84R11798 ATP-F

By: Rodriguez of Travis H.B. No. 3525

A BILL TO BE ENTITLED

AN ACT

relating to creating the Texas Quality Research Leadership Authority to help Texas small businesses rapidly scale in potentially leading edge technologies and abolishing the Texas emerging technology fund.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle F, Title 4, Government Code, is amended by adding Chapter 482 to read as follows:

CHAPTER 482. TEXAS QUALITY RESEARCH LEADERSHIP AUTHORITY

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 482.001. PURPOSES. (a) The Texas Quality Research Leadership Authority is established under this chapter to help Texas small businesses rapidly scale in potentially leading edge technologies by:

(1) increasing higher education applied technology research capabilities;

(2) expediting innovation and commercialization of research; and

(3) significantly increasing this state's share of United States venture capital.

Sec. 482.002. DEFINITIONS. In this chapter:

(1) "Authority" means the Texas Quality Research Leadership Authority.

(2) "Fund" means the fund for the Texas Quality Research Leadership Authority.

(3) "Oversight committee" means the oversight committee of the Texas Quality Research Leadership Authority.

(4) "Stake" means a financial stake in an entity or project that receives funding through the authority.

Sec. 482.003. CONSTRUCTION OF LAW REGARDING AUTHORITY OF STATE AUDITOR. Nothing in this chapter limits the authority of the state auditor under Chapter 321 or other law.

SUBCHAPTER B. ADMINISTRATION

Sec. 482.051. OVERSIGHT COMMITTEE. (a) The oversight committee is composed of the following nine members:

(1) three members appointed by the governor;

(2) three members appointed by the lieutenant governor; and

(3) three members appointed by the speaker of the house of representatives.

(b) Oversight committee members serve at the pleasure of the appointing office for staggered six-year terms, with the terms of three members expiring on January 31 of each odd-numbered year.

(c) In making appointments to the oversight committee, the following persons may nominate one or more individuals who are industry leaders in Texas or who are nationally recognized leaders from Texas public or private institutions of higher education for appointment to the committee:

(1) a president of a public or private institution of higher education in this state;

(2) a representative of the governor's office involved with economic development activities;

(3) a nationally recognized expert on commercialization of higher education research; and

(4) a venture capitalist.

(d) A person may not be a member of the oversight committee if the person or the person's spouse:

(1) is employed by or participates in the management of a business entity or other organization receiving money from the authority;

(2) owns or controls, directly or indirectly, more than a five percent interest in a business entity or other organization receiving money from the authority; or

(3) uses or receives a substantial amount of tangible goods, services, or money from the authority, other than reimbursement authorized by this chapter for oversight committee membership, attendance, or expenses.

Sec. 482.052. CHIEF EXECUTIVE OFFICER AND CHIEF COMPLIANCE OFFICER. (a) The oversight committee shall hire a chief executive officer and a chief compliance officer.

(b) The chief executive officer shall perform the duties required by this chapter or designated by the oversight committee. The chief executive officer must have a demonstrated ability to lead and develop academic, commercial, and governmental partnerships and coalitions.

(c) The chief compliance officer must have a demonstrated ability to lead and provide sound financial and compliance management and shall:

(1) continuously monitor contracts;

(2) ensure that all award proposals, including proposals for a stake, comply with this chapter and rules adopted under this chapter before the proposals are submitted to the oversight committee for approval;

(3) establish procedures to document that the authority, employees of the authority, and the oversight committee comply with all laws and rules governing the review process and conflicts of interest; and

(4) attend and observe the meetings of the committee.

Sec. 482.053. DISCLOSURES. (a) A person appointed to the oversight committee shall disclose to the authority each political contribution of greater than $1,000 made by the person to a candidate for a state or federal office in the five years preceding the person's appointment and each year after the person's appointment until the person's term expires. The authority annually shall post a report of the political contributions made by oversight committee members on the authority's publicly accessible Internet website and post a link to the report on the oversight committee's main Internet web page.

(b) Each member of the oversight committee shall file a verified financial statement with the Texas Ethics Commission that:

(1) complies with Sections 572.022 through 572.0252 as is required of a state officer under those sections;

(2) is confidential and is not subject to disclosure under Chapter 552, including information derived from the financial statements; and

(3) can be provided in the normal course of official business by the oversight committee to the state auditor.

