HBA-JEK C.S.H.B. 3449 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3449 By: Gallego Urban Affairs 4/19/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE The Texas Department of Housing and Community Affairs (TDHCA) works to ensure affordable housing for low-income families, promote community development and assistance, and regulate the state's manufactured housing industry. The 72nd Legislature created TDHCA in 1991 by merging the Texas Department of Community Affairs, the Texas Housing Agency, and the Department of Commerce's Community Development Block Grant Program. TDHCA allocates and awards funds to for-profit and nonprofit organizations, local governments, lenders, and developers to assist low income individuals and families in obtaining affordable housing. TDHCA also provides funding for services designed to fund neighborhood infrastructures, address poverty, repair and weatherize homes, and assist very low income individuals in paying their utility bills. TDHCA is subject to the Texas Sunset Act and will be abolished on September 1, 2001 unless continued by the legislature. In its review of TDHCA, the Sunset Advisory Commission found that while TDHCA is funding affordable housing and assisting many communities, problems exist in TDHCA's ability to allocate resources to meet the state's most pressing housing needs. C.S.H.B. 3449 continues TDHCA for a two-year probationary period and contains the Sunset Advisory Commission's recommendations to better position TDHCA to address the state's housing and community support services needs. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the governing board of the Texas Department of Housing and Community Affairs in SECTION 1.05 (Section 2306.032, Government Code), SECTION 1.06 (Section 2306.0321, Government Code), SECTION 1.08 (Section 2306.052, Government Code), SECTION 1.17 (Section 2306.1113, Government Code), SECTION 2.02 (Section 2306.142, Government Code), and SECTION 8.01 (Section 2306.6722, Government Code); to Texas Department of Housing and Community Affairs in SECTION 1.16 (Sections 2306.111, Government Code), SECTION 1.18 (Section 2306.1711, Government Code), SECTION 1.19 (Section 2306.252, Government Code), SECTION 1.20 (Section 2306.257, Government Code), SECTION 1.26 (Section 2306.6741, Government Code), SECTION 2.02 (Section 2306.142, Government Code), SECTION 2.10 (Section 2306.755, Government Code), SECTION 2.13 (Sections 2306.785 and 2306.786, Government Code), SECTION 4.02 (Section 2306.0724, Government Code), and SECTION 8.01 (Section 2306.6704, Government Code); to the Manufactured Housing Board in SECTION 1.25 (Sections 2306.6010, 2306.6020, and 2306.6023, Government Code) and SECTION 1.33 (Section 7, Article 5221f, V.T.C.S.); and to the executive committee of the Office of Rural Community Affairs in SECTION 1.27 (Section 487.052, Government Code) of this bill. ANALYSIS C.S.H.B. 3449 amends the Government Code to continue the Texas Department of Housing and Community Affairs (TDHCA) until September 1, 2003 (SECTION 1.03, Sec. 2306.022, Government Code), and to set forth standard Sunset Advisory Commission recommendations regarding appointments to the governing board of TDHCA (board), public representation on the board, conflicts of interest, board member training, board member removal, designation of a presiding officer of the board by the governor, standards of conduct, the maintaining of written complaints, and policy implementation by the board (SECTION 1.03, Secs. 2306.027, 2306.028, 2306.033, 2306.034, and 2306.035); SECTION 1.04, Sec. 2306.030; SECTION 1.07, Sec. 2306.051; SECTION 1.09, Sec. 2306.061; and SECTION 1.10, Sec. 2306.066, Government Code). Governing Board C.S.H.B. 3449 restructures the board to include seven rather than nine members with demonstrated interest in housing and community support services issues who broadly reflect the economic, cultural, and social diversity of the state (SECTION 1.03, Secs. 2306.024 and 2306.027). The bill streamlines the process by which the executive director of TDHCA (director) is authorized to create divisions with the approval of the board to increase the organizational flexibility of TDHCA (SECTION 1.07, Sec. 2306.0521). Public Hearing and Input C.S.H.B. 3449 provides that all materials in the possession of TDHCA that are relevant to any matter proposed for discussion at a board meeting must be made available to the public at least seven days before the meeting, and sets forth provisions regarding the agenda for board meetings. The bill requires TDHCA to develop and implement rules to give the public a reasonable amount of time for testimony at board meetings (SECTION 1.05, Sec. 2306.032). The bill also requires the board to develop and implement rules outlining a formal process to appeal board decisions and specifies what the rules must include (SECTION 1.06, Sec. 2306.0321). The bill requires TDHCA to consolidate its public hearings into a single public hearing process