SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 3307 (Eduardo Garcia) - California Manufacturing Emergency Preparedness Act of 2020

Bill Summary:

AB 3307.would establish the California Manufacturing Disaster Loan and Loan Guarantee Program (Disaster Program) for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing and logistic capacity in the State.

Fiscal Impact:

The Governor’s Office of Business and Economic Development (GO-Biz) indicates that this bill would result in annual costs of $700,000. Initial funding likely would come from disaster relief funds, since special funds from participant fees would not be collected until after the program is operational.

Background:

Current law establishes the California Infrastructure and Economic Development Bank (IBank) within GO-Biz, and authorizes IBank to (1) administer various infrastructure related programs, and (2) make loans and issue bonds for infrastructure and economic expansion projects. The IBank’s operational budget is supported through fees, interest income and other revenues derived from public and private sector financing activities.

Currently, the Disaster Fund for Loan Guarantees exists within GO-Biz, and is continuously appropriated. After the Governor issued a stay-at-home order on March 19, 2020, on April 2, 2020 he announced the establishment of a $50 million loan guarantee program designed to help small businesses that were struggling to qualify for relief. The loan guarantee program expanded the existing Small Business Loan Guarantee Program, available through IBank. Eligible small businesses include those with 750 employees and have been negatively impacted or experienced disruption due to the COVID-19 pandemic. To date, the Governor has allocated an additional $50 million from this year’s budget to the program and added flexibility to the funds to cover those businesses that might have already qualified for SBA relief.

Proposed Law:

This bill would, among other things, do the following:

• Enact the California Emergency Preparedness Act of 2020, which would authorize IBank to establish the California Disaster Loan and Loan Guarantee Program for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing, and logistics capacity in the state, and would require IBank to establish guidelines for the implementation and oversight of the program.
• Prohibit IBank from starting the program until it adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program and that the IBank has sufficient direction from the Director of the Office of Emergency Services, as provided.
• Require IBank to provide for the development and administration of the program, as specified, and would require program applicants to demonstrate satisfaction of specified requirements.
• Require each applicant to pay a nonrefundable fee, as provided.
• Create the Manufacturing Program Account within the IBank Fund (the MPA Fund). Authorize the Governor to allocate disaster relief funds, including funds in the Disaster Assistance Fund, to the Manufacturing Program Account for use by IBank, to cover costs of administering the program and to provide direct loans or guarantees, or both, made by lending institutions, and to forgive those loans in appropriate circumstances, for the purpose of providing financing to enable the manufacturing and logistics sectors to support the emergency needs of Californians.
• Provide that the moneys in the accounts be made available to IBank upon a transfer of funds by the Director of Finance pursuant to an allocation by the Governor under the California Disaster Assistance Act, for specified purposes.
• Authorize moneys in the account to be allocated to a lending institution or financial company that will act as trustee of the funds, with the approval of the Department of Finance.
• Require IBank to annually report, commencing with January 1, 2022, to the Governor and the Legislature on the program activity, as specified, in any fiscal year that the program receives funding or has active loans.
• Specify that the above provisions be implemented only to the extent that sufficient moneys are available to IBank to implement the California Manufacturing Disaster Loan and Loan Guarantee Program. Permits these provisions to be used to respond to, and recover from, the conditions arising from the state of emergency declared by the Governor on March 4, 2020, related to the COVID-19 virus. Prohibits IBank from entering into loans or loan guarantees pursuant to the bill’s provisions on or after January 1, 2026.

Staff Comments:

As noted above, this bill would authorize IBank to provide financing to eligible manufacturers to support the transition of manufacturing operations to address emergency needs of Californians during and after the declaration of a State of Emergency. Thebill is a response to the COVID-19 pandemic. Specifically, like other states, California has had shortages of certain equipment, such as personal protective equipment, requiring the State to procure these items from other states or countries. This bill would enable access to capital for state manufacturers that would allow them to better respond to manufacturing needs in an emergency situation.

The bill’s $700,000 cost estimate assumes similar size and scale to other IBank programs, such as the Small Business Finance Center. Specifically, IBank anticipates requiring a program manager, two loan officers, and two support staff, inclusive of salaries, benefits, operating expenses and equipment.

Also as noted above, the bill also provides that the IBank would be prohibited from starting the program until it adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program. The timeframe for this to occur is not clear.

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SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Steven Glazer, Chair

2019 - 2020 Regular

Bill No: AB 3307 Hearing Date: August 8, 2020

Subject: California Manufacturing Emergency Preparedness Act of 2020

SUMMARY:

Expands the business assistance tools available to the Governor under a state of emergency by establishing the California Manufacturing Disaster Loan and Loan Guarantee Program (Disaster Program) for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing and logistic capacity in the state.

Existing law:

1. Establishes the California Infrastructure and Economic Development Bank (IBank) via the Bergeson-Peace Infrastructure and Economic Development Bank Act (the Act). (Gov. Code § 63000 et seq.)
2. Allows IBank to make loans, issue bonds, and provide financial assistance to economic development and public development facilities. (Gov. Code § 63050 et seq.)
3. Requires the Disaster Assistance Fund (the Fund) to be continuously appropriated, without regard to the fiscal year, for the California Disaster Assistance Act (the Assistance Act). When funds are available for purpose of the act, the Governor may allocate the funds, in connection with the relief provided, in affected areas during the period of federal disaster relief, to the Small Business Expansion Fund for use by IBank, to provide guarantees for low-interest interim loans to be made by lending institutions for the purpose of providing interim financing to enable small businesses that have suffered actual physical damage or significant economic losses, as a result of the disaster or state of emergency for which funding is made available. (Gov. Code §§ 8680-8692)

This bill:

