HBA-KMH C.S.H.B. 64 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 64 By: Greenberg Economic Development 3/17/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Multi-bank Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs) make loans to small minority-owned businesses, generally in economically depressed areas, as an investment intended to spur economic growth in those communities. It can be difficult to obtain funds for such programs since there is a greater measure of risk involved in this type of investment. State funding will enable CDCs and CDFIs to leverage private and federal funding through matching grants. C.S.H.B. 64 makes more funding available to CDCs and CDFIs by creating a revolving loan fund administered by the Texas Department of Economic Development. This bill provides that the Texas Department of Economic Development must establish the community investment program under Subchapter Q, Chapter 481, Government Code, if money is specifically appropriated to fund that program. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill expressly delegates rulemaking authority to the Texas Department of Economic Development in SECTION 1 (Sections 481.223 and 481.232, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 481, Government Code, to add Subchapter Q, as follows: SUBCHAPTER Q. TEXAS COMMUNITY INVESTMENT PROGRAM Sec. 481.221 (1) Defines "community development investor" (investor) as a federally certified community development financial institution or multi-bank community development corporation. (2) Defines "multi-bank community development corporation" as a corporation organized to provide community development funds to businesses that employ low and moderate income persons by investing in and making loans to disadvantaged businesses located in distressed areas of the state. (3) Defines "program" as the community investment program established under this subchapter. Sec. 481.222. COMMUNITY INVESTMENT PROGRAM. Requires the Texas Department of Economic Development (department) to establish a community investment program through grants or interest-free loans to or stock purchases of investors, who in turn make loans to or invest in businesses located in distressed areas of the state and are unable to qualify for conventional bank loans. Requires the department to determine the eligibility of an investor. Authorizes the department to set a limit on the number of investors that may participate in the program. Sets forth that an investor is eligible to participate in the program after the investor raises at least $400,000 in private investments and enters into an agreement with the department setting out the terms and conditions of participation. Sec. 481.223. RULEMAKING AUTHORITY. Requires the governing board of the department (board) to adopt rules relating to the implementation of the program and any other rules necessary to accomplish the purposes of this subchapter. Sec. 481.224. APPLICATION. Authorizes eligible investors to apply for grants or loans using a form approved by the department. Specifies that the application must include a plan of investment which includes the type and number of businesses to which the investor plans to make a loan or in which the investor plans to invest. Requires the executive director of the department (director) to act upon a completed application within 30 days of its filing with the department. Sec. 481.225. USE OF MONEY. Requires investors to use money received under the program within 18 months of receipt, commit the money to be used in conformance with the program, or return any amount not used, as required by this subsection, within 10 days following the 18-month deadline. Requires an investor who sustains losses greater than 25 percent under the program to return all money not already loaned or promised and deliver to the director all instruments related to the loans and investments made under the program. Sec. 481.226. ELIGIBLE INVESTMENTS. Requires each investor to establish an investment committee to give approval of requests made by businesses for use of funds under the program. Requires an investment committee to have at least five members of which at least 30 percent must be bankers and 30 percent representatives of the community. Requires an investor to use at least 60 percent of the amounts received under the program for loans or investments in businesses that have existed for at least one year prior to the date of the loan or investment. Sec. 481.227. COLLABORATIVE EFFORT. Authorizes an investor to participate in the program through partnerships or joint investments with one or more financial institutions. Sec. 481.228. LIMITATIONS RELATING TO LOANS. Authorizes investors under the program to limit loans made to a single business to $200,000 or less, if the entire loan is made directly to the business, and is $100,000 or less, if any portion of the loan is subordinate to another entity. Authorizes investors to limit the term of the loan to 15 years or less. Sec. 481.229. LIMITATIONS RELATING TO EQUITY INVESTMENTS. Authorizes an investor under the program to limit equity investments made to a single business to $50,000 or less, a maximum term of no greater than seven years, and the investor's maximum ownership to 50 percent of the business's equity. Sec. 481.230. OWNERSHIP OF INCOME. Provides that all income received on loans and investments under the program is the property of the investor that makes the loan or investment. Sec. 481.231. SEMIANNUAL REPORT. Requires an investor to submit a report to the director not later than 30 days after the expiration of each six-month period for which there is a participation agreement, which states in detail the status of each investment or loan made under the program. Provides that the report must be in a form prescribed by the department and contain all required information. Sec. 481.232. ANNUAL AUDIT. Specifies that the participation agreement must provide for an annual audit of all money received by the investor under the program. Requires the board to adopt rules relating to the format of the audit, including a limitation on investors from using more than $5,000 of the money received under the program to finance the audit. SECTION 2. Sets forth that this Act does not make an appropriation. Provides that the Texas Department of Economic Development must establish the community investment program under Subchapter Q, Chapter 481, Government Code, if money is specifically appropriated to fund that program. SECTION 3. Effective date: September 1, 1999. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 64 places the community investment program created by the original bill in Subchapter Q, Chapter 481, Government Code, rather than Subchapter EE, Chapter 2306, Government Code. The substitute redesignates, in SECTION 1, Sections 2306.701 through 2306.712, of the original, to Sections 481.221 through 481.232. Makes a nonsubstantive change in new Section 481.224(b) (Section 2306.704(b) of the original bill). The substitute, in SECTION 2, provides that the Texas Department of Economic Development must establish the community investment program under Subchapter Q, Chapter 481, Government Code, if money is specifically appropriated to fund that program. The substitute also redesignates SECTIONS 2 and 3 of the original to SECTIONS 3 and 4.