[House Report 106-706]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-706
HOUSE OF REPRESENTATIVES
2d Session Part 1
======================================================================
NEW MARKETS INITIATIVE ACT OF 1999
_______
June 28, 2000.--Ordered to be printed
_______
Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following
R E P O R T
[To accompany H.R. 2848]
The Committee on Banking and Financial Services, to whom was
referred the bill (H.R. 2848) to amend the Small Business
Investment Act of 1958 and the Small Business Act to establish
a New Markets Venture Capital Program, to establish an
America's Private Investment Company Program, to amend the
Internal Revenue Code of 1986 to establish a New Markets Tax
Credit, and for other purposes, having considered the same,
report favorably thereon with amendments and recommend that the
bill as amended do pass.
The amendments (stated in terms of the page and line numbers
of the introduced bill) are as follows:
Page 2, strike title III in the table of contents and insert
the following:
TITLE III--AMERICA'S PRIVATE INVESTMENT COMPANIES
Sec. 301. Short Title.
Sec. 302. Findings and purposes.
Sec. 303. Definitions.
Sec. 304. Authorization.
Sec. 305. Selection of APICs.
Sec. 306. Operations of APICs.
Sec. 307. Credit enhancement by the Federal Government.
Sec. 308. APIC requests for guarantee actions.
Sec. 309. Examination and monitoring of APICs.
Sec. 310. Penalties.
Sec. 311. Effective date.
Sec. 312. Sunset.
Page 29, strike line 3 and all that follows through line 23
on page 62 and insert the following:
TITLE III--AMERICA'S PRIVATE INVESTMENT COMPANIES
SEC. 301. SHORT TITLE.
This title may be cited as the ``America's Private Investment
Companies Act''.
SEC. 302. FINDINGS AND PURPOSES.
(a) Findings.--The Congress finds that--
(1) people living in distressed areas, both urban and
rural, that are characterized by high levels of
joblessness, poverty, and low incomes have not
benefited adequately from the economic expansion
experienced by the Nation as a whole;
(2) unequal access to economic opportunities
continues to make the social costs of joblessness and
poverty to our Nation very high; and
(3) there are significant untapped markets in our
Nation, and many of these are in areas that are
underserved by institutions that can make equity and
credit investments.
(b) Purposes.--The purposes of this title are to--
(1) license private for profit community development
entities that will focus on making equity and credit
investments for large-scale business developments that
benefit low-income communities;
(2) provide credit enhancement for those entities for
use in low-income communities; and
(3) provide a vehicle under which the economic and
social returns on financial investments made pursuant
to this title may be available both to the investors in
these entities and to the residents of the low-income
communities.
SEC. 303. DEFINITIONS.
As used in this title:
(1) Administrator.--The term ``Administrator'' means
the Administrator of the Small Business Administration.
(2) Agency.--The term ``agency'' has the meaning
given such term in section 551(1) of title 5, United
States Code.
(3) APIC.--The term ``APIC'' means a business entity
that has been licensed under the terms of this title as
an America's Private Investment Company, and the
license of which has not been revoked.
(4) Community development entity.--The term
``community development entity'' means an entity the
primary mission of which is serving or providing
investment capital for low-income communities or low-
income persons and which maintains accountability to
residents of low-income communities.
(5) HUD.--The term ``HUD'' means the Secretary of
Housing and Urban Development or the Department of
Housing and Urban Development, as the context requires.
(6) License.--The term ``license'' means a license
issued by HUD as provided in section 304.
(7) Low-income community.--The term ``low-income
community'' means--
(A) a census tract or tracts that have--
(i) a poverty rate of 20 percent or
greater, based on the most recent
census data; or
(ii) a median family income that does
not exceed 80 percent of the greater of
(I) the median family income for the
metropolitan area in which such census
tract or tracts are located, or (II)
the median family income for the State
in which such census tract or tracts
are located; or
(B) a property that was located on a military
installation that was closed or realigned
pursuant to title II of the Defense
Authorization Amendments and Base Closure and
Realignment Act (Public Law 100-526; 10 U.S.C.
2687 note), the Defense Base Closure and
Realignment Act of 1990 (part A of title XXIX
of Public Law 101-510; 10 U.S.C. 2687 note),
section 2687 of title 10, United States Code,
or any other similar law enacted after the date
of the enactment of this Act that provides for
closure or realignment of military
installations.
