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SB-551 Capital Access Loan Program for Small Businesses.(2017-2018)

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Date Published: 09/06/2017 09:00 PM
SB551:v93#DOCUMENT

Amended  IN  Assembly  September 06, 2017
Amended  IN  Assembly  June 27, 2017
Amended  IN  Assembly  June 12, 2017
Amended  IN  Senate  April 17, 2017
Amended  IN  Senate  April 17, 2017
Amended  IN  Senate  March 27, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 551

Introduced by Senator Hueso

February 16, 2017

An act to amend Section 44559.4 of the Health and Safety Code, amend Section 63089.51 of, and to add Article 12 (commencing with Section 63090) to Chapter 6 of Division 1 of Title 6.7 of, the Government Code, and to add Section 44559.16 to the Health and Safety Code, relating to the Capital Access Loan Program.


LEGISLATIVE COUNSEL'S DIGEST


SB 551, as amended, Hueso. California Pollution Control Financing Authority: Capital Access Loan Program for Small Businesses.
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, 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 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 Governor’s 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.

(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 ½ % 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 ½ % 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 authority’s 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, after July 1, 2018, and on or before July 1, 2019, from a loss reserve account established by the authority for a participating financial institution, 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, 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.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares as follows:
(a) In October 2010, 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 small business grant money to capitalize the Small Business Loan Guarantee Program at the I-Bank's Small Business Finance Center, and the California Capital Access Program (CalCAP) loan loss reserve program and a collateral support program administered through the California Pollution Control Financing Authority (CPCFA).
(b) In 2011, the California Pollution Control Financing Authority received a federal allocation from the State Small Business Credit Initiative (SSBCI) to expand and support its CalCAP for Small Business Program. That allocation, as amended from time to time, totaled approximately $19,900,000.
(c) On April 25, 2017, the Treasurer’s office alerted the public and interested stakeholders that the federal moneys allocated to California to support the California Capital Access Loan Program (CalCAP) for Small Business were near exhaustion. In addition, the notice stated that when the federal moneys are exhausted, the authority will continue to review and approve pending loan applications. For those which are approved, CPCFA will make contributions from the balance remaining from the 2010 General Fund appropriation under the Assembly Bill 1632 of the 2009–10 Regular Session for deposit into each lender’s CalCAP State Loan Loss Reserve Account.
(d) Finally, the notice stated that the authority staff “projects that the balance of the General Fund appropriation will support all current loan enrollment applications in the CPCFA’s possession. However, we also anticipate that these State program funds will be exhausted in the Summer 2017, at which point the CPCFA will no longer be able to enroll loans in the CalCAP for Small Business Program.”
(e) Although the authority has adopted regulations to recapture some funds it has previously contributed to CalCAP for use in the Small Business CalCAP, there remains a significant risk that the authority may elect to permanently modify the California Capital Access Loan Program for Small Businesses to focus more intently on lending programs for pollution control financing projects, a change in direction that would be more consistent with its namesake and its enabling statutes. Earlier in this session of the Legislature, the authority took action consistent with this apparent plan by amending Assembly Bill 964 (Calderon), a bill that is sponsored by the authority. On May 30, 2017, Assembly Bill 964 was amended in the Senate, to remove “for Small Businesses” from the title of the Capital Access Loan Program to read “Capital Access Loan Program.”
(f) 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.
(g) In 2013, years after funding was distributed in California from the State Small Business Credit Initiative, the Legislature enacted Assembly Bill 1247 (Medina and Bocanegra) of the 2013–14 Regular Session, which created the Small Business Finance Center (SBFC) at the California Infrastructure and Economic Development Bank. The SBFC helps businesses create and retain jobs, and encourages investment in low- to moderate-income communities. The finance center operates a Small Business Loan Guarantee Program, and provides technical assistance to small businesses and microbusinesses. In 2017, the SBFC created the Jump Start Loan Program which provides direct loans from $500 to $10,000 to small businesses in low-wealth communities.
(h) The SBFC and the California Infrastructure and Economic Development Bank are organized within the Governor’s Office of Business and Economic Development (GO-Biz), which was created in 2012 to serve as California’s single point of contact for economic development and job creation efforts.
(i) Therefore, the Legislature declares that it is appropriate, as program funding expires, that the Capital Access Loan Program for Small Businesses, now within the purview of the California Pollution Control Financing Authority, should be transferred to the California Small Business Finance Center at the California Infrastructure and Economic Development Bank.

SEC. 2.

 Section 63089.51 of the Government Code is amended to read:

63089.51.
 (a) All money deposited in the expansion fund is hereby continuously appropriated, without regard to fiscal years, for the purposes of this chapter. chapter, except for Article 12 (commencing with Section 63090).
(b) Except as specified in subdivision (b) of Section 63089.54, the state or the bank shall not be liable or obligated in any way beyond the state money that is allocated in the expansion fund from moneys from the General Fund appropriated for those purposes.

SEC. 3.

 Article 12 (commencing with Section 63090) is added to Chapter 6 of Division 1 of Title 6.7 of the Government Code, to read:
Article  12. Capital Access Loan Program for Small Businesses

63090.
 (a) The California Small Business Finance Center is hereby vested with all the duties, powers, purposes, responsibilities, and jurisdiction granted to the California Pollution Control Financing Authority pursuant to Article 8 (commencing with Section 44559) of Chapter 1 of Division 27 of the Health and Safety Code relating to the management and control of loan loss reserve funds and claims processing on all loans granted to a qualified small business, as described in Section 44559.16 of the Health and Safety Code.
(b) The California Small Business Finance Center shall not deposit any money received pursuant to the Capital Access Loan Program for Small Businesses into the California Small Business Expansion Fund established pursuant to Section 63089.5. Notwithstanding Section 63089.51, no money in the California Small Business Expansion Fund, or any account within that fund, is available for purposes of this article.

