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.