73R11272 DWS-F
          By Lucio, West, Rosson                                 S.B. No. 223
          Substitute the following for S.B. No. 223:
          By Danburg                                         C.S.S.B. No. 223
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to the provision by the state of guarantees and
    1-3  indemnification relating to surety bonds for historically
    1-4  underutilized businesses; authorizing the issuance of bonds.
    1-5        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-6        SECTION 1.  The heading of Subchapter G, Chapter 481,
    1-7  Government Code, is amended to read as follows:
    1-8      SUBCHAPTER G.  <SMALL BUSINESS> ASSISTANCE FOR HISTORICALLY
    1-9             UNDERUTILIZED BUSINESSES AND SMALL BUSINESSES
   1-10        SECTION 2.  Section 481.101, Government Code, is amended by
   1-11  amending Subdivisions (1) and (3) and adding Subdivisions (4), (5),
   1-12  (6), (7), (8), (9), (10), (11), and (12) to read as follows:
   1-13              (1)  "Historically underutilized business"
   1-14  <"Disadvantaged business"> means:
   1-15                    (A)  a corporation formed for the purpose of
   1-16  making a profit in which at least 51 percent of all classes of the
   1-17  shares of stock or other equitable securities is owned by one or
   1-18  more persons who are socially  disadvantaged because of their
   1-19  identification as members of certain groups, including black
   1-20  Americans, Hispanic Americans, women, Asian Pacific Americans, and
   1-21  American Indians, who have suffered the effects of discriminatory
   1-22  practices or similar insidious circumstances over which they have
   1-23  no control.  Those persons must have proportionate interest and
   1-24  demonstrate active participation in the control, operation, and
    2-1  management of the corporation's affairs;
    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 <disadvantaged>
   2-14  business under this subdivision<; or>
   2-15                    <(E)  a supplier contract between a disadvantaged
   2-16  business under this subdivision and a prime contractor under which
   2-17  the disadvantaged business is directly involved in the manufacture
   2-18  or distribution of the supplies or materials or otherwise
   2-19  warehouses and ships the supplies>.
   2-20              (3)  "Small business" means a corporation, partnership,
   2-21  sole proprietorship, or other legal entity that:
   2-22                    (A)  is formed for the purpose of making a
   2-23  profit,<;>
   2-24                    <(B)>  is independently owned and operated,<;>
   2-25  and
   2-26                    <(C)>  has fewer than 100 employees or less than
   2-27  $1 million in annual gross receipts; or
    3-1                    (B)  otherwise qualifies as a small business
    3-2  under the standards of the United States Small Business
    3-3  Administration.
    3-4              (4)  "Surety bond fund" means the Texas historically
    3-5  underutilized business surety bond fund.
    3-6              (5)  "Bid bond" means a bond conditioned on the bidder
    3-7  on a contract entering into the contract, if the bidder receives
    3-8  the award of the contract, and furnishing the prescribed payment
    3-9  bond and performance bond.
   3-10              (6)  "Payment bond" means a bond conditioned on the
   3-11  payment by the principal of money to persons under contract with
   3-12  the principal.
   3-13              (7)  "Performance bond" means a bond conditioned on the
   3-14  completion by the principal of a contract according to its terms.
   3-15              (8)  "Surety" means the person who:
   3-16                    (A)  under the terms of a bid bond, undertakes to
   3-17  pay a sum of money to the obligee in the event that the principal
   3-18  breaches the conditions of the bond;
   3-19                    (B)  under the terms of a performance bond,
   3-20  undertakes to incur the cost of fulfilling a contract in the event
   3-21  that the principal breaches the contract;
   3-22                    (C)  under the terms of a payment bond,
   3-23  undertakes to pay all persons supplying labor and material in
   3-24  carrying out the work provided for in the contract if the principal
   3-25  fails to make prompt payment; or
   3-26                    (D)  is an agent, independent agent, underwriter,
   3-27  or any other company or individual empowered to act on behalf of
    4-1  such a person.