SEC. 4.

 Section 44559.16 is added to the Health and Safety Code, to read:

44559.16.
 (a) The Capital Access Loan Program for Small Businesses established pursuant to this article is hereby transferred to the California Small Business Finance Center.
(b) Unless the context clearly requires otherwise, the California Small Business Finance Center is hereby vested with all the duties, powers, purposes, responsibilities, and jurisdiction granted to the authority pursuant to this article, relating to the management and control of loan loss reserve funds and claims processing on all loans granted to a qualified small business for which contributions by the authority were made with funds received under the State Small Business Credit Initiative (Chapter 54 (commencing with Section 5701) of Title 12 of the United States Code) or with the six million dollars ($6,000,000) appropriated to the authority for this purpose in subdivision (b) of Section 2 of Chapter 731 of the Statutes of 2010. All unexpended funds appropriated to or received by the authority for these purposes shall also be transferred to the California Small Business Finance Center except that, notwithstanding any other law including Sections 44548, 44549, 44559.13, and 44559.14, any funds so transferred shall only be available to the California Small Business Finance Center upon appropriation by the Legislature. However, the authority shall continue to administer any other capital access loan program that does not exclusively relate to loans given to qualified small businesses, including, among others, the California Americans with Disabilities Small Business Capital Access Loan Program established in Section 44559.13 and the California Seismic Safety Capital Access Loan Program established in Section 44559.14.
(c) Unless the context clearly requires otherwise, whenever the term “authority” or “California Pollution Control Financing Authority” appears in any statute in this article, or in other statutes, regulations, or contracts directly related to the Capital Access Loan Program for Small Businesses, it shall be deemed to also refer to the California Small Business Finance Center. Unless the context clearly requires otherwise, any reference to the “executive director” in this article shall be deemed to also refer to the program manager of the California Small Business Finance Center.

SECTION 1.Section 44559.4 of the Health and Safety Code, as amended by Section 192 of Chapter 86 of the Statutes of 2016, is amended to read:
44559.4.

(a)If a financial institution that is participating in the Capital Access Loan Program established pursuant to this article decides to enroll a qualified loan under the program in order to obtain the protection against loss provided by its loss reserve account, it shall notify the authority in writing on a form prescribed by the authority, within 15 days after the date on which the loan is made, of all of the following:

(1)The disbursement of the loan.

(2)The dollar amount of the loan enrolled.

(3)The interest rate applicable to, and the term of, the loan.

(4)The amount of the agreed upon premium.

(b)The executive director may authorize an additional five days for a financial institution to submit the written notification described in subdivision (a) to the authority on a loan-by-loan basis for a reason limited to conditions beyond the reasonable control of the financial institution.

(c)The financial institution may make a qualified loan to be enrolled under the program to an individual, or to a partnership or trust wholly owned or controlled by an individual, for the purpose of financing property that will be leased to a qualified business that is wholly owned by that individual. In that case, the property shall be treated as meeting the requirements of paragraph (1) of subdivision (i) of Section 44559.1.

(d)When making a qualified loan that will be enrolled under the program, the participating financial institution shall require the qualified business to which the loan is made to pay a fee of not less than 1 percent of the principal amount of the loan, but not more than 312 percent of the principal amount. The financial institution shall also pay a fee in an amount equal to the fee paid by the borrower. The financial institution shall deliver the fees collected under this subdivision to the authority for deposit in the loss reserve account for the institution. The financial institution may recover from the borrower the cost of its payments to the loss reserve account through the financing of the loan, upon the agreement of the financial institution and the borrower. The financial institution may cover the cost of borrower payments to the loan loss reserve account.

(e)When depositing fees collected under subdivision (d) to the credit of the loss reserve account for a participating financial institution, the authority shall do the following:

(1)If matching funds are not available under a federal capital access program or other source, the authority shall transfer to the loss reserve account an amount that is not less than the amount of the fees paid by the participating financial institution. However, if the qualified business is located within a severely affected community, the authority shall transfer to the loss reserve account an amount not less than 150 percent of the amount of the fees paid by the participating financial institution.

(2)If matching funds are available under a federal capital access program or other source, the authority shall transfer, on an immediate or deferred basis, to the loss reserve account the amount required by that federal program or other source. However, the total amount deposited into the loss reserve account shall not be less than the amount which would have been deposited in the absence of matching funds.

(f)(1)Subject to the limitation in paragraph (2), the authority may recapture after July 1, 2018, and on or before July 1, 2019, from a loss reserve account established by the authority for a participating financial institution the contribution of the authority for each enrolled loan, 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 and 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. The authority shall not recapture its contribution from a loss reserve account pursuant to this subdivision unless the balance remaining in that loss reserve account following recapture is greater than a minimum threshold that is calculated as a percentage of the outstanding principal balance of loans enrolled in that account within the previous 60 months before the annual recapture, as follows:

(A)Fourteen percent for the 2018 calendar year.

(B)Thirteen percent for the 2019 calendar year.

(2)The recapture provisions and the use of recaptured funds set forth in this subdivision shall apply only to loans for which the contributions by the authority were made with funds received under the State Small Business Credit Initiative, Chapter 54 (commencing with Section 5701) of Title 12 of the United States Code, or with the six million dollars ($6,000,000) appropriated to the authority for this purpose in subdivision (b) of Section 2 of Chapter 731 of the Statutes of 2010.