(c) This section does not affect release of information for legislative purposes under Section 552.008.

Sec. 482.054. ETHICS POLICY AND TRAINING. (a) The oversight committee shall adopt and enforce an ethics policy that provides standards of conduct relating to the management and investment of the funds in this chapter. The ethics policy must include provisions that address the following issues as applicable to the management and investment of the funds and to persons responsible for managing and investing the funds:

(1) general ethical standards;

(2) conflicts of interest;

(3) prohibited transactions and interests;

(4) the acceptance of gifts and entertainment;

(5) compliance with applicable professional standards;

(6) ethics training; and

(7) compliance with and enforcement of the ethics policy.

(b) The ethics policy must include provisions applicable to:

(1) members of the oversight committee;

(2) the chief executive officer and chief compliance officer;

(3) employees of the authority; and

(4) any person who provides services to the authority.

(c) Not later than the 45th day before the date on which the oversight committee intends to adopt a proposed ethics policy or an amendment to or revision of an adopted ethics policy, the oversight committee shall submit a copy of the proposed policy, amendment, or revision to the Texas Ethics Commission and the state auditor for review and comments. The oversight committee shall consider any comments from the commission or state auditor before adopting the proposed policy.

(d) The provisions of the ethics policy that apply to a person who provides services to the committee relating to the management or investment of the funds must be based on the Code of Ethics and the Standards of Professional Conduct prescribed by the Chartered Financial Analysts Institute or other ethics standards adopted by another appropriate professionally recognized entity.

(e) The oversight committee shall ensure that applicable provisions of the ethics policy are included in any contract under which a person provides services to the committee relating to the management and investment of the funds.

Sec. 482.055. OVERSIGHT COMMITTEE OFFICERS. (a) The oversight committee shall elect a presiding officer and assistant presiding officer from among its members every two years. The oversight committee may elect additional officers from among its members.

(b) The presiding officer and assistant presiding officer may not serve in the position for more than one consecutive term.

(c) The oversight committee shall:

(1) establish and approve duties and responsibilities for officers of the committee; and

(2) develop and implement policies that distinguish the responsibilities of the oversight committee and the committee's officers from the responsibilities of the chief executive officer and the employees of the authority.

Sec. 482.056. MINUTES. (a) The oversight committee shall keep minutes of each meeting at which applications or funding are evaluated. The minutes must:

(1) include the name of each applicant recommended to the committee for funding; and

(2) indicate the vote of each member of the oversight committee, including any recusal by a member and the member's reason for recusal, with regard to each application reviewed.

(b) The oversight committee shall retain a copy of the minutes of each meeting to which this section applies for at least three years.

Sec. 482.057. SUNSET PROVISION. The Texas Quality Research Leadership Authority is subject to Chapter 325, Government Code (Texas Sunset Act). Unless continued in existence as provided by that chapter, the authority is abolished September 1, 2023.

SUBCHAPTER C. FUND FOR TEXAS QUALITY RESEARCH LEADERSHIP AUTHORITY

Sec. 482.101. TEXAS QUALITY RESEARCH LEADERSHIP AUTHORITY. (a) The fund for the Texas Quality Research Leadership Authority is a dedicated account in the general revenue fund.

(b) The following amounts shall be deposited in the fund:

(1) any amounts appropriated by the legislature for the fund;

(2) benefits realized from a project undertaken with money from the fund, as provided by a contract entered into under Section 482.103;

(3) gifts, grants, and other donations received for the fund; and

(4) interest earned on the investment of money in the fund.

(c) The fund may be used only for:

(1) the purposes described in Section 482.001; and

(2) necessary staff and administration of the fund, including administration by the oversight committee.

(d) The oversight committee may solicit and accept gifts and grants for the fund from public and private entities.

(e) The administration of the authority is to be conducted by the oversight committee. The committee may negotiate on behalf of the state regarding stakes from the fund. The committee may award money appropriated from the fund only with the approval of a majority of the oversight committee.

(f) For purposes of Subsection (e), an award of a stake appropriated from the fund is considered disapproved if the oversight committee does not approve the proposal to award funding before the 31st day after the date of receipt of the proposal. The oversight committee may extend the review deadline for an additional 14 days through written record before the expiration of the initial review period.

