had the ability to offer unlimited types of financial products to an expansive list of public and private entities, including, but not limited to, a loss reserve program that benefits any person, company, corporation, public agency, partnership, or firm engaged in activities in the state that requires financing. The JEDE Committee expressed concern that expanding the scope of the bill would dilute CPCFA's focus on small businesses.

The committee analysis proposed amendments to define the specific scope of the expansion and the author committed to making amendments in Assembly Appropriations and AB 1393 ultimately died in Senate Appropriations. Budget Trailer Bill language was, however, added that authorizes CPCFA to implement alternative loan reserve program using moneys provided by a public source or quasi-public source. In implementing this alternative loss reserve program, CPCFA is authorized through the Budget Trailer Bill to "establish alternate provisions as necessary to enable the authority to participate in the alternative funding source program."

1. Amendments: The Committee may wish to consider the following amendments:
   1. Modify the recapture percentage schedule to two years, 14% and 13%, respectively.

This would require CPCFA to come back to the Legislature for further recapture and percentage reductions. As discussed in another comment of the analysis, CPCFA has no underwriting responsibility for loans enrolled in the program. To establish a longer-term and mandatory claw-back process could have unintended consequences of undercapitalizing loss reserve accounts.

Further, this amendment would allow for the reallocation of federal and state funds for other small business purposes, while still ensuring two additional years of the Loss Reserve Program. Over time, more than $20 million may become available for reuse. It is appropriate that this level of funding be directed through joint deliberations by the legislative and administrative branches in order to allow for maximum input from small business stakeholders.

• 1. Modify the recapture date provisions. [requested by the author]
  2. Delete "except as provided in Sections 44559.13 and 44559.14," on page 4, lines 38 and 39. [suggested by CPCFA ]

SB 551 has a technical conflict with AB 964. As this bill moves, the author will need to address this in a later committee. Given the changing nature of both bills, it is not advised to make the change until later.

1. Related Legislation: Below is a list of related legislation from current and previous legislative sessions relating to CalCAP:
   1. Current Session:
      1. AB 964 (Gomez) California Affordable Clean Vehicle Program: This bill establishes the California Affordable Clean Vehicle Program (CACVP) within the Capitol Loan Access Program (CALP) to assist low-income individuals purchase or lease zero-emission vehicles (ZEVs) or plug-in hybrid electric vehicles (PHEVs) for personal or commercial use by providing affordable financing mechanisms. Status: Pending in the Senate Committee on Environmental Quality.
      2. AB 1553 (Gomez) Direct Payments to Borrowers: This bill authorizes the use of monies in the Small Business Assistance Fund to provide direct incentives to borrowers or financial institutions to participate in the California Americans with Disabilities Small Business Capital Access Loan Program that is administered by the California Pollution Control Financing Authority. Status: Pending in the Senate Committee on Business, Professions, and Economic Development.
   2. Prior Sessions:
      1. AB 796 (Blumenfield) Matching Funds: This bill, as it related to CPCFA, would have increased the maximum contribution by the financial institution to $200,000, if the matching contribution made by CPCFA is funded exclusively from funds made available pursuant to the federal Small Business Jobs Act of 2010. The bill would also have limited the amount of matching funds used for deposits exceeding $100,000 to not more than 50% of the available funds. Status: Vetoed by the Governor, 2012, for provisions unrelated to CFCFA.
      2. AB 901 (V. Manuel Pérez) Expand Financial Partners and Reporting Requirements: This bill expanded the CalCAP definition of financial institution and increased reporting requirements. CalCAP is one of the programs which received multimillions of dollars in federal and state funding for small business through the federal and state Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 483, Statutes of 2011.
      3. AB 981 (Hueso) Expand Financial Partners: This bill expanded the CalCAP definition of financial institution, authorized the withdrawal of a lower portion of the interest or other income from a loss reserve account to cover program costs, and required additional financial assistance to qualified business in severely affected community such as an area with high unemployment. CalCap is one of the programs which received multimillions of dollars in federal and state funding for small business through the federal and state Small Business Jobs Act of 2010. Status: Signed by the Governor, Chapter 484, Statutes of 2011.
      4. AB 1632 (Blumenfield) Small Business Capital Infusion: This bill provided the necessary statutory changes in the area of job creation and small business development in order to implement the 2010 Budget Act. The bill transfers $32.4 million from the General Fund to support four small-business and jobs programs that exist in current law. The funding appropriated in this bill goes to the Small Business Loan Guarantee Program ($20 million); California Capital Access Fund ($6 million); Small Business Development Centers ($6 million); and the Federal Technology Centers ($350,000). Status: Signed by the Governor, Chapter 731, Statutes of 2010.
      5. SB 225 (Simitian) Loss Reserve Accounts Trucking: This bill authorized the authority to establish loss reserve accounts for the purposes of terminal rental adjustment clause leasing, if funds are available for contribution into the loss reserve account from any source other than the authority. Status: Signed by the Governor, Chapter 492, Statutes of 2011.
      6. SB 832 (Senate Committee on Environmental Quality) Code Maintenance: This bill revised, under the tax-related provisions, the terms "project" and "pollution control facility", as defined in the California Pollution Control Financing Authority Act that are eligible for the sales and use tax (SUT) exclusion and includes public agencies in the definition of "participating parties" that are eligible for financial assistance in connection with the projects designed to control or eliminate environmental pollution. Status: Signed by the Governor, Chapter 643, Statutes of 2009.
      7. SB 1311 (Simitian) Changes in Deposits and Withdrawls: This bill reduced the CalCAP monetary contribution of the CPCFA to an amount equal to the amount of fees paid by a participating financial institution. The bill also authorizes the withdrawal of interest or other income from the loss reserve accounts for the purpose offsetting administrative costs and contributions. Status: The bill was signed by the Governor, Chapter 401, Statutes of 2008.
2. Double Referral: The Assembly Committee on Rules has assigned SB 551 to both the Assembly Committee on Jobs, Economic Development, and the Economy, and the Assembly Banking Committee. Should this measure pass JEDE, the bill will be referred to the Assembly Banking Committee for further policy review.