to provide for a hearing on specified TDHCA programs and the state low income housing plan in each uniform service region of the state on at least an annual basis (SECTION 1.11, Sec. 2306.0661 and SECTION 1.15, Sec. 2306.0723). C.S.H.B. 3449 requires TDHCA to provide for public input before adopting rules that outline formal rulemaking procedures for the low income housing tax credit program and the multifamily housing mortgage revenue bond program (SECTION 1.18, Sec. 2306.1711). The bill requires the board to adopt rules and the director to develop and implement a program to train employees about public information requirements (SECTION 1.08, Sec. 2306.052). Strategic Planning C.S.H.B. 3449 modifies the process by which TDHCA must develop a strategic plan to provide that it must assess and meet affordable housing and community support services needs for populations in each uniform state service region and requires TDHCA to employ or contract with a regional development coordinator to address affordable housing and community development (SECTION 1.13, Sec. 2306.0721; SECTION 1.14, Sec. 2306.0722; and SECTION 5.01, Sec. 2306.079). The bill requires TDHCA to use the strategic plan to allocate funds to meet regional housing needs and community service priorities, and requires TDHCA by rule to adopt a policy providing for the reallocation of financial assistance administered by TDHCA if TDHCA's obligation with respect to that assistance is prematurely terminated (SECTION 1.16, Sec. 2306.111). The bill requires TDHCA to create a uniform application and funding cycle for single-family and multifamily housing programs to support projects that meet established needs, and requires TDHCA to establish an executive award and review advisory committee that includes the director to make funding allocation decisions. The bill prohibits certain persons, including an applicant or a related party as defined by board rule, from communicating with a member of the board or advisory committee outside of a public hearing during the period between the date the project application is filed and the final board decision with respect to any approval of that application (SECTION 1.17, Secs. 2306.1111-2306.1113). C.S.H.B. 3449 adds outreach, educational, assistance, clearinghouse, and governmental affairs duties to the services TDHCA is required to provide through the housing resource center. The bill requires TDHCA to adopt rules that are necessary and proper to carry out programs and responsibilities assigned by the legislature or the governor (SECTION 1.19, Sec. 2306.252). The bill requires the director to appoint a database information specialist to provide for the effective and efficient dissemination to the public of information regarding affordable housing and community development (SECTION 5.01, Sec. 2306.080). Multifamily Housing Finance C.S.H.B. 3449 authorizes a qualified nonprofit organization to compete in any low income housing tax credit allocation pool. The bill requires TDHCA to establish policies and procedures no later than November 1, 2001 to support the preservation of multifamily low income housing and by rule to establish procedures to monitor low income housing tax credit properties that refuse to admit individuals and families receiving Section 8 assistance. The bill also requires TDHCA by rule to establish enforcement mechanisms with respect to those properties, including a range of sanctions to be imposed against property owners (SECTION 1.26, Secs. 2306.6741 and 2306.6761; SECTION 3.01, Sec. 2306.008; SECTION 3.02, Sec. 2306.185; and SECTION 3.07). The bill deletes the requirement that 50 percent of the funds from federal 501(c)(3) bonds be allocated for new construction (SECTION 1.21, Sec. 2306.358). C.S.H.B. 3449 requires TDHCA to establish two classes of priorities of developments to preserve multifamily housing. The bill requires TDHCA to establish and administer a housing preservation incentives program to provide incentives through loan guarantees, loans, and grants for the acquisition and rehabilitation of priority multifamily housing developments (SECTION 3.05, Secs. 2306.802 and 2306.805). The bill authorizes property owners disposing of certain multifamily housing developments to do so only after providing notice by mail of the owner's intent to the residents of the development and TDHCA. The bill also prohibits certain property owners from selling, leasing, or otherwise disposing of a multifamily housing development or taking any other action that causes the disruption or discontinuance of the development's federal insurance or assistance or the provision of low-income housing assistance to the development's residents (SECTION 3.06, Secs. 2306.852 and 2306.853). Fair Housing and Housing Preservation C.S.H.B. 3449 authorizes TDHCA to provide assistance through a housing program only to an applicant who certifies the applicant's compliance with federal anti-discrimination laws. The bill requires TDHCA to adopt