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.