By:  West                                              S.B. No. 803
       73R1072 LJD-D
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to the creation and administration of a linked deposit
    1-3  program to encourage lending to small businesses in distressed
    1-4  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 J to read as follows:
    1-8         SUBCHAPTER J.  SMALL BUSINESS LINKED DEPOSIT PROGRAM
    1-9        Sec. 481.151.  DEFINITIONS.  In this subchapter:
   1-10              (1)  "Eligible borrower" means a person who proposes to
   1-11  begin operating a small business in a distressed community.
   1-12              (2)  "Eligible lending institution" means a financial
   1-13  institution that makes commercial loans, is a depository of state
   1-14  funds, and agrees to participate in the linked deposit program
   1-15  established by this subchapter and to provide collateral equal to
   1-16  the amount of linked deposits placed with it.
   1-17              (3)  "Small business" means a corporation, partnership,
   1-18  sole proprietorship, or other legal entity that:
   1-19                    (A)  is domiciled in this state;
   1-20                    (B)  is formed to make a profit;
   1-21                    (C)  is independently owned and operated; and
   1-22                    (D)  employs fewer than 100 full-time employees.
   1-23        Sec. 481.152.  LINKED DEPOSIT.  A linked deposit is a time
   1-24  deposit governed by a written deposit agreement between the state
    2-1  and an eligible lending institution that provides:
    2-2              (1)  that the eligible lending institution pay interest
    2-3  on the deposit at a rate that is not less than the current market
    2-4  rate of a United States treasury bill or note of comparable
    2-5  maturity minus two percent;
    2-6              (2)  that the state not withdraw any part of the
    2-7  deposit before the expiration of a period set by a written advance
    2-8  notice of the intention to withdraw; and
    2-9              (3)  that the eligible lending institution agree to
   2-10  lend the value of the deposit to an eligible borrower at a maximum
   2-11  rate that is the current market rate of a United States treasury
   2-12  bill or note of comparable maturity plus four percent.
   2-13        Sec. 481.153.  LINKED DEPOSIT PROGRAM.  (a)  The department
   2-14  shall establish a linked deposit program to encourage commercial
   2-15  lending for the development of small businesses in distressed
   2-16  communities.
   2-17        (b)  The policy board shall adopt rules for the loan portion
   2-18  of the linked deposit program.
   2-19        (c)  In order to participate in the linked deposit program,
   2-20  an eligible lending institution may solicit loan applications from
   2-21  eligible borrowers.
   2-22        (d)  After reviewing an application and determining that the
   2-23  applicant is an eligible borrower and is creditworthy, the eligible
   2-24  lending institution shall send the application for a linked deposit
   2-25  loan to the department.
   2-26        (e)  The eligible lending institution shall certify the
   2-27  interest rate applicable to the specific eligible borrower and
    3-1  attach it to the application sent to the department.
    3-2        (f)  After reviewing each linked deposit loan application,
    3-3  the executive director of the department shall recommend to the
    3-4  state treasurer the acceptance or rejection of the application.
    3-5        (g)  After acceptance of the application, the state treasurer
    3-6  shall place a linked deposit with the applicable eligible lending
    3-7  institution for the period the treasurer considers appropriate.
    3-8  The state treasurer may not place a deposit for a period extending
    3-9  beyond the state fiscal biennium in which it is placed.  Subject to
   3-10  the limitation described by Section 481.157, the treasurer may
   3-11  place time deposits at an interest rate described by Section
   3-12  481.152, notwithstanding any order of the State Depository Board to
   3-13  the contrary.
   3-14        (h)  Before the placing of a linked deposit, the eligible
   3-15  lending institution and the state, represented by the state
   3-16  treasurer and the department, shall enter into a written deposit
   3-17  agreement containing the conditions on which the linked deposit is
   3-18  made.
   3-19        (i)  If a lending institution holding linked deposits ceases
   3-20  to be a state depository, the state treasurer may withdraw the
   3-21  linked deposits.
   3-22        Sec. 481.154.  COMPLIANCE.  (a)  On accepting a linked
   3-23  deposit, an eligible lending institution shall loan money to
   3-24  eligible borrowers in accordance with the deposit agreement and
   3-25  this subchapter.  The eligible lending institution shall forward a
   3-26  compliance report to the department.
   3-27        (b)  The department shall monitor compliance with this
    4-1  subchapter and inform the state treasurer of noncompliance on the
    4-2  part of an eligible lending institution.
    4-3        Sec. 481.155.  DESIGNATION AS DISTRESSED COMMUNITY.  (a)  A
    4-4  municipality may apply to the policy board for designation of a
    4-5  subarea of the municipality as a distressed community.
    4-6        (b)  The application must:
    4-7              (1)  provide evidence that the subarea of the
    4-8  municipality for which the application is being made has been
    4-9  traditionally recognized by custom or by previous governmental
   4-10  designation as a subarea; and
   4-11              (2)  certify that:
   4-12                    (A)  the per capita income in the subarea is 80
   4-13  percent or less of the median income of the entire municipality
   4-14  filing the application;
   4-15                    (B)  the unemployment rate in the subarea is
   4-16  three percent higher than the average unemployment rate of the
   4-17  entire municipality; and
   4-18                    (C)  10 percent or more of all individuals and
   4-19  families in the subarea are in poverty.
   4-20        (c)  The policy board shall designate the subarea for which
   4-21  an application is filed as a distressed community if it determines
   4-22  that the evidence required under Subsection (b)(1) is sufficient
   4-23  and that the requirements of Subsection (b)(2) have been satisfied.
   4-24        Sec. 481.156.  STATE LIABILITY PROHIBITED.  The state is not
   4-25  liable to an eligible lending institution for payment of the
   4-26  principal, interest, or any late charges on a loan made to an
   4-27  eligible borrower.  A delay in payment or default on a loan by an
    5-1  eligible borrower does not affect the validity of the deposit
    5-2  agreement.  Linked deposits are not an extension of the state's
    5-3  credit within the meaning of any state constitutional prohibition.
    5-4        Sec. 481.157.  LIMITATIONS IN PROGRAM.  (a)  The maximum
    5-5  amount of a loan under the linked deposit program is $1,000,000.
    5-6        (b)  The borrower shall apply a loan granted under this
    5-7  subchapter to the purchase, construction, or lease of capital
    5-8  assets, including land, buildings, and equipment.
    5-9        SECTION 2.  The importance of this legislation and the
   5-10  crowded condition of the calendars in both houses create an
   5-11  emergency and an imperative public necessity that the
   5-12  constitutional rule requiring bills to be read on three several
   5-13  days in each house be suspended, and this rule is hereby suspended,
   5-14  and that this Act take effect and be in force from and after its
   5-15  passage, and it is so enacted.