BWM C.S.H.B. 3065 75(R)BILL ANALYSIS FINANCIAL INSTITUTIONS C.S.H.B. 3065 By: King 4-8-97 Committee Report (Substituted) BACKGROUND The Linked Deposit Program is an "interest buy-down" program between the borrower and the lending institution, with absolutely no liability attached to the state. As local banks choose to participate in the program and lineup borrowers, state investment funds managed by the Comptroller's office are deposited in local banks at a reduced rate of interest for the amount of the loan made. With this deposit, the lender is able to offer a borrower a lower interest rate on agriculture-related loans. Borrowers through the Linked Deposit Program must be in the business or entering the business of processing and marketing agricultural crops in Texas; producing alternative agricultural crops; producing crops where production has markedly declined due to a natural disaster; or using water conservation equipment for agricultural purposes. Acts of the 74th Legislature changed the membership structure of the Texas Agricultural Finance Authority (TAFA) by requiring four of the nine members to be "persons who are knowledgeable about agricultural lending practices." The Governor satisfied this requirement by appointing four individuals who are either employed by or associated with banks that are located in rural areas or are routinely familiar with agricultural lending practices. Under the current law, a bank that employs a TAFA appointee, could be shut out from participating in the Linked Deposit Program. Given the rural nature and location of the banks that participate in the program, this restriction could not only limit a bank's lending practices but also virtually prohibit otherwise eligible borrowers in the region served by the bank from having access to the low-interest loans offered by the Linked Deposit Program. TAFA board's only function in the loan program is to recommend to the Comptroller acceptance or rejection of a Linked Deposit loan application. The TAFA board does not set eligibility standards nor make any discretionary decisions on the loans. As with any conventional loan, the local lending institution decides on the borrower's eligibility. The Linked Deposit transaction is between the Comptroller and the lending bank. TAFA has no pecuniary interest in the Linked Deposit Program. PURPOSE To enable banks and lending institutions statewide to continue to participate in the Linked Deposit Program, even if they have an officer, director or employee who has been appointed to serve as a board member of the Texas Agricultural Finance Authority. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 44.07, Agriculture Code, by adding subsection (k) which provides that a lending institution is not ineligible to participate in the linked deposit program solely because a member of the board is also an officer, director or employee of the lending institution. SECTION 2. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The Committee Substitute to HB 3065 merely adds subsection (k) to Section 44.007, Agriculture Code, rather than amending subsection (c). The change made is the same as in the original bill.