By Ellis                                         S.B. No. 266

      75R1524 CLG-D                           

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the establishment of a program in the Texas Department

 1-3     of Commerce to secure certain loans made to small and medium-sized

 1-4     businesses and nonprofit organizations.

 1-5           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-6           SECTION 1.  Chapter 481, Government Code, is amended by

 1-7     adding Subchapter BB to read as follows:

 1-8                   SUBCHAPTER BB.  CAPITAL ACCESS PROGRAM

 1-9           Sec. 481.401.  DEFINITIONS.  In this subchapter:

1-10                 (1)  "Capital access loan" means a loan that is

1-11     entitled to be secured by the fund.

1-12                 (2)  "Fund" means the capital access fund.

1-13                 (3)  "Medium-sized business" means a corporation,

1-14     partnership, sole proprietorship, or other legal entity that:

1-15                       (A)  is domiciled in this state or has at least

1-16     51 percent of its employees located in this state;

1-17                       (B)  is formed to make a profit; and

1-18                       (C)  employs 100 or more but fewer than 500

1-19     full-time employees.

1-20                 (4)  "Participating financial institution" means a

1-21     financial institution participating in the program.

1-22                 (5)  "Program" means the capital access program.

1-23                 (6)  "Small business" means a corporation, partnership,

1-24     sole proprietorship, or other legal entity that:

 2-1                       (A)  is domiciled in this state or has at least

 2-2     51 percent of its employees located in this state;

 2-3                       (B)  is formed to make a profit;

 2-4                       (C)  is independently owned and operated; and

 2-5                       (D)  employs fewer than 100 full-time employees.

 2-6           Sec. 481.402.  CAPITAL ACCESS FUND.  (a)  The capital access

 2-7     fund is a special account in the state treasury.

 2-8           (b)  Appropriations for the implementation and administration

 2-9     of this subchapter, investment earnings, fees charged under this

2-10     subchapter, and any other amounts received by the state under this

2-11     subchapter shall be deposited in the fund.

2-12           (c)  Money in the fund may be  appropriated only to the

2-13     department for use in carrying out the purposes of this subchapter.

2-14           Sec. 481.403.  TRANSFER OF MONEY FROM OTHER FUNDS TO THE

2-15     CAPITAL ACCESS FUND.  (a)  At the beginning of each fiscal year,

2-16     the department shall compute for the Texas exporters loan fund

2-17     established under Subchapter D and the Texas rural economic

2-18     development fund established under Subchapter F:

2-19                 (1)  the amount sufficient for that fiscal year to

2-20     cover loan guarantees made under Subchapter D or F, as applicable

2-21     to each fund;

2-22                 (2)  the amount sufficient for the fiscal year to repay

2-23     bonds issued under Subchapter D, to carry out the purposes of

2-24     Section 481.059, or for projects that are eligible under Subchapter

2-25     F, as applicable to each fund; and

2-26                 (3)  the amount of loan repayments for loans made under

2-27     Subchapter D or F that will be expected to be received during the

 3-1     fiscal year, as applicable to each fund.

 3-2           (b)  At the beginning of each fiscal year, the comptroller

 3-3     for each fund described by Subsection (a) shall subtract the sum of

 3-4     the amount computed by the department under Subsection (a)(1) and

 3-5     (a)(2) for the respective fund from the amount in the fund at the

 3-6     beginning of the fiscal year.

 3-7           (c)  If a positive amount results from a computation made

 3-8     under Subsection (b), the comptroller shall transfer an amount

 3-9     equal to the computed amount from the fund to which the computation

3-10     relates to the capital access fund.

3-11           (d)  As loan repayments are received for each fund described

3-12     by Subsection (a), the comptroller shall transfer the payments to

3-13     the capital access fund.

3-14           Sec. 481.404.  POWERS OF DEPARTMENT IN ADMINISTERING CAPITAL

3-15     ACCESS FUND.  In administering the fund, the department has the

3-16     powers necessary to carry out the purposes of this chapter,

3-17     including the power to:

3-18                 (1)  make, execute, and deliver contracts, conveyances,

3-19     and other instruments necessary to the exercise of its powers;

3-20                 (2)  invest money at the department's discretion in

3-21     obligations determined proper by the department, and select and use

3-22     depositories for its money;

3-23                 (3)  employ personnel and counsel and pay the persons

3-24     from money in the fund legally available for this purpose; and

3-25                 (4)  impose and collect fees and charges in connection

3-26     with any transaction and provide for reasonable penalties for

3-27     delinquent payment of fees or charges.

