1-1  By:  West                                              S.B. No. 382
    1-2        (In the Senate - Filed January 30, 1995; January 31, 1995,
    1-3  read first time and referred to Committee on State Affairs;
    1-4  March 3, 1995, reported favorably by the following vote:  Yeas 8,
    1-5  Nays 5; March 3, 1995, sent to printer.)
    1-6                         A BILL TO BE ENTITLED
    1-7                                AN ACT
    1-8  relating to a capital growth and start-up fund for historically
    1-9  underutilized businesses; authorizing the issuance of bonds.
   1-10        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
   1-11        SECTION 1.  The heading of Subchapter G, Chapter 481,
   1-12  Government Code, is amended to read as follows:
   1-13         SUBCHAPTER G.  <SMALL BUSINESS> ASSISTANCE FOR HISTORICALLY
   1-14             UNDERUTILIZED BUSINESSES AND SMALL BUSINESSES
   1-15        SECTION 2.  Section 481.101, Government Code, is amended to
   1-16  read as follows:
   1-17        Sec. 481.101.  DEFINITIONS.  In this subchapter:
   1-18              (1)  "Capital growth fund" means the Texas historically
   1-19  underutilized business capital growth and start-up fund.
   1-20              (2)  "Historically underutilized business" means:
   1-21                    (A)  a corporation formed for the purpose of
   1-22  making a profit in which at least 51 percent of all classes of the
   1-23  shares of stock or other equitable securities is owned by one or
   1-24  more persons who are socially disadvantaged because of their
   1-25  identification as members of certain groups, including black
   1-26  Americans, Hispanic Americans, women, Asian Pacific Americans, and
   1-27  American Indians, who have suffered the effects of discriminatory
   1-28  practices or similar insidious circumstances over which they have
   1-29  no control.  Those persons must have proportionate interest and
   1-30  demonstrate active participation in the control, operation, and
   1-31  management of the corporation's affairs;
   1-32                    (B)  a sole proprietorship formed for the purpose
   1-33  of making a profit that is 100 percent owned, operated, and
   1-34  controlled by a person described by Paragraph (A);
   1-35                    (C)  a partnership formed for the purpose of
   1-36  making a profit in which 51 percent of the assets and interest in
   1-37  the partnership is owned by one or more persons described by
   1-38  Paragraph (A). Those persons must have proportionate interest and
   1-39  demonstrate active participation in the control, operation, and
   1-40  management of the partnership's affairs; or
   1-41                    (D)  a joint venture in which each entity in the
   1-42  joint venture is a historically underutilized business under this
   1-43  subdivision<; or>
   1-44                    <(E)  a supplier contract between a historically
   1-45  underutilized business under this subdivision and a prime
   1-46  contractor under which the historically underutilized business is
   1-47  directly involved in the manufacture or distribution of the
   1-48  supplies or materials or otherwise warehouses and ships the
   1-49  supplies>.
   1-50              (3) <(2)>  "Office" means the Office of Small Business
   1-51  Assistance.
   1-52              (4)  "Private lender" means a bank, savings bank,
   1-53  savings and loan association, trust company, or insurance company,
   1-54  a nonprofit corporation or other entity that is created by a
   1-55  municipality as authorized by law and that has the authority to
   1-56  make loans, or an individual that the office determines is an
   1-57  experienced and sophisticated investor.
   1-58              (5)  "Qualified application" means a completed
   1-59  application, including all documents and information required by
   1-60  the office and submitted by:
   1-61                    (A)  a private lender for a business; or
   1-62                    (B)  a historically underutilized business.
   1-63              (6) <(3)>  "Small business" means a corporation,
   1-64  partnership, sole proprietorship, or other legal entity that:
   1-65                    (A)  is formed for the purpose of making a
   1-66  profit,<;>
   1-67                    <(B)>  is independently owned and operated,<;>
   1-68  and
    2-1                    <(C)>  has fewer than 100 employees or less than
    2-2  $1 million in annual gross receipts; or
    2-3                    (B)  otherwise qualifies as a small business
    2-4  under the standards of the United States Small Business
    2-5  Administration.
