BILL ANALYSIS Ó AB 1230 Page 1 Date of Hearing: May 13, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 1230 (Gomez) - As Amended March 24, 2015 ----------------------------------------------------------------- |Policy |Rules |Vote:|11 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | |Banking and Finance | |11 - 1 | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill establishes the California Americans with Disabilities Act Small Business Compliance Financing Authority (Authority) to provide financing to small businesses to comply with the requirements of the Americans with Disabilities Act (ADA). In summary, this bill: 1)Establishes membership of the Authority as the Treasurer, AB 1230 Page 2 Controller, Director of Finance, Director of General Services, one member appointed by the Senate Rules Committee who represents persons with disabilities, one member appointed by the Speaker of the Assembly who represents owners of small businesses, and one member appointed by the Governor, subject to senate confirmation, who is a member of the state bar and has experience with consumer protection laws, each of whom will have four year terms. 2)Appropriates $50,000,000 from the General Fund for the purposes of funding the initial activities of the Authority, and specifies that all expenses of the Authority shall be payable solely from funds provided to and revenue earned by the Authority. 3)Authorizes the Authority to make secured and unsecured loans, and purchase loans of any participating small business in connection with financing the costs of an ADA compliance project, subject to a maximum total project cost of $50,000, a maximum loan term of 60 months, and an interest rate equal to the Pooled Money Investment Rate at the time the loan is made, subject to specified limitations and exceptions. 4)Allows the Authority to issue revenue bonds, payable solely out of revenues of the Authority from financing activities, subject to standard terms and limitations. 5)Defines "small business" as a California business with fewer than six full-time employees, with less than $1 million in total gross annual income from all sources, and that does not provide overnight accommodations, and requires the Authority to establish eligibility standards for each small business applicant based on credit, debt service coverage, financial impact of ADA compliance project, and related factors. AB 1230 Page 3 6)Allows the Authority to invest any surplus moneys in the Fund in interest bearing accounts or in the Surplus Money Investment Fund, as required. FISCAL EFFECT: 1)One-time GF appropriation of $50 million. 2)Estimated annual costs of approximately $800,000 to the Treasurer to administer the Authority, initially paid from the GF appropriation, and eventually paid from revenue generated by financing activities. COMMENTS: 1)Purpose. According to the author, hundreds of lawsuits are filed each year against small businesses for ADA violations, with more than 40% of these occurring in California. The author claims many of these lawsuits seek only statutory penalty damages and not the injunctive relief that would improve conditions for disabled persons. The author believes this sort of predatory litigation weakens rights and access for disabled persons by forcing small businesses to pay for legal fees and costs instead of improving their properties. AB 1230 Page 4 AB 1230 creates a finance authority to provide affordable loans to small businesses to finance the alterations and retrofits necessary to comply with ADA. The bill authorizes the Authority to issue revenue bonds to finance the loans and appropriates $50 million from the General Fund to launch the program, but anticipates the program will be self-sustaining thereafter, funding costs with interest generated from the loans. 2)Revenue Bonds for Private Activity. Revenue bonds are an instrument often used to finance public works projects undertaken by private developers. Revenue bonds are issued by a public agency, but are repaid only with the proceeds of the development activity and are not guaranteed by the state. Typically, the proceeds of the bonds are lent to developers, or in the case of this bill, small businesses, and the bonds are repaid with the interest generated by the loans. Investors in revenue bonds only have recourse to the underlying loan assets. Revenue bonds are considered tax free by the Internal Revenue Service if the activity financed is publicly-owned or has public value, allowing the issuer to offer lower interest rates on the bonds and pass those savings to the borrowers. As a result, they are attractive for financing activity that has public value but may not be affordable with private financing. There is some risk that the activity being financed in this bill may not qualify the revenue bonds for tax exempt status, making them less attractive for financing the small business loans. The author may wish to consider whether financing the program solely with the initial $50 million General Fund appropriation is a safer way to achieve the bill's aims. AB 1230 Page 5 Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081