(8) Low-income person.--The term ``low-income
person'' means a person who is a member of a low-income
family, as such term is defined in section 104 of the
Cranston-Gonzalez National Affordable Housing Act (42
U.S.C. 12704).
(9) Private equity capital.--
(A) In general.--The term ``private equity
capital''--
(i) in the case of a corporate
entity, the paid-in capital and paid-in
surplus of the corporate entity;
(ii) in the case of a partnership
entity, the contributed capital of the
partners of the partnership entity;
(iii) in the case of a limited
liability company entity, the equity
investment of the members of the
limited liability company entity; and
(iv) earnings from investments of the
entity that are not distributed to
investors and are available for
reinvestment by the entity.
(B) Exclusions.--Such term does not include
any--
(i) funds borrowed by an entity from
any source or obtained through the
issuance of leverage; except that this
clause may not be construed to exclude
amounts evidenced by a legally binding
and irrevocable investment commitment
in the entity, or the use by an entity
of a pledge of such investment
commitment to obtain bridge financing
from a private lender to fund the
entity's activities on an interim
basis; or
(ii) funds obtained directly or
indirectly from any Federal, State, or
local government or any government
agency, except for--
(I) funds invested by an
employee welfare benefit plan
or pension plan; and
(II) credits against any
Federal, State, or local taxes.
(10) Qualified active business.--The term ``qualified
active business'' means a business or trade--
(A) that, at the time that an investment is
made in the business or trade, is deriving at
least 50 percent of its gross income from the
conduct of trade or business activities in low-
income communities;
B) a substantial portion of the use of the
tangible property of which is used within low-
income communities;
(C) a substantial portion of the services
that the employees of which perform are
performed in low-income communities; and
(D) less than 5 percent of the aggregate
unadjusted bases of the property of which is
attributable to certain financial property, as
the Secretary shall set forth in regulations,
or in collectibles, other than collectibles
held primarily for sale to customers.
(11) Qualified debenture.--The term ``qualified
debenture'' means a debt instrument having terms that
meet the requirements established pursuant to section
306(c)(1).
(12) Qualified low-income community investment.--The
term ``qualified low-income community investment'' mean
an equity investment in, or a loan to, a qualified
active business.
(13) Secretary.--The term ``Secretary'' means the
Secretary of Housing and Urban Development, unless
otherwise specified in this title.
SEC. 304. AUTHORIZATION.
(a) Licenses.--The Secretary is authorized to license
community development entities as America's Private Investment
Companies, in accordance with the terms of this title.
(b) Regulations.--The Secretary shall regulate APICs for
compliance with sound financial management practices, and the
program and procedural goals of this title and other related
Acts, and other purposes as required or authorized by this
title, or determined by the Secretary. The Secretary shall
issue such regulations as are necessary to carry out the
licensing and regulatory and other duties under this title, and
may issue notices and other guidance or directives as the
Secretary determines are appropriate to carry out such duties.
(c) Use of Credit Subsidy for Licenses.--
(1) Number of licenses.--The number of APICs licensed
at any one time may not exceed--
(A) the number that may be supported by the
amount of budget authority appropriated in
accordance with section 504(b) of the Federal
Credit Reform Act of 1990 (2 U.S.C. 661c) for
the cost (as such term is defined in section
502 of such Act) of the subsidy and the
investment strategies of such APICs; or
(B) to the extent the limitation under
section 305(e)(1) applies, the number
authorized under such section.
(2) Use of additional credit subsidy.--Subject to the
limitation under paragraph (1), the Secretary may use
any budget authority available after credit subsidy has
been allocated for the APICs initially licensed
pursuant to section 305 as follows:
(A) Additional licenses.--To license
additional APICs.
(B) Credit subsidy increases.--To increase
the credit subsidy allocated to an APIC as an
award for high performance under this title,
except that such increases may be made only in
accordance with the following requirements and
limitations:
(i) Timing.--An increase may only be
provided for an APIC that has been
licensed for a period of not less than
2 years.
