LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session March 1, 1995 TO: Honorable Senator Ken Armbrister, IN RE: Senate Bill No. 382 Chair By: West, Royce Committee on State Affairs Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on Senate Bill No. 382 (Relating to a capital growth and start-up fund for historically underutilized businesses; authorizing the issuance of bonds.) this office has determined the following: The bill would establish the Texas Historically Underutilized Business Capital Growth & Start-Up Fund as a revolving fund in the state treasury. The fund would be used as a LOAN GUARANTEE for HUB's. The Dept. of Commerce cannot guarantee more than 90% of a loan nor can they exceed 90% of the total project costs. The TDOC policy board would be authorized to issue up to $50 million of general obligation bonds for this purpose. The fund would be administered by the Small Business\Community Economic Development program at the Dept. of Commerce (TDOC). The agency would be responsible for enhancing the opportunities available to start-up new HUB's. TDOC would administer and market the program. The act would be contingent upon adoption of a constitutional amendment proposed by SJR 29. Other guidelines of the program specified in the bill include the following: 1. the creation of a policy board; 2. the definitions of a historically underutilized business 3. the definition of start-up costs; 4. the exclusion of certain potential participants; 5. threshold amounts for loans and loan guarantee amounts; 6. qualification, application and approval criteria; 7. loan default recovery procedures; 8. program, bond and fund administration information; and 9. reporting requirements. The agency will add 3 FTE's to their existing staff. It is presumed that the program will be designed to be self-supporting and not require a draw on general revenue to pay debt service. Additional assumptions used in generating debt service estimates include: (1) the bonds will be taxable due to the beneficiaries of the program being either corporations, sole proprietorships, partnerships, or joint ventures; (2) the structure will consist of two bond issues, each with a term bond that matures and is payable in the twentieth year; (3) only interest will be paid in years one through nineteen; (4) the initial and only issuance in the 1996-97 biennium will be for $25 million and will be issued on February 1, 1996; (5) the subsequent issuance will be on February 1, 1998 and will be of the same structure and amount as the first issue; (6) based on customary terms and conditions, it is assumed that actual losses due to default will be nominal and be absorbed by the fund; (7) it is assumed that surety bond fees will be charged. Fee revenues will be lower in early years and will eventually by year 4 be sufficient to cover all costs of administration. The probable fiscal implication of implementing the provisions of the bill during each of the first five years following passage is based upon the following assumptions and is estimated as follows: Fiscal Probable Cost Out Probable Maximum Year of the Debt Service out HUB Capital Growth of the HUB Capital & Start-Up Fund Growth & Start-Up Fund 1996 $164,877 $1,312,500 1997 147,177 2,250,000 1998 147,177 3,562,500 1999 147,177 4,500,000 2000 147,177 4,500,000 Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No significant fiscal implication to units of local government is anticipated. Source: Office of the Attorney General, Comptroller of Public Accounts, Treasury Department, Texas Public Finance Authority, Bond Review Board, Department of Commerce LBB Staff: JK, VS, DF