HBA-KMH H.B. 64 76(R) BILL ANALYSIS
Office of House Bill AnalysisH.B. 64
By: Greenberg
Economic Development
2/15/1999
Introduced
BACKGROUND AND PURPOSE
Multi-bank Community Development Corporations (CDCs) and Community
Development Financial Institutions (CDFIs) make loans to small
minority-owned businesses, generally in economically depressed areas, as an
investment intended to spur economic growth in those communities. It can
be difficult to obtain funds for such programs since there is a greater
measure of risk involved in this type of investment. State funding will
enable CDCs and CDFIs to leverage private and federal funding through
matching grants. H.B. 64 makes more funding available to CDCs and CDFIs by
creating a revolving loan fund administered by the Department of Economic
Development.
RULEMAKING AUTHORITY
It is the opinion of the Office of House Bill Analysis that this bill
expressly delegates rulemaking authority to the Department of Housing and
Community Affairs in SECTION 1 (Sections 2306.703 and 2306.712, Government
Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 2306, Government Code, to add Subchapter EE, as
follows:
SUBCHAPTER EE. TEXAS COMMUNITY INVESTMENT PROGRAM
Sec. 2306.701 (1) Defines "community development investor" (investor) as a
federally certified community development financial institution or
multi-bank community development corporation.
(2) Defines "multi-bank community development corporation" as a
corporation organized to provide community development funds to businesses
that employ low and moderate income persons by investing in and making
loans to disadvantaged businesses located in distressed areas of the state.
(3) Defines "program" as the community investment program established
under this subchapter.
Sec. 2306.702. COMMUNITY INVESTMENT PROGRAM. Requires the Texas Department
of Housing and Community Affairs (department) to establish a community
investment program through grants or interest-free loans or stock purchases
of investors, who in turn make loans to or invest in businesses located in
distressed areas of the state and are unable to qualify for conventional
bank loans. Requires the department to determine the eligibility of an
investor. Authorizes the department to set a limit on the number of
investors that may participate in the program. Sets forth that an investor
is eligible to participate in the program after the investor raises at
least $400,000 in private investments and enters into an agreement with the
department setting out the terms and conditions of participation.
Sec. 2306.703. RULEMAKING AUTHORITY. Requires the Texas Department of
Housing and Community Affairs to adopt rules relating to the implementation
of the program and any other rules necessary to accomplish the purposes of
this subchapter.
Sec. 2306.704. APPLICATION. Authorizes eligible investors to apply for
grants or loans using a form approved by the department. Specifies that
the application must include a plan of investment which includes the type
and number of businesses to which the investor plans to make a loan or in
which the investor plans to invest. Requires the executive director of the
Texas Department of Housing and Community Affairs (director) to act upon a
completed application within 30 days of its filing with the department.
Sec. 2306.705. USE OF MONEY. Requires investors to use money received
under the program within 18 months of receipt, commit the money to be used
in conformance with the program, or return any amount not used, as required
by this subsection, within 10 days following the 18-month deadline.
Requires an investor who sustains losses greater than 25 percent under the
program to return all money not already loaned or promised and deliver to
the director all instruments related to the loans and investments made
under the program.
Sec. 2306.706. ELIGIBLE INVESTMENTS. Requires each investor to establish
an investment committee to give approval of requests made by businesses for
use of funds under the program. Requires an investment committee to have
at least five members of which at least 30 percent must be bankers and 30
percent representatives of the community. Requires an investor to use at
least 60 percent of the amounts received under the program for loans or
investments in businesses that have existed for at least one year prior to
the date of the loan or investment.
Sec. 2306.707. COLLABORATIVE EFFORT. Authorizes an investor to
participate in the program through partnerships or joint investments with
one or more financial institutions.
Sec. 2306.708. LIMITATIONS RELATING TO LOANS. Authorizes investors under
the program to limit loans made to a single business to $200,000 or less,
if the entire loan is made directly to the business, and is $100,000 or
less, if any portion of the loan is subordinate to another entity.
Authorizes investors to limit the term of the loan to 15 years or less.
Sec. 2306.709. LIMITATIONS RELATING TO EQUITY INVESTMENTS. Authorizes an
investor under the program to limit equity investments made to a single
business to $50,000 or less, a maximum term of no greater than seven years,
and the investor's maximum ownership to 50 percent of the business's
equity.
Sec. 2307.710. OWNERSHIP OF INCOME. Provides that all income received on
loans and investments under the program is the property of the investor
that makes the loan or investment.
Sec. 2307.711. SEMIANNUAL REPORT. Requires an investor to submit a
report to the director not later than 30 days after the expiration of each
six-month period for which there is a participation agreement, which states
in detail the status of each investment or loan made under the program.
Provides that the report must be in a form prescribed by the department and
contain all required information.
Sec. 2306.712. ANNUAL AUDIT. Specifies that the participation agreement
must provide for an annual audit of all money received by the investor
under the program. Requires the board to adopt rules relating to the
format of the audit, including a limitation on investors from using more
than $5,000 of the money received under the program to finance the audit.
SECTION 2. Effective date: September 1, 1999.
SECTION 3. Emergency clause.