HBA-JLV C.S.H.B. 2369 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2369 By: George Financial Institutions 4/17/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE In 1989, a constitutional amendment was passed authorizing the issuance of bonds for the initial funding of a product development fund and a small business incubator fund. The enabling legislation originally empowered the Texas Department of Commerce (department ) to manage both funds, but when the department was abolished, the enabling legislation was eliminated. However, the funds are still authorized in the Texas Constitution and count towards Texas' bond rating. C.S.H.B. 2369 reauthorizes the bonds and creates a board in the comptroller's office to administer the funds. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking is expressly delegated to the Product Development and Small Business Incubator Board in SECTION 1 (Sections 403.410 and 403.413, Government Code) of this bill. ANALYSIS C.S.H.B. 2369 amends the Government Code to set forth provisions relating to state financing of the development and production of Texas biotechnological and biomedical products and small businesses and provides for the issuance of bonds. Product Development and Small Business Incubator Board The bill establishes the Product Development and Small Business Incubator Board (board) in the comptroller's office and requires the board to administer the product development and small business incubator programs (programs) and their respective funds (Sec. 403.402). The bill sets forth provisions for the appointment, terms of office, removal, and training of the members of the board, which includes the comptroller of public accounts (comptroller) (Secs. 403.403-404.405). The bill requires the board to hold regular meetings in Austin, as well as other meetings, and to develop and implement policies that provide the public with a reasonable opportunity to appear before the board and to speak on any issue under the jurisdiction of the board (Sec. 403.406). The bill requires the comptroller to select and supervise the staff of the board and perform other duties delegated to the comptroller by the board (Sec. 403.408). The bill also requires the board to prepare and maintain a written plan that describes how a person who does not speak English can be provided with reasonable access to the board's programs and services (Sec. 403.409). The bill grants the board the powers necessary and reasonable to issue general obligation bonds to fund the program and authorizes the board to adopt rules, policies, and procedures necessary or reasonable to implement these provisions. The bill provides that not more than five percent of the total amount of bonds issued may be used to pay administrative fees involved in selling the bonds (Sec. 403.410). Texas Product Development Fund and Small Business Incubator Funds C.S.H.B. 2369 provides that the Texas product development fund (product fund) and the small business incubator fund (small business fund) are revolving funds in the state treasury. The bill identifies the composition of the respective funds and provides that money may only be used to provide financing to aid in the development and production of new or improved products in this state or to provide financing to foster and stimulate the development of small businesses in this state. The bill provides that any money in the fund may be used for debt service (Secs. 403.411 and 403.412). The bill provides that financing may be made only for a product or small business approved by the board. In determining eligible products and small businesses, the board is required to give special preference to products or businesses in the areas of biotechnology and biomedicine that have the greatest likelihood of commercial success, job creation, and job retention in this state. The bill requires the board to give further preference in providing financing to projects or businesses that are: _grantees under the small business innovation research program; _companies formed in this state to commercialize research funded at least in part with state funds; _companies formed in this state and receiving assistance from designated state small business development centers; or _applicants who are residents of this state doing business in this state and performing financed activities predominantly in this state. The bill requires the board to adopt rules governing the terms and conditions of the financing specifically including requirements for appropriate security or collateral, equity interest, and the rights and remedies of the board and the comptroller's office in the event of a default on the loan. The rules must include a requirement that applicants report to the board on the use of money distributed through either fund. The bill requires the board to enter into an agreement with a person to obtain royalties, patent rights, equitable interest, or a combination of these royalties, rights, or interest. The board is authorized to appoint an advisory committee of experts in the areas of biotechnology and biomedicine to review projects and businesses seeking financing from the board. The bill prohibits the amount of financing provided to a single recipient from exceeding 10 percent of the total amount of bonds issued. The bill provides that a claim of the state for a payment owed to the state by a person who has been provided financing has priority over all other claims against the person (Sec. 403.413). The bill establishes an application process for persons seeking to obtain financing from the board (Sec. 403.414). The bill sets forth provisions relating to the confidentiality of applicant information (Sec. 403.415). The bill requires the board and the comptroller's office to coordinate the administration and the funding of the programs (Sec. 403.416). EFFECTIVE DATE On passage, or if the Act does not receive the necessary vote, the Act takes effect September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2369 modifies the original to require the governor to appoint persons who have significant experience in technology, rather than biomedical or biotechnology experience, to certain positions on the Product Development and Small Business Incubator Board (board) (Sec. 403.403). The substitute provides that not more than five percent of the total amount of bonds issued may be used to pay administrative fees involved in selling the bonds (Sec. 403.410). The substitute provides that any money in either fund may be used for debt service (Secs. 403.411 and 403.412). The substitute prohibits the amount of financing provided to a single recipient from exceeding 10 percent of the total amount of bonds issued. The substitute provides that a claim of the state for a payment owed to the state by a person who has been provided financing has priority over all other claims against the person. The substitute no longer requires the board to adopt rules establishing limits on the amount of financing for each applicant (Sec. 403.413).