HBA-MSH H.B. 3177 77(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3177 By: Solis, Jim Insurance 4/22/2001 Introduced BACKGROUND AND PURPOSE Increased investment in Texas business and entrepreneurship will help the economy of Texas. Certified capital companies are state-regulated, privately-owned and operated venture capital funds that invest funds in early stage companies that operate in Texas. Insurance companies possess large amounts of capital that could be used to invest as venture capital through a certified capital company. A tax credit may serve as an incentive to increase such investment by insurance companies. House Bill 3177 authorizes the creation of certified capital companies and provides a tax credit to insurance companies that invest funds. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the comptroller of public accounts SECTION 1 (Articles 4.52, 4.53, 4.64, 4.72, and 4.75, Insurance Code) and SECTION 3 of this bill. ANALYSIS House Bill 3177 amends the Insurance Code to require the comptroller of public accounts (comptroller) to administer the provisions of the bill and authorizes the comptroller to adopt rules and forms to implement the provisions (Art. 4.52). The bill sets forth the qualifications and application procedures of a certified capital company (Art. 4.53). The bill prohibits the management or certain types of ownership or control of a certified capital company by an insurance company, group of insurance companies, or other person who may have a premium tax liability (Art. 4.54). The bill sets forth provisions relating to the offering material used by a certified capital company, requirements for continuance of certification, evaluation of a business by the comptroller, reports to the comptroller and audited financial statements, renewal of certification, distributions and repayment of debt, annual review and decertification, and recapture and forfeiture of premium tax credits (Arts. 4.55-4.61 and 4.63). The bill authorizes the comptroller to impose an administrative penalty on a certified capital company that violates the provisions of the bill in an amount not to exceed $25,000 for each day a violation occurs (Art. 4.62). The bill requires the comptroller to adopt rules under which premium tax credits previously claimed by certified investors are subject to recapture and future premium tax credits are subject to forfeiture with respect to an investment made by a certified capital company in a qualified business if the qualified business fails to maintain its principal business operations in this state as required by the provisions of the bill (Art. 4.64). The bill authorizes a certified capital company to agree to indemnify against losses resulting from the recapture or forfeiture of premium tax credits (Art. 4.65). The bill provides that a certified investor who makes an investment of certified capital in the year of investment earns a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to specified limits. The bill authorizes a certified investor to take up to 10 percent of the vested premium tax credit in any taxable year of the certified investor (Art. 4.66). The bill provides that the total amount of certified capital for which premium tax credits may be allowed under these provisions for all years in which premium tax credits are allowed is $200 million. The bill prohibits the total amount of certified capital for which premium tax credits may be allowed for all certified investors from exceeding the amount that would entitle all certified investors in certified capital companies to take total credits of $20 million in a year (Art. 4.68). The bill requires the comptroller to allocate the total mount of premium tax credits allowed under the provisions of the bill to certified investors in certified capital companies on a pro rate basis in accordance with specified requirements (Art. 4.69). The bill sets forth provisions relating to the impact of tax credits claimed by a certified investor on insurance rates and the transferability of credit (Arts. 4.71 and 4.72). The bill requires the comptroller to prepare a biennial report the governor, lieutenant governor, and speaker of the house with respect to the implementation of the provisions of the bill and sets forth the required content of that report (Art. 4.74). The bill provides that implementation of the provisions of the bill are subject to available revenue (Art. 4.75). The bill requires the comptroller to implement the provisions of the bill not later than the 60th day after the effective date of the bill. The bill prohibits a certified investor from making an investment with a certified capital company before September 1, 2002 (SECTION 3). EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001.