By: Carona, Shapleigh S.B. No. 1485 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to state financing of the development and production of 1-3 Texas biotechnological and biomedical products and small 1-4 businesses; providing for the issuance of bonds. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 403, Government Code, is amended by 1-7 adding Subchapter P to read as follows: 1-8 SUBCHAPTER P. PRODUCT DEVELOPMENT AND SMALL BUSINESS INCUBATORS 1-9 Sec. 403.401. DEFINITIONS. In this subchapter: 1-10 (1) "Board" means the Product Development and Small 1-11 Business Incubator Board. 1-12 (2) "Comptroller" includes the designee of the 1-13 comptroller. 1-14 (3) "Financing" means a loan, loan guarantee, or 1-15 equity investment from the product fund to a person for use in the 1-16 development and production of a product in this state, or a grant, 1-17 loan, or loan guarantee from the small business fund to a person 1-18 for use in the development of a small business in this state. 1-19 (4) "Office" means the office of the comptroller. 1-20 (5) "Product" includes an invention, device, 1-21 technique, or process, without regard to whether a patent has been 1-22 or could be granted, that has advanced beyond the theoretical stage 1-23 and has or is readily capable of having a commercial application. 1-24 The term does not include pure research. 1-25 (6) "Product fund" means the Texas product development 2-1 fund. 2-2 (7) "Program" means the product development program or 2-3 the small business incubator program. 2-4 (8) "Small business fund" means the Texas small 2-5 business incubator fund. 2-6 Sec. 403.402. PRODUCT DEVELOPMENT AND SMALL BUSINESS 2-7 INCUBATOR BOARD. (a) The Product Development and Small Business 2-8 Incubator Board is created in the office. 2-9 (b) The board shall administer the programs, the product 2-10 fund, and the small business fund. 2-11 Sec. 403.403. MEMBERS OF THE BOARD; APPOINTMENT; TERMS OF 2-12 OFFICE. (a) The board consists of the comptroller and eight 2-13 persons appointed by the governor. 2-14 (b) In appointing members of the board, the governor shall 2-15 appoint: 2-16 (1) two persons having significant business leadership 2-17 experience in technology, particularly experience with the transfer 2-18 of research results into commercial applications; 2-19 (2) two persons employed by institutions of higher 2-20 education of this state who have experience in technological 2-21 research and its commercial applications; 2-22 (3) two persons experienced and knowledgeable in 2-23 structuring and providing financing for technological products or 2-24 businesses; and 2-25 (4) two persons who reside in a county of this state 2-26 with above state average unemployment and below state average per 3-1 capita income and who have experience and knowledge in 3-2 technology-related business growth. 3-3 (c) Appointed members of the board serve two-year staggered 3-4 terms with the terms of four members expiring February 1 of each 3-5 odd-numbered year and the terms of four members expiring February 1 3-6 of each even-numbered year. 3-7 (d) The comptroller is the presiding officer of the board. 3-8 (e) The board shall appoint a secretary of the board whose 3-9 duties may be prescribed by law and by the board. 3-10 (f) Appointed members of the board serve without pay but are 3-11 entitled to reimbursement for their actual expenses incurred in 3-12 attending meetings of the board or in performing other work of the 3-13 board if that work is approved by the comptroller. 3-14 Sec. 403.404. REMOVAL OF BOARD MEMBER. (a) It is a ground 3-15 for removal from the board if an appointed member: 3-16 (1) cannot because of illness or disability discharge 3-17 the member's duties for a substantial part of the term for which 3-18 the member is appointed; or 3-19 (2) is absent from more than half of the regularly 3-20 scheduled board meetings that the member is eligible to attend 3-21 during a calendar year unless the absence is excused by majority 3-22 vote of the board. 3-23 (b) The validity of an action of the board is not affected 3-24 by the fact that the action was taken when a ground for removal of 3-25 a board member existed. 3-26 Sec. 403.405. TRAINING OF BOARD MEMBERS. (a) Before an 4-1 appointed member of the board may assume the member's duties, the 4-2 member must complete at least one course of the training program 4-3 established under this section. 