(ii) Competition.--An increase may
only be provided for a fiscal year
pursuant to a competition for such
fiscal year among APICs eligible for,
and requesting, such an increase. The
competition shall be based upon
criteria that the Secretary shall
establish, which shall include the
financial soundness and performance of
the APICs, as measured by achievement
of the public performance goals
included in the APICs statements
required under section 305(a)(6) and
audits conducted under section
309(b)(2). Among the criteria
established by the Secretary to
determine priority for selection under
this section, the Secretary shall
include making investments in and loans
to qualified active businesses in urban
or rural areas that have been
designated under subchapter U of
Chapter 1 of the Internal Revenue Code
of 1986 as empowerment zones or
enterprise communities.
(d) Cooperation and Coordination.--
(1) Program policies.--The Secretary is authorized to
coordinate and cooperate, through memoranda of
understanding, an APIC liaison committee, or otherwise,
with the Administrator, the Secretary of the Treasury,
and other agencies in the discretion of the Secretary,
on implementation of this title, including regulation,
examination, and monitoring of APICs under this title.
(2) Financial soundness requirements.--The Secretary
shall consult with the Administrator and the Secretary
of the Treasury, and may consult with such other heads
of agencies as the Secretary may consider appropriate,
in establishing any regulations, requirements,
guidelines, or standards for financial soundness or
management practices of APICs or entities applying for
licensing as APICs. In implementing and monitoring
compliance with any such regulations, requirements,
guidelines, and standards, the Secretary shall enter
into such agreements and memoranda of understanding
with the Administrator and the Secretary of the
Treasury as may be appropriate to provide for such
officials to provide any assistance that may be agreed
to.
(3) Operations.--The Secretary may carry out this
title--
(A) directly, through agreements with other
Federal entities under section 1535 of title
31, United States Code, or otherwise, or
(B) indirectly, under contracts or
agreements, as the Secretary shall determine.
(e) Fees and Charges for Administrative Costs.--To the extent
provided in appropriations Acts, the Secretary is authorized to
impose fees and charges for application, review, licensing, and
regulation, or other actions under this title, and to pay for
the costs of such activities from the fees and charges
collected.
(f) Guarantee Fees.--The Secretary is authorized to set and
collect fees for loan guarantee commitments and loan guarantees
that the Secretary makes under this title.
(g) Funding.--
(1) Authorization of appropriations for loan
guarantee commitments.--For each of fiscal years 2000,
2001, 2002, 2003, and 2004, there is authorized to be
appropriated up to $36,000,000 for the cost (as such term
is defined in section 502(5) of the Federal Credit Reform
Act of 1990) of annual loan guarantee commitments under
this title. Amounts appropriated under this paragraph
shall remain available until expended.
(2) Aggregate loan guarantee commitment limitation.--
The Secretary may make commitments to guarantee loans
only to the extent that the total loan principal, any
part of which is guaranteed, will not exceed
$1,000,000,000, unless another such amount is specified
in appropriation Acts for any fiscal year.
(3) Authorization of appropriations for
administrative expenses.--For each of the fiscal years
2000, 2001, 2002, 2003, and 2004, there is authorized
to be appropriated $1,000,000 for administrative
expenses for carrying out this title. The Secretary may
transfer amounts appropriated under this paragraph to
any appropriation account of HUD or another agency, to
carry out the program under this title. Any agency to
which the Secretary may transfer amounts under this
title is authorized to accept such transferred amounts
in any appropriation account of such agency.
SEC. 305. SELECTION OF APICS.
(a) Eligible Applicants.--An entity shall be eligible to be
selected for licensing under section 304 as an APIC only if the
entity submits an application in compliance with the
requirements established pursuant to subsection (b) and the
entity meets or complies with the following requirements:
(1) Organization.--The entity shall be a private,
for-profit entity that qualifies as a community
development entity for the purposes of the New Markets
Tax Credits, to the extent such credits are established
under Federal law.
(2) Minimum private equity capital.--The amount of
private equity capital reasonably available to the
entity, as determined by the Secretary, at the time
that a license is approved may not be less than
$25,000,000.
(3) Qualified management.--The management of the
entity shall, in the determination of the Secretary,
meet such standards as the Secretary shall establish to
ensure that the management of the APIC is qualified,
and has the financial expertise, knowledge, experience,
and capability necessary, to make investments for
community and economic development in low-income
communities.