1. Enacts the California Emergency Preparedness Act of 2020, which would authorize IBank to establish the California Disaster Loan and Loan Guarantee Program for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing, and logistics capacity in the state, and would require IBank to establish guidelines for the implementation and oversight of the program.
2. Prohibits IBank from starting the program until it adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program and that the IBank has sufficient direction from the Director of the Office of Emergency Services, as provided.
3. Requires IBank to provide for the development and administration of the program, as specified, and would require program applicants to demonstrate satisfaction of specified requirements.
4. Requires each applicant to pay a nonrefundable fee, as provided.
5. Creates the Manufacturing Program Account within the IBank Fund (the MPA Fund). Authorizes the Governor to allocate disaster relief funds, including funds in the Disaster Assistance Fund, to the Manufacturing Program Account for use by IBank, to cover costs of administering the program and to provide direct loans or guarantees, or both, made by lending institutions, and to forgive those loans in appropriate circumstances, for the purpose of providing financing to enable the manufacturing and logistics sectors to support the emergency needs of Californians.
6. Provides that the moneys in the accounts be made available to IBank upon a transfer of funds by the Director of Finance pursuant to an allocation by the Governor under the California Disaster Assistance Act, for specified purposes.
7. Authorizes moneys in the account to be allocated to a lending institution or financial company that will act as trustee of the funds, with the approval of the Department of Finance.
8. Authorizes IBank to create subaccounts in the account for specified purposes.
9. Requires IBank to annually report, commencing with January 1, 2022, to the Governor and the Legislature on the program activity, as specified, in any fiscal year that the program receives funding or has active loans.
10. Describes that the above provisions be implemented only to the extent that sufficient moneys are available to IBank to implement the California Manufacturing Disaster Loan and Loan Guarantee Program. Permits these provisions to be used to respond to, and recover from, the conditions arising from the state of emergency declared by the Governor on March 4, 2020, related to the COVID-19 virus. Prohibits IBank from entering into loans or loan guarantees pursuant to the bill’s provisions on or after January 1, 2026.

FISCAL EFFECT:

According to the Assembly Committee on Appropriations, this bill will result in ongoing costs of $700,000 disaster relief funds or special funds from participant fees for IBank to hire a program manager, two loan officers, and two support staff.

COMMENTS:

1. Purpose. The Author is the Sponsor of the bill. According to the author, “The recent

COVID-19 pandemic has unfortunately demonstrated how California is ill-equipped to address an immediate public health crisis and has resulted in a shortage of essential goods such as personal protective equipment and ventilators throughout the state. As a result, California has become reliant upon various shipments from out-of-state suppliers to provide relief to our front-line workers, first responders, and local communities. However, in some instances, shipments were damaged or could have been distributed to the public sooner if these goods were produced in the state. California must be prepared in future responses to address similar crises that we are currently experiencing today. AB 3307 would enact the California Emergency Preparedness Act of 2020 and allow the Governor to distribute loans and loan guarantees through the I-Bank to provide emergency relief in California, and give support to our state’s workforce in the manufacturing industry at a critical time when our state needs the support the most.”

1. Background.

The COVID-19 Pandemic and Its Economic Impact. Small businesses, particularly in the service sector have taken a massive hit due to public health orders and consumer spending patterns as a result of the COVID-19 pandemic. According to Opportunity Insights, a non-partisan, not-for-profit organization based at Harvard University and directed by economists Raj Chetty, John Friedman, and Nathaniel Hendren, as of July 26, 2020 overall spending in the state was down 13.6% as compared with January 2020. As of June 2020, the state had a 14.9% unemployment rate.

The Disaster Assistance Fund for Loan Guarantees. Currently, the Fund exists within the Governor’s Office of Business and Economic Development (GO-Biz). That Fund enjoys a continuous appropriation each year. After the Governor issued a stay-at-home order on March 19, 2020, on April 2, 2020 he announced the establishment of a $50 million loan guarantee program designed to help small businesses that were struggling to qualify for SBA relief. The loan guarantee program expanded the existing Small Business Loan Guarantee Program available through IBank. Eligible small businesses include those with 750 employees and have been negatively impacted or experienced disruption as a result of the COVID-19 pandemic. To date, the Governor has allocated an additional $50 million from this year’s budget to the program and added flexibility to the funds to cover those businesses that might have already qualified for SBA relief.

Manufacturing Support in a Disaster. In response to the COVID-19 pandemic, state government agencies like GO-Biz, state trade associations like the California Manufacturing and Technology Association (CMTA), and state-and-federally-funded business assistance centers, including the California Manufacturing Technology Corporation (CMTC) collectively and individually contacted California’s dynamic manufacturers to ascertain how these businesses could contribute to the state’s emergency response efforts. In particular, the CMTC worked one-on-one with small and medium-size manufacturers to shift their production to meet the state’s top emergency supply needs. This work was made possible through repurposed funding from the GO-Biz Small Business Technical Assistance Expansion Program. Pivoting manufacturing required retooling of facilities, reworking of staffing, and establishing new supply sources. It ensured companies could contribute to the COVID-19 pandemic response and sustain a portion of their workforce.

The California Emergency Preparedness Act of 2020. Similar to the existing Fund, the California Emergency Preparedness Act of 2020 would authorize IBank to establish the California Disaster Loan and Loan Guarantee Program for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing, and logistics capacity in the state. It would also require IBank to establish guidelines for the implementation and oversight of the program. Finally, the bill would also prohibit IBank from starting the program until the IBank adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program and that the IBank has sufficient direction from the Director of the Office of Emergency Services, as provided.

The bill creates the Manufacturing Program Account (MPA) within the IBank Fund for this purpose. The MPA is to be used by the IBank to cover the costs of administering the program and to provide direct loans or guarantees, or both, made by lending institutions, and to forgive those loans in appropriate circumstances, for the purpose of providing financing to enable the manufacturing and logistics sectors to support the emergency needs of Californians.

1. Arguments in Support. The California Manufacturing and Technology

Association writes in support: “[w]hile manufacturing has proven resilient during this crisis, adapting under such circumstances can be challenging and require a sustained level of investment that is often difficult to maintain in times of economic depression, especially for smaller companies who are working with thin margins.