REGISTERED SUPPORT / OPPOSITION:

Support

Opportunity Fund (sponsor)

CA Asian Pacific Chamber of Commerce

CA Black Chamber of Commerce

CA Hispanic Chamber of Commerce

CA Association for Micro Enterprise Opportunity

CA Metals Coalition

CA Association of Competitive Telecommunications Companies

Flasher Barricade Association

Golden Gate Business Association

Golden Gate Restaurant Association

Greater Geary Boulevard Merchants Association

National Association of Women Business Owners

National Federation of Independent Businesses CA Chapter

North East Mission Business Association

Northern CA Booksellers Association

Plumbing Heating Cooling Contractors of CA

San Francisco Builders Exchange

San Francisco Chamber of Commerce

San Francisco Council of District Merchants Associations

San Francisco Locally Owned Merchants Alliance

Sierra Business Council

Small Business California

Small Business Majority

Small Business Network

Small Manufacturers Association of California

Opposition

None received

Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090

 THIRD READING  

Bill No: SB 551

Author:

:

Vote:

SENATE BANKING & F.I. COMMITTEE: 7-0, 4/5/17

AYES: Dodd, Vidak, Galgiani, Hueso, Lara, Morrell, Portantino

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/1/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: Opportunity Fund

DIGEST:

This bill returns the minimum amount that must be contributed by the California Pollution Control Financing Authority into a California Capital Access Loan Program for Small Business loan loss reserve account to 1% and adds language expressly authorizing the authority to recapture money from loan loss reserve accounts, as specified.

ANALYSIS:

Existing law:

1. Provides for the California Capital Access Loan Program (CalCAP), administered by the California Pollution Control Financing Authority (the authority, Health and Safety Code Section 44559 et seq.). Authorizes the authority to contract with eligible financial institutions; requires the authority to establish a loan loss reserve account for each financial institution with which the authority enters into a contract; requires participating borrowers, participating financial institutions, and the authority to pay specified amounts into a financial institution’s loan loss reserve account when that institution makes a qualified loan to a qualified borrower, as specified; 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.
2. Provides that all moneys in a loan loss reserve account are the exclusive property of and solely controlled by the authority. (Health and Safety Code Section 44559.3)

This bill:

1. Reduces, from 2% to 1%, the minimum contribution to the loan loss reserve account that is required of financial institutions and qualified businesses utilizing the CalCAP for Small Businesses. This percentage was lowered from 2% to 1% on January 1, 2013, and returned to 2% on April 1, 2017.
2. Authorizes the authority to recapture its own contributions to a loan loss reserve account, as follows:
   1. The authority may recapture its own contribution for each enrolled loan, upon the maturation of the loan or after five years from the date of loan enrollment, whichever happens first.
   2. Once recaptured, the money must be applied to future program and administrative expenses.
   3. Except as otherwise provided, the authority may not recapture its contribution from a loan loss reserve account unless the balance in that account is greater than 20 percent of the total amount of outstanding loans enrolled in that account.
   4. The authority may not recapture any contributions on charged-off loans for which a claim has been approved.

