By: Ellis, et al. S.B. No. 266 A BILL TO BE ENTITLED AN ACT 1-1 relating to the establishment of a program in the Texas Department 1-2 of Commerce to secure certain loans made to small and medium-sized 1-3 businesses and nonprofit organizations. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Chapter 481, Government Code, is amended by 1-6 adding Subchapter BB to read as follows: 1-7 SUBCHAPTER BB. CAPITAL ACCESS PROGRAM 1-8 Sec. 481.401. DEFINITIONS. In this subchapter: 1-9 (1) "Capital access loan" means a loan that is 1-10 entitled to be secured by the fund. 1-11 (2) "Financial institution" includes a bank, trust 1-12 company, banking association, savings and loan association, 1-13 mortgage company, investment bank, credit union, or nontraditional 1-14 financial institution. 1-15 (3) "Fund" means the capital access fund. 1-16 (4) "Loan" includes a line of credit. 1-17 (5) "Medium-sized business" means a corporation, 1-18 partnership, sole proprietorship, or other legal entity that: 1-19 (A) is domiciled in this state or has at least 1-20 51 percent of its employees located in this state; 1-21 (B) is formed to make a profit; and 1-22 (C) employs 100 or more but fewer than 500 1-23 full-time employees. 2-1 (6) "Nonprofit organization" means a private, 2-2 nonprofit, tax-exempt corporation, association, or organization 2-3 listed in Section 501(c)(3), Internal Revenue Code of 1986, that is 2-4 domiciled in this state or has at least 51 percent of its members 2-5 located in this state. 2-6 (7) "Participating financial institution" means a 2-7 financial institution participating in the program. 2-8 (8) "Program" means the capital access program. 2-9 (9) "Reserve account" means an account established in 2-10 a participating financial institution on approval of the department 2-11 in which money is deposited to serve as a source of additional 2-12 revenue to reimburse the financial institution for losses on loans 2-13 enrolled in the program. 2-14 (10) "Small business" means a corporation, 2-15 partnership, sole proprietorship, or other legal entity that: 2-16 (A) is domiciled in this state or has at least 2-17 51 percent of its employees located in this state; 2-18 (B) is formed to make a profit; 2-19 (C) is independently owned and operated; and 2-20 (D) employs fewer than 100 full-time employees. 2-21 Sec. 481.402. CAPITAL ACCESS FUND. (a) The capital access 2-22 fund is a special account in the state treasury. 2-23 (b) Appropriations for the implementation and administration 2-24 of this subchapter, investment earnings, fees charged under this 2-25 subchapter, and any other amounts received by the state under this 3-1 subchapter shall be deposited in the fund. 3-2 (c) Money in the fund may be appropriated only to the 3-3 department for use in carrying out the purposes of this subchapter. 3-4 Sec. 481.403. TRANSFER OF MONEY FROM OTHER FUNDS TO THE 3-5 CAPITAL ACCESS FUND. (a) At the beginning of each fiscal year, 3-6 the department shall compute for the Texas exporters loan fund 3-7 established under Subchapter D and the Texas rural economic 3-8 development fund established under Subchapter F: 3-9 (1) the amount sufficient for that fiscal year to 3-10 cover loan guarantees made under Subchapter D or F, as applicable 3-11 to each fund; 3-12 (2) the amount sufficient for the fiscal year to repay 3-13 bonds issued under Subchapter D, to carry out the purposes of 3-14 Section 481.059, or for projects that are eligible under Subchapter 3-15 F, as applicable to each fund; and 3-16 (3) the amount of loan repayments for loans made under 3-17 Subchapter D or F that will be expected to be received during the 3-18 fiscal year, as applicable to each fund. 3-19 (b) At the beginning of each fiscal year, the comptroller 3-20 for each fund described by Subsection (a) shall subtract the sum of 3-21 the amount computed by the department under Subsections (a)(1) and 3-22 (a)(2) for the respective fund from the amount in the fund at the 3-23 beginning of the fiscal year. 3-24 (c) If a positive amount results from a computation made 3-25 under Subsection (b), the comptroller shall transfer an amount 4-1 equal to the computed amount from the fund to which the computation 4-2 relates to the capital access fund. 4-3 (d) As loan repayments are received for each fund described 4-4 by Subsection (a), the comptroller shall transfer the payments to 4-5 the capital access fund. 4-6 Sec. 481.404. POWERS OF DEPARTMENT