    4-2              (9)  "Obligee" means:
    4-3                    (A)  for a bid bond, the person requesting bids
    4-4  for the performance of a contract; or
    4-5                    (B)  for a payment bond or performance bond, the
    4-6  person who has contracted with a principal for the completion of
    4-7  the contract and to whom the obligation of the surety runs if the
    4-8  principal breaches the conditions of the bond.
    4-9              (10)  "Principal" means for a bid bond, a person
   4-10  bidding for the award of a contract, or for a payment bond or
   4-11  performance bond, the person primarily liable to complete a
   4-12  contract for the obligee, or to make payments to other persons in
   4-13  respect of a contract, and for whose performance of the person's
   4-14  obligation the surety is bound under the terms of the bond.  The
   4-15  term includes a prime contractor or a subcontractor.
   4-16              (11)  "Prime contractor" means the person with whom the
   4-17  obligee has contracted to perform the contract.
   4-18              (12)  "Subcontractor" means a person who has contracted
   4-19  with a prime contractor or with another subcontractor to perform a
   4-20  contract.
   4-21        SECTION 3.  Subchapter G, Chapter 481, Government Code, is
   4-22  amended by adding Section 481.1011 to read as follows:
   4-23        Sec. 481.1011.  EXCLUSION AS HISTORICALLY UNDERUTILIZED
   4-24  BUSINESS.  A business is not a historically underutilized business
   4-25  if an owner of the business has a personal net worth of more than
   4-26  $750,000, unless the office determines that the person has
   4-27  demonstrated that the person is a socially disadvantaged individual
    5-1  described by Section 481.101(1)(A).  For the purposes of this
    5-2  section, "personal net worth" has the meaning assigned by the
    5-3  regulations of the United States Small Business Administration in
    5-4  13 C.F.R. Section 124.106.
    5-5        SECTION 4.  Sections 481.103 and 481.107, Government Code,
    5-6  are amended to read as follows:
    5-7        Sec. 481.103.  Duties.  (a)  The office shall:
    5-8              (1)  examine the role of small and historically
    5-9  underutilized <disadvantaged> businesses in the state's economy and
   5-10  the contribution of small and historically underutilized
   5-11  <disadvantaged> businesses in generating economic activity,
   5-12  expanding employment opportunities, promoting exports, stimulating
   5-13  innovation and entrepreneurship, and bringing new and untested
   5-14  products and services to the marketplace;
   5-15              (2)  serve as the principal advocate in the state on
   5-16  behalf of small and historically underutilized <disadvantaged>
   5-17  businesses and provide advice in the consideration of
   5-18  administrative requirements and legislation that affect small and
   5-19  historically underutilized <disadvantaged> businesses;
   5-20              (3)  evaluate the effectiveness of efforts of state
   5-21  agencies and other entities to assist small and historically
   5-22  underutilized <disadvantaged> businesses and make appropriate
   5-23  recommendations to assist the development and strengthening of
   5-24  small and historically underutilized <disadvantaged> business
   5-25  enterprise;
   5-26              (4)  identify specific instances in which regulations
   5-27  inhibit small and historically underutilized <disadvantaged>
    6-1  business development and to the extent possible identify
    6-2  conflicting state policy goals;
    6-3              (5)  determine the availability of financial and other
    6-4  resources to small and historically underutilized <disadvantaged>
    6-5  businesses and recommend methods for:
    6-6                    (A)  increasing the availability of equity
    6-7  capital and other forms of financial assistance to small and
    6-8  historically underutilized <disadvantaged> businesses;
    6-9                    (B)  generating markets for the goods and
   6-10  services of small and historically underutilized <disadvantaged>
   6-11  businesses;
   6-12                    (C)  providing more effective education,
   6-13  training, and management and technical assistance to small and
   6-14  historically underutilized <disadvantaged> businesses; and
   6-15                    (D)  providing assistance to small and
   6-16  historically underutilized <disadvantaged> businesses in complying
   6-17  with federal, state, and local laws;
   6-18              (6)  describe the reasons for small and historically
   6-19  underutilized <disadvantaged> business successes and failures,
   6-20  ascertain the related factors that are particularly important in
   6-21  this state, and recommend actions for increasing the success rate
   6-22  of small and historically underutilized <disadvantaged> businesses;
   6-23              (7)  serve as a focal point for receiving complaints