Background

CalCAP was authorized in 1994, to help small businesses obtain loans for which they would otherwise be ineligible. Originally, CalCAP included only one program – the program that is now known as CalCAP for Small Business and the program that is the focus of SB 551. Over the years, five other programs were added to CalCAP, including the Collateral Support Program, Air Resources Board On-Road Heavy-Duty Vehicle Air Quality Loan Program, Electric Vehicle Charging Station Financing Program, Americans with Disabilities Act Financing Program, and California Seismic Safety Financing Program (http://www.treasurer.ca.gov/cpcfa/calcap/index.asp).

Prior to 2010, CalCAP was funded through the sale of bonds issued 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 $84 million in federal funds, via the State Small Business Credit Initiative in the Small Business Jobs Act of 2010. CalCAP for Small Business and the Collateral Support Program shared in the $84 million in federal funds ($19.5 million for CalCAP and $64.5 million for the Collateral Support Program). The other programs have been funded separately through the State Budget and other state programs. According to the authority, the latest infusion of federal funds will run out sometime during 2017.

Comments

This bill is focused on ensuring that CalCAP for Small Business is able to continue operating, despite the unavailability of new state or federal funding to support new lending. This bill has two provisions: 1) return the minimum contribution to the loan loss reserve account to 1%, and 2) expressly authorize the authority to recapture money from CalCAP for Small Business loan loss reserve accounts for purposes of stimulating new lending, but cap the maximum amount that may be recaptured to ensure that loan loss reserve accounts are not depleted beyond a prudent level.

The first provision deletes the sunset date on a provision originally sponsored by the State Treasurer’s Office (parent organization of the authority) in 2012 (SB 1116, Leno, Chapter 274, Statutes of 2012). When SB 1116 was proposed, the authority argued that lowering the minimum loan loss reserve account contribution to 1% would enable more lenders and borrowers to participate in CalCAP, make the program consistent with federal law, and make the program easier to administer for both CalCAP and participating lenders.

According to information provided by the author’s office, the change contained in SB 1116 worked as intended. In the year following enactment of SB 1116, the authority saw a 39% increase in the number of loans enrolled in CalCAP for Small Business and a 63% increase in the amount of money loaned under that program.

The second provision of SB 551 is intended to allow CalCAP for Small Business to continue in the absence of new sources of state and federal funding. By allowing the authority to recapture money from loan loss reserve accounts once loans are paid off or have been on the books for five years, whichever comes first, the authority will have money with which to cover its required contributions, when new loans are enrolled.

This bill’s recapture provision is intended to acknowledge the fine line the authority must walk, when it recaptures money from loan loss reserve accounts. Specifically, the authority must recapture enough to sustain all of the new loans that participating lenders want to make, without recapturing so much that lenders are reluctant to participate in the program, out of fear there will be insufficient money left in their loan loss reserve accounts to cover bad loans. Discussions regarding the specifics of this bill’s recapture provision are likely to continue as this bill moves.

Related/Prior Legislation

SB 1116 (Leno, Chapter 274, Statutes of 2012) decreased 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 and increased the length of time that a participating financial institution had in which to enroll a qualified loan in CalCAP, from 10 to 15 days after the date on which the loan is made.

AB 1632 (J. Perez, Chapter 731, Statutes of 2010) transferred a total of $32.4 million from the General Fund to the California Small Business Expansion Fund, California Capital Access Fund, and the California Economic Development Fund, to support small businesses and facilitate matching funds that would ensure a full complement of federal funding for these programs.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, restoring the minimum contribution level to 1% of a loan under CalCAP will result in minimal costs to the authority. The authority will receive unknown, potential revenue from the provision authorizing it to recapture money from loan loss reserve accounts.