(4) Conflict of interest.--The entity shall
demonstrate that, in accordance with sound financial
management practices, the entity is structured to
preclude financial conflict of interest between the
APIC and a manager or investor.
(5) Investment strategy.--The entity shall prepare
and submit to the Secretary an investment strategy that
includes benchmarks for evaluation of its progress,
that includes an analysis of existing locally owned
businesses in the communities in which the investments
under the strategy will be made, that prioritizes such
businesses for investment opportunities, and that
fulfills the specific public purpose goals of the
entity.
(6) Statement of public purpose goals.--The entity
shall prepare and submit to the Secretary a statement
of the public purpose goals of the entity, which
shall--
(A) set forth goals that shall promote
community and economic development, which shall
include--
(i) making investments in low-income
communities that further economic
development objectives by targeting
such investments in businesses or
trades that comply with the
requirements under subparagraphs (A)
through (C) of section 303(10) relating
to low-income communities in a manner
that benefits low-income persons;
(ii) creating jobs in low-income
communities for residents of such
communities;
(iii) involving community-based
organizations and residents in
community development activities;
(iv) such other goals as the
Secretary shall specify; and
(v) such elements as the entity may
set forth to achieve specific public
purpose goals;
(B) include such other elements as the
Secretary shall specify; and
(C) include proposed measurements and
strategies for meeting the goals.
(7) Compliance with laws.--The entity shall agree to
comply with applicable laws, including Federal
executive orders, Office of Management and Budget
circulars, and requirements of the Department of the
Treasury, and such operating and regulatory
requirements as the Secretary may impose from time to
time.
(8) Other.--The entity shall satisfy any other
application requirements that the Secretary may impose
by regulation or Federal Register notice.
(b) Competitions.--The Secretary shall select eligible
entities under subsection (a) to be licensed under section 304
as APICs on the basis of competitions. The Secretary shall
announce each such competition by causing a notice to be
published in the Federal Register that invites applications for
licenses and sets forth the requirements for application and
such other terms of the competition not otherwise provided for,
as determined by the Secretary.
(c) Selection.--In competitions under subsection (b), the
Secretary shall select eligible entities under subsection (a)
for licensing as APICs on the basis of--
(1) the extent to which the entity is expected to
achieve the goals of this title by meeting or exceeding
criteria established under subsection (d); and
(2) to the extent practicable and subject to the
existence of approvable applications, ensuring
geographical diversity among the applicants selected
and diversity of APICs investment strategies, so that
urban and rural communities are both served, in the
determination of the Secretary, by the program under
this title.
(d) Selection Criteria.--The Secretary shall establish
selection criteria for competitions under subsection (b), which
shall include the following criteria:
(1) Capacity.--
(A) Management.--The extent to which the
entity's management has the quality,
experience, and expertise to make and manage
successful investments for community and
economic development in low-income communities.
(B) State and local cooperation.--The extent
to which the entity demonstrates a capacity to
cooperate with States or units of general local
government and with community-based
organizations and residents of low-income
communities.
(2) Investment strategy.--The quality of the entity's
investment strategy submitted in accordance with
subsection (a)(5) and the extent to which the
investment strategy furthers the goals of this title
pursuant to paragraph (3) of this subsection.
(3) Public purpose goals.--With respect to the
statement of public purpose goals of the entity
submitted in accordance with subsection (a)(6), and the
strategy and measurements included therein--
(A) the extent to which such goals promote
community and economic development;
(B) the extent to which such goals provide
for making qualified investments in low-income
communities that further economic development
objectives, such as--
(i) creating, within 2 years of the
completion of the initial such
investment, job opportunities,
opportunities for ownership, and other
economic opportunities within a low-
income community, both short-term and
of a longer duration;
(ii) improving the economic vitality
of a low-income community, including
stimulating other business development;
(iii) bringing new income into a low-
income community and assisting in the
revitalization of such community;
(iv) converting real property for the
purpose of creating a site for business
incubation and location, or business
district revitalization;
(v) enhancing economic competition,
including the advancement of
technology;
(vi) rural development;
(vii) mitigating, rehabilitating, and
reusing real property considered
subject to the Solid Waste Disposal Act
(42 U.S.C. 6901 et seq.; commonly
referred to as the Resource
Conservation and Recovery Act) or
restoring coal mine-scarred land;
(viii) creation of local wealth
through investments in employee stock
ownership companies or resident-owned
ventures; and
(ix) any other objective that the
Secretary may establish to further the
purposes of this title;
(C) the quality of jobs to be created for
residents of low-income communities, taking
into consideration such factors as the payment
of higher wages, job security, employment
benefits, opportunity for advancement, and
personal asset building;
(D) the extent to which achievement of such
goals will involve community-based
organizations and residents in community
development activities; and
(E) the extent to which the investments
referred to in subparagraph (B) are likely to
benefit existing small business in low-income
communities or will encourage the growth of
small business in such communities.