   6-24  and suggestions concerning state government policies and activities
   6-25  that affect small and historically underutilized <disadvantaged>
   6-26  businesses;
   6-27              (8)  assist with the resolution of problems among state
    7-1  agencies and small and historically underutilized <disadvantaged>
    7-2  businesses;
    7-3              (9)  develop and advocate proposals for changes in
    7-4  state policies and activities that adversely affect small and
    7-5  historically underutilized <disadvantaged> businesses;
    7-6              (10)  provide to legislative committees and state
    7-7  agencies information on the effects of proposed policies or actions
    7-8  that affect small and historically underutilized <disadvantaged>
    7-9  businesses;
   7-10              (11)  enlist the assistance of public and private
   7-11  agencies, businesses, and other organizations in disseminating
   7-12  information about state programs and services that benefit small
   7-13  and historically underutilized <disadvantaged> businesses and
   7-14  information regarding means by which small and historically
   7-15  underutilized <disadvantaged> businesses can use those programs and
   7-16  services;
   7-17              (12)  provide information and assistance relating to
   7-18  establishing, operating, or expanding small and historically
   7-19  underutilized <disadvantaged> businesses;
   7-20              (13)  establish and operate a statewide toll-free
   7-21  telephone service providing small and historically underutilized
   7-22  <disadvantaged> businesses with ready access to the services
   7-23  offered by the office;
   7-24              (14)  identify sources of financial assistance for
   7-25  small and historically underutilized <disadvantaged> businesses,
   7-26  match small and historically underutilized <disadvantaged>
   7-27  businesses with sources of financial assistance, and assist small
    8-1  and historically underutilized <disadvantaged> businesses with the
    8-2  preparation of applications for loans from governmental or private
    8-3  sources;
    8-4              (15)  sponsor meetings, to the extent practicable in
    8-5  cooperation with public and private educational institutions, to
    8-6  provide training and disseminate information beneficial to small
    8-7  and historically underutilized <disadvantaged> businesses;
    8-8              (16)  assist small and historically underutilized
    8-9  <disadvantaged> businesses in their dealings with federal, state,
   8-10  and local governmental agencies and provide information regarding
   8-11  governmental requirements affecting small and historically
   8-12  underutilized <disadvantaged> businesses;
   8-13              (17)  perform research, studies, and analyses of
   8-14  matters affecting the interests of small and historically
   8-15  underutilized <disadvantaged> businesses;
   8-16              (18)  develop and implement programs to encourage
   8-17  governmental agencies, public sector business associations, and
   8-18  other organizations to provide useful services to small and
   8-19  historically underutilized <disadvantaged> businesses;
   8-20              (19)  use available resources within the state, such as
   8-21  small business development centers, educational institutions, and
   8-22  nonprofit associations, to coordinate the provision of management
   8-23  and technical assistance to small and historically underutilized
   8-24  <disadvantaged> businesses in a systematic manner;
   8-25              (20)  publish newsletters, brochures, and other
   8-26  documents containing information useful to small and historically
   8-27  underutilized <disadvantaged> businesses;
    9-1              (21)  identify successful small and historically
    9-2  underutilized <disadvantaged> business assistance programs provided
    9-3  by other states and determine the feasibility of adapting those
    9-4  programs for implementation in this state;
    9-5              (22)  establish an outreach program to make the
    9-6  existence of the office known to small and historically
    9-7  underutilized <disadvantaged> businesses and potential clients
    9-8  throughout the state;
    9-9              (23)  adopt rules necessary to carry out this
   9-10  subchapter;
   9-11              (24)  identify potential business opportunities for
   9-12  small and historically underutilized <disadvantaged> businesses in
   9-13  the border region and develop programs to maximize those
   9-14  opportunities;
   9-15              (25)  identify potential business opportunities for
   9-16  small and historically underutilized <disadvantaged> businesses in
   9-17  rural areas of this state and develop programs to maximize those
   9-18  opportunities; and
   9-19              (26)  perform any other functions necessary to carry
   9-20  out the purposes of this subchapter.
