South Coast Air Quality Management District

Approve Agreement with the California Pollution Control Financing Authority to Participate in California Capital Access Program, and Approve Standard Operating Procedures for Participation in CalCAP

SYNOPSIS: 

On June 16, 2000, the Board approved revisions to the AQMD's small business loan guarantee program, the Air Quality Assistance Fund (AQAF). To implement one of the revisions, staff has developed an agreement with the California Pollution Control Financing Authority (CPCFA) through which the AQMD would become an Independent Contributor to the California Capital Access Program (CalCAP). Under this agreement, the AQMD would transfer funds into a CPCFA account to assist small businesses by paying the borrower's fee, up to 3.5%, for any CalCAP loans for air quality related equipment or processes. The Board previously approved $100,000 of the AQMD's AQAF for this purpose.

COMMITTEE: 

Stationary Source, March 23, 2001, Recommend for Approval

RECOMMENDED ACTION:

1. Approve the agreement with the California Pollution Control Financing Authority by which the AQMD will become an Independent Contributor to CalCAP. As an Independent Contributor, the AQMD will deposit $100,000 with CPCFA to cover the borrower's fee, up to 3.5%, for any CalCAP loan for equipment that may cause, eliminate, reduce, control or monitor air emissions and is used to meet or exceed the requirements of AQMD rules and regulations.
   
   
2. Approve the Standard Operating Procedures to be used by the AQMD for reviewing and approving CalCAP loan applications and authorizing payment of the borrower's fee for CalCAP loans and authorize the Executive Officer to make minor changes to these procedures when necessary.

Barry R. Wallerstein, D.Env.
Executive Officer

Background
On June 16, 2000, the Governing Board approved recommendations to revise the AQMD’s small business loan guarantee program, called the Air Quality Assistance Fund (AQAF). Under the approved recommendations, the revised AQAF program would have two components, one that would insure bank loans and one that would guarantee lease-purchase agreements. The bank loan component of the revised AQAF would make use of a well-established, statewide, loan-insurance program called the California Capital Access Program (CalCAP), which is administered by the California Pollution Control Finance Authority (CPCFA).

Under CalCAP, a "loss reserve account" is created for each participating bank -- typically ranging from 8 to 14% of the total CalCAP loans made by that bank. To create this loss reserve account, the borrower typically pays a fee (2 to 3.5% of the loan value), the bank matches the borrower's contribution (another 2 to 3.5%), and the state CPCFA matches the combined contributions of the borrower and the bank (4 to 7%). The loss reserve account for that participating bank then serves as insurance for any of its CalCAP loans that go into default.

Under the approved revision to the AQAF, the AQMD would pay the borrower's fees, up to 3.5%, for the CalCAP loan. In effect, the AQMD would be helping the business obtain a CalCAP loan by "paying down the points" that the borrower would otherwise have to pay. On June 16, 2000, the Board approved the following recommendations:

• "Authorize staff to prepare an agreement, for Board approval, with the California Pollution Control Financing Authority (CPCFA) of the State Treasurer's Office, to utilize the California Capital Access Program (CalCAP) to provide leverage for AQAF dollars and make bank financing available to small businesses for air pollution reduction and compliance."

• "Authorize staff to earmark $750,000 of AQAF funds currently held by CPCFA for the CalCAP and transfer $100,000 of those funds to CalCAP as soon as possible."

The same Board Letter indicated that staff would bring the agreement with CPCFA and the standard operating procedures for participating in CalCAP to the Governing Board for approval prior to execution.

Agreement with CalCAP
In order to implement the Board's recommendations, the AQMD asked CPCFA to develop an agreement through which the AQMD would become an "Independent Contributor" as allowed under the CalCAP regulations (Section 8078, Article 7, Division 11, Title 4 of the California Code of Regulations). An Independent Contributor, as defined in the CalCAP regulations, includes any agency that "…pays to the Loss Reserve Account the Matching Contribution and/or the portion of the Fees payable by the Borrower." The AQMD would be paying the portion of the fees payable by the borrower for CalCAP loans.

A copy of the agreement is provided in Attachment A. Under the terms of the agreement, the AQMD will deposit $100,000 into a special interest-bearing account with the CPCFA. Those funds will be used to pay the borrower's fee for any CalCAP loan for equipment that causes, eliminates, reduces, controls, or monitors air emissions, and is used to meet or exceed the requirements of AQMD rules and regulations. The maximum loan value for which AQMD will pay the borrower’s fee shall not exceed $500,000.

Standard Operating Procedures for CalCAP Participation
The attached Standard Operating Procedures (Attachment B) will be used by the AQMD for its participation in CalCAP. In these procedures, as summarized below, there are only four steps needed to assist the applicant.

1. The AQMD staff, or the AQAF Small Business Financial Consultant at the direction of staff, helps the applicant complete a one-page credit application.
2. AQMD engineering staff prepares a one-page technical report indicating that the equipment of this type is expected to meet current AQMD requirements and is eligible for funding.
3. The AQMD staff issues a Borrower Eligibility Certification to the bank indicating the borrower meets the AQMD's criteria for financial assistance under CalCAP.
4. The bank funds the transaction and receives the AQMD's contribution (covering the borrower's fee) from CPCFA.

Marketing of CalCAP
For this financial assistance program to be successful, it is essential that the AQMD actively market the CalCAP loan program. A marketing plan is being developed by the AQAF Small Business Financial Consultant and the AQMD Office of Small Business Assistance. The plan will include measures to publicize the availability of the program, and the AQMD's contribution. The outreach effort to market the program will make use of internal staff (including public affairs staff, inspectors, engineers, rule writers, attorneys) as well as external organizations (such as equipment vendors, banks, trade associations, chambers of commerce, economic development officers).

Resource Impacts
The recommendations contained herein would not impact the AQMD general fund or staff resources. The AQAF was set up so that the expenses of the program are paid from the interest earned on the AQAF fund, and loan guarantees are covered by the principal balance. When implemented, these recommendations will decrease the capital in the AQAF by the amount of money paid to banks to offset the borrower's fees for CalCAP loans. The maximum reduction for this purpose is $100,000 in the first year.

Attachments

Attachment A – Agreement with CPCFA to participate in CalCAP
Attachment B -- Standard Operating Procedures for Review and Approval of CalCAP
Loan Applications

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