H.B. No. 259 1-1 AN ACT 1-2 relating to the creation and administration of a linked deposit 1-3 program to encourage lending to historically underutilized 1-4 businesses and small businesses in distressed communities. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 481, Government Code, is amended by 1-7 adding Subchapter N to read as follows: 1-8 SUBCHAPTER N. HISTORICALLY UNDERUTILIZED BUSINESS AND 1-9 SMALL BUSINESS LINKED DEPOSIT PROGRAM 1-10 Sec. 481.191. DEFINITIONS. In this subchapter: 1-11 (1) "Eligible borrower" means a person who proposes to 1-12 begin operating a small business in a distressed community or a 1-13 historically underutilized business. 1-14 (2) "Eligible lending institution" means a financial 1-15 institution that makes commercial loans, is a depository of state 1-16 funds, and agrees to participate in the linked deposit program 1-17 established by this subchapter and to provide collateral equal to 1-18 the amount of linked deposits placed with it. 1-19 (3) "Historically underutilized business" means: 1-20 (A) a corporation formed for the purpose of 1-21 making a profit in which at least 51 percent of all classes of the 1-22 shares of stock or other equitable securities is owned by one or 1-23 more persons who are members of certain groups, including black 1-24 Americans, Hispanic Americans, women, Asian Pacific Americans, and 2-1 American Indians; 2-2 (B) a sole proprietorship formed for the purpose 2-3 of making a profit that is 100 percent owned, operated, and 2-4 controlled by a person described by Paragraph (A) of this 2-5 subdivision; 2-6 (C) a partnership formed for the purpose of 2-7 making a profit in which 51 percent of the assets and interest in 2-8 the partnership is owned by one or more persons described by 2-9 Paragraph (A) of this subdivision. Those persons must have 2-10 proportionate interest and demonstrate active participation in the 2-11 control, operation, and management of the partnership's affairs; or 2-12 (D) a joint venture in which each entity in the 2-13 joint venture is a historically underutilized business under this 2-14 subdivision. 2-15 (4) "Small business" means a corporation, partnership, 2-16 sole proprietorship, or other legal entity that: 2-17 (A) is domiciled in this state; 2-18 (B) is formed to make a profit; 2-19 (C) is independently owned and operated; and 2-20 (D) employs fewer than 100 full-time employees. 2-21 Sec. 481.192. LINKED DEPOSIT. A linked deposit is a time 2-22 deposit governed by a written deposit agreement between the state 2-23 and an eligible lending institution that provides: 2-24 (1) that the eligible lending institution pay interest 2-25 on the deposit at a rate that is not less than the greater of: 2-26 (A) the current market rate of a United States 2-27 treasury bill or note of comparable maturity minus two percent; or 3-1 (B) 1.5 percent; and 3-2 (2) that the eligible lending institution agree to 3-3 lend the value of the deposit to an eligible borrower at a maximum 3-4 rate that is the current market rate of a United States treasury 3-5 bill or note of comparable maturity plus four percent. 3-6 Sec. 481.193. LINKED DEPOSIT PROGRAM. (a) The department 3-7 shall establish a linked deposit program to encourage commercial 3-8 lending for the development of small businesses in distressed 3-9 communities and historically underutilized businesses. 3-10 (b) The policy board shall adopt rules for the loan portion 3-11 of the linked deposit program. 3-12 (c) In order to participate in the linked deposit program, 3-13 an eligible lending institution may solicit loan applications from 3-14 eligible borrowers. 3-15 (d) After reviewing an application and determining that the 3-16 applicant is an eligible borrower and is creditworthy, the eligible 3-17 lending institution shall send the application for a linked deposit 3-18 loan to the department. 3-19 (e) The eligible lending institution shall certify the 3-20 interest rate applicable to the specific eligible borrower and 3-21 attach it to the application sent to the department. 3-22 (f) After reviewing each linked deposit loan application, 3-23 the executive director of the department shall recommend to the 3-24 state treasurer the acceptance or rejection of the application. 