4-4 (b) A training program established under this section shall 4-5 provide information to the member regarding: 4-6 (1) the enabling legislation that created the board; 4-7 (2) the programs operated by the board; 4-8 (3) the role and functions of the board; 4-9 (4) the rules of the board, with an emphasis on the 4-10 rules that relate to disciplinary and investigatory authority; 4-11 (5) the current budget for the board; 4-12 (6) the results of the most recent formal audit of the 4-13 board; 4-14 (7) the requirements of the: 4-15 (A) open meetings law, Chapter 551; 4-16 (B) open records law, Chapter 552; and 4-17 (C) administrative procedure law, Chapter 2001; 4-18 (8) the requirements of the conflict of interest laws 4-19 and other laws relating to public officials; and 4-20 (9) any applicable ethics policies adopted by the 4-21 board or the Texas Ethics Commission. 4-22 Sec. 403.406. MEETINGS. (a) The board shall hold regular 4-23 meetings in Austin and other meetings at places and times scheduled 4-24 by the board in formal sessions and called by the comptroller. 4-25 (b) The board shall develop and implement policies that 4-26 provide the public with a reasonable opportunity to appear before 5-1 the board and to speak on any issue under the jurisdiction of the 5-2 board. 5-3 (c) The board shall make minutes of all meetings available 5-4 in the board's office for public inspection. 5-5 Sec. 403.407. APPLICABILITY OF OPEN MEETINGS LAW AND 5-6 ADMINISTRATIVE PROCEDURE LAW. The board is subject to the open 5-7 meetings law, Chapter 551, and the administrative procedure law, 5-8 Chapter 2001. 5-9 Sec. 403.408. STAFF. (a) The employees of the comptroller 5-10 selected by the comptroller for that purpose serve as the staff of 5-11 the board. 5-12 (b) The comptroller shall select and supervise the staff of 5-13 the board and perform other duties delegated to the comptroller by 5-14 the board. 5-15 (c) The comptroller shall provide to members of the board 5-16 and to board staff, as often as necessary, information regarding 5-17 their qualifications for office or employment under this subchapter 5-18 and their responsibilities under applicable laws relating to 5-19 standards of conduct for state officers or employees. 5-20 (d) The board shall develop and implement policies that 5-21 clearly separate the policy-making responsibilities of the board 5-22 and the management responsibilities of the comptroller and the 5-23 office. 5-24 Sec. 403.409. PROGRAM AND FACILITY ACCESSIBILITY. (a) The 5-25 board shall comply with federal and state laws related to program 5-26 and facility accessibility. 6-1 (b) The board shall prepare and maintain a written plan that 6-2 describes how a person who does not speak English can be provided 6-3 reasonable access to the board's programs and services. 6-4 Sec. 403.410. POWERS OF THE BOARD; BONDS. (a) The board 6-5 has the powers necessary and reasonable to carry out this 6-6 subchapter and may adopt rules, policies, and procedures necessary 6-7 or reasonable to implement this subchapter. 6-8 (b) The board may issue general obligation bonds, up to the 6-9 amounts authorized and as provided by Section 71, Article XVI, 6-10 Texas Constitution, to fund the program. 6-11 (c) Not more than an amount equal to five percent of the 6-12 total amount of bonds issued may be used to pay administrative fees 6-13 involved in selling the bonds. 6-14 Sec. 403.411. TEXAS PRODUCT DEVELOPMENT FUND. (a) The 6-15 Texas product development fund is a revolving fund in the state 6-16 treasury. 6-17 (b) The product fund is composed of proceeds of bonds issued 6-18 under this subchapter, financing application fees, loan repayments, 6-19 guarantee fees, royalty receipts, dividend income, money 6-20 appropriated by the legislature for authorized purposes of the 6-21 product fund, amounts received by the state from loans, loan 6-22 guarantees, and equity investments made under this subchapter, 6-23 amounts received by the state from federal grants or other sources, 6-24 and any other amounts received under this subchapter and required 6-25 by resolution of the board to be deposited in the product fund. 6-26 The product fund contains a program account, an interest and 7-1 sinking account, and other accounts that the board authorizes to be 7-2 created and maintained. Money in the product fund is available for 7-3 use by the board under this subchapter. Notwithstanding any other 7-4 provision of this subchapter, any money in the product fund may be 7-5 used for debt service. 7-6 (c) Money in the program account of the product fund, minus 7-7 the costs of issuance of bonds under this subchapter and necessary 7-8 costs of administering the product fund, may be used only to 7-9 provide financing to aid in the development and production, 7-10 including the commercialization, of new or improved products in 7-11 this state. The board shall provide financing from the product 7-12 fund on the terms and conditions that the board determines to be 7-13 reasonable, appropriate, and consistent with the purposes and 7-14 objectives of the product fund and this subchapter, for the purpose 7-15 of aiding in the development and production of new or improved 7-16 products in this state. 