(g) Before making an award under this subchapter, the oversight committee shall enter into a contract with the entity to receive the award. A contract may specify that:

(1) if all or any portion of the amount of the award is used to build a capital improvement:

(A) the state retains a lien or other interest in the capital improvement in proportion to the percentage of the award amount used to pay for the capital improvement; and

(B) the recipient of the award shall, if the capital improvement is sold:

(i) repay to the state the award used to pay for the capital improvement, with interest at the rate and according to the other terms provided by the contract; and

(ii) share with the state a proportionate amount of any profit realized from the sale; and

(2) if, as of a date certain provided in the contract, the award recipient has not used the award received under this subchapter for the purposes for which the award was intended, the recipient shall repay that amount and any related interest applicable under the contract to the state at the agreed rate and on the agreed terms.

(h) The oversight committee may make awards in the form of loans, charge and receive reasonable interest for the loans, take a stake in the form of stock or other security in consideration of an award, and sell or otherwise trade or exchange the security for the benefit of the fund. Interest or proceeds received as a result of a transaction authorized by this subsection shall be deposited to the corpus of the fund and may be used in the same manner as the corpus of the fund.

(i) The contract between the oversight committee and a recipient of an award under this subchapter may set the terms relating to an award.

Sec. 482.102. EXPEDITING INNOVATION AND COMMERCIALIZATION. (a) The oversight committee shall establish financial stakes in entities from the fund as provided by this subchapter through peer review and evaluation processes established by the committee.

(b) Before the oversight committee may establish a financial stake in an entity, the entity shall obtain and provide the following information to the committee:

(1) a federal criminal history background check for each principal of the entity;

(2) a state criminal history background check for each principal of the entity;

(3) a credit check for each principal of the entity;

(4) a copy of a government-issued form of photographic identification for each principal of the entity; and

(5) information regarding whether the entity or a principal of the entity has ever been subject to a sanction imposed by the Securities and Exchange Commission for a violation of applicable federal law.

(c) For purposes of Subsection (b), "principal" means:

(1) an officer of an entity; or

(2) a person who has at least a 10 percent ownership interest in an entity.

Sec. 482.103. GUARANTEE OF COMMERCIALIZATION OR MANUFACTURING IN TEXAS. An entity receiving money from the fund under this subchapter must guarantee by contract that a substantial percentage of any new or expanded commercialization or manufacturing resulting from the award will be established in this state.

Sec. 482.104. ALLOCATION OF PROCEEDS. (a) The contract between the oversight committee and a recipient of an award under this subchapter shall provide for the distribution of royalties, revenue, or other financial benefits realized from the commercialization of intellectual or real property developed from any award from the fund. To the extent authorized by law and not in conflict with another agreement, the contract shall appropriately allocate by assignment, licensing, or other means the royalties, revenue, or other financial benefits among identifiable collaborating parties and in a specified percentage to this state for deposit in the fund.

(b) The contract under Subsection (a) shall also specify other matters considered necessary by the oversight committee.

Sec. 482.105. COMMERCIALIZATION ACTIVITIES; USE OF MONEY FOR INCENTIVES. An amount determined by the oversight committee allocated from the fund for use as provided by this subchapter shall be reserved for incentives for private or nonprofit entities to collaborate with research institutions in this state or private institutions of higher education in this state on emerging technology projects with a demonstrable economic benefit to this state.

Sec. 482.106. PRIORITY FOR FUNDING. In allocating money from the fund under this subchapter, priority shall be given to proposals that:

(1) involve emerging scientific or technology fields that have a reasonable probability of enhancing this state's national and global economic competitiveness;

(2) may result in a medical or scientific breakthrough or a breakthrough in the area of clean energy;

(3) are collaborative between any combination of private or nonprofit entities and public or private agencies or institutions in this state;

(4) are matched with other available funds, including funds from the private or nonprofit entity, research institution, or private institution of higher education collaborating on the project; or

(5) have a demonstrable economic development benefit to this state.

Sec. 482.107. TEXAS TARGETED TECHNOLOGY CLUSTERS. (a) A Texas targeted technology cluster industry participant is eligible for a stake if the activity to be funded:

(1) will stimulate long-term sustained growth and result in the creation of high-quality jobs in Texas, immediately or over the longer period; or

(2) has the potential to result in a scientific or manufacturing breakthrough.

