HBA-JRA, RBT C.S.H.B. 3050 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3050 By: Counts Agriculture & Livestock 4/5/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE The Texas Department of Agriculture currently administers several programs to aid, assist, and promote the agriculture industry. C.S.H.B. 3050 amends the agricultural diversification program and microenterprise support program to allow refinancing of disaster loans and clarifies the approval process for linked deposit applications, amends the Young Farmer Loan Program to allow funding of projects of agriculture-related businesses and increase funding, and moves the young farmer loan guarantee account into the Texas Agricultural Fund. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the board of directors of the Texas Agricultural Finance Authority is modified in SECTION 4 (Section 44.007, Agriculture Code) and is expressly delegated to the board of directors of the Texas Agricultural Finance Authority in SECTIONS 5 and 13 (Sections 44.010 and 58.052, Agriculture Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 44.001, Agriculture Code, to delete the definition of "small business incubator" and redefine "eligible borrower," "linked deposit," and "microenterprise." Redesignates existing Subdivisions (2)-(8) to Subdivisions (1)-(7). SECTION 2. Amends Section 44.002, Agriculture Code, as follows: Sec. 44.002. New title: CREATION OF MICROENTERPRISE PROGRAMS. Requires the board of directors of the Texas Agricultural Finance Authority (board) to create a microenterprise support program to provide financial assistance to microenterprises in rural areas. Deletes language referring to an agricultural diversification program. SECTION 3. Amends Section 44.0045, Agriculture Code, to authorize an applicant applying on behalf of a proposed microenterprise to receive a loan of up to $25,000, rather than $15,000, to begin operation of the microenterprise. Authorizes an applicant applying on behalf of an established microenterprise to receive a loan of up to $50,000, rather than $30,000, to expand, modernize, or otherwise improve an established operation. Authorizes the board of directors of the Texas Agricultural Finance Authority, rather than the board of the microenterprise support program, to reserve a portion of the total fund for use in cooperative loan programs established with the participation of other public or private lenders. Deletes the prohibition against using a loan to refinance an existing debt of a proposed or existing microenterprise. SECTION 4. Amends Section 44.007, Agriculture Code, to require the board to approve or disapprove any and all applications under this chapter, provided that the board is authorized to delegate this authority to the commissioner of agriculture (commissioner). Provides additional factors which the board must take into consideration when promulgating rules for the loan portion of the linked deposit program. Requires the board and the commissioner, after reviewing each application, to make recommendations to the Comptroller of Public Accounts (comptroller). Provides that a lending institution is not ineligible to participate in the linked deposit program solely because a member of the board is also an officer, director, or employee of the lending institution, provided that such a board member be disqualified from any action taken by the board on an application involving that lending institution. Redesignates existing Subsections (b)-(k) to Subsections (c)-(l). Makes conforming and nonsubstantive changes. SECTION 5. Amends Section 44.010, Agriculture Code, to increase to $25 million the maximum amount that is authorized to be placed in linked deposits under this chapter. Provides that the maximum amount of a loan under this chapter to finance production of a crop on land declared eligible for natural disaster relief, as defined by board rule, is $250,000. Authorizes a loan granted under this chapter to be used for any agriculture-related operating expenses, including the purchase or lease of land, the acquisition of fixed assets, or the making of improvements, as identified in the loan application. Authorizes any loan granted under this chapter to be applied to existing debt, rather than only that debt resulting from the financing of eligible water conservation projects or equipment. Makes conforming and nonsubstantive changes. SECTION 6. Amends Sections 44.012 and 44.013, Agriculture Code, as follows: Sec. 44.012. New title: MONEY FOR LOANS. Deletes references to the board making grants and to the agricultural diversification program. Makes conforming changes. Sec. 44.013. RURAL MICROENTERPRISE DEVELOPMENT FUND. Provides that the rural microenterprise development fund (fund) is a fund in the comptroller's office, rather than the state treasury. Requires money appropriated to the board of the Texas Agricultural Finance Authority, rather than the Agricultural Diversification Board, to be deposited to the credit of the fund. SECTION 7. Amends Section 58.002, Agriculture Code, to redefine "agricultural business" and "eligible agricultural business" and define "rural area." SECTION 8. Amends Section 58.016(b), Agriculture Code, make a conforming change. SECTION 9. Amends Section 58.0172, Agriculture Code, to provide that a lending institution is not ineligible to participate in the programs administered by the board solely because a member of the board is also an officer, director, or employee of the lending institution, provided that such a board member be disqualified from any action taken by the board on an application involving that lending institution. SECTION 10. Amends Section 58.021, Agriculture Code, to include promotion of the development of rural agricultural businesses under the auspices of this chapter. Includes development, increase, improvement, or expansion of production, possessing, marketing or export among the activities to be financed by the Texas Agricultural Finance Authority's (authority) programs. Includes the development of rural agricultural businesses among the projects to receive financial assistance. Includes the costs of insect eradication and suppression programs among those costs to be