BILL NUMBER: SB 358AMENDED BILL TEXT AMENDED IN SENATE APRIL 13, 2009 INTRODUCED BY Senator Ducheny FEBRUARY 25, 2009 An act to amend Section 14030 of, and to add Article 10 (commencing with Section 14077) to Chapter 1 of Part 5 of Division 3 of Title 1 of, the Corporations Code, relating to Indian tribes, and making an appropriation therefor. LEGISLATIVE COUNSEL'S DIGEST SB 358, as amended, Ducheny. Indian tribes: economic development. Existing law, the California Small Business Financial Development Corporation Law, authorizes the formation of small business financial development corporations to grant loans or loan guarantees for the purpose of stimulating small business development and imposes certain duties with respect thereto on a director designated by the Secretary of Business, Transportation and Housing. The California Small Business Expansion Fund, which is created under that law and is continuously appropriated, provides funds to be used to pay for defaulted loan guarantees and administrative costs of these corporations. This bill would require the secretary to establish the Native American Business Revolving Loan and Guarantee Program for the purpose of providing nongaming business loans and loan guarantees to qualified Indian tribes, as defined. The bill would create the Native American Business Revolving Loan and Guarantee Program Account within the California Small Business Expansion Fund, solely for the purpose of receiving certain state, federal, or local government moneys, other public or private moneys, and tribal government contributions. The bill would continuously appropriate the moneys in the account to the director for the purpose of implementing and administering the program. By authorizing the expenditure of funds from a continuously appropriated account, the bill would make an appropriation. The bill would require that the program and the steps necessary to implement it and make it operative not be undertaken until the secretary has determined that funds of a sufficient amount to create a loan pool and pay program administrative costs have been received into the account. The bill would require the director to provide for the development and implementation of the application review process for the program, subject to specified requirements. The bill would specify the maximum amount of a loan or loan guarantee granted under the program and would require a tribe applying for a loan to provide matching funds in a specified amount. The bill would create the Native American Business Finance Council, consisting of 9 members,who are appointed by, and serve at the pleasure of, the Governor3 of whom would be appointed by the Senate Committee on Rules, the Speaker of the Assembly, and the Governor, respectively, as specified , to provide policy and program guidance regarding the development and operation of the program. The bill would require the director to annually report to the secretary on the activities of the program, to include within that report information pertaining to the loss experience for loans and loan guarantees made pursuant to the program, and, no later than January 1, 2011, to report to the Governor and the Legislature the results of an independent audit of the program. The bill would enact other related provisions. Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 14030 of the Corporations Code, as amended by Section 1 of Chapter 601 of the Statutes of 2007, is amended to read: 14030. (a) There is hereby created in the State Treasury the California Small Business Expansion Fund. All or a portion of the funds in the expansion fund may be paid out, with the approval of the Department of Finance, to a lending institution or financial company that will act as trustee of the funds. The expansion fund and the trust fund shall be used to pay for defaulted loan guarantees issued pursuant to Article 9 (commencing with Section 14070), administrative costs of corporations, and those costs necessary to protect a real property interest in a defaulted loan or guarantee. The amount of guarantee liability outstanding at any one time shall not exceed five times the amount of funds on deposit in the expansion fund plus any receivables due from funds loaned from the expansion fund to another fund in state government as directed by the Department of Finance pursuant to a statute enacted by the Legislature, including each of the trust fund accounts within the trust fund. (b) There is hereby created in the California Small Business Expansion Fund the Native American Business Revolving Loan and Guarantee Program Account. The Native American Business Revolving Loan and Guarantee Program Account is created solely for the purpose of receiving state, federal,special fund moneys, federal or local government moneys, other public or private moneys, and tribal government contributions, to make loans and loan guarantees pursuant to Article 10 (commencing with Section 14077). (c) Notwithstanding Section 13340 of the Government Code, all moneys in the Native American Business Revolving Loan and Guarantee Program Account shall be continuously appropriated to the director for the purposes of implementing and administering the program established pursuant to Article 10 (commencing with Section 14077). (d) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date. SEC. 2. Section 14030 of the Corporations Code, as added by Section 2 of Chapter 601 of the Statutes of 2007, is amended to read: 14030. (a) There is hereby created in the State Treasury the California Small Business Expansion Fund. All or a portion of the funds in the expansion fund may be paid out, with the approval of the Department of Finance, to a lending institution or financial company that will act as trustee of the funds. The expansion fund and the trust fund shall be used to pay for defaulted loan guarantees issued pursuant to Article 9 (commencing with Section 14070), administrative costs of corporations, and