1-1           By:  Ellis, et al.                               S.B. No. 266

 1-2           (In the Senate - Filed January 22, 1997; January 23, 1997,

 1-3     read first time and referred to Committee on Economic Development;

 1-4     February 13, 1997, reported adversely, with favorable Committee

 1-5     Substitute by the following vote:  Yeas 8, Nays 0;

 1-6     February 13, 1997, sent to printer.)

 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 266                    By:  Ellis

 1-8                            A BILL TO BE ENTITLED

 1-9                                   AN ACT

1-10     relating to the establishment of a program in the Texas Department

1-11     of Commerce to secure certain loans made to small and medium-sized

1-12     businesses and nonprofit organizations.

1-13           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-14           SECTION 1.  Chapter 481, Government Code, is amended by

1-15     adding Subchapter BB to read as follows:

1-16                   SUBCHAPTER BB.  CAPITAL ACCESS PROGRAM

1-17           Sec. 481.401.  DEFINITIONS.  In this subchapter:

1-18                 (1)  "Capital access loan" means a loan that is

1-19     entitled to be secured by the fund.

1-20                 (2)  "Financial institution" includes a bank, trust

1-21     company, banking association, savings and loan association,

1-22     mortgage company, investment bank, credit union, or nontraditional

1-23     financial institution.

1-24                 (3)  "Fund" means the capital access fund.

1-25                 (4)  "Loan" includes a line of credit.

1-26                 (5)  "Medium-sized business" means a corporation,

1-27     partnership, sole proprietorship, or other legal entity that:

1-28                       (A)  is domiciled in this state or has at least

1-29     51 percent of its employees located in this state;

1-30                       (B)  is formed to make a profit; and

1-31                       (C)  employs 100 or more but fewer than 500

1-32     full-time employees.

1-33                 (6)  "Nonprofit organization" means a private,

1-34     nonprofit, tax-exempt corporation, association, or organization

1-35     listed in Section 501(c)(3), Internal Revenue Code of 1986, that is

1-36     domiciled in this state or has at least 51 percent of its members

1-37     located in this state.

1-38                 (7)  "Participating financial institution" means a

1-39     financial institution participating in the program.

1-40                 (8)  "Program" means the capital access program.

1-41                 (9)  "Reserve account" means an account established in

1-42     a participating financial institution on approval of the department

1-43     in which money is deposited to serve as a source of additional

1-44     revenue to reimburse the financial institution for losses on loans

1-45     enrolled in the program.

1-46                 (10)  "Small business" means a corporation,

1-47     partnership, sole proprietorship, or other legal entity that:

1-48                       (A)  is domiciled in this state or has at least

1-49     51 percent of its employees located in this state;

1-50                       (B)  is formed to make a profit;

1-51                       (C)  is independently owned and operated; and

1-52                       (D)  employs fewer than 100 full-time employees.

1-53           Sec. 481.402.  CAPITAL ACCESS FUND.  (a)  The capital access

1-54     fund is a special account in the state treasury.

1-55           (b)  Appropriations for the implementation and administration

1-56     of this subchapter, investment earnings, fees charged under this

1-57     subchapter, and any other amounts received by the state under this

1-58     subchapter shall be deposited in the fund.

1-59           (c)  Money in the fund may be  appropriated only to the

1-60     department for use in carrying out the purposes of this subchapter.

1-61           Sec. 481.403.  TRANSFER OF MONEY FROM OTHER FUNDS TO THE

1-62     CAPITAL ACCESS FUND.  (a)  At the beginning of each fiscal year,

1-63     the department shall compute for the Texas exporters loan fund

1-64     established under Subchapter D and the Texas rural economic

 2-1     development fund established under Subchapter F:

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

 2-3     cover loan guarantees made under Subchapter D or F, as applicable

 2-4     to each fund;

 2-5                 (2)  the amount sufficient for the fiscal year to repay

 2-6     bonds issued under Subchapter D, to carry out the purposes of

 2-7     Section 481.059, or for projects that are eligible under Subchapter

 2-8     F, as applicable to each fund; and

 2-9                 (3)  the amount of loan repayments for loans made under

2-10     Subchapter D or F that will be expected to be received during the

2-11     fiscal year, as applicable to each fund.

