BILL ANALYSIS S.B. 382 By: West State Affairs 3-3-95 Committee Report (Unamended) BACKGROUND Testimony before the Joint Interim Committee on Historically Underutilized Businesses (HUBs) indicates that while state purchases from HUBs have increased dramatically over the past four years, an equitable distribution of state contracts to HUBs is still elusive. One problem that HUBs face, according to the committee, is the difficulty of obtaining start-up funds. PURPOSE As proposed, S.B. 382 establishes a capital growth and start-up fund for historically underutilized businesses. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is granted to the policy board of the Texas Department of Commerce under SECTION 5 (Section 481.116, Government Code) of this bill. 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, to define "capital growth fund," "private lender," and "qualified application," and to redefine "historically underutilized business," and "small business." 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 (HUB) 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 a person is a socially disadvantaged individual. Defines "personal net worth." SECTION 4. Amends Section 481.103(b), Government Code, to make a nonsubstantive change. SECTION 5. Amends Chapter 481G, Government Code, by adding Sections 481.109-481.117, as follows: Sec. 481.109. TEXAS HISTORICALLY UNDERUTILIZED BUSINESS CAPITAL GROWTH AND START-UP FUND. (a) Provides that the Texas HUB capital growth and start-up fund is a revolving fund in the state treasury. Sets forth various funds composing the capital growth fund. Provides that the capital growth fund is available for use by the office for the loan and loan guarantee program and contains a program account, an interest and sinking account, and other accounts that the policy board of the Texas Department of Commerce (policy board) authorizes to be created and maintained. (b) Authorizes certain money in the program account to be used only to provide loans and loan guarantees to aid in the start-up costs of HUBs. Authorizes the office to provide a loan or loan guarantee from the capital growth fund to assist a HUB to perform certain functions. Requires the office to provide loans and loan guarantees from the capital growth fund on the terms and conditions that the office determines to be reasonable and consistent with the purposes of the capital growth fund and this subchapter. Authorizes the office to provide a loan or loan guarantee only if financing for the HUB cannot be otherwise obtained. Sec. 481.110. LOANS AND LOAN GUARANTEES. (a) Prohibits the office from guaranteeing more than 90 percent of a loan or providing a loan in an amount in excess of 90 percent of the cost of the undertaking. (b) Sets forth certain financial aspects the office is required to determine for each loan or loan guarantee. (c) Authorizes the minimum amount of a loan made by the office to be $10,000. (d) Authorizes the maximum amount of a loan made by the office to be $500,000. Sec. 481.111. APPLICATION AND APPROVAL. (a) Prohibits the office from making a loan or loan guarantee except on submission of a qualified application by a HUB or private lender. (b) Prohibits a qualified application from being approved unless the business holds funds or property pledged to the business in an amount or value equal to not less than 10 percent of the start-up cost of the business, and the business has obtained firm commitments from other financial sources for funds in excess of the office loan. (c) Authorizes the office to provide a loan or loan guarantee to a business on approval of the qualified application. (d) Provides that this subchapter does not prohibit the use of money in the capital growth fund in conjunction with any other money available for the purposes of the loans or loan guarantees provided by this subchapter. Sec. 481.112. USE OF LOAN. Authorizes the money received from a loan made or guaranteed under Section 481.110 to be used only for the initial costs of starting a business. Sec. 481.113. DEFAULT ON LOAN. (a) Requires the office through its representative to bring suit against a HUB if the HUB defaults on a loan made or guaranteed and the office is required to honor its guarantee. Authorizes the suit to be brought in the county in which the principal office of the business is located, in which the private lender is located, or in Travis County. (b) Authorizes the office to take title by foreclosure to or to sell any of the business's property if necessary to protect a loan or loan guarantee. Authorizes the office to lease any property of the business to another person if the office cannot make a prompt sale to minimize financial losses and sustain employment. (c) Requires the office to report to the comptroller the name of a business that is in default on a loan or loan guarantee on which the office has been required to honor