(4) Other.--Any other criteria that the Secretary may
establish to carry out the purposes of this title.
(e) First Year Requirements.--
(1) Numerical limitation.--The number of APICs may
not, at any time during the 1-year period that begins
upon the Secretary awarding the first license for an
APIC under this title, exceed 15.
(2) Limitation on allocation of available credit
subsidy.--Of the amount of budget authority initially
made available for allocation under this title for
APICs, the amount allocated for any single APIC may not
exceed 20 percent.
(3) Native american private investment company.--
Subject only to the absence of an approvable
application from an entity, during the 1-year period
referred to in paragraph (1), of the entities selected
and licensed by the Secretary as APICs, at least one
shall be an entity that has as its primary purpose the
making of qualified low-income community investments in
areas that are within Indian country (as such term is
defined in section 1151 of title 18, United States
Code) or within lands that have status as Hawaiian home
land under section 204 of the Hawaiian Homes Commission
Act, 1920 (42 Stat. 108) or are acquired pursuant to
such Act. The Secretary may establish specific
selection criteria for applicants under this paragraph.
(f) Communications Between HUD and Applicants.--
(1) In general.--The Secretary shall set forth in
regulations the procedures under which HUD and
applicants for APIC licenses, and others, may
communicate. Such regulations shall--
(A) specify by position the HUD officers and
employees who may communicate with such
applicants and others;
(B) permit HUD officers and employees to
request and discuss with the applicant and
others (such as banks or other credit or
business references, or potential investors,
that the applicant specifies in writing) any
more detailed information that may be desirable
to facilitate HUD's review of the applicant's
application;
(C) restrict HUD officers and employees from
revealing to any applicant--
(i) the fact or chances of award of a
license to such applicant, unless there
has been a public announcement of the
results of the competition; and
(ii) any information with respect to
any other applicant; and
(D) set forth requirements for making and
keeping records of any communications conducted
under this subsection, including requirements
for making such records available to the public
after the award of licenses under an initial or
subsequent notice, as appropriate, under
subsection (a).
(2) Timing.--Regulations under this subsection may be
issued as interim rules for effect on or before the
date of publication of the first notice under
subsection (a), and shall apply only with respect to
applications under such notice. Regulations to
implement this subsection with respect to any notice
after the first such notice shall be subject to notice
and comment rulemaking.
(3) Inapplicability of department of hud act
provision.--Section 12(e)(2) of the Department of
Housing and Urban Development Act (42 U.S.C.
3537a(e)(2)) is amended by inserting before the period
at the end the following: ``or any license provided
under the America's Private Investment Companies Act''.
SEC. 306. OPERATIONS OF APICS.
(a) Powers and Authorities.--
(1) In general.--An APIC shall have any powers or
authorities that--
(A) the APIC derives from the jurisdiction in
which it is organized, or that the APIC
otherwise has;
(B) may be conferred by a license under this
title; and
(C) the Secretary may prescribe by
regulation.
(2) New market assistance.--Nothing in this title
shall preclude an APIC or its investors from receiving
an allocation of New Market Tax Credits (to the extent
such credits are established under Federal law) if the
APIC satisfies any applicable terms and conditions
under the Internal Revenue Code of 1986.
(b) Investment Limitations.--
(1) Qualified low-income community investments.--
Substantially all investments that an APIC makes shall
be qualified low-income community investments if the
investments are financed with--
(A) amounts available from the proceeds of
the issuance of an APIC's qualified debenture
guaranteed under this title;
(B) proceeds of the sale of obligations
described under subsection (c)(3)(C)(iii); or
(C) the use of private equity capital, as
determined by the Secretary, in an amount
specified in the APIC's license.