SUPPORT: (Verified 5/1/17)

Opportunity Fund (source)

California Asian Pacific Chamber of Commerce

California Association for Micro Enterprise Opportunity

California Association of Competitive Telecommunications Companies

California Black Chamber of Commerce

California Hispanic Chamber of Commerce

California Metals Coalition

California Small Business Association

CDC Small Business Finance

Crossroads Equipment Lease and Finance

Flasher Barricade Association

Golden Gate Business Association

Golden Gate Restaurant Association

Greater Geary Boulevard Merchants Association

Microenterprise Collaborative of Inland Southern California

National Association of Women Business Owners

National Federation of Independent Businesses California Chapter

North East Mission Business Association

Northern California Booksellers Association

Pacific Coast Regional Small Business Development Corporation

Plumbing Heating Cooling Contractors of California

San Francisco Builders Exchange

San Francisco Chamber of Commerce

San Francisco Council of District merchants Associations

San Francisco Locally Owned Merchants Alliance

Sierra Business Council

Small Business California

Small Business Majority

Small Business Manufacturers Association of California

Small Business Network

Working Solutions

OPPOSITION: (Verified 5/1/17)

None received

ARGUMENTS IN SUPPORT: Opportunity Fund, a nonprofit microlender that is a longtime participant of CalCAP, is sponsoring SB 551 to “increase the sustainability and integrity of the CalCAP program to ensure strong lender participation for decades to come....SB 551 provides minor but meaningful changes that will increase CalCAP’s sustainability and transparency – both of which ultimately benefit business owners across the state.”

According to Opportunity Fund, SB 551 will ensure that public funds go further while still providing lenders needed coverage against risk. This bill improves program sustainability by allowing the authority to recapture any state contributions in lender loan loss reserve accounts that are above a predetermined threshold (20% of total outstanding loans for any individual lender). The authority can use recaptured funds to match new small business loans and provide needed administrative funding. Furthermore, “by ensuring that lenders have meaningful and predictable coverage against losses, [SB 551] maintains lender trust and participation in the program. This is particularly important given that lenders make underwriting decisions on enrolled loans with the confidence that they could rely on their loan loss reserves if individual loans and/or economic conditions deteriorate.”

Prepared by:

5/3/17 14:40:34

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 551 (Hueso) - California Pollution Control Financing Authority: Capital Access Loan Program for Small Businesses

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

SB 551 would reduce the minimum contribution paid by financial institutions, borrowers, and the California Pollution Control Financing Authority (CPCFA) from 2% to 1% of the loan under the California Capital Access Program (CalCAP) into a loan loss reserve account and authorize CPCFA to recapture money from the loan loss reserve accounts, as specified.

Fiscal Impact:

• Minimal costs to CPCFA for restoring the minimum contribution level to 1% of a loan under CalCAP.
• Unknown potential revenue to CPCFA to recapture money from loan loss reserve accounts. (California Capital Access Fund) See Staff Comments

Background:

CalCAP for Small Business (CalCAP) was created in 1994 and is run by CPCFA. CalCAP was created to encourage banks and other financial institutions to provide loans to small businesses that have difficulty obtaining financing. CalCAP also provides for specialty programs targeted toward creating more charging stations for electric vehicles, helping at-risk small businesses comply with requirement of the federal Americans with Disabilities Act, assisting small businesses and property owners with financing the costs to seismically retrofit existing buildings and homes, and retrofitting polluting diesel trucks.

Prior to 2010, CalCAP was funded through the sale of bonds issued by CPCFA. AB 1632 (J. Perez, Chapter 731, Statutes of 2010) augmented the program with $6 million in General Fund monies, and in addition, the program received $84 million in federal funds via the State Small Business Credit Initiative in the Small Business Jobs Act of 2010 [Chapter 54 (commencing with Section 5701) of Title 12 of the United States Code]. CPCFA expects that the federal funds will be exhausted sometime during 2017.

As of March 2017, there were 37 financial institutions approved as CalCAP lenders. Once a CalCAP lender decides to approve a CalCAP loan, a loan loss reserve account must be established. Funds in this account are available for use by the financial institution to backfill itself for possible losses resulting from the loan. Borrowers, lenders, and CPCFA all contribute equally to the loan loss account at an amount determined by the lender (CPCFA may contribute higher amounts if the loan qualifies for federal funds or if the loan is being made in a severely affected community). Until April 1, 2017, the amount ranged from 1% to 3.5% of the loan amount. As of April 1, 2017, the minimum contribution increased from 1% to 2%.