a guarantee. Prohibits the comptroller from issuing a warrant to the business while the business is in default. (d) Requires the instruments evidencing a loan made by the office or a loan guarantee made by a private lender to provide that in the event of a payment default or in the performance of an agreement relating to the loan or loan guarantee, the payment and performance may be enforced by mandamus or by the appointment of a receiver in equity with power to apply the revenues from the business as provided by the instrument or other agreement. Sec. 481.114. FALSE INFORMATION ON APPLICATION. Sets forth penalties for an applicant who knowingly or negligently provides material false information on an application. Sec. 481.115. ADMINISTRATION OF CAPITAL GROWTH FUND. Requires the office to administer the capital growth fund and to act as liaison among businesses, private lenders, and state agencies whose services are useful to the office in carrying out the loan and loan guarantee program. Sec. 481.116. ADDITIONAL POWERS AND DUTIES. Requires the policy board to adopt the rules necessary to carry out the purposes of the capital growth fund. Requires the policy board to establish procedures to minimize the number of defaults on loans made or guaranteed from the capital growth fund. Authorizes those procedures to include the purchase of insurance coverage against loss. Sec. 481.117. CAPITAL GROWTH FUND: GENERAL OBLIGATION BONDS. (a) Authorizes the policy board to issue up to $50 million of general obligation bonds (bonds) and to use the proceeds of those bonds to provide loans or loan guarantees. Requires the policy board to deposit the proceeds of the bonds in the capital growth fund and apply them in accordance with the resolutions authorizing the bonds. Requires the capital growth fund and any accounts established to be held in trust by the state treasurer for and on behalf of the office and the owners of the bonds and authorizes their use only as provided in this section. Authorizes the treasurer to invest money in the capital growth fund in investments authorized by law for state funds that the treasurer considers appropriate. Requires payment for the provision of a loan or loan guarantee to be deposited first in the interest and sinking account and second in any reserve account until that account is fully funded. Requires the comptroller to transfer to the fund the first money coming into the state treasury not otherwise appropriated to pay the obligations if the policy board determines that there is not sufficient money in the interest and sinking account during the following fiscal year to pay the principal of or interest on the bonds. (b) Authorizes the general obligation bonds to be issued in one or more series or issues in any form which may include registered uncertificated obligations not represented by written instruments and commonly known as book-entry obligations (obligations). Requires the register and transfer of these obligations to be provided for by the policy board under a certain system. Provides that bonds may mature serially or within 40 years of their date. Authorizes bonds to bear either no interest or interest at any rates determine by the policy board or approved contractual arrangements. Authorizes interest on bonds to be payable at any time, and adjusted as determined by the policy board or by approved contractual arrangements. Authorizes the policy board to exercise the powers granted to the governing body of an issuer in connection with the issuance of obligations. Authorizes bonds to be issued in the form and manner determined by a policy board resolution. Provides that if any officer whose signature appears on the bonds ceases to be an officer, the signature remains valid and sufficient for all purposes. (c) Provides that all bonds issued by the policy board under this section are subject to review and approval by the attorney general. (d) Provides that the bonds are a legal investment for certain institutions. Authorizes bonds to secure deposits of public funds of certain institutions. Authorizes the policy board to issue bonds to refund any part of its outstanding bonds. Provides that the bonds, a transaction relating to the bonds, or a profit made in the sale of the bonds is exempt from taxation by the state, an agency of subdivision of the state, a municipality, or a special district. SECTION 6. Amends Section 481.160(b), Government Code, to make conforming changes. SECTION 7. Prohibits the policy board from issuing more than $25 million of bonds during the state fiscal biennium beginning September 1, 1995. SECTION 8. Provides that this Act takes effect on the date on which the constitutional amendment relating to a capital growth and start-up fund for HUBs takes effect. Provides that this Act has no effect if that proposed constitutional amendment is not approved. SECTION 9. Emergency clause.