JJG S.B. 266 75(R)BILL ANALYSIS


ECONOMIC DEVELOPMENT
S.B. 266
By: Ellis / et al. (Oliveira)
4-20-97
Committee Report (Amended)



BACKGROUND 

Currently, the law provides for the Exporter Loan and the Rural Economic
Development Loan funds. This bill would replace the current programs with
the Capital Access Program. Under the program, financial institutions may
make loans to small and medium-sized businesses and to nonprofit
corporations. The lender and borrower would make a combined contribution
of at least 4 percent of the loan amount to a special reserve fund at the
financial institution. The state would then make a matching contribution
of varying percentages to the fund, which can be used only to offset any
losses incurred under the program. 

PURPOSE

As proposed, S.B. 266 establishes a Capital Access Program in the Texas
Department of Commerce to secure certain loans made to small and
medium-sized businesses and nonprofit organizations. 

RULEMAKING AUTHORITY

Rulemaking authority is granted to the policy board of the Texas
Department of Commerce in SECTION 1 by adding Section 481.406, Government
Code, and SECTION 4 requires that rules adopted under that section shall
be adopted by December 1, 1997. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 481, Government Code, by adding Subchapter BB,
as follows: 
SUBCHAPTER BB. CAPITAL ACCESS PROGRAM
Sec. 481.401. DEFINITIONS. Defines "capital access loan," "financial
institution," "fund," "loan," "medium-sized business," "nonprofit
organization," "participating financial institution," "program," "reserve
account," and "small business." 
Sec. 481.402. CAPITAL ACCESS FUND. Provides that the capital access fund
(fund) is a special account in the state treasury and describes the
requirements for the fund. 
Sec. 481.403. TRANSFER OF MONEY FROM OTHER FUNDS TO THE CAPITAL ACCESS
FUND. Sets forth certain computations the Texas Department of Commerce
(department) is required to make at the beginning of each fiscal year in
order to transfer money from certain funds to the capital access fund.
Requires loan repayments from certain funds to be transferred by the
comptroller to the capital access fund. 
Sec. 481.404. POWERS OF DEPARTMENT IN ADMINISTERING CAPITAL ACCESS FUND.
Sets forth the powers of the department in administering the fund. 
Sec. 481.405. CAPITAL ACCESS PROGRAM. Requires the department to establish
a capital access program (program). Sets forth the uses of the fund.
Requires the department to determine the eligibility of participating
financial institutions. Authorizes the department to set a limit on the
number of participating financial institutions. Sets forth the
qualifications for a loan to be designated a capital access loan (loan). 
RULEMAKING AUTHORITY. Requires the policy board of the Texas Department of
Commerce (board) to adopt rules to implement and accomplish the purposes
of the subchapter. Sets forth guidelines for making rules. Sets forth the
required qualifications of a line of credit. 
Sec. 481.407. PROVISIONS RELATING TO CAPITAL ACCESS LOAN. Prohibits the
department from determining the recipient, amount, or interest rate of a
capital access loan or the fees or other requirements related to the loan.
Provides that a loan is not eligible to be enrolled if it is for certain
purposes. Sets forth certain items to which the loan must be applied.
Authorizes the loan to be sold on the secondary market. 
Sec. 481.408. RESERVE ACCOUNT. Requires a participating financial
institution (institution) making a capital access loan to establish a
reserve account, on approval and after entering into a participation
agreement with the department. Sets forth the uses of a reserve account.
Requires the institution to require the borrower to pay an institution fee
not less than two percent but not more than three percent of the principal
amount of the loan, which the financial institution shall deposit in the
reserve account. Requires the institution to deposit in the reserve
account an amount equal to the amount of the fee received from the
borrower from this subsection. Sets forth certain information to be
certified by the institution to the department for each loan made.
Requires the department to deposit certain amounts in the institution's
reserve account. 
Sec. 481.409. LIMITATIONS ON STATE CONTRIBUTION TO RESERVE ACCOUNT. Sets
forth limitations on certain amounts deposited by the department in the
institution's reserve account. 
Sec. 481.410. STATE'S RIGHTS WITH RESPECT TO RESERVE ACCOUNT. Provides
that all money in a reserve account established under this subchapter is
property of the state. Provides that the state is entitled to earn
interest on certain contributions made to reserve accounts. Requires the
department to withdraw a certain amount of money from the reserve account.
Requires the department to deposit the amount withdrawn under this
subsection into the fund. Authorizes the department to withdraw a certain
amount from the reserve account and deposit that amount into the fund.
Prohibits a withdrawal from reducing an active reserve account below
$200,000. Requires the department to withdraw the total amount and
interest from the institution's reserve account when certain conditions
are met. 
Sec. 481.411. ANNUAL REPORT. Sets forth the contents of an annual report
required to be submitted by the institution to the department. 
Sec. 481.412. REPORTS; AUDITS. Requires the department to submit an annual
report to the legislature on the program's activities. Provides that the
fund is subject to a state auditor's audit. 
Sec. 481.413. STATE LIABILITY PROHIBITED. Provides that the state is not
liable to an institution for the payment on principal, interest, or any
late charges on a loan made under this subchapter. 
Sec. 481.414. GIFTS AND GRANTS. Authorizes the department to accept gifts,
grants, and donations from any source. 
SECTION 2. Amends Section 481.059, Government Code, by adding Subsection
(h), to prohibit the department from guaranteeing or making a loan under
this section after August 31, 1997. 
SECTION 3. Amends Section 481.084, Government Code, by adding Subsection
(g), to prohibit the department from guaranteeing or making a loan under
this section after August 31, 1997. 
SECTION 4. Requires the board to adopt rules required by Section 481.406,
Government Code, 
no later than December 1, 1997.
SECTION 5. Effective date: September 1, 1997.
SECTION 6. Emergency clause.


EXPLANATION OF AMENDMENTS

 The committee amendment allows a participating financial institution to
specify an amount covered by the capital access program that is less than
the total amount of the loan, and allows the institution to recover from
the borrow all or part of the amount the institution is required to pay
under the program in a manner agreed to by both parties.