CPCFA has enrolled over 14,300 loans totaling over $1.5 billion into CalCAP. The maximum loan amount currently available is $2.5 million, though the average loan amount is $43,100.

Proposed Law:

This bill would

• Reduce from 2% to 1% the minimum contribution to the loan loss reserve account that is required of financial institutions and qualified businesses utilizing the CalCAP for Small Businesses;
• Authorize CPCFA to recapture its own contributions to a loan loss reserve account as follows:
  • Upon the maturation of the loan or after five years from the date of enrollment, whichever happens first, to be deposited in the California Capital Access Fund;
  • Money must be applied to future small business capital access program and administrative expenditures;
  • Recapture shall not apply to contributions on charged-off loans for which a claim has been approved, and except as otherwise provided, CPCFA shall not recapture its contribution unless the balance remaining in that loss reserve account following recapture is greater than 20% of the total amount in the loss reserve account;
  • These provisions only apply to loans for which the contributions by CPCFA were made with funds received under the State Small Business Credit Initiative or with the $6 million in state funds appropriated to CPCFA for this purpose.

Related Legislation:

SB 1116 (Leno, Chapter 274, Statutes of 2012) reduced the minimum contribution paid by financial institutions and borrowers from 2% to 1% of the loan into a loan loss reserve account under CalCAP until April 2, 2017. This bill also extended the time that financial institutions have to enroll a loan into CalCAP from 10 to 15 days after the date the loan is made.

AB 981 (Hueso, Chapter 484, Statutes of 2011) restored CalCAP’s “severely affected area” funding augmentations, authorized CPCFA to withdraw less than the full amount of accumulated interest from loan loss reserve accounts to offset its cost to administer CalCAP, and added community development financial institutions to the list of financial institutions eligible to participate in CalCAP.

AB 1632 (J. Perez, Chapter 731, Statutes of 2010) transferred and allocated $32.4 million from the General Fund to the three funds, including a $6 million appropriation to the California Capital Access Fund to be expended for CalCAP.

Staff Comments:

Staff notes that authorizing CPCFA to recapture its own contributions to a loan loss reserve has the potential to provide revenue for CPCFA. Recapture could increase the amount of funds available in the California Capital Access Fund and would allow the state to continue contributing to the CalCAP program and loan loss reserve accounts despite the anticipated exhaustion of the federal funds from the State Small Business Credit Initiative. However, the 20% balance threshold for recapture has the potential to limit the amount of funds that can be recaptured. For some accounts, the 20% threshold would prohibit CPCFA from recapturing the amount had been contributed to the loan loss reserve by CPCFA. The ultimate revenue that this bill could generate is uncertain given that the state contribution to each loan is variable.

-- END --

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Bill Dodd, Chair

2017 - 2018 Regular

Bill No: SB 551 Hearing Date: April 5, 2017

Subject: California Pollution Control Financing Authority: Capital Access Loan Program for Small Businesses

SUMMARY

Returns the minimum amount that must be contributed by the California Pollution Control Financing Authority (CPCFA; the authority) into a California Capital Access Loan Program (CalCAP) for Small Business loan loss reserve account to 1% and adds language expressly authorizing the authority to recapture money from loan loss reserve accounts, as specified.

DESCRIPTION

1. Reduces, from 2% to 1%, the minimum contribution to the loan loss reserve account that is required of financial institutions and qualified businesses utilizing the CalCAP for Small Businesses. This percentage was lowered from 2% to 1% on January 1, 2013 and returned to 2% on April 1, 2017.
   
2. Authorizes the authority to recapture its own contributions to a loan loss reserve account, as follows:
   
   1. The authority may recapture its own contribution for each enrolled loan, upon the maturation of the loan or after five years from the date of loan enrollment, whichever happens first.
      
   2. Once recaptured, the money must be applied to future program and administrative expenses.
      
   3. Except as otherwise provided, the authority may not recapture its contribution from a loan loss reserve account unless the balance in that account is greater than 20 percent of the total amount of outstanding loans enrolled in that account.
      
   4. The authority may not recapture any contributions on charged-off loans for which a claim has been approved.
      

EXISTING LAW

1. Provides for CalCAP, administered by the authority (Health and Safety Code Section 44559 et seq.). Authorizes the authority to contract with eligible financial institutions; requires the authority to establish a loan loss reserve account for each financial institution with which the authority enters into a contract; requires participating borrowers, participating financial institutions, and the authority to pay specified amounts into a financial institution’s loan loss reserve account when that institution makes a qualified loan to a qualified borrower, as specified; 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.
   