(b) A Texas targeted technology cluster industry includes industries related to:

(1) advanced technologies and manufacturing;

(2) aerospace and defense;

(3) biotechnology and life sciences;

(4) information, computer technology, and semiconductors;

(5) petroleum refining and chemical processes;

(6) energy; or

(7) manufactured energy, nanotechnology, and microelectromechanical systems.

Sec. 482.108. AUTHORIZED EXPENSES. (a) An entity receiving money from the fund under this subchapter may use the money to expedite commercialization that will lead to an increase in high-quality jobs in this state and shall use the money in accordance with a contract between the entity and the oversight committee.

(b) Authorized expenses under this section include salaries and benefits, travel, consumable supplies, other operating expenses, contracted research and development, capital equipment, construction or renovation of state or private facilities, and workforce training.

SUBCHAPTER D. REPORTING AND ACCOUNTABILITY

Sec. 482.151. ANNUAL REPORT. (a) Not later than January 31 of each year, the oversight committee shall submit to the governor, the lieutenant governor, the speaker of the house of representatives, and the standing committee of each house of the legislature with primary jurisdiction over economic development matters a report that includes the following information regarding awards, including commercialization stakes, made under the fund during each preceding state fiscal year:

(1) the total number and amount of awards, including stakes made;

(2) the aggregate total of private sector investment, federal government funding, and contributions from other sources obtained in connection with awards, including stakes;

(3) the name of each award recipient and the amount of the stake or other award; and

(4) a brief description of the stake that the oversight committee, on behalf of the state, may take in award recipients receiving stakes.

(b) The annual report must also contain:

(1) the total number of jobs created by each award, including each stake receiving funding;

(2) an analysis of the number of jobs created by each award, including each stake receiving funding;

(3) an estimate of additional sales, property, and related taxes paid by the recipients of the state's stakes; and

(4) a brief description regarding:

(A) the methodology used to determine the information provided under Subdivisions (1) and (2), which may be developed in consultation with the office of the governor;

(B) the intended outcomes of projects in which the state has a stake; and

(C) the actual outcomes of all projects funded in this chapter, including any financial impact on the state resulting from a liquidity event involving a business entity whose project was funded under this chapter.

Sec. 482.152. VALUATION OF INVESTMENTS. (a) To the maximum extent practicable, the oversight committee shall annually perform a valuation of the stakes taken by the oversight committee in recipients receiving awards under this chapter.

(b) The valuation must be:

(1) based on a methodology that:

(A) may be developed in consultation with the office of the governor; and

(B) is consistent with generally accepted accounting principles; and

(2) included with the annual report under this subchapter.

Sec. 482.153. CONFIDENTIALITY. (a) Except as provided by Subsection (b), information collected by the oversight committee or the committee's designees concerning the identity, background, finance, marketing plans, trade secrets, or other commercially or academically sensitive information of an entity being considered for, receiving, or having received an award from the fund is confidential unless the entity consents to disclosure of the information.

(b) The following information collected by the oversight committee or the committee's designees under this chapter is public information and may be disclosed under Chapter 552:

(1) the name and address of an entity receiving or having received an award from the fund;

(2) the amount of any stake received by an award recipient;

(3) a brief description of the project that is funded under this chapter;

(4) if applicable, a brief description of the stake that the oversight committee, on behalf of the state, has taken in an entity that has received an award from the fund; and

(5) any other information designated by the committee with the consent of the entity receiving or having received an award from the fund, as applicable.

SECTION 2. The heading to Chapter 490, Government Code, is amended to read as follows:

CHAPTER 490. PROVISIONS RELATING TO FORMER TEXAS [FUNDING FOR]

EMERGING TECHNOLOGY FUND

SECTION 3. Sections 490.001(2) and (4), Government Code, are amended to read as follows:

(2) "Fund" means the former Texas emerging technology fund.

(4) "Award" means:

(A) for purposes of former Subchapter D, an investment in the form of equity or a convertible note;

(B) for purposes of former Subchapter E, an investment in the form of a debt instrument;

(C) for purposes of former Subchapter F, a grant; or

(D) other forms of contribution or investment as recommended by the committee and approved by the governor, lieutenant governor, and speaker of the house of representatives before amendment of this chapter by the 84th Legislature, Regular Session, 2015.