those costs necessary to protect a real property interest in a defaulted loan or guarantee. The amount of guarantee liability outstanding at any one time shall not exceedfourfive times the amount of funds on deposit in the expansion fund plus any receivables due from funds loaned from the expansion fund to another fund in state government as directed by the Department of Finance pursuant to a statute enacted by the Legislature, including each of the trust fund accounts within the trust fund, unless the director has permitted a higher leverage ratio for an individual corporation pursuant to subdivision (b) of Section 14037. (b) There is hereby created in the California Small Business Expansion Fund the Native American Business Revolving Loan and Guarantee Program Account. The Native American Business Revolving Loan and Guarantee Program Account is created solely for the purpose of receiving state, federal, or local government moneys, other public or private moneys, and tribal government contributions, to make loans and loan guarantees pursuant to Article 10 (commencing with Section 14077). (c) Notwithstanding Section 13340 of the Government Code, all moneys in the Native American Business Revolving Loan and Guarantee Program Account shall be continuously appropriated to the director for the purposes of implementing and administering the program established pursuant to Article 10 (commencing with Section 14077). (d) This section shall become operative on January 1, 2013. SEC. 3. Article 10 (commencing with Section 14077) is added to Chapter 1 of Part 5 of Division 3 of Title 1 of the Corporations Code, to read: Article 10. Native American Business Revolving Loan and Guarantee Program 14077. For purposes of this article, the following definitions shall apply: (a) "Account" means the Native American Business Revolving Loan and Guarantee Program Account created pursuant to Section 14030. (b) "Applicant" means an applicant for a loan or loan guarantee pursuant to this article. (c) "Council" means the Native American Business Finance Council created pursuant to Section 14077.4. (d) "Program" means the Native American Business Revolving Loan and Guarantee Program established pursuant to Section 14077.1. (e) "Qualified Indian tribe" means a federally recognized tribe located in this state that receives payments from the Indian Gaming Revenue Sharing Trust Fund. 14077.1. (a) The secretary shall establish the Native American Business Revolving Loan and Guarantee Program for the purpose of providing business loans and loan guarantees to qualified Indian tribes. (b) The program and the steps necessary to implement the program to make it operative shall not be undertaken until the secretary has determined that funds of a sufficient amount to create a loan pool and pay program administrative costs have been received into the account. 14077.2. (a) The director shall provide for the development and implementation of the application review process for the program, including, but not limited to, defining the eligibility standards, the rating and ranking criteria, and other appropriate policies and procedures for evaluating direct loans and loan guarantees, subject to the following requirements: (1) Loans and loan guarantees provided pursuant to the program shall be for nongaming business and shall be used to start , acquire, or expand a business or to supply working capital to a business. (2) An eligible applicant for a loan or loan guarantee under the program shall be a qualified Indian tribe with a business , or a qualified Indian tribe that intends to begin a business, located either on Native American lands of a federally recognized tribe that is also a qualified Indian tribe or on property within the state. (3) The maximum loan limit shall befive hundred thousand dollars ($500,000)one million dollars ($1,000,000) . All direct loans shall have a federal guarantee. Loan guarantees provided by the program shall have sufficient reserves in the account to guarantee the loan. The maximum loan guarantee shall be 90 percent of the loan amount, not to exceedfive hundred thousand dollars ($500,000)nine hundred thousand dollars ($900,000) . (4) A qualified Indian tribe applying for a loan pursuant to this article shall provide matching funds in an amount equal to one-half the amount of the loan requested. The matching funds shall come from any source of funds within the control of the tribe and may include in-kind contributions. However, in-kind contributions shall be limited to one-quarter of the value of the requested loan. (5) An applicant shall demonstrate that it will have reasonable access to business and management technical assistance during the term of the loan or loan guarantee. (6) The qualified Indian tribe shall be the majority owner of the business during the term of the loan or loan guarantee. (7) Loans may be provided at terms and conditions below market rates to the extent that the overall revolving loan portion of the program remains financially viable. (8) A qualified Indian tribe shall not be eligible to apply for funds pursuant to this article unless any funds previously loaned to the tribe pursuant to this article have been repaid in full. (9) Priority for program outreach activities shall be for qualified Indian tribes that have no existing business enterprise. (10) In the first year of the program, loans shall be awarded through a competitive request for proposal process. Applications for loans shall be rated and ranked based on their ability to meet the purposes of the program, as described in subdivision (b). In subsequent years, loans may be awarded through an ongoing evaluation process to the extent that the purposes of the program, as described in subdivision (b), can still be achieved. (b) Loans and loan guarantees provided through the program shall provide for the general welfare of a qualified Indian tribe and its members by promoting long-term tribal economic