    2-6        SECTION 3.  Subchapter G, Chapter 481, Government Code, is
    2-7  amended by adding Section 481.1011 to read as follows:
    2-8        Sec. 481.1011.  EXCLUSION AS HISTORICALLY UNDERUTILIZED
    2-9  BUSINESS.  A business is not a historically underutilized business
   2-10  if an owner of the business has a personal net worth of more than
   2-11  $750,000, unless the office determines that the person has
   2-12  demonstrated that the person is a socially disadvantaged individual
   2-13  described by Section 481.101(2)(A).  For the purposes of this
   2-14  section, "personal net worth" has the meaning assigned by the
   2-15  regulations of the United States Small Business Administration in
   2-16  13 C.F.R. Section 124.106.
   2-17        SECTION 4.  Subsection (b), Section 481.103, Government Code,
   2-18  is amended to read as follows:
   2-19        (b)  The department may provide community-based services to
   2-20  carry out its duties under this chapter, including the creation of
   2-21  a pilot program to evaluate the merits of locating full-time
   2-22  personnel outside the Austin headquarters.  This pilot program will
   2-23  give first preference to serving economically distressed areas,
   2-24  rural areas, or historically underutilized <disadvantaged>
   2-25  businesses or assisting development of specific industries.  The
   2-26  department may require areas served by these personnel to provide
   2-27  in-kind or cash contributions as necessary to support these
   2-28  personnel.  A report will be submitted to the legislature
   2-29  describing the effectiveness of this method for delivering services
   2-30  from the department to address specific economic needs.
   2-31        SECTION 5.  Subchapter G, Chapter 481, Government Code, is
   2-32  amended by adding Sections 481.109 through 481.117 to read as
   2-33  follows:
   2-34        Sec. 481.109.  Texas Historically Underutilized Business
   2-35  Capital Growth And Start-Up Fund.  (a)  The Texas historically
   2-36  underutilized business capital growth and start-up fund is a
   2-37  revolving fund in the state treasury.  The capital growth fund
   2-38  consists of money appropriated to the office, proceeds of general
   2-39  obligation bonds issued to provide loan guarantees under this
   2-40  subchapter, application fees, guarantee fees, other amounts
   2-41  received by the state from loans or loan guarantees made under this
   2-42  subchapter, and money acquired from federal grants or other sources
   2-43  and required by resolution of the policy board to be deposited in
   2-44  the capital growth fund.  The capital growth fund contains a
   2-45  program account, an interest and sinking account, and other
   2-46  accounts that the policy board authorizes to be created and
   2-47  maintained.  Money in the capital growth fund is available for use
   2-48  by the office for the loan and loan guarantee program provided by
   2-49  this subchapter.
   2-50        (b)  Money in the program account, minus the costs of
   2-51  issuance of general obligation bonds to provide loans and loan
   2-52  guarantees under this subchapter and necessary costs of
   2-53  administering the capital growth fund, may be used only to provide
   2-54  loans and loan guarantees to aid in the start-up costs of
   2-55  historically underutilized businesses.  The office may provide a
   2-56  loan or loan guarantee from the capital growth fund to assist a
   2-57  historically underutilized business to construct new facilities,
   2-58  renovate existing facilities, acquire any interest in real or
   2-59  personal property, and provide initial working capital to pay the
   2-60  costs of salaries, rents, supplies, inventories, mortgage payments,
   2-61  legal services, and utilities and telephone, travel, and other
   2-62  incidental costs normally classified as working capital according
   2-63  to standard accounting principles.  The office shall provide loans
   2-64  and loan guarantees from the capital growth fund on the terms and
   2-65  conditions that the office determines to be reasonable,
   2-66  appropriate, and consistent with the purposes and objectives of the
   2-67  capital growth fund and this subchapter.  The office may provide a
   2-68  loan or loan guarantee only if financing for the historically
   2-69  underutilized business cannot be otherwise obtained.
   2-70        Sec. 481.110.  LOANS AND LOAN GUARANTEES.  (a)  The office
    3-1  may not guarantee more than 90 percent of a loan or provide a loan
    3-2  in an amount in excess of 90 percent of the cost of the undertaking
    3-3  to be financed.
    3-4        (b)  For each loan or loan guarantee the office shall
    3-5  determine:
    3-6              (1)  the fees charged by the office, including loan
    3-7  fees, guarantee fees, application fees, annual fees, and any other
    3-8  costs associated with the loan or loan guarantee necessary for the
    3-9  administration of the capital growth fund;
   3-10              (2)  the permissible interest rates and amortization
   3-11  requirements for a loan made or guaranteed, as agreed on by the
   3-12  private lender, if any, the business, and the office;
   3-13              (3)  the acceptable security for the loan or the
   3-14  office's participation in the business;
   3-15              (4)  the financial responsibility of the business to
   3-16  repay the loan; and
   3-17              (5)  any other terms or conditions relating to a loan
   3-18  or loan guarantee.
