BILL ANALYSIS H.B. 2343 By: Patterson March 28, 1995 Committee Report (Unamended) BACKGROUND The Texas Rural Economic Development Loan Guaranty Fund was authorized in 1989 with a $1.5 million appropriation plus future payoffs from predecessor agency direct loans. Program administration costs since 1989 have been paid from fees and earnings. Highlights include the following: Only state loan guaranty program to assist small business development in rural areas by guaranteeing loans made by financial institutions; Maximum guaranty of 90% of loan; maximum amount of $350,000, maximum term of 15 yrs.; Uses include building, machinery and equipment, working capital; As of January 30,1995, the fund balance in the state treasury was approximately $4 million, with $2 million legally obligated as guarantees to lenders; Currently authorized to have a guarantee-to-reserve ratio not to exceed two to one or $8 million; and Since 1989 startup, 17 loan guarantees totaling $3.7 million have been made without any losses. The Texas Exporters Loan Guaranty Fund was authorized in 1989 with a $2 million appropriation. Program administration costs since 1989 have been paid from fees and earnings. Highlights include the following: Only statewide loan guaranty program to finance small business manufacturer export transactions by guaranteeing loans made by financial institutions; Maximum guaranty of 90% of loan; maximum amount of $350,000; maximum term is 1 year; As of January 30, 1995, the fund balance in the state treasury was approximately $2 million, with $800,000 legally obligated as guarantees to lenders; and Since 1989 startup, 57 loan guarantees totaling $12 million have been made in support of $85 million in export sales without any losses. PURPOSE The bill's purpose is to directly address a major finding of the Special House Committee on Small Business Access to Capital regarding the lack of available capital for small business expansions. The bill in effect increases the amount of capital available without additional costs to the state. The bill amends Sections 481.0591 and 481.0842, Government Code, providing that a guarantee-to-reserve ratio may be adopted by the Policy Board which would permit Commerce to guarantee loans made by private lenders under the Rural Economic Development Loan Guaranty and Exporters Loan Guaranty Funds in an amount not to exceed three to one. RULEMAKING AUTHORITY It is the committee's opinion that this bill does expressly grant rulemaking authority to the Texas Department of Commerce in Section 1, Subsection (b). SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter D, Chapter 481, Government Code by adding Section 481.0591(a) to authorize the making of loan guarantees in excess of the amount in the fund; (b) the policy board by rule shall adopt a guarantee-to-reserve ratio that determines the amount of loan guarantees in excess of the amount in the fund, but not to exceed three to one; (c) the policy board shall review annually the guarantee-to-reserve ratio and make adjustments as necessary; and (d) the state auditor shall review the loan guarantee program and payment activity and make recommendations to the policy board not later that September 1 of each year. SECTION 2. Amends Section 481.0842(b), Government Code, by increasing the ratio of guarantees to the amount of money available in the fund to three to one. SECTION 3. Emergency clause. SUMMARY OF COMMITTEE ACTION H.B. 2343 was considered by the committee in a public hearing on March 27, 1995. Testifying on the bill was Dan McNeil, representing the Texas Department of Commerce. No one testified against the bill. The bill was reported favorably without amendment, with the recommendation that it do pass and be printed, by a record vote of 7 ayes, 0 nays, 0 pnv, 2 absent.