financed. Authorizes the authority to make, guarantee, insure, coinsure, or reinsure loans to the entity designated under Section 74.1011 (Designation of Entity to Carry Out Boll Weevil Eradication) to enable that entity to execute Subchapter D (Official Cotton Grower's Boll Weevil Eradication Foundation), Chapter 74. Authorizes the authority to issue an obligation on behalf of, or make, guarantee, participate in, insure, coinsure, or reinsure loans to, a state agency or an institution of higher education for the purposes outlined in this chapter, in an amount determined by the board. SECTION 11. Amends Section 58.023(a), Agriculture Code, to make a conforming change. SECTION 12. Amends Subchapter C, Chapter 58, Agriculture Code, by adding Section 58.026, as follows: Sec. 58.026. LIMITATION OF LIABILITY FOR CERTAIN RECREATIONAL ACTIVITIES. Makes the provisions of Chapter 75 (Limitation of Landowners' Liability), Civil Practice and Remedies Code, applicable to eligible recreational activities which are funded under this chapter. SECTION 13. Amends Chapter 58, Agriculture Code, by adding Subchapter E, as follows: SUBCHAPTER E. YOUNG FARMER LOAN GUARANTEE PROGRAM Sec. 58.051. DEFINITIONS. Defines "eligible applicant," "commercial lender," and "plan" in this subchapter. Sec. 58.052. YOUNG FARMER LOAN GUARANTEE PROGRAM. (a) Requires the board to administer a loan guarantee program that benefits eligible applicants who desire to establish or enhance a farming or ranching operation or an agriculture-related business. (b) Authorizes the board to grant an eligible applicant a guarantee of a loan directly or through the authority granted to the commissioner. Prohibits the guarantee amount from exceeding the lesser of $250,000, rather than $100,000, or 90 percent of the total loan amount. (c) Prohibits the aggregate amount guaranteed under this subchapter from exceeding twice the amount contained in the young farmer loan guarantee account within the Texas agricultural fund. (d) Authorizes a loan guarantee recipient to use proceeds from the loan for working capital for operating a farm or ranch, including the lease of facilities, the purchase of machinery and equipment, or for any agriculture-related business purpose, including the purchase of real estate, as identified in the plan. Provides that a loan guarantee is voidable by the board if the recipient uses loan proceeds for any purposes other than those identified in the plan. Requires the board to include this restriction as a condition in each loan guarantee instrument executed under this subchapter. (e) Requires the board to adopt an agreement, to be used between a commercial lender and an approved eligible applicant, under which the program provides a payment from money in the young farmer loan guarantee account for the purpose of providing a reduced interest rate on a loan guaranteed to a borrower under this subchapter. Requires the board to adopt rules to implement this subsection. Prohibits the maximum rate reduction under this subsection from exceeding three percentage points. Sec. 58.053. APPLICATION FOR LOAN GUARANTEE. (a) Requires an eligible applicant's documentation submitted for the board's review to include the plan for the applicant's proposed farm or ranch operation or agriculture-related business to be financed that includes a budget, a completed loan application from a commercial lender on which the applicant has indicated how the loan proceeds will be used to implement the applicant's plan, and the signed statement of a loan officer of the commercial lender that a loan guarantee is required for approval of the application. (c) Authorizes the board to charge a reasonable application fee for processing an application filed under this section. Sec. 58.054. BOARD CONSIDERATION OF LOAN GUARANTEE APPLICATION. Requires the board, in deciding whether to approve an application for a loan guarantee to consider, the anticipated benefits from granting a loan guarantee to the applicant, including both potential job creation and commercial benefits to the agricultural industry; the applicant's qualifications; the feasibility of the applicant's plan; and other repayment sources available to the applicant. Sec. 58.055. DEFAULT. Authorizes the authority, through its representative, to bring suit against a recipient of a loan guarantee that defaults on a loan that is guaranteed under this subchapter and on which the authority is required to honor its guarantee. Authorizes any such suit to have venue in Travis County. Sec. 58.056. MONEY FOR LOAN GUARANTEE PROGRAM. Authorizes the authority to accept gifts and grants of money from the federal government, local governments, private corporations, or other persons for use in the young farmer loan guarantee program. Authorizes the legislature to appropriate money for the program. Sec. 58.057. YOUNG FARMER LOAN GUARANTEE ACCOUNT. (a) Provides that the young farmer loan guarantee account is an account in the Texas agricultural fund. Authorizes money in the account to be used only by the authority for the purpose of making or administering loan guarantees under this subchapter. (b) Sets forth the sources of account revenues. Provides that the account is exempt from the application of Section 403.095 (Use of Dedicated Revenue), Government Code. (c) Prohibits the board from spending more than $100,000 during each fiscal year from income earned on the account and from application fees collected by the authority under Section 58.053 to pay the costs of administering the program. (d) Requires the board to attempt to administer the fund in a manner that makes private donations to the fund an eligible itemized deduction for federal income taxation purposes. (e) Provides that the board has the same authority in administering the young farmer loan guarantee program as it has in administering other programs established by this chapter. SECTION 14. Amends Section 502.174(b), Transportation Code, to make a conforming change. SECTION 15. Repealer: Sections 44.004 (Research and Innovation), 44.005 (Business Assistance), 44.006 (Small Business Incubators), 44.011 (Criteria for all Grants), and Chapter 253 (Young Farmer Loan Guarantee Program), Agriculture Code. SECTION 16. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original in SECTION 1 (Section 44.001, Agriculture Code) to delete the definition of "small business incubator" and make conforming changes. The substitute modifies the original in SECTION 3 (Section 44.0045, Agriculture Code) to authorize an applicant applying on behalf of an established microenterprise to receive a loan to expand, modernize, or otherwise improve an established operation, rather than an established activity or operation of the microenterprise. The substitute also restores the existing language of the statute in regard to the reference to the rural enterprises microdevelopment fund, rather than the rural enterprises microdevelopment account. Additionally, the substitute deletes the prohibition against using a loan to refinance an existing debt of a proposed or existing microenterprise. The substitute modifies the original in SECTION 4 (Section 44.007, Agriculture Code) to require the board to approve or disapprove any and all applications under this chapter, provided that the board is authorized to delegate this authority to the commissioner of agriculture. The substitute makes conforming and nonsubstantive changes. The substitute modifies the original in SECTION 5 (Section 44.010, Agriculture Code) to provide that land is declared eligible for natural disaster relief by board rule, rather than determined by the board. The substitute also authorizes the use of a loan granted under this chapter to pay existing debt. The substitute modifies the original in SECTION 6 to combine the amendments made in proposed SECTIONS 6 and 7, to Sections 44.012 and 44.013, Agriculture Code. The substitute also restores the existing language of the statute regarding references to the rural enterprises microdevelopment fund, rather than the rural enterprises microdevelopment account. Additionally, the substitute provides that the rural enterprises microdevelopment fund is a fund in the comptroller's office, rather than the general revenue fund. The substitute modifies the original in SECTION 7 (Section 58.002, Agriculture Code) to include a business that provides recreational activities, including hiking, fishing, hunting, or any other activity associated with the enjoyment of nature or the outdoors on agricultural land or a state agency or an institution of higher education that is engaged in producing an agricultural product in the proposed redefinition of "agricultural business," to redefine "eligible agricultural business," and to define "rural area." The substitute modifies the original in SECTION 9 (Section 58.0172, Agriculture Code) to make nonsubstantive changes. The substitute modifies the original in SECTION 10 (Section 58.021, Agriculture Code) to change references to rural agricultural businesses to agriculture-related rural businesses. The substitute also deletes the lower limit of $2 million on loans to the entity designated to carry out boll weevil eradication which the authority is authorized to make, guarantee, participate in, insure, coinsure, or reinsure. Additionally, the substitute authorizes the authority to issue an obligation on behalf of, or make, guarantee, participate in, insure, coinsure, or reinsure loans to, a state agency or an institution of higher education for the purposes outlined in this chapter, in an amount determined by the board. The substitute modifies the original by adding a new SECTION 12 (Section 58.026, Agriculture Code) to make the provisions of Chapter 75 (Limitation of Landowners' Liability), Civil Practice and Remedies Code, applicable to eligible recreational activities which are funded under Chapter 58, Agriculture Code. The substitute modifies the original in SECTION 13 by amending Chapter 58, Agriculture Code, by adding Subchapter E, rather than transferring Chapter 253 to Chapter 58, redesignating it as Subchapter E, and amending it. The substitute makes nonsubstantive and conforming changes. Additionally, the substitute substantively modifies the original in several proposed sections. In Section 58.051, the substitute modifies the proposed redefinition of "eligible applicant" to delete the requirement that the person have a net worth of less than $400,000. In Section 58.052, the substitute includes enhancing a farming or ranching operation or an agriculture-related business among the uses of the loan guarantee program established in this subchapter and deletes the requirement that this be the applicant's first such venture. The substitute authorizes a loan guarantee recipient to use, rather than prohibits such a recipient from using, loan proceeds to purchase land. The substitute requires the board to adopt an agreement, to be used between a commercial lender and an approved eligible applicant, rather than a borrower, under which the program, rather than the board, provides a payment to provide a reduced interest rate on a loan guaranteed to a borrower under this subchapter. In Section 58.055, the substitute authorizes any suit brought by the authority under this section to, rather than providing that it must, have venue in Travis County. In Section 58.056, the substitute deletes the authority's authorization to solicit money for use in the young farmer loan guarantee program. In Section 58.057, the substitute authorizes money in the young farmer loan guarantee account to be used only by the authority, rather than appropriated only to the authority, for the purpose of making or administering loan guarantees under this subchapter. The substitute modifies the original in SECTION 15 to delete the proposed repeal of Sections 44.001(1), 44.045(e), 44.010(d), Agriculture Code, and to repeal Chapter 253, Agriculture Code. The substitute deletes proposed SECTION 15 of the original which transferred and renumbered Section 481.0067 (Office of Rural Affairs), Government Code, to Section 12.038, Chapter 12, Agriculture Code. The substitute deletes proposed SECTION 17 of the original which transferred the Office of Rural Affairs from the Texas Department of Economic Development to the Texas Department of Agriculture. The substitute redesignates proposed SECTIONS 8-12, 16, and 18 to SECTIONS 7-11, 15, and 16, respectively.