7-17 Sec. 403.412. SMALL BUSINESS INCUBATOR FUND. (a) The Texas 7-18 small business incubator fund is a revolving fund in the state 7-19 treasury. 7-20 (b) The small business fund is composed of proceeds of bonds 7-21 issued under this subchapter, financing application fees, loan 7-22 repayments, guarantee fees, royalty receipts, dividend income, 7-23 money appropriated by the legislature for authorized purposes of 7-24 the small business fund, amounts received by the state from loans, 7-25 loan guarantees, and equity investments made under this subchapter, 7-26 amounts received by the state from federal grants or other sources, 8-1 and any other amounts received under this subchapter and required 8-2 by resolution of the board to be deposited in the small business 8-3 fund. The small business fund contains a project account, an 8-4 interest and sinking account, and other accounts that the board 8-5 authorizes to be created and maintained. Money in the small 8-6 business fund is available for use by the board under this 8-7 subchapter. Notwithstanding any other provision of this 8-8 subchapter, any money in the small business fund may be used for 8-9 debt service. 8-10 (c) Money in the project account of the small business fund, 8-11 minus the costs of issuance of bonds under this subchapter and 8-12 necessary costs of administering the small business fund, may be 8-13 used only to provide financing to foster and stimulate the 8-14 development of small businesses in this state. The board shall 8-15 provide financing from the small business fund on the terms and 8-16 conditions that the board determines to be reasonable, appropriate, 8-17 and consistent with the purposes and objectives of the small 8-18 business fund and this subchapter, for the purpose of fostering and 8-19 stimulating the development of new or existing small businesses in 8-20 this state. 8-21 Sec. 403.413. ELIGIBLE PRODUCTS AND BUSINESSES; FINANCING. 8-22 (a) Financing may be made under this subchapter only for a product 8-23 or small business approved by the board. 8-24 (b) In determining eligible products and small businesses, 8-25 the board shall give special preference to products or businesses 8-26 in the areas of biotechnology and biomedicine that have the 9-1 greatest likelihood of commercial success, job creation, and job 9-2 retention in this state. The board shall give further preference 9-3 to providing financing to projects or businesses that are: 9-4 (1) grantees under the small business innovation 9-5 research program established under 15 U.S.C. Section 638, as 9-6 amended; 9-7 (2) companies formed in this state to commercialize 9-8 research funded at least in part with state funds; 9-9 (3) applicants that have acquired other sources of 9-10 financing; 9-11 (4) companies formed in this state and receiving 9-12 assistance from designated state small business development 9-13 centers; or 9-14 (5) applicants who are residents of this state doing 9-15 business in this state and performing financed activities 9-16 predominantly in this state. 9-17 (c) The board shall adopt rules governing the terms and 9-18 conditions of the financing, specifically including requirements 9-19 for appropriate security or collateral, equity interest, and the 9-20 rights and remedies of the board and office in the event of a 9-21 default on the loan. The rules must include a requirement that 9-22 applicants report to the board on the use of money distributed 9-23 through either fund. 9-24 (d) Before approving the provision of financing to a person, 9-25 the board shall enter into an agreement with the person under which 9-26 the board will obtain an appropriate portion of royalties, patent 10-1 rights, equitable interests, or a combination of those royalties, 10-2 rights, and interests from or in the product or proceeds of the 10-3 product for which financing is requested. Contracts executed under 10-4 this subchapter must include agreements to ensure proper use of 10-5 funds and the receipt of royalties, patent rights, or equity 10-6 interest, as appropriate. 10-7 (e) The board may appoint an advisory committee of experts 10-8 in the areas of biotechnology and biomedicine to review projects 10-9 and businesses seeking financing from the board. 10-10 (f) The amount of financing provided to a single recipient 10-11 may not exceed 10 percent of the total amount of bonds issued. 