   9-21        (b)  The department may provide community-based services to
   9-22  carry out its duties under this chapter, including the creation of
   9-23  a pilot program to evaluate the merits of locating full-time
   9-24  personnel outside the Austin headquarters.  This pilot program will
   9-25  give first preference to serving economically distressed areas,
   9-26  rural areas, or historically underutilized <disadvantaged>
   9-27  businesses or assisting development of specific industries.  The
   10-1  department may require areas served by these personnel to provide
   10-2  in-kind or cash contributions as necessary to support these
   10-3  personnel.   A report will be submitted to the legislature
   10-4  describing the effectiveness of this method for delivering services
   10-5  from the department to address specific economic needs.
   10-6        Sec. 481.107.  CONTRACTS AWARDED TO SMALL OR HISTORICALLY
   10-7  UNDERUTILIZED <DISADVANTAGED> BUSINESSES.  Each state agency shall
   10-8  keep statistical data and other records on the number of contracts
   10-9  awarded by the agency to small or historically underutilized
  10-10  <disadvantaged> businesses.
  10-11        SECTION 5.  Subchapter G, Chapter 481, Government Code, is
  10-12  amended by adding Sections 481.118, 481.119, 481.120, 481.1201,
  10-13  481.1202, 481.1203, and 481.1204 to read as follows:
  10-14        Sec. 481.118.  Texas Historically Underutilized Business
  10-15  Surety Bond Fund.  (a)  The Texas historically underutilized
  10-16  business surety bond fund is a revolving fund in the state
  10-17  treasury.  The surety bond fund consists of money appropriated to
  10-18  the department, proceeds of general obligation bonds issued to
  10-19  provide surety bonds under this subchapter, bonding fees, and other
  10-20  amounts received by the state from the guarantee program under this
  10-21  subchapter and money acquired from federal grants or other sources
  10-22  and required by resolution of the policy board to be deposited in
  10-23  the surety bond fund.  The surety bond fund contains a program
  10-24  account, an interest and sinking account, and other accounts that
  10-25  the policy board authorizes to be created and maintained.  Money in
  10-26  the surety bond fund is available for use by the office for the
  10-27  surety bond program provided by this subchapter.
   11-1        (b)  Money in the program account, minus the costs of
   11-2  issuance of general obligation bonds to provide surety bonds under
   11-3  this subchapter and necessary costs of administering the surety
   11-4  bond fund, may be used only to provide guarantees and
   11-5  indemnification under Sections 481.119 through 481.1203.
   11-6        Sec. 481.119.  GUARANTEE OF SURETY.  (a)  The office may
   11-7  guarantee and enter into commitments to guarantee a surety against
   11-8  loss resulting from breach of the terms of a bid bond, payment
   11-9  bond, or performance bond by a historically underutilized business
  11-10  that is the principal on a contract if the amount of the contract
  11-11  is $1,250,000 or less.  The terms of a guarantee or commitment may
  11-12  vary from surety to surety based on the office's experience with a
  11-13  particular surety.  The office may authorize a surety without
  11-14  further approval to issue, monitor, and service a bond subject to a
  11-15  guarantee.
  11-16        (b)  A guarantee may not be issued unless:
  11-17              (1)  the person to be the principal under the bond is a
  11-18  historically underutilized business;
  11-19              (2)  the bond is required by the person to bid on a
  11-20  contract or to serve as a prime contractor or subcontractor on a
  11-21  contract;
  11-22              (3)  the person is not able to obtain the bond on
  11-23  reasonable terms without the guarantee;
  11-24              (4)  there is a reasonable expectation that the
  11-25  principal will perform the contract; and
  11-26              (5)  the terms of the bond are reasonable considering
  11-27  the risks involved and the extent of the surety's participation.