   3-19        (c)  The minimum amount of a loan that may be made or
   3-20  guaranteed by the office is $10,000.
   3-21        (d)  The maximum amount of a loan that may be made or
   3-22  guaranteed by the office is $500,000.
   3-23        Sec. 481.111.  APPLICATION AND APPROVAL.  (a)  The office may
   3-24  not make a loan or loan guarantee except on submission of a
   3-25  qualified application by a historically underutilized business or
   3-26  private lender.
   3-27        (b)  A qualified application may not be approved unless the
   3-28  business holds funds or property in an amount or value equal to not
   3-29  less than 10 percent of the start-up cost of the business, the
   3-30  funds or property are pledged to the business, and the business has
   3-31  obtained from other financial sources a firm commitment for funds
   3-32  in excess of the loan made or guaranteed by the office.
   3-33        (c)  On approval of the qualified application, the office may
   3-34  provide a loan or loan guarantee to a business for purposes
   3-35  authorized by Section 481.112.
   3-36        (d)  This subchapter does not prohibit the use of money in
   3-37  the capital growth fund in conjunction with any other money
   3-38  available for the purposes of the loans or loan guarantees provided
   3-39  by this subchapter.
   3-40        Sec. 481.112.  USE OF LOAN.  The money received from a loan
   3-41  made or guaranteed under Section 481.110 may be used only for the
   3-42  initial costs of starting a business as described by Section
   3-43  481.109.
   3-44        Sec. 481.113.  DEFAULT ON LOAN.  (a)  If a historically
   3-45  underutilized business defaults on a loan made under Section
   3-46  481.110 or defaults on a loan guaranteed under Section 481.110 and
   3-47  the office is required to honor its guarantee, the office through
   3-48  its representative shall bring suit against the business as soon as
   3-49  practicable.  The suit may be brought in the county in which the
   3-50  principal office of the business is located, in which the private
   3-51  lender, if any, is located, or in Travis County.
   3-52        (b)  The office may take title by foreclosure to any property
   3-53  of the business if an acquisition is necessary to protect a loan or
   3-54  loan guarantee made for the business by the office and may sell any
   3-55  property of the business.  If the office cannot make a sale
   3-56  promptly, it may lease any property of the business to another
   3-57  person to minimize financial losses and sustain employment.
   3-58        (c)  The office shall report to the comptroller the name of a
   3-59  business that is in default on a loan made under Section 481.110 or
   3-60  a loan guaranteed under Section 481.110 on which the office has
   3-61  been required to honor a guarantee.  The comptroller may not issue
   3-62  a warrant to the business while the business is in default.
   3-63        (d)  The instruments evidencing a loan made by the office or
   3-64  a guarantee of a loan made by a private lender must provide that in
   3-65  the event of a default in the payment of the principal of or
   3-66  interest on the obligation or in the performance of a mortgage,
   3-67  instrument, or other agreement relating to the loan or loan
   3-68  guarantee, the payment and performance may be enforced by mandamus
   3-69  or by the appointment of a receiver in equity with power to apply
   3-70  the revenues from the business as provided by the mortgage,
    4-1  instrument, or other agreement.
    4-2        Sec. 481.114.  FALSE INFORMATION ON APPLICATION.  An
    4-3  applicant who knowingly or negligently provides material false
    4-4  information on an application under Section 481.111:
    4-5              (1)  may not submit another application under Section
    4-6  481.111; and
    4-7              (2)  is liable to the state and to a private lender for
    4-8  any expense incurred by the state or private lender that would not
    4-9  have been incurred if the applicant had not provided the false
   4-10  information.
   4-11        Sec. 481.115.  ADMINISTRATION OF CAPITAL GROWTH FUND.  The
   4-12  office shall administer the capital growth fund and shall act as
   4-13  liaison among businesses, private lenders, and state agencies whose
   4-14  services are useful to the office in carrying out the loan and loan
   4-15  guarantee program provided by this subchapter.
