BILL ANALYSIS
S.B. 381
By: West
State Affairs
3-3-95
Committee Report (Unamended)
BACKGROUND
According to the Minority Development Agency of the U.S. Department
of Commmerce, more than 154,000 historically underutilized
businesses operate in Texas. These businesses employ over 78,000
Texans and have annual sales in excess of $7 billion. Texas
purchases over $70 million in goods and services from these
businesses, yet that amount is only 2.1 percent of the state's
annual purchases.
PURPOSE
As proposed, S.B. 381 authorizes the issuance of bonds to assist
historically underutilized businesses and sets forth provisions for
guarantees and indemnification of surety bonds.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the policy board to the Texas Department of Commerce under
SECTION 5 (Sec. 481.1203, Government Code).
SECTION BY SECTION ANALYSIS
SECTION 1. Amends the heading of Chapter 481G, Government Code, as
follows:
SUBCHAPTER G. ASSISTANCE FOR HISTORICALLY UNDERUTILIZED
BUSINESSES AND SMALL BUSINESSES
SECTION 2. Amends Section 481.101, Government Code, as follows:
Sec. 481.101. DEFINITIONS. Defines "bid bond," "historically
underutilized business," "obligee," "office," "payment bond,"
"performance bond," "prime contractor," "principal," "small
business," "subcontractor," "surety," "surety bond fund."
SECTION 3. Amends Chapter 481G, Government Code, by adding Section
481.1011, as follows:
Sec. 481.1011. EXCLUSION AS HISTORICALLY UNDERUTILIZED
BUSINESS. Provides that a business is not a historically
underutilized business if an owner of the business has a
personal net worth of more than $750,000, unless the Office of
Small Business Assistance (office) determines that the person
has demonstrated that the person is a socially disadvantaged
individual described by Section 481.101(2)(A). Defines
"personal net worth."
SECTION 4. Amends Section 481.103(b), Government Code, to make
conforming changes.
SECTION 5. Amends Chapter 481G, Government Code, by adding Sections
481.118, 481.119, 481.120, 481.1201, 481.1202, 481.1203, 481.1204,
as follows:
Sec. 481.118. TEXAS HISTORICALLY UNDERUTILIZED BUSINESS
SURETY BOND FUND. (a) Provides that the Texas historically
underutilized business surety bond fund is a revolving fund in
the state treasury and consists of money appropriated to the
department, general obligation bonds proceeds, bonding fees,
other amounts received by the state from the guarantee
program, and federal grants money and other sources to be
deposited in the surety bond fund in certain accounts.
Provides that money in the surety bond fund is available for
use by the office for the surety bond program.
(b) Authorizes money in the program account, minus the
costs of issuance of general obligation bonds to provide
surety bonds and necessary costs of administering the surety
bond fund, to be used only to provide guarantees and
indemnification under Sections 481.119 through 481.1203.
Sec. 481.119. GUARANTEE OF SURETY. (a) Authorizes the
office to guarantee a surety against loss resulting from
breach of the terms of a bid, payment, or performance bond
by a historically underutilized business that is the
principal on a contract if the amount of the contract is
$1,250,000 or less. Authorizes the terms of a guarantee or
commitment to vary from surety to surety based on the
office's experience with a particular surety. Authorizes
the office to authorize a surety without further approval to
issue, monitor, and service a bond subject to a guarantee.
(b) Prohibits a guarantee from being issued except under
certain conditions.
(c) Prohibits a payment made under a guarantee from
exceeding 90 percent of the loss involved.
Sec. 481.120. INDEMNIFICATION. (a) Authorizes the office
to agree to indemnify a surety against a loss the surety
incurs in avoiding or attempting to avoid a breach of the
terms of the bond. Requires the office to authorize the
specific expenditure to be indemnified before the
expenditure is made and after the office determines that the
breach is imminent and the amount of the proposed
expenditure is reasonable.
(b) Prohibits the amount of the indemnification from
exceeding 90 percent of the amount of the expenditure
indemnified.
Sec. 481.1201. EXCEPTIONS TO PAYMENT. Provides that the
office is not required to pay any amount under Section
481.119 or 481.120 under certain conditions.
Sec. 481.1202. REPORTS; AUDIT. (a) Requires a
participating surety to make reports to the office at the
times and in the form the office requires.
(b) Authorizes the office to audit any material in the
hands of a surety relevant to a guarantee under Section
481.120 at the surety's offices.
Sec. 481.1203. RULES. Requires the policy board to the
Texas Department of Commerce (policy board) to adopt
necessary rules to carry out the guarantee program created
by this subchapter. Authorizes the rules to prescribe
reasonable fees to be paid by a principal or surety
participating in the program.
Sec. 481.1204. SURETY BOND FUND: GENERAL OBLIGATION BONDS.
(a) Authorizes the policy board to issue up to $50 million
of general obligation bonds and to use the proceeds to
provide surety bonds. Requires the policy board to deposit
the bond proceeds in the surety bond fund and apply them in
accordance with the resolutions authorizing those bonds.
Requires the surety bond fund and any accounts established
in the fund to be held in trust by the state treasurer and
the owners of the general obligation bonds and to be used
only as provided by this section. Sets forth required
procedures for depositing payments for the provision of a
surety bond. Requires the comptroller to transfer to the
fund a sufficient amount of the first money coming into the
state treasury not otherwise appropriated by the
constitution to pay the obligations in the event that the
policy board determines funds are insufficient to pay either
the principal of or interest on the general obligation bonds
or both during the following fiscal year.
(b) Authorizes the general obligation bonds to be issued in
one or more series or issues, in bearer, registered, or any
other form, including book-entry obligations. Requires the
registration of ownership and transfer of the bonds to be
provided for by the policy board under a system of books and
records maintained by the office or by an agent appointed by
the policy board in a resolution providing for the issuance
of its general obligation bonds. Authorizes general
obligation bonds to mature serially or otherwise not more
than 40 years from their date. Provides that general
obligation bonds may or may not bear interest at any rates,
fixed, variable, floating, or otherwise, as determined by
the policy board. Provides that interest on the general
obligation bonds are payable at any time and interest rates
are adjustable as determined by the policy board.
Authorizes the policy board to exercise the powers granted
to the governing body of an issue as it relates to the
issuance of obligations under Article 717q, V.T.C.S.
Authorizes the general obligation bonds to be issued and
executed determined by the policy board. Provides that the
signature of an officer on the general obligation bond
remains valid and sufficient even if the officer leaves
office.
(c) Subjects all general obligation bonds issued by the
policy board to review and approval by the attorney general
consistent with Article 717q, V.T.C.S.
(d) Provides that general obligation bonds are a legal and
authorized investment for certain private and public
entities and individuals. Authorizes the general obligation
bonds to secure deposits of public funds of certain
entities. Authorizes the policy board to issue bonds to
refund all or part of its outstanding general obligation
bonds. Provides that general obligation bonds and relating
sale profits are exempt from taxation by certain government
entities.
SECTION 6. Amends Section 481.160(b), Government Code, to make
conforming changes.
SECTION 7. Prohibits the policy board of the Texas Department of
Commerce from issuing more than $25 million of bonds under Section
481.1204, Government Code, as added by this Act, during the state
fiscal biennium beginning September 1, 1995.
SECTION 8. Provides that this Act takes effect on the date on
which the corresponding proposed constitutional amendment takes
effect. Provides that this Act has no effect if the proposed
amendment is not approved by the voters.
SECTION 9. Emergency clause.