SECTION 4. The heading to Section 490.005, Government Code, is amended to read as follows:

Sec. 490.005. REPORT ON AWARDS FROM FORMER FUND [ANNUAL REPORT].

SECTION 5. Section 490.005, Government Code, is amended by amending Subsections (a) and (b) and adding Subsection (d) to read as follows:

(a) Not later than January 31, 2016 [of each year], the governor shall submit to the lieutenant governor, the speaker of the house of representatives, and the standing committee of each house of the legislature with primary jurisdiction over economic development matters and post on the office of the governor's Internet website a report that includes for each preceding state fiscal year the following information regarding awards made under the fund [during each preceding state fiscal year]:

(1) the total number and amount of awards made;

(2) the number and amount of awards made under former Subchapters D, E, and F;

(3) the aggregate total of private sector investment, federal government funding, and contributions from other sources obtained in connection with awards made under each of the subchapters listed in Subdivision (2);

(4) the name of each award recipient and the amount of the award made to the recipient; and

(5) a brief description of the equity position that the governor, on behalf of the state, has taken [may take] in companies that received [receiving] awards and the names of the companies in which the state has taken an equity position.

(b) The [annual] report must also contain:

(1) the total number of jobs actually created by each project that received an award from the fund [receiving funding under this chapter];

(2) an analysis of the number of jobs actually created by each project that received an award from the fund [receiving funding under this chapter]; and

(3) a brief description regarding:

(A) the methodology used to determine the information provided under Subdivisions (1) and (2), which may be developed in consultation with the comptroller's office;

(B) the intended outcomes of projects funded under former Subchapter D [during each preceding state fiscal year]; and

(C) the actual outcomes of all projects funded under former Subchapter D [during each preceding state fiscal year], including any financial impact on the state resulting from a liquidity event involving a company whose project was funded under that subchapter.

(d) This section expires September 1, 2017.

SECTION 6. Section 490.006, Government Code, is amended to read as follows:

Sec. 490.006. VALUATION OF INVESTMENTS; [INCLUSION IN] ANNUAL REPORT. (a) To the maximum extent practicable, the office of the governor shall [annually] perform a valuation of the equity positions taken by the governor, on behalf of the state, in companies that received [receiving] awards under the fund and of other investments made by the governor, on behalf of the state, in connection with an award under the fund. The valuation must[:

[(1)] be based on a methodology that:

(1) [(A)] may be developed in consultation with the comptroller's office; and

(2) [(B)] is consistent with generally accepted accounting principles[; and

[(2) be included with the annual report required under Section 490.005].

(b) This section expires September 1, 2017.

SECTION 7. The heading to Subchapter B, Chapter 490, Government Code, is amended to read as follows:

SUBCHAPTER B. MISCELLANEOUS PROVISIONS [TEXAS EMERGING TECHNOLOGY

ADVISORY COMMITTEE]

SECTION 8. Section 490.057, Government Code, is amended to read as follows:

Sec. 490.057. CONFIDENTIALITY. (a) Except as provided by Subsection (b), information collected by the governor's office, the former Texas Emerging Technology Advisory Committee [committee], or the committee's advisory panels concerning the identity, background, finance, marketing plans, trade secrets, or other commercially or academically sensitive information of an individual or entity that was [being] considered for or [, receiving, or having] received an award from the fund is confidential unless the individual or entity consents to disclosure of the information.

(b) The following information collected by the governor's office, the former Texas Emerging Technology Advisory Committee [committee], or the committee's advisory panels under this chapter is public information and may be disclosed under Chapter 552:

(1) the name and address of an individual or entity that [receiving or having] received an award from the fund;

(2) the amount of funding received by an award recipient;

(3) a brief description of the project [that is] funded under this chapter;

(4) if applicable, a brief description of the equity position that the governor, on behalf of the state, has taken in an entity that [has] received an award from the fund; and

(5) any other information designated by the committee with the consent of:

(A) the individual or entity that [receiving or having] received an award from the fund[, as applicable];

(B) the governor;

(C) the lieutenant governor; and

(D) the speaker of the house of representatives.