rules governing the certification process (SECTION 1.20, Sec. 2306.257). The bill requires TDHCA to by rule adopt a policy to identify reasonable Section 8 admittance policies for low income housing tax credit properties and to establish monitoring and enforcement policies relating to the refusal of such properties to admit tenants with Section 8 vouchers (SECTION 1.26, Sec. 2306.6741; and SECTION 3.04, Sec. 2306.269). The bill prohibits TDHCA from financing a housing development undertaken by a housing sponsor unless the housing sponsor is not or will not enter into a contract for the development with a housing developer on TDHCA's debarred list (SECTION 7.01, Sec. 2306.223). C.S.H.B. 3449 requires TDHCA to develop and implement the affordable housing preservation program to preserve affordable housing in this state (SECTION 1.20, Sec. 2306.256). The bill requires TDHCA to support the preservation of affordable housing for individuals with special needs and individuals or families of low income (SECTION 3.01, Sec. 2306.008). The bill authorizes TDHCA to use any available revenue to provide loans and grants under the affordable housing preservation program (SECTION 3.03, Sec. 2306.2561). C.S.H.B. 3449 requires TDHCA to require the owner of each housing development that receives financial assistance from TDHCA and that contains 20 or more living units to submit an annual fair housing sponsor report, and requires TDHCA to adopt rules regarding the procedure for filing a report (SECTION 4.02, Sec. 2306.0724). The bill also requires TDHCA to establish a system that requires owners of state or federally assisted housing developments with 20 or more housing units to report information regarding housing units designed for persons with disabilities and make such information available to the public (SECTION 4.04, Sec. 2306.078). C.S.H.B. 3449 requires TDHCA to expend at least 95 percent of federal housing funds provided under the Cranston-Gonzalez National Affordable Housing Act (HOME) for the benefit of non-participating small cities and rural areas that do not qualify to directly receive funds under HOME, and requires all funds not set aside to be used for persons with disabilities who live in areas other than small cities and rural areas (SECTION 6.01, Sec. 2306.111). Colonias C.S.H.B. 3449 requires the board to establish a colonia resident advisory committee (committee) to advise the board regarding colonia matters and to solicit and review public comments regarding the needs of colonia residents, and requires TDHCA to prepare a biennial action plan addressing policy goals for colonia programs, strategies to meet the policy goals, and the projected outcomes with respect to those policy goals. The bill also requires the board to appoint and oversee the committee, and sets forth the composition of the committee. The bill requires the Office of Rural Community Affairs to enter into an interagency agreement with TDHCA to reimburse TDHCA for providing on behalf of the office oversight, management, and any other services on the portion of the federal community development block grant funds allocated for colonia self-help centers (SECTION 1.23, Secs. 2306.584, 2306.585, 2306.590, and 2306.591; and SECTION 1.28, Sec. 487.1021). The bill authorizes a colonia resident to apply for any TDHCA direct loan or grant program through a self-help center, and authorizes TDHCA to contribute money to the colonia set-aside fund from any available source of revenue that TDHCA considers appropriate to implement the purposes of the self-help centers (SECTION 2.05, Sec. 2306.586; and SECTION 2.07, Sec. 2306.589). C.S.H.B. 3449 requires TDHCA to establish the colonia model subdivision program to promote the development of new, high-quality residential subdivisions that provide alternatives to substandard colonias and affordable housing options for persons who would otherwise move into colonias. The bill requires TDHCA to establish a colonia model subdivision revolving loan fund. The bill authorizes TDHCA to transfer money into the fund from any available source of revenue and prohibits TDHCA from using more than $2 million each state fiscal year from the set-aside for colonias to provide loans under the colonia model subdivision program. The provisions authorizing TDHCA to transfer money to the fund and limiting use of more than $2 million to provide loans expire on August 31, 2010. The bill sets forth authorized uses and terms of a loan made under the colonia model subdivision program. The bill requires TDHCA to adopt rules for administering the colonia model subdivision program (SECTION 2.13, Secs. 2306.782, 2306.783, 2306.785, and 2306.786). The bill amends the Tax Code to specify which organizations are entitled to an exemption from taxation of unimproved real property, buildings, or tangible real property under the colonia model subdivision program (SECTION 2.14, Sec. 11.184). Office of Rural Community Affairs C.S.H.B. 3449 amends the