AB 3307 will better position manufacturers to meet this challenge. Modeled after existing incentive frameworks, the California Manufacturing Emergency Preparedness Act of 2020 creates a mechanism whereby manufacturers can seek loan guarantees and other funding assistance to retool, repurpose, and expand production and product distribution to maintain a reliable supply of essential goods during a declared state of emergency. As a result, California-made products can remain available and accessible to our residents, and other, and aid in the successful response to such declared emergencies. The program will be available to manufacturers of all sizes and would only become operative upon an appropriation from the Governor. And, to ensure accountability and transparency, it contains a sunset date after five year.”

1. Adding Tools to Assist with COVID-19 Relief. There is no question that this bill would help the small business and manufacturing community, as well as Californians, with COVID-19 recovery efforts by providing a new funding mechanism to assist manufacturers in making these transitions. While it is not in the typical purview of this Committee to comment on budgetary matters, a big implementation question is whether there will be money to fund this program and the administrative costs of its upkeep, and where that money might be coming from. This also raises the question of whether this bill will result in an unnecessary law that is never utilized. The financial concern is less immediate because the bill also provides that the IBank is prohibited from starting the program until it adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program and has sufficient direction from the Director of the Office of Emergency Services. While the concern about unnecessary legislation is valid from a pure policy perspective, this bill is: 1) directly related to the financial solvency of small businesses in the COVID-19 crisis and manufacturing necessary equipment such as PPE, and 2) prohibits the IBank from entering into loans or loan guarantees pursuant to the bill’s provisions on or after January 1, 2026. Both the timeliness of the bill and the sunset date show that the benefits of this legislation outweigh risks from a policy perspective.

SUPPORT AND OPPOSITION:

Support:

California Chamber of Commerce

California Manufacturing and Technology Association

Opposition:

None on file

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ASSEMBLY THIRD READING

ATR Bill Id:AB 3307

Author:(Eduardo Garcia and Cervantes)

As Amended Ver:May 19, 2020

Majority vote

SUMMARY:

AB 3307 expands the business assistance tools available to the Governor under a state of emergency by establishing the California Manufacturing Disaster Loan and Loan Guarantee Program (Disaster Program) for the purpose of attracting, retaining, retooling, establishing, and expanding manufacturing facilities and logistic capacity in the state.

Major Provisions

1. Directs the California Infrastructure and Economic Development Bank (IBank) to adopt directives and requirements for the Disaster Program.
2. Limits activation of the program to only those instances which meet both criteria:
   1. A state of emergency has been declared, as specified.
   2. The Governor has authorized the transfer of funds from the Disaster Assistance Fund to the Manufacturing Program Account in an amount necessary for direct loans and to pay defaulted loan guarantees.
3. Requires applicants to demonstrate that wages the applicant pays its employees in the state shall, on average, be equal to or more than the average monthly wage rate for similar workers in the same industry subsector.
4. Requires applicants to repay all outstanding loans in full six months before the relocation of a facility outside of California. If the loan or loan guarantee included a subsidized amount, that amount is required to be repaid subject to a sliding scale adopted by the IBank.
5. Requires annual reporting by the IBank for any year in which funding was appropriated for use in the Program. Reporting includes, but is not limited to, total capital investments made by borrowers, total number of jobs created or retained, and the wage levels by type of work.

COMMENTS:

California faces many hurdles in meeting the challenge of the coronavirus emergency. Extended global supply chains have hampered the state’s ability to meet the basic needs of its health care system and food supply chain, and have fundamentally impaired the state’s ability to develop and follow evidence-based policies. Even with re-opening, many businesses, including dentists and meat processing plants, have struggled to ensure there are sufficient amounts of personal protective gear. Since March 2020, California has had to pursue contracts with out-of-state and foreign producers. News sources have frequently reported on the high cost, poor quality, and unreliable delivery of these products.

Implementation of AB 3307 adds another tool in the state’s emergency preparedness tool chest. While nothing in the bill requires the activation of either the direct loan or loan guarantee program, should the occasion arise, the IBank would be set to move forward expeditiously with a well-designed manufacturing finance program.

The IBank Disaster Programs: The IBank currently has the authority to administer a disaster response program for small businesses, but it is limited to loan guarantees. Governor Newsom activated this program by directing the transfer of $50 million to the Small Business Expansion Fund and setting the eligibility parameters to include only those small businesses that were economically impacted by the coronavirus and did not otherwise qualify for the federal small business disaster programs. The Governor was able to act quickly in establishing this important financial back-stop because the program, including its activation protocols, had been previously established in law.

AB 3307 sets up a similar but broader program to support the state’s manufacturing needs during a disaster. Under this broader manufacturing program, the IBank has the ability to offer both direct loans and loan guarantees to businesses without regard to the size of the business. Further, the state can use the program to meet its own production needs, such as masks and testing kits. Changing production lines, purchasing materials, and distributing products requires capital. During pandemics and other states of emergency, access to capital can be limited. As a precautionary measure, the state would be better served by having financing options, rather than hoping that reasonably priced capital will be available or that purchases from foreign companies will actually arrive and be of sufficient quality.

According to the Author:

"The recent COVID-19 pandemic has unfortunately demonstrated how California is ill-equipped to address an immediate public health crisis and has resulted in a shortage of essential goods such as personal protective equipment and ventilators throughout the state. As a result, California has become reliant upon various shipments from out-of-state suppliers to provide relief to our front-line workers, first responders, and local communities. However, in some instances, shipments were damaged or could have been distributed to the public sooner if these goods were produced in the state. California must be prepared in future responses to address similar crises that we are currently experiencing today. AB 3307 would enact the California Emergency Preparedness Act of 2020 and allow the Governor to distribute loans and loan guarantees through the I-Bank to provide emergency relief in California, and give support to our state’s workforce in the manufacturing industry at a critical time when our state needs the support the most."

Arguments in Support:

No letters of support have been submitted on this bill.

Arguments in Opposition:

There is no known opposition to this bill.