   4-16        Sec. 481.116.  ADDITIONAL POWERS AND DUTIES.  The policy
   4-17  board shall adopt rules necessary to carry out the purposes of the
   4-18  capital growth fund.  The policy board shall establish procedures
   4-19  to minimize the number of defaults on loans made or guaranteed from
   4-20  the capital growth fund.  Those procedures may include the purchase
   4-21  of insurance coverage against loss.
   4-22        Sec. 481.117.  CAPITAL GROWTH FUND:  GENERAL OBLIGATION
   4-23  BONDS.  (a)  The policy board may issue up to $50 million of
   4-24  general obligation bonds and may use the proceeds of those bonds to
   4-25  provide loans or loan guarantees under this subchapter.  The policy
   4-26  board shall deposit the proceeds of the general obligation bonds in
   4-27  the capital growth fund and apply them in accordance with the
   4-28  resolutions authorizing the bonds.  The capital growth fund and any
   4-29  accounts established in the fund shall be held in trust by the
   4-30  state treasurer for and on behalf of the office and the owners of
   4-31  the general obligation bonds issued in accordance with this section
   4-32  and may be used only as provided by this section.  Pending use, the
   4-33  treasurer may invest and reinvest money in the capital growth fund
   4-34  in investments authorized by law for state funds that the
   4-35  treasurer, consistent with the policy board's resolutions
   4-36  authorizing the general obligation bonds, considers appropriate.
   4-37  Payment for the provision of a loan or loan guarantee provided
   4-38  under this subchapter shall be deposited first in the interest and
   4-39  sinking account as prescribed by the policy board's resolutions
   4-40  authorizing general obligation bonds under this subchapter and
   4-41  second in any reserve account established by the policy board until
   4-42  that account is fully funded as prescribed by the policy board's
   4-43  resolutions.  If during the time any general obligation bonds are
   4-44  payable from the interest and sinking account the policy board
   4-45  determines that there will not be sufficient money in the interest
   4-46  and sinking account during the following fiscal year to pay the
   4-47  principal of or interest on the general obligation bonds or both
   4-48  the principal and interest that are to come due during the
   4-49  following fiscal year, the comptroller shall transfer to the fund
   4-50  the first money coming into the state treasury not otherwise
   4-51  appropriated by the constitution in an amount sufficient to pay the
   4-52  obligations.
   4-53        (b)  The general obligation bonds may be issued from time to
   4-54  time in one or more series or issues, in bearer, registered, or any
   4-55  other form, which may include registered uncertificated obligations
   4-56  not represented by written instruments and commonly known as
   4-57  book-entry obligations, the registration of ownership and transfer
   4-58  of which shall be provided for by the policy board under a system
   4-59  of books and records maintained by the office or by an agent
   4-60  appointed by the policy board in a resolution providing for
   4-61  issuance of its general obligation bonds.  General obligation bonds
   4-62  may mature serially or otherwise not more than 40 years from their
   4-63  date.  General obligation bonds may bear no interest or may bear
   4-64  interest at any rate or rates, fixed, variable, floating, or
   4-65  otherwise, determined by the policy board or determined pursuant to
   4-66  any contractual arrangements approved by the policy board, not to
   4-67  exceed the maximum net effective interest rate allowed by Chapter
   4-68  3, Acts of the 61st Legislature, Regular Session, 1969 (Article
   4-69  717k-2, Vernon's Texas Civil Statutes).  Interest on the general
   4-70  obligation bonds may be payable at any time, and the rate of
    5-1  interest on the general obligation bonds may be adjusted at any
    5-2  time determined by the policy board pursuant to the resolutions
    5-3  authorizing the bonds or determined pursuant to any contractual
    5-4  arrangement approved by the policy board.  In connection with the
    5-5  issuance of its general obligation bonds, the policy board may
    5-6  exercise the powers granted to the governing body of an issuer in
    5-7  connection with the issuance of obligations under Chapter 656, Acts
    5-8  of the 68th Legislature, Regular Session, 1983 (Article 717q,
    5-9  Vernon's Texas Civil Statutes), to the extent not inconsistent with
   5-10  this section.  The general obligation bonds may be issued in the
   5-11  form and denominations and executed in the manner and under the
   5-12  terms, conditions, and details determined by the policy board in
   5-13  the resolution authorizing their issuance.  If any officer whose
   5-14  manual or facsimile signature appears on the general obligation
   5-15  bonds ceases to be an officer, the signature remains valid and
   5-16  sufficient for all purposes as if the officer had remained in
   5-17  office.