Government Code to create the Office of Rural Community Affairs (office) to administer the state's allocation of federal funds from the community development block grant program and sets forth provisions regarding the composition and terms of the executive committee that is the governing body of the office (SECTION 1.27, Secs. 487.001, 487.021-487.030, and 487.051-487.054; and SECTION 1.28, Secs. 487.101-487.103). The bill sets forth standard Sunset Advisory Commission recommendations for the office regarding equal employment, conflicts of interest, executive committee member training, executive committee member removal, policy implementation by the executive committee, public testimony, the development of an equal employment policy, standards of conduct, and the maintaining of written complaints (SECTION 1.27, Secs. 487.022-487.025 and 487.027-487.030). The bill authorizes the executive committee of the office to adopt rules as necessary to fulfill its duties (SECTION 1.27, Sec. 487.052). Manufactured Housing Board C.S.H.B. 3449 amends the Government Code and the Texas Manufactured Housing Standards Act to establish the Manufactured Housing Board (housing board) as an independent entity within TDHCA that is administratively attached to TDHCA. The bill sets forth provisions for the composition, terms of membership, and reimbursement of members of the housing board as well as the sharing of housing board and TDHCA personnel, equipment, and facilities. The bill also sets forth standard Sunset Advisory Commission recommendations regarding policy implementation by the housing board, public representation on the housing board, the designation of a presiding officer of the housing board by the governor, conflicts of interest, the maintaining of written complaints, housing board member training, housing board member removal, standards of conduct, public testimony, equal employment, and the development of an equal employment policy. C.S.H.B. 3449 requires reasonable notice of all housing board meetings to be given as prescribed by housing board rule. The bill requires the legislature to separately appropriate money to the housing board within the appropriations to TDHCA, and authorizes the housing board to accept gifts and grants of money or property. The bill requires the housing board to employ a division director and requires the division director of the housing board to provide to employees of TDHCA's manufactured housing division information and training regarding the state employee incentive program. The bill requires the housing board rather than the director to adopt rules to administer and enforce the manufactured housing program, and rules relating to the administrative sanctions that may be enforced against a person regulated by the manufactured housing division of TDHCA, rules to adopt a system under which manufactured housing licenses expire on various dates during the year, and other rules necessary to enforce housing board provisions. The bill also prohibits the housing board from adopting rules that restrict competitive bidding or advertising, restrict the use of a trade name in advertising, and restrict or relate to specified advertising practices. The bill sets forth provisions relating to the expiration and renewal of a manufactured housing license, and provisions authorizing the housing board to contract with nonprofit and educational entities to conduct continuing education programs for license holders (SECTION 1.25, Secs. 2306.60012306.6023, Government Code; and SECTIONS 1.33 and 1.35, Art. 5221f, V.T.C.S.). Bonds C.S.H.B. 3449 amends the Government Code to require TDHCA if authorized by the board to issue single-family mortgage revenue bonds to make home mortgage credit available to economic and geographic submarkets of borrowers who are substantially underserved. The bill requires the board by rule to adopt a methodology for determining through a market study reviewed by the Bond Review Board of the home mortgage credit needs in underserved economic and geographic submarkets in the state. Subject to the identification of a satisfactory market volume demand through the market study, the bill requires TDHCA to allocate not less than 40 percent of the total single-family mortgage revenue bond loan volume to meet the credit needs of borrowers in underserved economic and geographic submarkets in each state fiscal year beginning on September 1, 2002 (SECTION 2.02, Sec. 2306.142). The bill sets forth provisions for an alternative to the United States Department of Housing and Urban Development subprime lender list (SECTION 2.03, Sec. 2306.143). Loans C.S.H.B. 3449 deletes the provision that an owner-builder must reside with at least two other persons related to the owner-builder to be eligible for an owner-builder loan (SECTION 2.08, Sec. 2306.753). The bill increases the maximum amount of an owner-builder loan from $25,000 to $30,000 (SECTION 2.09, Sec. 2306.754). The bill requires TDHCA by rule to adopt