2. Provides that all moneys in a loan loss reserve account are the exclusive property of and solely controlled by the authority (Health and Safety Code Section 44559.3)
   

COMMENTS

1. Purpose: This bill is intended to help ensure the continued existence of the CalCAP for Small Business program, despite the lack of new federal funding with which to support new lending.
   
2. What is CalCAP and What Programs Does it Include? CalCAP was authorized in 1994, to help small businesses obtain loans for which they would otherwise be ineligible. Originally, CalCAP included only one program – the program that is now known as CalCAP for Small Business and the program that is the focus of SB 551. Over the years, five other programs were added to CalCAP, including the Collateral Support Program, Air Resources Board On-Road Heavy-Duty Vehicle Air Quality Loan Program, Electric Vehicle Charging Station Financing Program, Americans with Disabilities Act Financing Program, and California Seismic Safety Financing Program (http://www.treasurer.ca.gov/cpcfa/calcap/index.asp).
   
   Prior to 2010, CalCAP was funded through the sale of bonds issued 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 $84 million in federal funds, via the State Small Business Credit Initiative in the Small Business Jobs Act of 2010. CalCAP for Small Business and the Collateral Support Program shared in the $84 million in federal funds ($19.5 million for CalCAP and $64.5 million for the Collateral Support Program). The other programs have been funded separately through the State Budget and other state programs. According to the authority, the latest infusion of federal funds will run out sometime during 2017.
   
3. How Big is CalCAP for Small Business? To date, the authority has enrolled over 14,300 loans totaling over $1.5 billion into CalCAP for Small Business. The maximum loan amount currently available is $2.5 million, although most loans are far smaller. In 2016, the average loan amount was $43,100.
   
4. How Does CalCAP for Small Business Work? CalCAP for Small Business is a loan loss reserve program, which provides a credit enhancement to participating financial institutions that underwrite qualifying loans for California small business owners. Participating institutions are more willing to extend loans to qualifying businesses under CalCAP than they would be outside of the program, because CalCAP loan loss reserve accounts can help these lenders pool the risk of multiple loans and backfill lender losses in the event one or more loans go bad.
   
   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 7, 2017, 37 financial institutions were on the authority’s list of approved CalCAP for Small Business lenders, ranging from small community development centers and community development financial institutions, to small community banks and credit unions, to large, multinational banks.
   

Participating financial institutions establish all of the terms and conditions of CalCAP loans. These 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, until April 1, 2017, ranged from 1% to 3.5% of the loan amount, depending on the lender’s perception of the borrower’s creditworthiness (lower contributions reflect higher perceived creditworthiness). The minimum contribution increased from 1% to 2% of the loan amount on April 1^st.

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”). 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.

1. How Would SB 551 Ensure the Continued Operation of CalCAP for Small Business? This bill is focused on ensuring that CalCAP for Small Business is able to continue operating, despite the unavailability of new state or federal funding to support new lending. This bill has two provisions: a) return the minimum contribution to the loan loss reserve account to 1%, and b) expressly authorize the authority to recapture money from CalCAP for Small Business loan loss reserve accounts for purposes of stimulating new lending, but cap the maximum amount that may be recaptured to ensure that loan loss reserve accounts are not depleted beyond a prudent level.
   
   The first provision would delete the sunset date on a provision originally sponsored by the State Treasurer’s Office (parent organization of the authority) in 2012 (SB 1116, Leno, Chapter 274, Statutes of 2012). When SB 1116 was proposed, the authority argued that lowering the minimum loan loss reserve account contribution to 1% would enable more lenders and borrowers to participate in CalCAP, make the program consistent with federal law, and make the program easier to administer for both CalCAP and participating lenders.
   
   According to information provided by the author’s office, the change contained in SB 1116 worked as intended. In the year following enactment of SB 1116, the authority saw a 39% increase in the number of loans enrolled in CalCAP for Small Business and a 63% increase in the amount of money loaned under that program.
   
   The second provision of SB 551 is intended to allow CalCAP for Small Business to continue in the absence of new sources of state and federal funding. By allowing the authority to recapture money from loan loss reserve accounts once loans are paid off or have been on the books for five years, whichever comes first, the authority will have money with which to cover its required contributions, when new loans are enrolled.
   
