By Lucio                                               S.B. No. 471
         76R637 DWS-F                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to a Texas community investment program to assist certain
 1-3     businesses in distressed areas of the state.
 1-5           SECTION 1.  Chapter 2306, Government Code, is amended by
 1-6     adding Subchapter EE to read as follows:
 1-8           Sec. 2306.701.  DEFINITIONS.  In this subchapter:
 1-9                 (1)  "Community development investor" means a federally
1-10     certified community development financial institution or multi-bank
1-11     community development corporation.
1-12                 (2)  "Multi-bank community development corporation"
1-13     means a corporation organized to provide community development
1-14     funds to businesses that employ low and moderate income persons by
1-15     investing in and making loans to disadvantaged businesses located
1-16     in distressed areas of the state.
1-17                 (3)  "Program" means the community investment program
1-18     established under this subchapter.
1-19           Sec. 2306.702.  COMMUNITY INVESTMENT PROGRAM.  (a)
1-20     Notwithstanding any other law, the department shall establish a
1-21     community investment program in which the department makes grants
1-22     or interest-free loans to or purchases stock of community
1-23     development investors that use the money to make loans to or invest
1-24     in businesses that are located in distressed areas of the state and
 2-1     that cannot qualify for conventional bank loans.
 2-2           (b)  The department shall determine the eligibility of a
 2-3     community development investor to participate in the program and
 2-4     may set a limit on the number of eligible community development
 2-5     investors that may participate in the program.
 2-6           (c)  A community development investor is eligible to
 2-7     participate in the program if the community development investor
 2-8     has raised at least $400,000 in private investments to make loans
 2-9     or investments described by Subsection (a).
2-10           (d)  To participate in the program, an eligible community
2-11     development investor must enter into a participation agreement with
2-12     the department that sets out the terms and conditions under which
2-13     the department will make a grant or loan to or purchase stock of
2-14     the community development investor.
2-15           Sec. 2306.703.  RULEMAKING AUTHORITY.  The department shall
2-16     adopt rules relating to the implementation of the program and any
2-17     other rules necessary to accomplish the purposes of this
2-18     subchapter.
2-19           Sec. 2306.704.  APPLICATION.  (a)  An eligible community
2-20     development investor may file a grant or loan application with the
2-21     department in a form approved by the department.  The application
2-22     must include a plan of investment that includes the type and number
2-23     of businesses to which the community development investor plans to
2-24     make a loan or in which the community development investor plans to
2-25     invest using money from the program.
2-26           (b)  The director shall act on a completed application not
2-27     later than the 30th day after the date on which the application is
 3-1     filed with the department.
 3-2           Sec. 2306.705.  USE OF MONEY.  (a)  Not later than the last
 3-3     day of the 18th month after the month in which a community
 3-4     development investor receives a grant or loan from the department,
 3-5     the community development investor shall use the money, or commit
 3-6     the money to be used, to make loans to or equity investments in
 3-7     businesses that are located in distressed areas of the state and
 3-8     that cannot qualify for conventional loans.  Not later than the
 3-9     10th day after the expiration of this 18-month period, the
3-10     community development investor shall return to the department any
3-11     amount of the grant or loan from the department not used as
3-12     required by this subsection.
3-13           (b)  A community development investor that has losses of more
3-14     than 25 percent on loans or investments made with money received
3-15     under the program shall:
3-16                 (1)  return all unencumbered money received under the
3-17     program to the department; and
3-18                 (2)  deliver to the director all of the documentation
3-19     and related instruments concerning loans and investments made with
3-20     money received under the program.
3-21           Sec. 2306.706.  ELIGIBLE INVESTMENTS.  (a)  Each community
3-22     development investor participating in the program shall establish
3-23     an investment committee to approve loan or investment requests made
3-24     by businesses.  Each investment committee must have at least five
3-25     members, at least 30 percent of whom must be bankers and at least
3-26     30 percent of whom must be representatives of the community.
3-27           (b)  A community development investor may use money received
 4-1     under the program to make a loan or investment only if the loan or
 4-2     investment is approved by the investment committee.
 4-3           (c)  A loan made by a community development investor may be a
 4-4     subordinated debt.
 4-5           (d)  A community development investor shall use at least 60
 4-6     percent of the amounts received under the program for loans to or
 4-7     investments in businesses that have existed for at least one year
 4-8     before the date on which the loan or investment is made.
 4-9           Sec. 2306.707.  COLLABORATIVE EFFORT.  A community
4-10     development investor may make a loan or investment under the
4-11     program with one or more financial institutions through
4-12     partnerships or joint investments.
4-13           Sec. 2306.708.  LIMITATIONS RELATING TO LOANS.  (a)  The
4-14     maximum amount that a community development investor may loan to a
4-15     single business 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     community development investor is subordinated to a bank or other
4-20     entity.
4-21           (b)  The maximum term of the loan is 15 years.
4-23     (a)  The maximum equity investment that a community development
4-24     investor may make in a single business under the program is
4-25     $50,000.
4-26           (b)  The maximum term of the investment is seven years.
4-27           (c)  The maximum amount of ownership that a community
 5-1     development investor may acquire in a business is 50 percent of the
 5-2     business's equity.
 5-3           Sec. 2306.710.  OWNERSHIP OF INCOME.  All income received on
 5-4     a loan or investment made with money received under the program is
 5-5     the property of the community development investor that makes the
 5-6     loan or investment.
 5-7           Sec. 2306.711.  SEMIANNUAL REPORT.  (a)  Not later than the
 5-8     30th day after the expiration of each six-month period for which
 5-9     there is a participation agreement in effect between the department
5-10     and a community development investor, the community development
5-11     investor shall submit a report to the director that states in
5-12     detail the status of each investment or loan made under the
5-13     program.
5-14           (b)  The report must be in a form prescribed by the
5-15     department and must contain all information required by the
5-16     department as part of the community development investor's
5-17     participation agreement.
5-18           Sec. 2306.712.  ANNUAL AUDIT.  The participation agreement
5-19     entered into between the community development investor and the
5-20     department must provide for an annual audit of all money received
5-21     by the community development investor under the program.  The board
5-22     shall adopt rules relating to the format of the audit, including
5-23     rules allowing not more than $5,000 of the amount received by the
5-24     community development investor under the program to be used to
5-25     finance the audit.
5-26           SECTION 2.  This Act takes effect September 1, 1999.
5-27           SECTION 3.  The importance of this legislation and the
 6-1     crowded condition of the calendars in both houses create an
 6-2     emergency and an imperative public necessity that the
 6-3     constitutional rule requiring bills to be read on three several
 6-4     days in each house be suspended, and this rule is hereby suspended.