 4-1           Sec. 481.405.  CAPITAL ACCESS PROGRAM.  (a)  The department

 4-2     shall establish a capital access program to provide additional

 4-3     capital for investment in commercial and industrial enterprises.

 4-4           (b)  The department shall use money in the fund to make a

 4-5     deposit in a participating financial institution's reserve account

 4-6     in an amount specified by this subchapter to secure the principal

 4-7     of and interest on each capital access loan made by the

 4-8     institution.

 4-9           (c)  The department shall determine the eligibility of a

4-10     financial institution to participate in the program and may set a

4-11     limit on the number of eligible financial institutions that may

4-12     participate in the program.

4-13           (d)  To participate in the program, an eligible financial

4-14     institution must enter into a participation agreement with the

4-15     department that sets out the terms and conditions under which the

4-16     department will make contributions to the institution's reserve

4-17     account and specifies the criteria for a loan to qualify as a

4-18     capital access loan.

4-19           (e)  To qualify as a capital access loan, a loan:

4-20                 (1)  must be made to a small or medium-sized business

4-21     or to a nonprofit organization that is domiciled in this state;

4-22                 (2)  must be used by the business or nonprofit

4-23     organization for any project, activity, or enterprise in this state

4-24     that fosters economic development; and

4-25                 (3)  must meet any other criteria provided by this

4-26     subchapter.

4-27           Sec. 481.406.  RULEMAKING AUTHORITY.  The policy board shall

 5-1     adopt rules relating to the implementation of the program and any

 5-2     other rules necessary to accomplish the purposes of this

 5-3     subchapter.  The rules:

 5-4                 (1)  must include provisions governing capital access

 5-5     loan repayment terms; and

 5-6                 (2)  may provide for an application fee or other

 5-7     reasonable fees necessary for the operation of this subchapter.

 5-8           Sec. 481.407.  PROVISIONS RELATING TO CAPITAL ACCESS LOAN.

 5-9     (a)  Except as otherwise provided by this subchapter, the

5-10     department may not determine the recipient, amount, or interest

5-11     rate of a capital access loan or the fees or other requirements

5-12     related to the loan.

5-13           (b)  A loan is not eligible to be secured under this

5-14     subchapter if the loan is for:

5-15                 (1)  construction or purchase of residential housing;

5-16                 (2)  simple real estate investments, excluding the

5-17     development or improvement of commercial real estate or real estate

5-18     business operations;

5-19                 (3)  refinancing of existing loans not originally

5-20     secured under this subchapter; or

5-21                 (4)  inside bank transactions, as defined by the policy

5-22     board.

5-23           (c)  The borrower of a capital access loan must apply the

5-24     loan to working capital or to the purchase, construction, or lease

5-25     of capital assets, including buildings and equipment.

5-26           (d)  A capital access loan may be sold on the secondary

5-27     market under conditions as may be determined by the department.

 6-1           Sec. 481.408.  RESERVE ACCOUNT.  (a)  On approval by the

 6-2     department and after entering into a participation agreement with

 6-3     the department, a participating financial institution making a

 6-4     capital access loan shall establish a reserve account.  The reserve

 6-5     account shall be used by the institution only to cover any losses

 6-6     arising from a default of a capital access loan made by the

 6-7     institution under this subchapter or as otherwise provided by this

 6-8     subchapter.

 6-9           (b)  When a participating financial institution makes a

6-10     capital access loan, the institution shall deposit in the reserve

6-11     account an amount that is not less than three percent of the amount

6-12     of the loan.  The institution may obtain the amount directly from

6-13     the borrower or may advance the amount to the borrower as part of

6-14     the loan.

6-15           (c)  For each capital access loan made by a financial

6-16     institution, the institution shall certify to the department that

6-17     the institution has made a capital access loan, the amount the

6-18     institution has deposited in the reserve account, and, if

6-19     applicable, that the borrower is located in or financing a project,

6-20     activity, or enterprise in an area designated as an enterprise zone

6-21     under Chapter 2303.

6-22           (d)  On receipt of a certification made under Subsection (c)

6-23     and subject to Section 481.409, the department shall deposit in the

6-24     institution's reserve account for each capital access loan made by

6-25     the institution:

6-26                 (1)  an amount equal to the amount deposited by the

6-27     institution for each loan if the institution:

 7-1                       (A)  has assets of more than $1 billion; or

 7-2                       (B)  has previously enrolled loans in the program

 7-3     that in the aggregate are more than $2 million;

 7-4                 (2)  an amount equal to 150 percent of the amount

 7-5     deposited by the institution for each loan if the institution is

 7-6     not described by Subdivision (1); or

 7-7                 (3)  notwithstanding Subdivisions (1) and (2), an

 7-8     amount equal to twice the amount deposited by the institution for

 7-9     each loan if the borrower is located in or financing a project,

7-10     activity, or enterprise in an area designated as an enterprise zone

7-11     under Chapter 2303.