3-25 (g) After the state treasurer's acceptance of the 3-26 application and the lending institution originates a loan to an 3-27 eligible borrower, the state treasurer shall place a linked deposit 4-1 with the applicable eligible lending institution for the period the 4-2 treasurer considers appropriate. The state treasurer may not place 4-3 a deposit for a period extending beyond the state fiscal biennium 4-4 in which it is placed. Subject to the limitation described by 4-5 Section 481.197, the treasurer may place time deposits at an 4-6 interest rate described by Section 481.192, notwithstanding any 4-7 order of the State Depository Board to the contrary. 4-8 (h) Before the placing of a linked deposit, the eligible 4-9 lending institution and the state, represented by the state 4-10 treasurer and the department, shall enter into a written deposit 4-11 agreement containing the conditions on which the linked deposit is 4-12 made. The deposit agreement must provide that: 4-13 (1) the lending institution notify the state treasurer 4-14 if the borrower to which the deposit is linked defaults on the 4-15 loan; and 4-16 (2) in the event of a default the state treasurer may 4-17 withdraw the linked deposit. 4-18 (i) If a lending institution holding linked deposits ceases 4-19 to be a state depository, the state treasurer may withdraw the 4-20 linked deposits. 4-21 Sec. 481.194. COMPLIANCE. (a) On acceptance of its 4-22 application to receive linked deposits, an eligible lending 4-23 institution shall loan money to an eligible borrower in accordance 4-24 with the deposit agreement and this subchapter. The eligible 4-25 lending institution shall forward a compliance report to the 4-26 department. 4-27 (b) The department shall monitor compliance with this 5-1 subchapter and inform the state treasurer of noncompliance on the 5-2 part of an eligible lending institution. 5-3 Sec. 481.195. DESIGNATION AS DISTRESSED COMMUNITY. (a) A 5-4 municipality may apply to the policy board for designation of a 5-5 subarea of the municipality as a distressed community. 5-6 (b) The application must: 5-7 (1) provide evidence that the subarea of the 5-8 municipality for which the application is being made has been 5-9 traditionally recognized by custom or by previous governmental 5-10 designation as a subarea and certify that: 5-11 (A) the per capita income in the subarea is 80 5-12 percent or less of the median income of the entire municipality 5-13 filing the application; 5-14 (B) the unemployment rate in the subarea is 1.5 5-15 times higher than the average unemployment rate of the entire 5-16 municipality; and 5-17 (C) 10 percent or more of all individuals and 5-18 families in the subarea are in poverty; or 5-19 (2) certify that the subarea is part of an enterprise 5-20 zone designated under the Texas Enterprise Zone Act (Article 5-21 5190.7, Vernon's Texas Civil Statutes). 5-22 (c) The policy board shall designate the subarea for which 5-23 an application is filed as a distressed community if it determines 5-24 that the requirements of Subsection (b) have been satisfied and 5-25 that the evidence required under Subsection (b)(1), if applicable, 5-26 is sufficient. 5-27 Sec. 481.196. STATE LIABILITY PROHIBITED. The state is not 6-1 liable to an eligible lending institution for payment of the 6-2 principal, interest, or any late charges on a loan made to an 6-3 eligible borrower. Linked deposits are not an extension of the 6-4 state's credit within the meaning of any state constitutional 6-5 prohibition. 6-6 Sec. 481.197. LIMITATIONS IN PROGRAM. (a) At any one time, 6-7 not more than $3 million may be placed in linked deposits under 6-8 this chapter. 6-9 (b) The maximum amount of a loan under the linked deposit 6-10 program is $100,000. 6-11 (c) The borrower shall apply a loan granted under this 6-12 subchapter to the purchase, construction, or lease of capital 6-13 assets, including land, buildings, and equipment. 6-14 (d) Notwithstanding Subsection (a), at any one time before 6-15 September 1, 1995, not more than $1 million may be placed in linked 6-16 deposits under this chapter. This subsection expires September 2, 6-17 1995. 6-18 SECTION 2. The importance of this legislation and the 6-19 crowded condition of the calendars in both houses create an 6-20 emergency and an imperative public necessity that the 6-21 constitutional rule requiring bills to be read on three several 6-22 days in each house be suspended, and this rule is hereby suspended, 6-23 and that this Act take effect and be in force from and after its 6-24 passage, and it is so enacted.