2-12           (b)  At the beginning of each fiscal year, the comptroller

2-13     for each fund described by Subsection (a) shall subtract the sum of

2-14     the amount computed by the department under Subsections (a)(1) and

2-15     (a)(2) for the respective fund from the amount in the fund at the

2-16     beginning of the fiscal year.

2-17           (c)  If a positive amount results from a computation made

2-18     under Subsection (b), the comptroller shall transfer an amount

2-19     equal to the computed amount from the fund to which the computation

2-20     relates to the capital access fund.

2-21           (d)  As loan repayments are received for each fund described

2-22     by Subsection (a), the comptroller shall transfer the payments to

2-23     the capital access fund.

2-24           Sec. 481.404.  POWERS OF DEPARTMENT IN ADMINISTERING CAPITAL

2-25     ACCESS FUND.  In administering the fund, the department has the

2-26     powers necessary to carry out the purposes of this subchapter,

2-27     including the power to:

2-28                 (1)  make, execute, and deliver contracts, conveyances,

2-29     and other instruments necessary to the exercise of its powers;

2-30                 (2)  invest money at the department's discretion in

2-31     obligations determined proper by the department, and select and use

2-32     depositories for its money;

2-33                 (3)  employ personnel and counsel and pay the persons

2-34     from money in the fund legally available for that purpose; and

2-35                 (4)  impose and collect fees and charges in connection

2-36     with any transaction and provide for reasonable penalties for

2-37     delinquent payment of fees or charges.

2-38           Sec. 481.405.  CAPITAL ACCESS PROGRAM.  (a)  The department

2-39     shall establish a capital access program to assist a participating

2-40     financial institution in making loans to businesses and nonprofit

2-41     organizations that face barriers in accessing capital.

2-42           (b)  The department shall use money in the fund to make a

2-43     deposit in a participating financial institution's reserve account

2-44     in an amount specified by this subchapter to be a source of money

2-45     the institution may receive as reimbursement for losses

2-46     attributable to loans in the program.

2-47           (c)  The department shall determine the eligibility of a

2-48     financial institution to participate in the program and may set a

2-49     limit on the number of eligible financial institutions that may

2-50     participate in the program.

2-51           (d)  To participate in the program, an eligible financial

2-52     institution must enter into a participation agreement with the

2-53     department that sets out the terms and conditions under which the

2-54     department will make contributions to the institution's reserve

2-55     account and specifies the criteria for a loan to qualify as a

2-56     capital access loan.

2-57           (e)  To qualify as a capital access loan, a loan must:

2-58                 (1)  be made to a small or medium-sized business or to

2-59     a nonprofit organization;

2-60                 (2)  be used by the business or nonprofit organization

2-61     for any project, activity, or enterprise in this state that fosters

2-62     economic development; and

2-63                 (3)  meet any other criteria provided by this

2-64     subchapter.

2-65           Sec. 481.406.  RULEMAKING AUTHORITY.  (a)  The policy board

2-66     shall adopt rules relating to the implementation of the program and

2-67     any other rules necessary to accomplish the purposes of this

2-68     subchapter.  The rules may:

2-69                 (1)  provide for criteria under which a certain line of

 3-1     credit issued by an eligible financial institution to a small or

 3-2     medium-sized business or nonprofit organization qualifies to

 3-3     participate in the program; and

 3-4                 (2)  authorize a consortium of financial institutions

 3-5     to participate in the program subject to common underwriting

 3-6     guidelines.

 3-7           (b)  To qualify for participation in the program, a line of

 3-8     credit must:

 3-9                 (1)  be an account at a financial institution under

3-10     which the financial institution agrees to lend money to a person

3-11     from time to time to finance one or more projects, activities, or

3-12     enterprises that are authorized by this subchapter; and

3-13                 (2)  contain the same restrictions, to the extent

3-14     possible, that are placed on a capital access loan that is not a

3-15     line of credit.

3-16           Sec. 481.407.  PROVISIONS RELATING TO CAPITAL ACCESS LOAN.

3-17     (a)  Except as otherwise provided by this subchapter, the

3-18     department may not determine the recipient, amount, or interest

3-19     rate of a capital access loan or the fees or other requirements

3-20     related to the loan.