IN ADMINISTERING CAPITAL 4-7 ACCESS FUND. In administering the fund, the department has the 4-8 powers necessary to carry out the purposes of this subchapter, 4-9 including the power to: 4-10 (1) make, execute, and deliver contracts, conveyances, 4-11 and other instruments necessary to the exercise of its powers; 4-12 (2) invest money at the department's discretion in 4-13 obligations determined proper by the department, and select and use 4-14 depositories for its money; 4-15 (3) employ personnel and counsel and pay the persons 4-16 from money in the fund legally available for that purpose; and 4-17 (4) impose and collect fees and charges in connection 4-18 with any transaction and provide for reasonable penalties for 4-19 delinquent payment of fees or charges. 4-20 Sec. 481.405. CAPITAL ACCESS PROGRAM. (a) The department 4-21 shall establish a capital access program to assist a participating 4-22 financial institution in making loans to businesses and nonprofit 4-23 organizations that face barriers in accessing capital. 4-24 (b) The department shall use money in the fund to make a 4-25 deposit in a participating financial institution's reserve account 5-1 in an amount specified by this subchapter to be a source of money 5-2 the institution may receive as reimbursement for losses 5-3 attributable to loans in the program. 5-4 (c) The department shall determine the eligibility of a 5-5 financial institution to participate in the program and may set a 5-6 limit on the number of eligible financial institutions that may 5-7 participate in the program. 5-8 (d) To participate in the program, an eligible financial 5-9 institution must enter into a participation agreement with the 5-10 department that sets out the terms and conditions under which the 5-11 department will make contributions to the institution's reserve 5-12 account and specifies the criteria for a loan to qualify as a 5-13 capital access loan. 5-14 (e) To qualify as a capital access loan, a loan must: 5-15 (1) be made to a small or medium-sized business or to 5-16 a nonprofit organization; 5-17 (2) be used by the business or nonprofit organization 5-18 for any project, activity, or enterprise in this state that fosters 5-19 economic development; and 5-20 (3) meet any other criteria provided by this 5-21 subchapter. 5-22 Sec. 481.406. RULEMAKING AUTHORITY. (a) The policy board 5-23 shall adopt rules relating to the implementation of the program and 5-24 any other rules necessary to accomplish the purposes of this 5-25 subchapter. The rules may: 6-1 (1) provide for criteria under which a certain line of 6-2 credit issued by an eligible financial institution to a small or 6-3 medium-sized business or nonprofit organization qualifies to 6-4 participate in the program; and 6-5 (2) authorize a consortium of financial institutions 6-6 to participate in the program subject to common underwriting 6-7 guidelines. 6-8 (b) To qualify for participation in the program, a line of 6-9 credit must: 6-10 (1) be an account at a financial institution under 6-11 which the financial institution agrees to lend money to a person 6-12 from time to time to finance one or more projects, activities, or 6-13 enterprises that are authorized by this subchapter; and 6-14 (2) contain the same restrictions, to the extent 6-15 possible, that are placed on a capital access loan that is not a 6-16 line of credit. 6-17 Sec. 481.407. PROVISIONS RELATING TO CAPITAL ACCESS LOAN. 6-18 (a) Except as otherwise provided by this subchapter, the 6-19 department may not determine the recipient, amount, or interest 6-20 rate of a capital access loan or the fees or other requirements 6-21 related to the loan. 6-22 (b) A loan is not eligible to be enrolled under this 6-23 subchapter if the loan is for: 6-24 (1) construction or purchase of residential housing; 6-25 (2) simple real estate investments, excluding the 7-1 development or improvement of commercial real estate occupied by 7-2 the borrower's business or organization; 7-3 (3) refinancing of existing loans not originally 7-4 enrolled under this subchapter; or 7-5 (4) inside bank transactions, as defined by the policy 7-6 board. 7-7 (c) The borrower of a capital access loan must apply the 7-8 loan to working capital or to the purchase, construction, or lease 7-9 of capital assets, including buildings and equipment used by the 7-10 business or nonprofit organization. Working capital uses include 7-11 the cost of exporting, accounts receivable, payroll, inventory, and 7-12 other financing needs of the business or organization. 