7-12           Sec. 481.409.  LIMITATIONS ON STATE CONTRIBUTION TO RESERVE

7-13     ACCOUNT.  (a)  The amount deposited by the department into a

7-14     participating financial institution's reserve account for any

7-15     single loan recipient may not exceed $150,000 during a three-year

7-16     period.

7-17           (b)  The maximum amount the department may deposit into a

7-18     reserve account for each capital access loan made under this

7-19     subchapter is the lesser of $35,000 or an amount equal to:

7-20                 (1)  eight percent of the loan amount if the borrower

7-21     is located in or financing a project, activity, or enterprise in an

7-22     area designated as an enterprise zone under Chapter 2303; or

7-23                 (2)  six percent of the loan amount for any other

7-24     borrower.

7-25           Sec. 481.410.  STATE'S RIGHTS WITH RESPECT TO RESERVE

7-26     ACCOUNT.  (a)  All of the money in a reserve account established

7-27     under this subchapter is property of the state.

 8-1           (b)  The state is entitled to earn interest on the amount of

 8-2     contributions made by the department to a reserve account under

 8-3     this subchapter.  The comptroller may withdraw quarterly from a

 8-4     reserve account the amount of the interest earned by the state.

 8-5     The department may use the amount withdrawn under this subsection

 8-6     to defray the costs of promoting and administering the program.

 8-7           (c)  If the amount in a reserve account exceeds the greater

 8-8     of $200,000 or an amount equal to 33 percent of the balance of the

 8-9     financial institution's outstanding capital access loans, the

8-10     comptroller may withdraw the excess amount and deposit the amount

8-11     in the fund.

8-12           (d)  On the date a financial institution is no longer

8-13     eligible to participate in the program or on the expiration date of

8-14     a participation agreement entered into under this subchapter that

8-15     is not renewed by the department or institution, the comptroller

8-16     shall withdraw from the institution's reserve account the amount of

8-17     any state contribution in the account and any interest earned on

8-18     that amount and deposit the amounts in the fund.

8-19           Sec. 481.411.  ANNUAL REPORT.  A participating financial

8-20     institution shall submit an annual report to the department.  The

8-21     report must:

8-22                 (1)  provide information regarding outstanding capital

8-23     access loans, delinquent capital access loans, and any other

8-24     information on capital access loans the department considers

8-25     appropriate;

8-26                 (2)  state the total amount of loans for which the

8-27     department has made a contribution from the fund under this

 9-1     subchapter; and

 9-2                 (3)  include a copy of the institution's most recent

 9-3     financial statement.

 9-4           Sec. 481.412.  REPORTS; AUDITS.  (a)  The department shall

 9-5     submit to the legislature an annual status report on the program's

 9-6     activities.

 9-7           (b)  The financial transactions of the fund are subject to

 9-8     audit by the state auditor as provided by Chapter 321.

 9-9           Sec. 481.413.   STATE LIABILITY PROHIBITED.  The state is not

9-10     liable to a participating financial institution for payment of the

9-11     principal, interest, or any late charges on a capital access loan

9-12     made under this subchapter.

9-13           Sec. 481.414.  GIFTS AND GRANTS.  The department may accept

9-14     gifts, grants, and donations from any source for the purposes of

9-15     this subchapter.

9-16           SECTION 2.  Section 481.059, Government Code, is amended by

9-17     adding Subsection (h) to read as follows:

9-18           (h)  The department may not guarantee or make a loan under

9-19     this section after August 31, 1997.

9-20           SECTION 3.  Section 481.084, Government Code, is amended by

9-21     adding Subsection (g) to read as follows:

9-22           (g)  The department may not guarantee or make a loan under

9-23     this section after August 31, 1997.

9-24           SECTION 4.  The policy board to the Texas Department of

9-25     Commerce shall adopt rules required by Section 481.406, Government

9-26     Code, as added by this Act, not later than December 1, 1997.

9-27           SECTION 5.  This Act takes effect September 1, 1997.

 10-1          SECTION 6.  The importance of this legislation and the

 10-2    crowded condition of the calendars in both houses create an

 10-3    emergency and an imperative public necessity that the

 10-4    constitutional rule requiring bills to be read on three several

 10-5    days in each house be suspended, and this rule is hereby suspended.