10-12 (g) A claim of the state for a payment owed to the state 10-13 under this subchapter by a person who has been provided financing 10-14 has priority over all other claims against the person. 10-15 Sec. 403.414. APPLICATION PROCESS. (a) To apply for 10-16 financing from the board, an applicant shall submit to the board: 10-17 (1) an application for financing on a form prescribed 10-18 by the board; and 10-19 (2) a reasonable application fee set by the board. 10-20 (b) The application must include a business plan, containing 10-21 the information required by the board, including at a minimum: 10-22 (1) information regarding: 10-23 (A) the history and financial condition of the 10-24 applicant, including the applicant's income statement; 10-25 (B) the applicant's present markets and market 10-26 prospects; and 11-1 (C) the integrity of the applicant's management; 11-2 (2) a statement of the feasibility of the product for 11-3 which financing is requested, including the state of development of 11-4 any product to be developed and the proposed schedule of its 11-5 commercialization; and 11-6 (3) if applicable, documentation of attempts to obtain 11-7 private financing. 11-8 (c) The board shall determine, with respect to each 11-9 application for financing, whether: 11-10 (1) the product or business for which financing is 11-11 requested is economically sound; 11-12 (2) there is a reasonable expectation that the product 11-13 or business will be successful; 11-14 (3) the product or business will create or preserve 11-15 jobs and otherwise benefit the economy of the state; 11-16 (4) the applicant has the management resources and 11-17 other funding to complete the project; 11-18 (5) financing is necessary because full financing is 11-19 unavailable in traditional capital markets or credit has been 11-20 offered on terms that would preclude the success of the project; 11-21 and 11-22 (6) there is reasonable assurance that the potential 11-23 revenues to be derived from the sale of the product will be 11-24 sufficient to repay any financing approved by the board. 11-25 (d) After considering the application and all other 11-26 information it considers relevant, the board shall approve or deny 12-1 the application and promptly notify the applicant of its decision. 12-2 Sec. 403.415. INFORMATION CONFIDENTIAL. (a) Information 12-3 described by Subsection (b) collected, assembled, or maintained by 12-4 or for the board is confidential and may not be disclosed by the 12-5 board, the comptroller, or the office. 12-6 (b) This section applies to information in any form provided 12-7 by or on behalf of an applicant for financing or a recipient of 12-8 financing under this subchapter, including information contained 12-9 in, accompanying, or derived from any application or report, that 12-10 relates to a product, to the development, application, manufacture, 12-11 or use of a product, or to the markets, market prospects, or 12-12 marketing of a product, and that is proprietary information of 12-13 actual or potential commercial value to the applicant or recipient 12-14 that has not been disclosed to the public. Confidential 12-15 information includes scientific and technological information, 12-16 including computer programs and software, and marketing and 12-17 business operation information, regardless of whether the product 12-18 to which the information relates is patentable or capable of being 12-19 registered under copyright or trademark laws or has a potential for 12-20 being sold, traded, or licensed for a fee. This section does not 12-21 make confidential information in an account, voucher, or contract 12-22 relating to the receipt or expenditure of public funds by the board 12-23 or the comptroller under this subchapter. 12-24 (c) Any application for financing that is withdrawn by the 12-25 applicant before approval or funding or that is denied by the board 12-26 shall be returned to the applicant promptly on request, together 13-1 with all materials submitted by or on behalf of the applicant that 13-2 relate to the application, except that the board may retain a 13-3 record of the submission and disposition of the application that 13-4 does not include any information described by Subsection (b). 13-5 Sec. 403.416. PROGRAM COORDINATION. The board and office 13-6 shall coordinate the administration and funding of the programs. 13-7 SECTION 2. This Act takes effect immediately if it receives 13-8 a vote of two-thirds of all the members elected to each house, as 13-9 provided by Section 39, Article III, Texas Constitution. If this 13-10 Act does not receive the vote necessary for immediate effect, this 13-11 Act takes effect September 1, 2001.