FISCAL COMMENTS:

According the Assembly Appropriations Committee, ongoing costs of $700,000 disaster relief funds or special funds from participant fees for IBank to hire a program manager, two loan officers, and two support staff. (Because the bill does not specify an allocation for the loan fund, it is not clear how many staff would be required. However, similar programs such as the Small Business Finance Center can provide some insight into the staffing required for a program such as this.) Funding initially likely would need to come from disaster relief funds because special funds from participant fees will not be collected until after the program is operational.

VOTES:

ASM JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY: 7-0-0

YES: Cunningham, Boerner Horvath, Chau, Chen, Quirk-Silva, Ramos, Luz Rivas

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bauer-Kahan, Bloom, Bonta, Calderon, Carrillo, Chau, Megan Dahle, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Petrie-Norris, McCarty, Robert Rivas, Voepel

UPDATED:

VERSION: May 19, 2020

CONSULTANT: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0003032

Date of Hearing: June 2, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 3307

Author:(Eduardo Garcia) – As Amended Ver:May 19, 2020

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

SUMMARY:

This bill authorizes the creation of a new loan program for manufacturing facilities.

Specifically, the bill creates the California Manufacturing Disaster Loan and Loan Guarantee Program to be administered by the California Infrastructure and Economic Development Bank (IBank). This bill authorizes IBank to provide financing to eligible manufacturers to support the transition of manufacturing operations to address the emergency needs of Californians during and after the declaration of a state of emergency. The bill also provides for required terms to be included in financing agreements, provisions for administrative costs and reporting obligations. The bill also requires annual reporting on the program’s activities and impact.

The bill prohibits IBank from commencing the program until it adopts a resolution finding that there is sufficient funding in the account to cover the costs of implementing the program. The bill authorizes the Governor to allocate disaster relief funds to the loan program and allows the funds to cover the costs of administering the program. Fees also may be used for program administration.

Because this bill expands the purposes for which continuously appropriated fund, in this case, disaster relief funds, may be expended and deposits funding and fees into a new, continuously appropriated account, the bill makes an appropriation. Because this bill makes an appropriation, it requires a two-thirds vote of the Legislature for passage.

FISCAL EFFECT:

Ongoing costs of $700,000 disaster relief funds or special funds from participant fees for IBank to hire a program manager, two loan officers, and two support staff. (Because the bill does not specify an allocation for the loan fund, it is not clear how many staff would be required. However, similar programs such as the Small Business Finance Center can provide some insight into the staffing required for a program such as this.) Funding initially likely would need to come from disaster relief funds because special funds from participant fees will not be collected until after the program is operational.

COMMENTS:

Background. Current law establishes the IBank within the Governor’s Office of Business and Economic Development (GO-Biz) and authorizes IBank to administer various infrastructure related programs. IBank also is authorized to make loans and issue bonds for infrastructure and economic expansion projects. The IBank’s operational budget is supported through fees, interest income and other revenues derived from public and private sector financing activities.

The bill is in reaction to the COVID-19 crisis. Specifically, the state has experienced shortages of certain equipment during the crisis, such as personal protective equipment, which has led the state to procure equipment from other states or countries. The bill seeks to enable access to capital for state manufacturers that would allow them to better respond to manufacturing needs in an emergency situation.

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

Date of Hearing: May 12, 2020

ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY

Sabrina Cervantes, Chair

ABPCA Bill Id:AB 3307 (

Author:Eduardo Garcia) – As Amended Ver:May 4, 2020

SUBJECT: California Manufacturing Competitiveness Act of 2020

POLICY FRAME: California faces many hurdles in meeting the challenge of the coronavirus emergency. Extended global supply chains have hampered the state’s ability to meet the basic needs of its health care system and food supply chain, and have fundamentally impaired the state’s ability to develop and follow evidence-based policies. While California’s disaster response capabilities are some of the best in the world, in the last few months the state has learned the serious downsides to global supply chains for crucial goods, such as the lack of personal protective gear and swabs for testing kits.

Manufacturing is so important to the US, the President has the authority to invoke the Defense Production Act (DPA) in order to expedite, assure, and expand the supply of resources to meet the nation’s emergency needs. During the coronavirus emergency, the DPA has been used or threatened to be used serval times, including most recently to address a potential meat shortage.

AB 3307 establishes a new loan and loan guarantee program to support manufacturing facilities in retooling, repurposing, and expanding. The bill was initially introduced prior to the coronavirus state of emergency. Amendments, suggested in Comment 5, recommend modifying the new program authority to only apply in the case of a state of emergency. The analysis includes information on the California manufacturing economy, the manufacturing challenges of the COVID-19 emergency, and the California Infrastructure and Economic Development Bank (IBank).

SUMMARY: The bill establishes the California Manufacturing Competitiveness Act of 2020 for the purpose of strengthening the manufacturing capacity of California by providing the framework to retool and expand California’s manufacturing facilities, support a vibrant logistics network, and retain and create more quality jobs. Specifically, this bill:

1. Requires the IBank to establish the California Manufacturing Competitiveness Loan and Loan Guarantee Program (LLG Program) for the purpose of attracting, retaining, and expanding manufacturing facilities and other companies in the state. In undertaking this duty, the IBank is required to:
   1. Establish guidelines for the implementation of this LLG Program, including, but not limited to:
      1. Procedures and criteria to evaluate and certify the participating financial institutions that may make loans, loan guarantees, or extend lines of credit on its behalf or directly to companies pursuant to the IBank’s program.
      2. Minimum standards for the documentation, underwriting, and servicing of loans, loan guarantees, or lines of credit. The IBank is required to provide technical assistance to participating financial institutions in order to increase utilization of the minimum documentation, underwriting, and servicing standards.
      3. Procedures and criteria to evaluate and approve loans, loan guarantees, or lines of credit, including the assessment of the applicant’s creditworthiness and the valuation of guarantees and collateral. This criteria is required to include:
         1. Whether employment benefits arising out of the use of the financing secures the employment of existing employees or increases the overall number of full-time employees of the company.
         2. Whether the company provides compensation for employees at the project facility which exceeds the average compensation for similar employment within the company’s jurisdiction or within the state.
         3. Whether the company provides health benefits to employees employed at the project facility or contributions to employee retirement benefits.
         4. Whether the project will provide energy, mineral or natural, or cultivated resource conservation benefits.
         5. Whether the project will include building certified environmentally beneficial facilities, bringing existing facilities up to certified environmentally beneficial status, implementing greenhouse gas reduction technologies or energy efficiency measures, or installing renewable energy equipment.
         6. Whether the company purchases raw materials or other products from California-based companies.
      4. Procedures to guide the development and administration of the application, review, and evaluation process for the LLG Program, including, but not limited to, defining the eligibility standards, rating and ranking criteria, and other appropriate policies and procedures for implementing and overseeing the program pursuant to this article.
      5. Procedures for the ongoing monitoring of current and outstanding loans, loan guarantees, and lines of credit, as specified.
   2. Design a LLG Program that meets all of the following objectives:
      1. Encourage the development of the state’s long-term manufacturing capacity.
      2. Create jobs through the support of retooling and expansion of manufacturing facilities.
      3. Support quality manufacturing jobs that provide high wages, including benefits.
      4. Allow manufacturers to access funds under terms and conditions which would not otherwise be available in the private market.
      5. Strengthen the supply chain of small businesses that support this state’s manufacturing competitiveness.
      6. Assist manufacturers in cost effectively responding to energy efficiency regulations and new technologies.
   3. Not commence operation of the program before adopting a resolution finding that there is sufficient money in the Manufacturing Program Account to cover the costs of implementing the program, including, but not limited to, appropriate oversight costs.
2. Requires that the loan, loan guarantee, and line of credit be subject to all of the following provisions:
   1. Applicants demonstrate they are in compliance with applicable federal, state, and local laws and regulations.
   2. Applicants commit to having all outstanding loans paid in full six months before the relocation of a facility outside of California. If the loan or loan guarantee included a subsidized amount, that amount must also be repaid subject to a sliding scale adopted by the bank.
   3. Applicants demonstrate that the facility or facilities where the moneys will be expended and where the direct benefits of the assistance will be realized are in the state.
   4. Applicants demonstrate that wages the applicant pays its employees in the state shall, on average, be equal to or more than the average monthly wage rate for similar workers in the same industry subsector.
   5. Upon the request of the IBank, each applicant agrees to report to the IBank in the year the funding was provided, and the following years, on total capital investments made by the company, the total employment at the project facility, and the wage levels by type of work. The applicant also agrees to estimate the number of jobs created or retained through the provision of the state assistance, as well as provide other appropriate performance data, as determined by the IBank.
3. Requires priority for loans, loan guarantees, or lines of credit to be given to companies that do all of the following:
   1. Retain or create the greatest number of jobs compensated at a wage rate above the average monthly wage rate for a similar company in the project jurisdiction or in the state.
   2. Have the greatest beneficial economic impact on the state and local economies as a result of the financing.
   3. Have the greatest negative economic impact on the state and local economies and on other businesses in the state if it moved its operations to another state or otherwise ceased operations within the state.
4. Requires each applicant to pay a nonrefundable application fee to cover the costs of administering the program, including a proportional share of the costs of developing the program, reviewing applications, and monitoring and overseeing the program. Fee moneys collected are required to be deposited into the Manufacturing Program Account for the purpose of ensuring that funds are available to the state for the sole purpose of administration of the program.
5. Establishes the Manufacturing Program Account within the Economic Development Bank Fund for the purpose of receiving funds to administer the California Manufacturing Competitiveness Loan and Loan Guarantee Program, as specified.
   1. Specifies that moneys in the account may be expended to pay for direct loans and defaulted loan guarantees issued pursuant to this article, administrative costs of the bank, and those costs necessary to protect a real property interest in a defaulted loan or guarantee.
   2. Provides that no moneys other than those moneys in the Manufacturing Program Account may be used to pay for the direct loans and defaulted loan guarantees issued pursuant to this article.
6. Requires, beginning October 1, 2021, and annually thereafter, that the IBank post on its internet website or provide the Legislature with a report, whichever is more cost effective, on the program’s activities during the prior fiscal year and impact on the manufacturing industry and on the state’s economy, in general. Information on publicly held companies is required to be reported separately from privately held firms. At a minimum, the information provided in the report shall include all of the following:
   1. The total amount of moneys in the Manufacturing Program Account, at the beginning of the fiscal year and at the end of the fiscal year.
   2. The number of projects funded and the number of manufacturers and other businesses assisted.
   3. The number of jobs created and the number of jobs retained through program assistance in each of the fiscal years.
   4. The amount of investments made by the manufacturer in the prior year to their assistance and next two years.
   5. The amount of federal, state, and local taxes paid by the companies in aggregate.
7. Defines a number of terms related to the administration of the LLG Program, including, but not limited to, the following terms:
   1. “Administration expenses” means the reasonable and necessary expenses incurred by the bank in the administration of this article, including, without limitation, the fees and costs of paying agents, trustees, attorneys, consultants, and others.
   2. “Applicant” means a company, or a participating financial institution on behalf of a company, that applies to the bank for a loan, a loan guarantee, or a line of credit to finance a project undertaken or proposed to be undertaken pursuant to this article. “Applicant” may be comprised of more than a single entity.
   3. “Company” means a person, partnership; corporation; whether for profit or not; limited liability company; trust; or other private enterprise of whatever legal form, for which a project is undertaken or proposed to be undertaken pursuant to this title. “Company” may include more than a single enterprise.
   4. “Cost” as applied to any project, may include all of the following:
      1. The cost of construction, improvement, repair, rehabilitation, and reconstruction.
      2. The cost of acquisition, including rights in land and other property, both real and personal and improved and unimproved; franchises; and disposal rights.
      3. The cost of demolishing, removing, or relocating any building or structures on lands so acquired, including the cost of acquiring any lands to which the buildings or structures may be moved or relocated.
      4. The cost of machinery, equipment, and furnishings, of engineering and architectural surveys, plans, and specifications, and of transportation and storage until the facility is operational.
      5. The cost of agents or consultants, including, without limitation, legal, financial, engineering, accounting, and auditing costs, necessary or incident to a project and the determination as to the feasibility or practicability of undertaking the project.
      6. The cost of acquiring or refinancing existing obligations incident to the undertaking and carrying out, including the financing, of a project, and the reimbursement to any governmental entity or agency, or any company, of expenditures made by or on behalf of the entity, agency, or company that are costs of the project, without regard to whether or not the expenditures may have been made before or after the adoption of a resolution of intention with respect to that project by an authority.
      7. The cost of making relocation assistance payments as provided by Chapter 16 (commencing with Section 7260) of Division 7 of Title 1.
      8. The cost of procuring raw materials and finished goods that become integral to the property as a result of construction, improvement, repair, rehabilitation, or reconstruction.
      9. In the case of taxable bonds, loans, loan guarantees, or lines of credit, the cost of refunding or refinancing any outstanding debt or obligations with respect to any facilities, or the cost of working capital.
   5. “Loan” means a loan, a portion of a loan, a loan guarantee, or a line of credit or portion of a line of credit made or extended by the bank, or by a participating financial institution on behalf of the bank, or by a participating financial institution pursuant to the bank’s program, to a company for a project or for a portion of a project encompassing one or more of the activities or uses set forth in this article.
   6. “Project” means the acquisition, construction, improvement, repair, rehabilitation, and reconstruction of facilities and the acquisition and rehabilitation of machinery, equipment, and furnishings, and the acquisition of engineering and architectural surveys, plans, and specifications, and all other necessary and related capital expenditures. For purposes of this article and the bank loan, loan guarantee, and line of credit program, a project may also consist of working capital expenditures.
   7. “Property” means any land, air rights, water rights, disposal rights, improvements, buildings or other structures, and any personal property, tangible or intangible, and includes, but is not limited to, machinery and equipment, whether or not in existence or under construction, and interests in any of the foregoing, or promissory notes or other obligations of any kind respecting such interests.
      1. “Property” also means property suitable for one or more of the following activities or uses:
         1. Industrial uses, including, without limitation, assembling, fabricating, manufacturing, or processing activities with respect to any products of agriculture, forestry, mining, or manufacturing, if these activities have demonstrated job-creation or retention potential.
         2. Energy development, production, collection, or conversion from one form of energy to another.
         3. Research and development activities relating to commerce or industry, including, without limitation, professional, administrative, and scientific office and laboratory activities or uses.
         4. Processing or manufacturing recycled or reused products and materials by manufacturing facilities.
         5. Business activities with the purpose of creating or producing intangible property.
         6. Airport, dock, wharf, or mass commuting activities, or storage or training activities related to any of those activities, are prohibited unless the property acquired is suitable for one or more of the activities described in subparagraphs (1) to (5), inclusive.
         7. Sewage or solid waste disposal activities or electric energy or gas furnishing activities are prohibited unless the property acquired is suitable for one or more of the activities described in subparagraphs (1) to (5), inclusive.
         8. Water furnishing activities shall be prohibited unless the property acquired is suitable for one or more of the activities described in subparagraphs (1) to (5), inclusive.
   8. “Public agency” means any city, county, or city and county.
   9. “Revenues” means all rents, purchase payments, and other income derived from, or with respect to, the sale, lease, or other voluntary or involuntary disposition of, or repayment of loans with respect to, property, bond proceeds, repayment of loans and lines of credit, moneys received in recovery of defaulted loans, loan guarantees, or lines of credit, and any receipts derived from the deposit or investment of any income or proceeds in the account, but does not include receipts designated to cover administration expenses or expenses associated with the recovery activities on defaulted loans, loan guarantees, and lines of credit.
8. Sunsets the provisions of this bill on January 1, 2026.