7-13 (d) A capital access loan may be sold on the secondary 7-14 market under conditions as may be determined by the department. 7-15 Sec. 481.408. RESERVE ACCOUNT. (a) On approval by the 7-16 department and after entering into a participation agreement with 7-17 the department, a participating financial institution making a 7-18 capital access loan shall establish a reserve account. The reserve 7-19 account shall be used by the institution only to cover any losses 7-20 arising from a default of a capital access loan made by the 7-21 institution under this subchapter or as otherwise provided by this 7-22 subchapter. 7-23 (b) When a participating financial institution makes a loan 7-24 enrolled in the program, the institution shall require the borrower 7-25 to pay to the institution a fee in an amount that is not less than 8-1 two percent but not more than three percent of the principal amount 8-2 of the loan, which the financial institution shall deposit in the 8-3 reserve account. The institution shall also deposit in the reserve 8-4 account an amount equal to the amount of the fee received by the 8-5 institution from the borrower under this subsection. 8-6 (c) For each capital access loan made by a financial 8-7 institution, the institution shall certify to the department, 8-8 within the period prescribed by the department, that the 8-9 institution has made a capital access loan, the amount the 8-10 institution has deposited in the reserve account, including the 8-11 amount of fees received from the borrower, and, if applicable, that 8-12 the borrower is located in or financing a project, activity, or 8-13 enterprise in an area designated as an enterprise zone under 8-14 Chapter 2303. 8-15 (d) On receipt of a certification made under Subsection (c) 8-16 and subject to Section 481.409, the department shall deposit in the 8-17 institution's reserve account for each capital access loan made by 8-18 the institution: 8-19 (1) an amount equal to the amount deposited by the 8-20 institution for each loan if the institution: 8-21 (A) has assets of more than $1 billion; or 8-22 (B) has previously enrolled loans in the program 8-23 that in the aggregate are more than $2 million; 8-24 (2) an amount equal to 150 percent of the total amount 8-25 deposited under Subsection (b) for each loan if the institution is 9-1 not described by Subdivision (1); or 9-2 (3) notwithstanding Subdivisions (1) and (2), an 9-3 amount equal to 200 percent of the total amount deposited under 9-4 Subsection (b) for each loan if: 9-5 (A) the borrower is located in or financing a 9-6 project, activity, or enterprise in an area designated as an 9-7 enterprise zone under Chapter 2303; or 9-8 (B) the borrower is a small or medium-size 9-9 business or a nonprofit organization that operates or proposes to 9-10 operate a day-care center or a group day-care home, as those terms 9-11 are defined by Section 42.002, Human Resources Code. 9-12 Sec. 481.409. LIMITATIONS ON STATE CONTRIBUTION TO RESERVE 9-13 ACCOUNT. (a) The amount deposited by the department into a 9-14 participating financial institution's reserve account for any 9-15 single loan recipient may not exceed $150,000 during a three-year 9-16 period. 9-17 (b) The maximum amount the department may deposit into a 9-18 reserve account for each capital access loan made under this 9-19 subchapter is the lesser of $35,000 or an amount equal to: 9-20 (1) eight percent of the loan amount if: 9-21 (A) the borrower is located in or financing a 9-22 project, activity, or enterprise in an area designated as an 9-23 enterprise zone under Chapter 2303; or 9-24 (B) the borrower is a small or medium-size 9-25 business or a nonprofit organization that operates or proposes to 10-1 operate a day-care center or a group day-care home, as those terms 10-2 are defined by Section 42.002, Human Resources Code; or 10-3 (2) six percent of the loan amount for any other 10-4 borrower. 10-5 Sec. 481.410. STATE'S RIGHTS WITH RESPECT TO RESERVE 10-6 ACCOUNT. (a) All of the money in a reserve account established 10-7 under this subchapter is property of the state. 