By: Wentworth, et al. S.B. No. 1877 A BILL TO BE ENTITLED AN ACT 1-1 relating to creating a Texas community investment program to assist 1-2 certain businesses in distressed areas of the state. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Chapter 2306, Government Code, is amended by 1-5 adding Subchapter AA to read as follows: 1-6 SUBCHAPTER AA. TEXAS COMMUNITY INVESTMENT PROGRAM 1-7 Sec. 2306.621. DEFINITIONS. In this subchapter: 1-8 (1) "Multi-bank community development corporation" 1-9 means a corporation organized to provide community development 1-10 funds to businesses that employ low and moderate income persons by 1-11 investing in and making loans to disadvantaged businesses located 1-12 in distressed areas of the state. 1-13 (2) "Program" means the community investment program 1-14 established under this subchapter. 1-15 Sec. 2306.622. COMMUNITY INVESTMENT PROGRAM. 1-16 (a) Notwithstanding any other law, the department shall establish 1-17 a community investment program in which the department awards 1-18 grants to or purchases stock of certain multi-bank community 1-19 development corporations for use in making loans to or investing in 1-20 businesses in distressed areas of the state that cannot qualify for 1-21 conventional bank loans. 1-22 (b) The department shall determine the eligibility of a 1-23 multi-bank community development corporation to participate in the 1-24 program and may set a limit on the number of eligible multi-bank 2-1 community development corporations that may participate in the 2-2 program. 2-3 (c) A multi-bank community development corporation is 2-4 eligible to participate in the program if the multi-bank community 2-5 development corporation has raised a minimum of $500,000 in private 2-6 investments to make loans to or investments in businesses described 2-7 by Subsection (a). 2-8 (d) To participate in the program, an eligible multi-bank 2-9 community development corporation must enter into a participation 2-10 agreement with the department that sets out the terms and 2-11 conditions under which the department will award a grant to or 2-12 purchase stock of the multi-bank community development corporation. 2-13 Sec. 2306.623. RULE-MAKING AUTHORITY. The department shall 2-14 adopt rules relating to the implementation of the program and any 2-15 other rules necessary to accomplish the purposes of this 2-16 subchapter. 2-17 Sec. 2306.624. GRANT APPLICATION. (a) An eligible 2-18 multi-bank community development corporation may file a grant 2-19 application with the department in a form approved by the board. 2-20 The application must include a plan of investment that includes the 2-21 type and number of businesses to which the multi-bank community 2-22 development corporation plans to make a community investment loan 2-23 or in which the corporation plans to invest using money from the 2-24 program. 2-25 (b) The director shall act on a completed application not 2-26 later than the 30th day after the date on which the application is 2-27 filed with the department. 3-1 Sec. 2306.625. PROVISIONS RELATING TO GRANTS. (a) A grant 3-2 awarded to a multi-bank community development corporation through a 3-3 grant under the program must be used or committed for approved 3-4 loans or investments not later than the 18th month after the date 3-5 on which the grant is received. 3-6 (b) A multi-bank community development corporation shall 3-7 return to the department any amount not invested or committed for 3-8 investment within the period prescribed by Subsection (a) not later 3-9 than the 10th day after the expiration of that period. 3-10 (c) If a multi-bank community development corporation 3-11 experiences losses of more than 25 percent on loans or investments 3-12 made with grants awarded to the corporation under the program, the 3-13 multi-bank community development corporation shall: 3-14 (1) return all unencumbered money to the department; 3-15 and 3-16 (2) deliver to the director all of the documentation 3-17 and related instruments concerning investments made with money 3-18 awarded under the program. 3-19 Sec. 2306.626. ELIGIBLE LOANS. (a) Each multi-bank 3-20 community development corporation participating in the program 3-21 shall establish an investment committee to approve loan requests 3-22 made by businesses. Each investment committee must have at least 3-23 five members at least 50 percent of whom must be bankers and at 3-24 least 30 percent of whom must be representatives of the community. 3-25 (b) A multi-bank community development corporation may use 3-26 money awarded under the program to make a community investment loan 3-27 only if the loan is approved by the appropriate investment 4-1 committee. 4-2 (c) A community investment loan may be in the form of debt, 4-3 subordinated debt, or an equity investment. 4-4 Sec. 2306.627. LIMITATION ON USE OF GRANT. A multi-bank 4-5 community development corporation shall invest at least 60 percent 4-6 of the amounts received under the program in businesses that have 4-7 been in existence for at least one year before the date on which 4-8 the investment is made. 4-9 Sec. 2306.628. COLLABORATIVE EFFORT. A multi-bank community 4-10 development corporation may make a loan or investment under the 4-11 program in conjunction with one or more financial institutions 4-12 through partnerships or joint investments. 4-13 Sec. 2306.629. PROVISIONS RELATING TO LOANS. (a) The 4-14 maximum amount that may be loaned to a business by a multi-bank 4-15 community development corporation under the program is: 4-16 (1) $200,000 if all of the loan to the business is 4-17 direct; or 4-18 (2) $100,000 if any of the business's debt to the 4-19 multi-bank community development corporation is subordinated to a 4-20 bank or other entity. 4-21 (b) The maximum term of a loan made using amounts awarded 4-22 under the program is 15 years. 4-23 Sec. 2306.630. PROVISIONS RELATING TO EQUITY INVESTMENTS. 4-24 (a) The maximum equity investment that may be made by a multi-bank 4-25 community development corporation in one business using amounts 4-26 awarded under the program is $50,000 for a maximum term of seven 4-27 years. 5-1 (b) The maximum amount of ownership that a multi-bank 5-2 community development corporation may acquire in a business is 50 5-3 percent of the business's equity. 5-4 Sec. 2306.631. INTEREST INCOME. All income received on an 5-5 investment or loan made with amounts awarded under the program is 5-6 the property of the multi-bank community development corporation 5-7 that makes the investment or loan. 5-8 Sec. 2306.632. SEMIANNUAL REPORT. (a) Not later than the 5-9 30th day after the expiration of each six-month period for which 5-10 there is a participation agreement in effect between the department 5-11 and a multi-bank community development corporation, the multi-bank 5-12 community development corporation shall submit a report to the 5-13 director that details the status of each investment or loan made 5-14 under the program. 5-15 (b) The report must be in a form prescribed by the board and 5-16 must contain all information required by the department as part of 5-17 the multi-bank community development corporation's participation 5-18 agreement. 5-19 Sec. 2306.633. ANNUAL AUDIT. The participation agreement 5-20 entered into between a multi-bank community development corporation 5-21 and the department must provide for an annual audit of all amounts 5-22 awarded to the multi-bank community development corporation under 5-23 the program. The board shall adopt rules relating to the format of 5-24 the audit. 5-25 SECTION 2. This Act takes effect September 1, 1997. 5-26 SECTION 3. The importance of this legislation and the 5-27 crowded condition of the calendars in both houses create an 6-1 emergency and an imperative public necessity that the 6-2 constitutional rule requiring bills to be read on three several 6-3 days in each house be suspended, and this rule is hereby suspended.