EXISTING LAW:

1. Establishes the IBank within the Governor’s Office of Business and Economic Development (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), oversight of the Small Business Finance Center, and the issuance of tax-exempt and taxable revenue bonds.
2. Establishes the ISRF for the purpose of providing financing to public agencies and non-profit corporations, sponsored by public agencies, for a wide variety of infrastructure and economic development facilities. Development of housing infrastructure is an eligible project; financing of the building or mortgage of a house is not eligible.

FISCAL EFFECT: Unknown

COMMENTS & CONTEXT:

1. The Role of Manufacturing in a Disaster: As noted previously in the analysis, California’s response to the coronavirus pandemic has been hindered by the state’s access to sanitizing agents, personal protective gear, ventilators, and key component parts of essential products, such as swabs for testing kits. With limited domestic capacity, California pursued contracts with out-of-state and foreign producers. News sources have frequently reported on the high cost, poor quality, and unreliable delivery of these products. What is less known is the targeted and fast-paced actions of state agencies, like GO-Biz; state trade associations, like the California Manufacturing and Technology Association (CMTA); and state-and-federally-funded business assistance centers, including the California Manufacturing Technology Corporation (CMTC). Over a matter of weeks, these entities collectively and individually reached out to California’s dynamic manufactures to assess how these businesses could contribute to the state’s emergency response efforts.

Governor Newsom established a website, https://covid19supplies.ca.gov/, where businesses holding inventories of or with the capacity to produce heath care-related products could directly connect with state contracting staff. Top priority products included ventilators, surgical masks, hand sanitizers, and hospital exam gowns. CMTA contributed by polling its membership to identify current production and repurposing capacity. CMTA’s manufacturer repurposing list can be found at: https://cmta.net/multimedia/10th_list_of_mfg_repurposing_for_covid_19_cmta_w:o_contact_info_copy.pdf

The CMTC, working under repurposed funding from the GO-Biz Small Business Technical Assistance Expansion Program, worked one-on-one with small and medium-size manufacturers to shift their production to meet the state’s top emergency supply needs. This pivot in manufacturing has required retooling of facilities, reworking of staffing, and establishing new supply sources, to name only a few of the required innovations. Below are examples how CMTC’s clients evolved to meet California’s COVID-19 challenge.