10-8 (b) The state is entitled to earn interest on the amount of 10-9 contributions made by the department, borrower, and institution to 10-10 a reserve account under this subchapter. The department shall 10-11 withdraw monthly or quarterly from a reserve account the amount of 10-12 the interest earned by the state. The department shall deposit the 10-13 amount withdrawn under this subsection into the fund. 10-14 (c) If the amount in a reserve account exceeds an amount 10-15 equal to 33 percent of the balance of the financial institution's 10-16 outstanding capital access loans, the department may withdraw the 10-17 excess amount and deposit the amount in the fund. A withdrawal of 10-18 money authorized under this subsection may not reduce an active 10-19 reserve account to an amount that is less than $200,000. 10-20 (d) The department shall withdraw from the institution's 10-21 reserve account the total amount in the account and any interest 10-22 earned on the account and deposit the amount in the fund when: 10-23 (1) a financial institution is no longer eligible to 10-24 participate in the program or a participation agreement entered 10-25 into under this subchapter expires without renewal by the 11-1 department or institution; 11-2 (2) the financial institution has no outstanding 11-3 capital access loans; and 11-4 (3) the financial institution has not made a capital 11-5 access loan within the preceding 24 months. 11-6 Sec. 481.411. ANNUAL REPORT. A participating financial 11-7 institution shall submit an annual report to the department. The 11-8 report must: 11-9 (1) provide information regarding outstanding capital 11-10 access loans, capital access loan losses, and any other information 11-11 on capital access loans the department considers appropriate; 11-12 (2) state the total amount of loans for which the 11-13 department has made a contribution from the fund under this 11-14 subchapter; 11-15 (3) include a copy of the institution's most recent 11-16 financial statement; and 11-17 (4) include information regarding the type and size of 11-18 businesses and nonprofit organizations with capital access loans. 11-19 Sec. 481.412. REPORTS; AUDITS. (a) The department shall 11-20 submit to the legislature an annual status report on the program's 11-21 activities. 11-22 (b) The financial transactions of the fund are subject to 11-23 audit by the state auditor as provided by Chapter 321. 11-24 Sec. 481.413. STATE LIABILITY PROHIBITED. The state is not 11-25 liable to a participating financial institution for payment of the 12-1 principal, the interest, or any late charges on a capital access 12-2 loan made under this subchapter. 12-3 Sec. 481.414. GIFTS AND GRANTS. The department may accept 12-4 gifts, grants, and donations from any source for the purposes of 12-5 this subchapter. 12-6 SECTION 2. Section 481.059, Government Code, is amended by 12-7 adding Subsection (h) to read as follows: 12-8 (h) The department may not guarantee or make a loan under 12-9 this section after August 31, 1997. 12-10 SECTION 3. Section 481.084, Government Code, is amended by 12-11 adding Subsection (g) to read as follows: 12-12 (g) The department may not guarantee or make a loan under 12-13 this section after August 31, 1997. 12-14 SECTION 4. The policy board to the Texas Department of 12-15 Commerce shall adopt rules required by Section 481.406, Government 12-16 Code, as added by this Act, not later than December 1, 1997. 12-17 SECTION 5. This Act takes effect September 1, 1997. 12-18 SECTION 6. The importance of this legislation and the 12-19 crowded condition of the calendars in both houses create an 12-20 emergency and an imperative public necessity that the 12-21 constitutional rule requiring bills to be read on three several 12-22 days in each house be suspended, and this rule is hereby suspended. 12-23 COMMITTEE AMENDMENT NO. 1 12-24 Amend S.B. No. 266 as follows: 12-25 (1) In SECTION 1 of the bill, in proposed Section 481.407, 13-1 Government Code (page 7, between lines 14 and 15, Senate engrossed 13-2 version), insert the following: 13-3 "(e) When enrolling a loan in the program, a participating 13-4 financial institution may specify an amount to be covered under the 13-5 program that is less than the total amount of the loan." 13-6 (2) In SECTION 1 of the bill, after the last sentence of 13-7 proposed Section 481.408(b), Government Code (page 8, line 5, 13-8 Senate engrossed version), insert: "The institution may recover 13-9 from the borrower all or part of the amount the institution is 13-10 required to pay under this subsection in any manner agreed to by 13-11 the institution and borrower." 13-12 75R11759 CLG-D Oliveira