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