• 1. Allett, National City: Allett is a family-run slim wallet company established in 1995. By rethinking their production line, the company is transforming their warehouse in National City from making wallets to face masks. This project that began as a small one-time donation has become a business model. For anyone that purchases two masks, the company donates mask. Most recently the company reported that it has donated over 3,500 masks, which has also allowed the small business to double its workforce.
  2. Armenco Truck Company, Chatsworth: Since 1977, Armenco Truck, a family run company, has designed and delivered mobile trucks for food and other industries. For the COVID-19 pandemic, Armenco has the capabilities to supply mobile hand wash stations, mobile kitchens, and triage units for parks, homeless encampments, and other applications. Armenco is also supplying plastic partitions and guard stations which are being installed between manufacturing equipment stations and office areas.
  3. Dermaestheitcs, Inc., Anaheim: Dermaesthetics is a global skincare company, primarily selling to beauty professionals for over 30 years. When the call for hand sanitizers, the company pivoted its production line and shipped at no-charge to California clinics, hospitals, senior care centers, etc. In addition, Dermaesthetics is selling its FDA and WHO compliant product in various sizes to the companies and the general public.
  4. Able Industrial Products, Ontario: Able Industrial Products is a second generation family owned business, which pivoted to manufacture face shields from manufacturing automotive and aerospace gaskets. The company now provides 2,500+ face shields daily to St. Jude Medical Center in Fullerton and other medical centers in Southern California.

The CMTC supported these companies in pivoting their existing production capacity to contribute to the state’s coronavirus pandemic response and sustain a portion of their workforce. If enacted, AB 3307 would provide a new funding mechanism to assist manufacturers in making these transitions.

1. Role of Manufacturing in the California Economy: Manufacturing plays an important role within the California economy, supporting international trade and small businesses within the global supply chain while providing high-paying jobs. Manufacturing in California accounted for 10.67% of total state economic output in 2018, representing $316.76 billion of production. By most indicators, California is the largest manufacturing state in the nation.

Manufacturing is California’s most export-intensive activity, with $149.5 billion in manufactured goods exported in 2019, accounting for 86.2% of California’s annual exports. The two largest exports by aggregate dollar value in 2019 were computers and electronic products valued at $40.2 billion (23.2% of all exports) and transportation equipment at $22.6 billion (13.1%).

Manufacturing employed 1.3 million workers in California in 2018, accounting for 7.72% of the state’s non-farm employment. California has the largest manufacturing workforce in the nation, followed by Texas, with an average annual compensation within the manufacturing sector of just over $105,000 in 2017.

In addition to paying higher wages than many economic sectors, manufacturing jobs also have one of the highest multiplier effects. According to the Milken Institute, each manufacturing job supports roughly 2.9 other jobs in the overall state's economy. In some specialized manufacturing sectors, such as electronics and computer manufacturing, the multiplier effect is as high as 16 to 1. One of the reasons for the large multiplier effect is the extended supply chains that are needed to support manufacturing and the export of goods, including small businesses and logistic companies.

1. Manufacturing in the Future: EDD currently projects that, between 2016 and 2026, total employment in California will rise by 16.3%, with total employment in the manufacturing sector in California rising by only 0.1%, as shown in Chart 1 below.

While the aggregate employment growth is low, some subsectors are anticipated to have more significant increases, including motor vehicle manufacturing (103.1%) and industrial machinery manufacturing (12.6%). Chart 2 provides a more detailed look at selected job growth in the manufacturing sector.

1. Background on the IBank: The IBank was established in 1994 to finance public infrastructure and private development that promote a healthy climate for jobs, contribute to a strong economy, and improve the quality of life in California communities. Housed within GO-Biz, it is governed by a five-member board of directors comprised of the Director of GO-Biz (chair), the State Treasurer, the Director of the Department of Finance, the Secretary of the Transportation Agency, and an appointee of the Governor. The day-to-day operations of the IBank are directed by the Executive Director who is an appointee of the Governor and is subject to confirmation by the California State Senate.

The IBank does not receive any ongoing General Fund support. Rather, it is financed through fees, interest income and other revenues derived from its public and private sector financing activities. State contracts to small business financial development corporations are supported through an annual General Fund appropriation of approximately $860,000.

The IBank administers four core programs: (1) the ISRF which provides direct low-cost financing for public infrastructure projects and economic development facilities; (2) the Revenue Bond Financing Program which provides tax exempt and taxable bond financing for manufacturing companies, public benefit nonprofit organizations, public agencies, and other eligible entities; (3) the California Small Business Finance Center which assists small businesses (up to 500 employees) in accessing private financing through credit enhancements – including loan guarantees, direct loans, and performance bond guarantees; and (4) the California Lending for Energy and Environmental Needs Center (CLEEN Center), which provides financing for municipal governments, public universities, schools, and hospitals (MUSH).

Since its inception through March 2017, the IBank has loaned, financed, or participated in over $40 billion in infrastructure and economic expansion projects, including $426.9 million in industrial development bonds. This includes over $600 million to local and state agencies, developing a high-level of expertise in the financing of public infrastructure.

The IBank also serves as the state’s only general purpose financing authority with broad statutory powers to issue revenue bonds, make loans, and provide guarantees. There is no pledge of IBank or state general funds for any of the conduit revenue bonds. Over $38 billion in conduit revenue bonds have been issued by the IBank since 2000.

The IBank estimates that, since inception, it has supported the creation and retention of over 100,000 jobs, including over 22,000 from the ISRF program; 37,000 from bond financing activities; and 41,000 through the Small Business Finance Center.

1. Proposed Amendments: Below is a list of amendments the committee members may wish to review when considering the bill.
   1. Narrow the bill to a program the Governor activates in times of an emergency. This would place the AB 3307 manufacturing program in a similar position as the existing Small Business Disaster Loan Guarantee Program, which the Governor recently activated to guarantee microloans for businesses that did not otherwise qualify for one of the two federal small business disaster programs.
   2. Remove some of the program details in order to provide the IBank with the ability to develop a program that best meets the needs of manufacturers in the post-COVID-19 era.
   3. Add legislative intent as to how the program assists the state in meeting the current emergency.
2. Related Legislation: Below is a list of bills from the current and prior sessions.
   
