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.