procedures for the certification of nonprofit owner-builder housing programs (program), and prohibits TDHCA from using more than 10 percent of the revenue available for owner-builder loans to enhance the ability of tax-exempt organizations to implement the purposes of the program (SECTION 2.10, Sec. 2306.755; and SECTION 2.11, Sec. 2306.758). The bill requires TDHCA to establish an owner-builder revolving loan fund in TDHCA for the sole purpose of funding owner-builder loans, and requires TDHCA to transfer to the fund at least $3 million each state fiscal year until August 31, 2010 (SECTION 2.12, Sec. 2306.7581). Low Income Housing Tax Credit Program C.S.H.B. 3449 sets forth provisions regarding the low-income housing tax credit program, including eligibility requirements, the application process, application fees, the application log, the evaluation of applications, the allocation of housing tax credits, the appeal of a TDHCA decision, public information and hearings, and housing tax credit and ownership transfers (SECTION 8.01, Secs. 2306.6701-2306.6713, 2306.6716-2306.6718, 2306.67021, and 2306.67022). The bill modifies provisions regarding the scoring of applications and changes deadlines for the allocation of low income housing tax credits (SECTION 8.01, Secs. 2306.6726 and 2306.6727). C.S.H.B. 3449 requires TDHCA to set aside for at-risk developments not less than 15 percent of the housing tax credits available for allocation in the calendar year (SECTION 8.01, Sec. 2306.6714). The bill requires the board by rule to adopt a policy providing for the debarment of a person from participation in the low income housing tax credit program. The bill prohibits TDHCA from excluding individuals or families from admission to a development supported with a housing tax credit allocation because the individual or family receives Section 8 assistance, and requires any development supported with a housing tax credit allocation to comply with the accessibility standards required under the federal Rehabilitation Act of 1973. The bill requires TDHCA to jointly administer set-asides for rural areas with the rural development agency (SECTION 8.01, Secs. 2306.6722-2306.6725). Affordable Housing Needs Assessment C.S.H.B. 3449 requires TDHCA in conjunction with the office of the comptroller to complete an assessment of the present and future affordable housing needs of the border region and the uniform state service regions. The bill authorizes TDHCA to use any available revenue to complete the assessment, and authorizes TDHCA to contract with a research center, public senior college, or university to make the assessment. The bill requires TDHCA to submit a report of its findings to the governor, the lieutenant governor, and the legislature not later than the 180th day after the date the relevant information is released by the United States Census Bureau (SECTION 9.01, 2306.882-2306.885). State Ceiling C.S.H.B. 3449 sets forth provisions for allocation of the state ceiling before August 15 of each year if the state ceiling is computed on the basis of $75 per capita or a greater amount, increasing to 23 percent the portion of the state ceiling that is available for reservations by issuers of qualified residential rental project bonds (SECTION 10.01, Sec. 1372.022). The bill sets forth provisions regarding the portion of the state ceiling available for issuers of qualified residential rental project bonds until August 15, and requires the board to grant reservations so that not more than 50 percent of the set-aside amount for TDHCA is used for proposed projects located in qualified census tracts. The bill requires the board before June 1 to apportion the amount of state ceiling set aside for housing finance corporations among the uniform state service regions according to the percentage of the state's population that resides in each of those regions (SECTION 10.02, Sec. 1372.0231). C.S.H.B. 3449 modifies provisions regarding the maximum amount of the state ceiling that may be reserved before August 15 by a housing finance corporation for the issuance of qualified mortgage bonds and sets forth provisions relating to the failure of a housing finance corporation to utilize an allocated amount of the state ceiling (SECTION 10.03, Sec. 1372.026; and SECTION 10.04, Sec. 1372.0261). Repealers C.S.H.B. 3449 repeals provisions regarding places on the board, the separation of the duties of the housing finance division from community affairs division and other divisions, the duties of TDHCA through the community affairs division, the authority of a licensed real estate broker or salesperson to act as a manufactured housing broker or salesperson without being licensed or posting a surety bond or other security, and the authority of the director to assign functions and duties to the various offices and divisions, to provide for additional offices, and to reorganize TDHCA when necessary to improve efficiency or effectiveness (SECTIONS 1.45 and 