   1. AB 245 (Muratsuchi) California Aerospace and Aviation Commission: This bill enacts the California Aerospace and Aviation Act of 2019 (Act), which establishes a 15-member California Aerospace and Aviation Commission (Commission) for the purpose of serving as a central point of contact for related industries and supporting the health and competitiveness of these industries in California. The Commission is placed within the administrative control of the Governor’s Office of Business and Economic Development. Authority for the operation of the Commission sunsets on January 1, 2025. Status: Pending in the Senate Committee on Governmental Organization, 2019.
   2. AB 755 (E. Garcia) Capital Investment Incentive Program: This bill extends the authorization for cities and counties to establish a Capital Investment Incentive Program (CIIP) from January 1, 2018, to January 1, 2019. Existing law authorized a local government to offer a partial property tax abatement incentive for qualified manufacturing facilities for assessed property taxes. In order to qualify for the partial tax abatement, the manufacturer is required to have made an investment of at least $150 million. The incentive may only be offered after the proponent and the local government agree to a “Community Services Agreement” that requires the proponent to meet certain criteria, such as job creation numbers, wages paid at least to the state average weekly wage, and local fees. Should the manufacturer fail to meet these requirements, the local government is entitled to repayment of any amounts paid. Status: Signed by the Governor, Chapter 709, Statutes of 2017.
   3. AB 894 (V. Manuel Pérez) California Manufacturing Competitiveness Act of 2011: This bill would have authorized the establishment of a loan and loan guarantee program, administered through the California Industrial Development Financing Advisory Commission, for the purpose of financing the retooling and expansion of California's manufacturing facilities, enhancing the state's logistics network, and retaining and creating jobs. Status: Vetoed by the Governor, 2011. The veto message states: "This bill creates the California Manufacturing Competitiveness Loan and Loan Guarantee Program to be administered by an advisory commission within the State Treasurer's office. The objectives of this bill are excellent. However, the loan programs it creates can be run by the state's Infrastructure Bank, which already has authority and experience lending directly to businesses."
   4. AB 1027 (Burke) California Competes Tax Credit and Private Ownership Share Agreements: This bill would have authorized a taxpayer to offer the state an ownership interest in the taxpayer’s business as part of the California Competes Tax Credit application process, and allowed the Governor’s Office of Business and Economic Development to consider the amount of ownership being offered in determining the amount of credit allocated to the taxpayer. If a court had found that the state’s ownership interest in a taxpayer’s business to be prohibited by the California Constitution, the credit would have been recaptured and unused carryover credit canceled. Status: Held in the Senate Committee on Appropriations, 2019.
   5. AB 1259 (L. Rivas, Cervantes, E. Garcia) California New Markets Tax Credit: This bill would have authorized a New Market Tax Credit for qualified business investments in low-income communities beginning in year 2020. The Governor’s Office of Business and Economic Development would have been tasked to administer the program. The bill would have authorized $100 million to be awarded annually. This was part of the JEDE Chair’s four-bill package related to Opportunity Zones. Status: Held in the Assembly Committee on Appropriations, 2019.
   6. AB 1479 (Cervantes) Opportunity Zone Credit Enhancement: This bill would have established a credit enhancement program through the California Infrastructure and Economic Development Bank for projects located in an Opportunity Zone that met certain social, economic, and environmental criteria, including creating wealth and asset building within the local community. This was part of the JEDE Chair’s four-bill package related to Opportunity Zones. Status: Held in the Assembly Committee on Appropriations, 2019.
   7. AB 1716 (Committee on Jobs, Economic Development, and the Economy) California Competes Tax: This bill would have extended the California Competes Tax Credit for five years. The Assembly Committee on Jobs, Economic Development, and the Economy was the sponsor of this bill. Budget actions supported by JEDE implemented similar provisions as part of the 2017-18 Budget. Status: Died in the Assembly Committee on Appropriations, 2018.
   8. AB 1900 (Brough) Extension of the Capital Investment Incentive Programs: This bill extends the Capital Investment Incentive Program (CIIP) from January 1, 2019, to January 1, 2024. Existing law authorized a local government to offer a partial property tax abatement incentive for qualified manufacturing facilities for assessed property taxes. In order to qualify for the partial tax abatement, the manufacturer is required to have made an investment of at least $150 million. The incentive may only be offered after the proponent and the local government agree to a “Community Services Agreement” that requires the proponent to meet certain criteria, such as job creation numbers, wages paid at least to the state average weekly wage, and local fees. Should the manufacturer fail to meet these requirements, the local government is entitled to repayment of any amounts paid. Status: Signed by the Governor, Chapter 382, Statutes of 2018.
   9. AB 2437 (V. Manuel Pérez) California Manufacturing Competitiveness Act of 2010: This bill would have authorized the establishment of the California Manufacturing Competitiveness Act of 2010 for the purpose of supporting the retooling and expansion of California's manufacturing facilities, enhancing the state's logistics network, and retaining and creating jobs. Status: Vetoed by the Governor, 2010. The veto message states: "While I am supportive of providing California's manufacturers with greater borrowing opportunities to make capital investments, I believe the proper location of this economic development program is in the Governor's Office of Economic Development. In addition, this bill would create new higher costs to employers as a result of the prevailing wage requirements on projects financed under this bill."
   10. SB 1293 (Allen) Sea Level Rise Loan Program: This bill creates the Sea Level Rise Revolving Loan Program within the I-Bank to provide low-interest loans to local jurisdictions for the purchase of coastal properties in their jurisdictions identified as vulnerable coastal property. The bill would require the California Coastal Commission, before January 1, 2022, in consultation with the California Coastal Commission, the State Lands Commission, and any other applicable state, federal, and local entities with relevant jurisdiction and expertise, to determine criteria and guidelines for the identification of vulnerable coastal properties eligible for participation in the program. Status: Pending in the Senate Committee on Rules, 2020.

REGISTERED SUPPORT / OPPOSITION:

Support

None on File

Opposition

None on File

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