SECTION 9. Section 50D.013(a), Agriculture Code, is amended to read as follows:

(a) The policy council shall:

(1) provide a vision for unifying this state's agricultural, energy, and research strengths in a successful launch of a cellulosic biofuel and bioenergy industry;

(2) foster development of cellulosic-based and bio-based fuels and build on the former Texas emerging technology fund's investments in leading-edge energy research and efforts to commercialize the production of bioenergy;

(3) pursue the creation of a next-generation biofuels energy research program at a university in this state;

(4) work to procure federal and other funding to aid this state in becoming a bioenergy leader;

(5) study the feasibility and economic development effect of a blending requirement for biodiesel or cellulosic fuels;

(6) pursue the development and use of thermochemical process technologies to produce alternative chemical feedstocks;

(7) study the feasibility and economic development of the requirements for pipeline-quality, renewable natural gas; and

(8) perform other advisory duties as requested by the commissioner regarding the responsible development of bioenergy resources in this state.

SECTION 10. Section 203.021(e), Labor Code, is amended to read as follows:

(e) Money in the compensation fund may not be transferred to the[:

[(1)] Texas Enterprise Fund created under Section 481.078, Government Code[; or

[(2) Texas emerging technology fund established under Section 490.101, Government Code].

SECTION 11. The following laws are repealed:

(1) Sections 490.001(1), (3), and (5), Government Code;

(2) Sections 490.002 and 490.003, Government Code;

(3) Sections 490.051, 490.052, 490.0521, 490.053, 490.054, 490.055, and 490.056, Government Code; and

(4) Subchapters C, D, E, F, and G, Chapter 490, Government Code.

SECTION 12. (a) On September 1, 2015, the Texas emerging technology fund is abolished and the balance of the fund is transferred to the general revenue fund and may be used in accordance with legislative appropriation, except as provided by Subsections (c) and (d) of this section.

(b) The abolition by this Act of the Texas emerging technology fund and the repeal of provisions of Chapter 490, Government Code, relating to that fund do not affect the validity of an agreement between the governor and an award recipient or a person to be awarded money that is entered into under Chapter 490 before September 1, 2015.

(c) Money that was deposited in the Texas emerging technology fund as a gift, grant, or donation under Chapter 490, Government Code, and that is encumbered by the specific terms of the gift, grant, or donation may be spent only in accordance with the terms of the gift, grant, or donation.

(d) Money from the Texas emerging technology fund that is encumbered because the money is awarded or otherwise obligated by agreement before September 1, 2015, but under the terms of the award or agreement will not be distributed until a later date shall be distributed in accordance with the terms of the award or agreement. If the governor determines that the money will not be distributed in accordance with the terms of the award or agreement, the governor shall certify that fact to the comptroller. On that certification, the comptroller shall make that money available in the general revenue fund to be used in accordance with legislative appropriation.

(e) On or after the effective date of this Act, the following payments or other amounts shall be sent to the comptroller for deposit to the general revenue fund:

(1) any royalties, revenues, and other financial benefits realized from a project undertaken with money from the Texas emerging technology fund, as provided by a contract entered into under Section 490.103 or 490.302, Government Code;

(2) interest earned on the investment of money in the Texas emerging technology fund;

(3) any interest or proceeds received as a result of a transaction authorized by Section 490.101, Government Code; and

(4) any fund money returned by an entity that fails to perform an action guaranteed by a contract entered into under Section 490.154 or 490.203, Government Code.

SECTION 13. A regional center of innovation and commercialization established under Section 490.152, Government Code, is abolished on the effective date of this Act. Each center shall transfer to the office of the governor a copy of any meeting minutes required to be retained under Section 490.1521, Government Code, as that section existed immediately before that section's repeal by this Act, and the office shall retain the minutes for the period prescribed by that section.

SECTION 14. On September 1, 2015, the Texas Emerging Technology Advisory Committee established under Subchapter B, Chapter 490, Government Code, is abolished.

SECTION 15. If a conflict exists between this Act and another Act of the 84th Legislature, Regular Session, 2015, that relates to the Texas emerging technology fund, this Act controls without regard to the relative dates of enactment.

SECTION 16. This Act takes effect September 1, 2015.