1.46). EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 3449 differs from the original bill by amending the Government Code to set forth provisions for allocation of the state ceiling (SECTION 10.01, Secs. 1372.022; and SECTION 10.02, Sec. 1372.0231). The substitute expands upon the required training for a member of the governing board (board) of the Texas Department of Housing and Community Affairs (TDHCA) (SECTION 1.03, Sec. 2306.028). The substitute requires TDHCA by rule to adopt a policy providing for the reallocation of financial assistance administered by TDHCA, and to establish a uniform application and funding cycle for its single-family housing programs (SECTION 1.16, Sec. 2306.111 and SECTION 1.17, Sec. 2306.1111). The substitute adds the executive director of TDHCA to the membership of the executive award and review advisory committee (SECTION 1.17, Sec. 2306.1112). C.S.H.B. 3449 prohibits certain persons from communicating with a member of the board or the executive award and review advisory committee for the period beginning with the filing of a project application and ending with the board's decision about the application (SECTION 1.17, Sec. 2306.1113). The substitute expands the services TDHCA is required to provide through the housing resource center (SECTION 1.19, Sec. 2306.252). The substitute requires the board rather than TDHCA to appoint the members of a colonia resident advisory committee (SECTION 1.23, Sec. 2306.584). The substitute sets forth provisions regarding the administration of the low income housing tax credit program (SECTION 8.01). The substitute requires the Office of Rural and Community Affairs to enter into an interagency agreement with TDHCA to reimburse TDHCA for providing oversight, management, and any other services on the portion of the federal community development block grant funds allocated for colonia self-help centers (SECTION 1.28, Sec. 487.1021). The substitute provides that the private records of a license holder or other person that are required or obtained by TDHCA in connection with the investigation of a complaint to the manufactured housing division of TDHCA are confidential (SECTION 1.25, Sec. 2306.6022). The substitute removes provisions regarding provisional manufactured housing licenses and the waiver of a prerequisite for a manufactured housing license. The substitute authorizes the Manufactured Housing Board to contract with a private, nonprofit, tax-exempt organization or educational institution to prepare or administer a continuing education program for its license holders (SECTIONS 1.34 and 1.35). C.S.H.B. 3449 requires the board by rule to adopt a market study reviewed by the Bond Review Board to determine the home mortgage credit needs in underserved economic and geographic submarkets in the state, and requires TDHCA if authorized by the board to issue single-family mortgage revenue bonds (SECTION 2.02, Sec. 2306.142). The substitute establishes the colonia model subdivision program and the owner-builder revolving loan fund (SECTION 2.12-2.14). The substitute amends the Tax Code to specify organizations entitled to exemptions from taxation under the colonia model subdivision program (SECTION 2.14, Sec. 11.184). The substitute amends the Government Code to set forth affordable housing preservation provisions and requires TDHCA to establish a housing preservation incentives program. The bill requires TDHCA to identify, prioritize, and preserve multifamily housing developments that are at risk of losing their low-income use restrictions and subsidies (SECTION 3.05, Sec. 2306.803 and 2305.805). The bill prohibits a property owner from disposing of a multifamily housing development if that action will disrupt the development's federal insurance or assistance or the provision of assistance to residents of the development, and requires a property owner who takes an action to dispose of the development to complete a notice of intent (SECTION 3.06, Secs. 2306.852 and 2306.853). C.S.H.B. 3449 establishes reporting requirements for owners of housing developments that contain 20 or more living units regarding fair housing and housing for persons with disabilities (SECTION 4.02, Sec. 2306.0724; and SECTION 4.04, Sec. 2306.078). The substitute requires TDHCA to employ or contract with a regional development coordinator for each uniform state service region of the state and requires TDHCA to appoint a database information specialist to provide for the dissemination of information regarding affordable housing and community development (SECTION 5.01, Secs. 2306.079 and 2306.080). The substitute requires TDHCA to assess the present and future affordable housing needs of the border region and the uniform state service regions (SECTION 9.01, Sec. 2306.882). The substitute prohibits TDHCA from financing a housing development of a housing sponsor unless the housing sponsor is not or will not contract with a developer on TDHCA's debarred list (SECTION 7.01, Sec. 2306.223).