   5-18        (c)  All general obligation bonds issued by the policy board
   5-19  under this section are subject to review and approval by the
   5-20  attorney general in the same manner and with the same effect as is
   5-21  provided by Chapter 656, Acts of the 68th Legislature, Regular
   5-22  Session, 1983 (Article 717q, Vernon's Texas Civil Statutes).
   5-23        (d)  The general obligation bonds are a legal and authorized
   5-24  investment for a bank, trust company, savings and loan association,
   5-25  insurance company, fiduciary, trustee, or guardian or a sinking
   5-26  fund of a municipality, county, school district, or political
   5-27  subdivision of the state.  The general obligation bonds may secure
   5-28  deposits of public funds of the state or a municipality, county,
   5-29  school district, or another political corporation or subdivision of
   5-30  the state.  The policy board may issue bonds to refund all or part
   5-31  of its outstanding general obligation bonds, including accrued but
   5-32  unpaid interest.  The general obligation bonds, a transaction
   5-33  relating to those bonds, or a profit made in the sale of those
   5-34  bonds is exempt from taxation by the state, an agency or
   5-35  subdivision of the state, a municipality, or a special district.
   5-36        SECTION 6.  Subsection (b), Section 481.160, Government Code,
   5-37  is amended to read as follows:
   5-38        (b)  The annual report must include for that fiscal year:
   5-39              (1)  the number of employers receiving grants under the
   5-40  program;
   5-41              (2)  the total amount of grants awarded;
   5-42              (3)  the value, expressed in dollars and as a
   5-43  percentage of total training expenditures, of matching
   5-44  contributions made by employers;
   5-45              (4)  the number of small businesses, as defined by
   5-46  Section 481.101(6) <481.101(3)>, that receive grants under the
   5-47  program and the total amount of the grants awarded to those
   5-48  businesses;
   5-49              (5)  the number of businesses located in enterprise
   5-50  zones, as that term is defined by Chapter 2303 <the Texas
   5-51  Enterprise Zone Act (Article 5190.7, Vernon's Texas Civil
   5-52  Statutes)>, that receive grants under the program and the total
   5-53  amount of the grants awarded to those businesses;
   5-54              (6)  the geographical distribution of employers
   5-55  receiving grants under the program;
   5-56              (7)  the total number of jobs created, enhanced, or
   5-57  retained under the program, reported by region of the state and by
   5-58  occupation;
   5-59              (8)  the wage levels of trainees entering or returning
   5-60  to the work force, broken down by current employees undergoing
   5-61  retraining and new hires, at three months, one year, and three
   5-62  years after the conclusion of their training;
   5-63              (9)  the number and percentage of participating
   5-64  employers that provide workers' compensation insurance coverage and
   5-65  the number and percentage of employees covered;
   5-66              (10)  the number and percentage of participating
   5-67  employers that offer health care insurance coverage and the number
   5-68  and percentage of employees covered;
   5-69              (11)  the number and percentage of women employers and
   5-70  minority employers receiving grants under the program and the total
    6-1  amount of the grants awarded, broken out by group;
    6-2              (12)  the number and percentage of women, minority
    6-3  group members, and disabled individuals participating as trainees
    6-4  in training projects, broken out by group; and
    6-5              (13)  the number and percentage of women private
    6-6  providers and private providers who are minority group members
    6-7  utilized by employers in training projects, broken out by group.
    6-8        SECTION 7.  The policy board of the Texas Department of
    6-9  Commerce may not issue more than $25 million of bonds under Section
   6-10  481.117, Government Code, as added by this Act, during the state
   6-11  fiscal biennium beginning September 1, 1995.
   6-12        SECTION 8.  This Act takes effect on the date on which the
   6-13  constitutional amendment proposed by the 74th Legislature relating
   6-14  to a capital growth and start-up fund for historically
   6-15  underutilized business takes effect.  If that proposed
   6-16  constitutional amendment is not approved by the voters, this Act
   6-17  has no effect.
   6-18        SECTION 9.  The importance of this legislation and the
   6-19  crowded condition of the calendars in both houses create an
   6-20  emergency and an imperative public necessity that the
   6-21  constitutional rule requiring bills to be read on three several
   6-22  days in each house be suspended, and this rule is hereby suspended.
   6-23                               * * * * *