development that creates or retains jobs, increases incomes, develops work skills and business management capacity, and serves qualified Indian tribesthat have no existing business enterprise. (c) The application review process developed pursuant to subdivision (a) shall be approved by the council created pursuant to Section 14077.4. (d) In developing the program, the director shall seek to maximize the ability of applicants to leverage other public and private funding opportunities to the extent the addition of these funds furthers the purposes of the program, as described in subdivision (b). Key funding partners include, but are not limited to, the United States Department of Agriculture, the Bureau of Indian Affairs, the United States Department of Commerce, the United States Department of Housing and Urban Development, and foundations and other nonprofit organizations that share a mission to expand entrepreneurship opportunities for small and medium size businesses and historically underserved communities. (e) In addition to other activities, the director shall routinely seek the advice of the council on matters related to the management and operation of the program. (f) The director shall have the authority to administer the distribution of funds from the account for the purposes of this article. 14077.3. (a) The agency may contract with one or more corporations to make loans and loan guarantees pursuant to this article. (b) To execute direct loans under the program, the director may loan funds from the account to a corporation for the purpose of lending those funds to an approved applicant. The loan authorized by the director to the corporation shall be on terms similar to the loan between the corporation and the applicant. The loan between the agency and the corporation shall be evidenced by a credit agreement. In the absence of fraud on the part of the corporation, the liability of the corporation to repay the loan to the agency shall be limited to the repayment received by the corporation from the applicant, except in a case where the federal guarantor requires exposure by the corporation in rule or regulation. Interest and principal received by the agency from the corporation shall be deposited into the account. 14077.4. (a) There is hereby created the Native American Business Finance Council. The purpose of the council is to provide policy and program guidance regarding the development and operation of the program. (b) The management and operation of the council shall meet all of the following requirements: (1) The council shall consist of nine members,who are appointed by, and serve at the pleasure of, the Governor.(2) The council shall include six members of federally recognized Indian tribes in California, three of whom shall represent tribes located in northern California and three of whom shall represent tribes located in southern California.(3)The council shall include at least one member with expertise in each of the following areas: tribal government, business finance, and economic development related to the purposes of the program.appointed as follows: (A) The Senate Committee on Rules shall appoint three members, two of whom shall be members of federally recognized Indian tribes in California. Of the two appointees who are members of federally recognized Indian tribes in California, one shall represent tribes in northern California, and the other shall represent tribes in southern California. (B) The Speaker of the Assembly shall appoint three members, two of whom shall be members of federally recognized Indian tribes in California. Of the two appointees who are members of federally recognized Indian tribes in California, one shall represent tribes in northern California, and the other shall represent tribes in southern California. (C) The Governor shall appoint three members, two of whom shall be members of federally recognized Indian tribes in California. Of the two appointees who are members of federally recognized Indian tribes in California, one shall represent tribes in northern California, and the other shall represent tribes in southern California. (2) Each member of the council shall have expertise in one or more of the following areas: tribal government, business finance, and economic development related to the purposes of the program.(4)(3) Each member shall serve for a term of four years, except that in the first round of appointments, three members , one of each of the members appointed by the Senate Committee on Rules, the Speaker of the Assembly, and the Governor, respectively, shall serve for two yearsand three other members, and three other members, one of each of the members appointed by Senate Committee on Rules, the Speaker of the Assembly, and the Governor, respectively, shall serve for three years. Members shall not be reappointed to the council until a minimum of one year has elapsed.(5)(4 ) A member of the council shall not vote on an application from his or her own tribe.(6)(5) Five members of the council shall constitute a quorum. A vote of the majority of the members present at a meeting at which there is a quorum shall constitutethean act of the council. A member prohibited from voting under paragraph (5) shall not be included in determining whether a quorum exists for a particular application. In addition, the majority needed to approve an application shall be reduced by the number of members prohibited from voting under paragraph (5). 14077.5. (a) The director shall annually report on the activities of the program to the secretary as part of his or her annual reporting requirements under Section 14030.2. The director shall include within that report information pertaining to the loss experience for loans and loan guarantees made pursuant to the program. (b) The director shall, no later than January 1, 2011, submit to the Governor and the Legislature the results of an audit of the program undertaken by an independent entity.