3-21           (b)  A loan is not eligible to be enrolled under this

3-22     subchapter if the loan is for:

3-23                 (1)  construction or purchase of residential housing;

3-24                 (2)  simple real estate investments, excluding the

3-25     development or improvement of commercial real estate occupied by

3-26     the borrower's business or organization;

3-27                 (3)  refinancing of existing loans not originally

3-28     enrolled under this subchapter; or

3-29                 (4)  inside bank transactions, as defined by the policy

3-30     board.

3-31           (c)  The borrower of a capital access loan must apply the

3-32     loan to working capital or to the purchase, construction, or lease

3-33     of capital assets, including buildings and equipment used by the

3-34     business or nonprofit organization.  Working capital uses include

3-35     the cost of exporting, accounts receivable, payroll, inventory, and

3-36     other financing needs of the business or organization.

3-37           (d)  A capital access loan may be sold on the secondary

3-38     market under conditions as may be determined by the department.

3-39           Sec. 481.408.  RESERVE ACCOUNT.  (a)  On approval by the

3-40     department and after entering into a participation agreement with

3-41     the department, a participating financial institution making a

3-42     capital access loan shall establish a reserve account.  The reserve

3-43     account shall be used by the institution only to cover any losses

3-44     arising from a default of a capital access loan made by the

3-45     institution under this subchapter or as otherwise provided by this

3-46     subchapter.

3-47           (b)  When a participating financial institution makes a loan

3-48     enrolled in the program, the institution shall require the borrower

3-49     to pay to the institution a fee in an amount that is not less than

3-50     two percent but not more than three percent of the principal amount

3-51     of the loan, which the financial institution shall deposit in the

3-52     reserve account.  The institution shall also deposit in the reserve

3-53     account an amount equal to the amount of the fee received by the

3-54     institution from the borrower under this subsection.

3-55           (c)  For each capital access loan made by a financial

3-56     institution, the institution shall certify to the department,

3-57     within the period prescribed by the department, that the

3-58     institution has made a capital access loan, the amount the

3-59     institution has deposited in the reserve account, including the

3-60     amount of fees received from the borrower, and, if applicable, that

3-61     the borrower is located in or financing a project, activity, or

3-62     enterprise in an area designated as an enterprise zone under

3-63     Chapter 2303.

3-64           (d)  On receipt of a certification made under Subsection (c)

3-65     and subject to Section 481.409, the department shall deposit in the

3-66     institution's reserve account for each capital access loan made by

3-67     the institution:

3-68                 (1)  an amount equal to the amount deposited by the

3-69     institution for each loan if the institution:

 4-1                       (A)  has assets of more than $1 billion; or

 4-2                       (B)  has previously enrolled loans in the program

 4-3     that in the aggregate are more than $2 million;

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

 4-5     deposited under Subsection (b) for each loan if the institution is

 4-6     not described by Subdivision (1); or

 4-7                 (3)  notwithstanding Subdivisions (1) and (2), an

 4-8     amount equal to 200 percent of the total amount deposited under

 4-9     Subsection (b) for each loan if:

4-10                       (A)  the borrower is located in or financing a

4-11     project, activity, or enterprise in an area designated as an

4-12     enterprise zone under Chapter 2303; or

4-13                       (B)  the borrower is a small or medium-size

4-14     business or a nonprofit organization that operates or proposes to

4-15     operate a day-care center or a group day-care home, as those terms

4-16     are defined by Section 42.002, Human Resources Code.

4-17           Sec. 481.409.  LIMITATIONS ON STATE CONTRIBUTION TO RESERVE

4-18     ACCOUNT.  (a)  The amount deposited by the department into a

4-19     participating financial institution's reserve account for any

4-20     single loan recipient may not exceed $150,000 during a three-year

4-21     period.