   12-1        (c)  A payment made under a guarantee may not exceed 90
   12-2  percent of the loss involved.
   12-3        Sec. 481.120.  INDEMNIFICATION.  (a)  In connection with the
   12-4  issuance of a guarantee under Section 481.119, the office may agree
   12-5  to indemnify a surety against a loss the surety incurs in avoiding
   12-6  or attempting to avoid a breach of the terms of the bond.  The
   12-7  office must authorize the specific expenditure to be indemnified
   12-8  before the expenditure is made and after the office determines that
   12-9  the breach is imminent and the amount of the proposed expenditure
  12-10  is reasonable.
  12-11        (b)  The amount of the indemnification may not exceed 90
  12-12  percent of the amount of the expenditure indemnified.
  12-13        Sec. 481.1201.  EXCEPTIONS TO PAYMENT.  The office is not
  12-14  required to pay any amount under a guarantee under Section 481.119
  12-15  or an agreement under Section 481.120 if the surety:
  12-16              (1)  obtained the guarantee or agreement or applied for
  12-17  reimbursement by fraud or material misrepresentation;
  12-18              (2)  has breached a material term of the guarantee or
  12-19  agreement; or
  12-20              (3)  has violated a rule adopted under Section
  12-21  481.1203.
  12-22        Sec. 481.1202.  REPORTS; AUDIT.  (a)  A participating surety
  12-23  shall make reports to the office at the times and in the form the
  12-24  office requires.
  12-25        (b)  The office at any reasonable time may audit any material
  12-26  in the hands of a surety relevant to a guarantee under Section
  12-27  481.119 or an agreement under Section 481.120.  The office must
   13-1  conduct the audit at the surety's offices.
   13-2        Sec. 481.1203.  RULES.  The policy board shall adopt
   13-3  necessary rules to carry out the guarantee program created by this
   13-4  subchapter.  The rules may prescribe reasonable fees to be paid by
   13-5  a principal or surety participating in the program.
   13-6        Sec. 481.1204.  SURETY BOND FUND:  GENERAL OBLIGATION BONDS.
   13-7  (a)  The policy board may issue up to $50 million of general
   13-8  obligation bonds and may use the proceeds to provide surety bonds
   13-9  under this subchapter.  The policy board shall deposit the proceeds
  13-10  of the general obligation bonds in the surety bond fund and apply
  13-11  them in accordance with the resolutions authorizing those bonds.
  13-12  The surety bond fund and any accounts established in the fund shall
  13-13  be held in trust by the state treasurer for and on behalf of the
  13-14  office and the owners of the general obligation bonds issued in
  13-15  accordance with this section and may be used only as provided by
  13-16  this section.  Pending use, the treasurer may invest and reinvest
  13-17  money in the surety bond fund in investments authorized by law for
  13-18  state funds that the treasurer, consistent with the policy board's
  13-19  resolutions authorizing the general obligation bonds, considers
  13-20  appropriate.  Payment for the provision of a surety bond provided
  13-21  under this subchapter shall be deposited, first, in the interest
  13-22  and sinking account as prescribed by the policy board's resolutions
  13-23  authorizing general obligation bonds under this subchapter and,
  13-24  second, in any reserve account established by the policy board
  13-25  until that account is fully funded as prescribed by the policy
  13-26  board's resolutions.  If, during the time any general obligation
  13-27  bonds are payable from the interest and sinking account, the policy
   14-1  board determines that there will not be sufficient money in the
   14-2  interest and sinking account during the following fiscal year to
   14-3  pay the principal of or interest on the general obligation bonds or
   14-4  both the principal and interest that are to come due during the
   14-5  following fiscal year, the comptroller shall transfer to the fund
   14-6  the first money coming into the state treasury not otherwise
   14-7  appropriated by the constitution in an amount sufficient to pay the
   14-8  obligations.