   This bill’s recapture provision is intended to acknowledge the fine line the authority must walk, when it recaptures money from loan loss reserve accounts. Specifically, the authority must recapture enough to sustain all of the new loans that participating lenders want to make, without recapturing so much that lenders are reluctant to participate in the program, out of fear there will be insufficient money left in their loan loss reserve accounts to cover bad loans. Discussions regarding the specifics of this bill’s recapture provision are likely to continue as this bill moves.
   
2. Summary of Arguments in Support:
   
   1. Opportunity Fund, a nonprofit microlender that is a longtime participant of CalCAP, is sponsoring SB 551 to “increase the sustainability and integrity of the CalCAP program to ensure strong lender participation for decades to come....SB 551 provides minor but meaningful changes that will increase CalCAP’s sustainability and transparency – both of which ultimately benefit business owners across the state.”
      
      According to Opportunity Fund, SB 551 will ensure that public funds go further while still providing lenders needed coverage against risk. The bill improves program sustainability by allowing the authority to recapture any state contributions in lender loan loss reserve accounts that are above a predetermined threshold (20% of total outstanding loans for any individual lender). The authority can use recaptured funds to match new small business loans and provide needed administrative funding. Furthermore, “by ensuring that lenders have meaningful and predictable coverage against losses, [SB 551] maintains lender trust and participation in the program. This is particularly important given that lenders make underwriting decisions on enrolled loans with the confidence that they could rely on their loan loss reserves if individual loans and/or economic conditions deteriorate.”
      
   2. Crossroads Equipment Lease and Finance and a coalition of 25 business associations and organizations believe that “SB 551 will greatly improve a highly successful program....SB 551 seeks to increase the sustainability and transparency of the CalCAP program to ensure strong lender participation.”
3. Summary of Arguments in Opposition: None received.
4. Amendments: The following technical and clarifying amendments have been agreed to by the author:
   
   1. Page 6, lines 8 through 10, amend as follows: account pursuant to subdivision (f) unless the balance remaining in that loss reserve account following recapture is greater than 20 percent of the total amount of outstanding loans enrolled in the loss reserve account.
      
   2. On page 6, line 10, after the period, insert: Contributions recaptured pursuant to this subdivision shall not be applied to programs established pursuant to Sections 44559.13 and 44559.14
      
5. Prior and Related Legislation:
   
   1. SB 1116 (Leno), Chapter 274, Statutes of 2012: Decreased 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 and increased the length of time that a participating financial institution had in which to enroll a qualified loan in CalCAP, from ten to fifteen days after the date on which the loan is made.
      
   2. AB 981 (Hueso), Chapter 484, Statutes of 2011: Restored CalCAP’s severely affected area funding augmentations; authorized the authority to withdraw less than the full amount of accumulated interest from loan loss reserve accounts, to offset its costs to administer CalCAP; and added community development financial institutions to the list of financial institutions eligible to participate in CalCAP.
      
   3. AB 1632 (J. Perez), Chapter 731, Statutes of 2010: Transferred a total of $32.4 million from the General Fund to the California Small Business Expansion Fund, California Capital Access Fund, and the California Economic Development Fund, to support small businesses and facilitate matching funds that would ensure a full complement of federal funding for these programs.

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

Opportunity Fund (sponsor)

California Asian Pacific Chamber of Commerce

California Black Chamber of Commerce

California Hispanic Chamber of Commerce

California Association for Micro Enterprise Opportunity

California Metals Coalition

California Association of Competitive Telecommunications Companies

CDC Small Business Finance

Crossroads Equipment Lease and Finance

Flasher Barricade Association

Golden Gate Business Association

Golden Gate Restaurant Association

Greater Geary Boulevard Merchants Association

Microenterprise Collaborative of Inland Southern California

National Association of Women Business Owners

National Federation of Independent Businesses CA Chapter

North East mission Business Association

Northern CA Booksellers Association

Pacific Coast Regional Small Business Development Corporation

Plumbing Heating Cooling Contractors of CA

San Francisco Builders Exchange

San Francisco Chamber of Commerce

San Francisco Council of District merchants Associations

San Francisco Locally Owned Merchants Alliance

Sierra Business Council

Small Business California

Small Business Majority

Small Business Manufacturers Association of CA

Small Business Network

Working Solutions

Opposition

None received

-- END --