4-22           (b)  The maximum amount the department may deposit into a

4-23     reserve account for each capital access loan made under this

4-24     subchapter is the lesser of $35,000 or an amount equal to:

4-25                 (1)  eight percent of the loan amount if:

4-26                       (A)  the borrower is located in or financing a

4-27     project, activity, or enterprise in an area designated as an

4-28     enterprise zone under Chapter 2303; or

4-29                       (B)  the borrower is a small or medium-size

4-30     business or a nonprofit organization that operates or proposes to

4-31     operate a day-care center or a group day-care home, as those terms

4-32     are defined by Section 42.002, Human Resources Code; or

4-33                 (2)  six percent of the loan amount for any other

4-34     borrower.

4-35           Sec. 481.410.  STATE'S RIGHTS WITH RESPECT TO RESERVE

4-36     ACCOUNT.  (a)  All of the money in a reserve account established

4-37     under this subchapter is property of the state.

4-38           (b)  The state is entitled to earn interest on the amount of

4-39     contributions made by the department, borrower, and institution to

4-40     a reserve account under this subchapter.  The department shall

4-41     withdraw monthly or quarterly from a reserve account the amount of

4-42     the interest earned by the state.  The department shall deposit the

4-43     amount withdrawn under this subsection into the fund.

4-44           (c)  If the amount in a reserve account exceeds an amount

4-45     equal to 33 percent of the balance of the financial institution's

4-46     outstanding capital access loans, the department may withdraw the

4-47     excess amount and deposit the amount in the fund.  A withdrawal of

4-48     money authorized under this subsection may not reduce an active

4-49     reserve account to an amount that is less than $200,000.

4-50           (d)  The department shall withdraw from the institution's

4-51     reserve account the total amount in the account and any interest

4-52     earned on the account and deposit the amount in the fund when:

4-53                 (1)  a financial institution is no longer eligible to

4-54     participate in the program or a participation agreement entered

4-55     into under this subchapter expires without renewal by the

4-56     department or institution;

4-57                 (2)  the financial institution has no outstanding

4-58     capital access loans; and

4-59                 (3)  the financial institution has not made a capital

4-60     access loan within the preceding 24 months.

4-61           Sec. 481.411.  ANNUAL REPORT.  A participating financial

4-62     institution shall submit an annual report to the department.  The

4-63     report must:

4-64                 (1)  provide information regarding outstanding capital

4-65     access loans, capital access loan losses, and any other information

4-66     on capital access loans the department considers appropriate;

4-67                 (2)  state the total amount of loans for which the

4-68     department has made a contribution from the fund under this

4-69     subchapter;

 5-1                 (3)  include a copy of the institution's most recent

 5-2     financial statement; and

 5-3                 (4)  include information regarding the type and size of

 5-4     businesses and nonprofit organizations with capital access loans.

 5-5           Sec. 481.412.  REPORTS; AUDITS.  (a)  The department shall

 5-6     submit to the legislature an annual status report on the program's

 5-7     activities.

 5-8           (b)  The financial transactions of the fund are subject to

 5-9     audit by the state auditor as provided by Chapter 321.

5-10           Sec. 481.413.   STATE LIABILITY PROHIBITED.  The state is not

5-11     liable to a participating financial institution for payment of the

5-12     principal, the interest, or any late charges on a capital access

5-13     loan made under this subchapter.

5-14           Sec. 481.414.  GIFTS AND GRANTS.  The department may accept

5-15     gifts, grants, and donations from any source for the purposes of

5-16     this subchapter.

5-17           SECTION 2.  Section 481.059, Government Code, is amended by

5-18     adding Subsection (h) to read as follows:

5-19           (h)  The department may not guarantee or make a loan under

5-20     this section after August 31, 1997.

5-21           SECTION 3.  Section 481.084, Government Code, is amended by

5-22     adding Subsection (g) to read as follows:

5-23           (g)  The department may not guarantee or make a loan under

5-24     this section after August 31, 1997.

5-25           SECTION 4.  The policy board to the Texas Department of

5-26     Commerce shall adopt rules required by Section 481.406, Government

5-27     Code, as added by this Act, not later than December 1, 1997.

5-28           SECTION 5.  This Act takes effect September 1, 1997.

5-29           SECTION 6.  The importance of this legislation and the

5-30     crowded condition of the calendars in both houses create an

5-31     emergency and an imperative public necessity that the

5-32     constitutional rule requiring bills to be read on three several

5-33     days in each house be suspended, and this rule is hereby suspended.

5-34                                  * * * * *