   14-9        (b)  The general obligation bonds may be issued from time to
  14-10  time in one or more series or issues, in bearer, registered, or any
  14-11  other form, which may include registered uncertificated obligations
  14-12  not represented by written instruments and commonly known as
  14-13  book-entry obligations, the registration of ownership and transfer
  14-14  of which shall be provided for by the policy board under a system
  14-15  of books and records maintained by the office or by an agent
  14-16  appointed by the policy board in a resolution providing for
  14-17  issuance of its general obligation bonds.  General obligation bonds
  14-18  may mature serially or otherwise not more than 40 years from their
  14-19  date.  General obligation bonds may bear no interest or may bear
  14-20  interest at any rate or rates, fixed, variable, floating, or
  14-21  otherwise, determined by the policy board or determined pursuant to
  14-22  any contractual arrangements approved by the policy board, not to
  14-23  exceed the maximum net effective interest rate allowed by Chapter
  14-24  3, Acts of the 61st Legislature, Regular Session, 1969 (Article
  14-25  717k-2, Vernon's Texas Civil Statutes).  Interest on the general
  14-26  obligation bonds may be payable at any time, and the rate of
  14-27  interest on the general obligation bonds may be adjusted at any
   15-1  time determined by the policy board pursuant to the resolutions
   15-2  authorizing the bonds or determined pursuant to any contractual
   15-3  arrangement approved by the policy board.  In connection with the
   15-4  issuance of its general obligation bonds, the policy board may
   15-5  exercise the powers granted to the governing body of an issuer in
   15-6  connection with the issuance of obligations under Chapter 656, Acts
   15-7  of the 68th Legislature, Regular Session, 1983 (Article 717q,
   15-8  Vernon's Texas Civil Statutes), to the extent not inconsistent with
   15-9  this section.  The general obligation bonds may be issued in the
  15-10  form and denominations and executed in the manner and under the
  15-11  terms, conditions, and details determined by the policy board in
  15-12  the resolution authorizing their issuance.  If any officer whose
  15-13  manual or facsimile signature appears on the general obligation
  15-14  bonds ceases to be an officer, the signature remains valid and
  15-15  sufficient for all purposes as if the officer had remained in
  15-16  office.
  15-17        (c)  All general obligation bonds issued by the policy board
  15-18  under this section are subject to review and approval by the
  15-19  attorney general in the same manner and with the same effect as is
  15-20  provided by Chapter 656, Acts of the 68th Legislature, Regular
  15-21  Session, 1983 (Article 717q, Vernon's Texas Civil Statutes).
  15-22        (d)  The general obligation bonds are a legal and authorized
  15-23  investment for a bank, trust company, savings and loan association,
  15-24  insurance company, fiduciary, trustee, or guardian or a sinking
  15-25  fund of a municipality, county, school district, or political
  15-26  subdivision of the state.  The general obligation bonds may secure
  15-27  deposits of public funds of the state or a municipality, county,
   16-1  school district, or another political corporation or subdivision of
   16-2  the state.  The policy board may issue bonds to refund all or part
   16-3  of its outstanding general obligation bonds, including accrued but
   16-4  unpaid interest.  The general obligation bonds, a transaction
   16-5  relating to those bonds, or a profit made in the sale of those
   16-6  bonds is exempt from taxation by the state, an agency or
   16-7  subdivision of the state, a municipality, or a special district.
   16-8        SECTION 6.   The policy board of the Texas Department of
   16-9  Commerce may not issue more than $25 million of bonds under Section
  16-10  481.1204, Government Code, as added by this Act, during the state
  16-11  fiscal biennium beginning September 1, 1993.
  16-12        SECTION 7.  This Act takes effect on the date on which the
  16-13  constitutional amendment proposed by S.J.R. 10, 73rd Legislature,
  16-14  Regular Session, 1993, takes effect.  If that proposed
  16-15  constitutional amendment is not approved by the voters, this Act
  16-16  has no effect.
  16-17        SECTION 8.  The importance of this legislation and the
  16-18  crowded condition of the calendars in both houses create an
  16-19  emergency   and   an   imperative   public   necessity   that   the
  16-20  constitutional rule requiring bills to be read on three several
  16-21  days in each house be suspended, and this rule is hereby suspended.