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.