(2) Single business investments.--An APIC shall not,
as a matter of sound financial practice, invest in any
one business an amount that exceeds an amount equal to
35 percent of the sum of--
(A) the APIC's private equity capital; plus
(B) an amount equal to the percentage limit
that the Secretary determines that an APIC may
have outstanding at any one time, under
subsection (c)(2)(A).
(c) Borrowing Powers; Qualified Debentures.--
(1) Issuance.--An APIC may issue qualified
debentures. The Secretary shall, by regulation, specify
the terms and requirements for debentures to be
considered qualified debentures for purposes of this
title, except that the term to maturity of any
qualified debenture may not exceed 21 years and each
qualified debenture shall bear interest during all or
any part of that time period at a rate or rates
approved by the Secretary.
(2) Leverage limits.--In general, as a matter of
sound financial management practices--
(A) the total amount of qualified debentures
that an APIC issues under this title that an
APIC may have outstanding at any one time shall
not exceed an amount equal to 200 percent of
the private equity capital of the APIC, as
determined by the Secretary; and
(B) an APIC shall not have more than
$300,000,000 in face value of qualified
debentures issued under this title outstanding
at any one time.
(3) Repayment.--
(A) Condition of business wind-up.--An APIC
shall have repaid, or have otherwise been
relieved of indebtedness, with respect to any
interest or principal amounts of borrowings
under this subsection no less than 2 years
before the APIC may dissolve or otherwise
complete the wind-up of its business.
(B) Timing.--An APIC may repay any interest
or principal amounts of borrowings under this
subsection at any time: Provided, That the
repayment of such amounts shall not relieve an
APIC of any duty otherwise applicable to the
APIC under this title, unless the Secretary
orders such relief.
(C) Use of investment proceeds before
repayment.--Until an APIC has repaid all
interest and principal amounts on APIC
borrowings under this subsection, an APIC may
use the proceeds of investments, in accordance
with regulations issued by the Secretary, only
to--
(i) pay for proper costs and expenses
the APIC incurs in connection with such
investments;
(ii) pay for the reasonable
administrative expenses of the APIC;
(iii) purchase Treasury securities;
(iv) repay interest and principal
amounts on APIC borrowings under this
subsection;
(v) make interest, dividend, or other
distributions to or on behalf of an
investor; or
(vi) undertake such other purposes as
the Secretary may approve.
(D) Use of investment proceeds after
repayment.--After an APIC has repaid all
interest and principal amounts on APIC
borrowings under this subsection, and subject
to continuing compliance with subsection (a),
the APIC may use the proceeds from investments
to make interest, dividend, or other
distributions to or on behalf of investors in
the nature of returns on capital, or the
withdrawal of private equity capital, without
regard to subparagraph (C) but in conformity
with the APIC's investment strategy and
statement of public purpose goals.
(d) Reuse of Qualified Debenture Proceeds.--An APIC may use
the proceeds of sale of Treasury securities purchased under
subsection (c)(3)(C)(iii) to make qualified low-income
community investments, subject to the Secretary's approval. In
making the request for the Secretary's approval, the APIC shall
follow the procedures applicable to an APIC's request for HUD
guarantee action, as the Secretary may modify such procedures
for implementation of this subsection. Such procedures shall
include the description and certifications that an APIC must
include in all requests for guarantee action, and the
environmental certification applicable to initial expenditures
for a project or activity.
(e) Antipirating.--Notwithstanding any other provision of
law, an APIC may not use any private equity capital required to
be contributed under this title, or the proceeds from the sale
of any qualified debenture under this title, to make an
investment, as determined by the Secretary, to assist directly
in the relocation of any industrial or commercial plant,
facility, or operation, from 1 area to another area, if the
relocation is likely to result in a significant loss of
employment in the labor market area from which the relocation
occurs.
(f) Exclusion of APIC From Definition of Debtor Under
Bankruptcy Provisions.--Section 109(b)(2) of title 11, United
States Code, is amended by inserting before ``credit union''
the following: ``America's Private Investment Company licensed
under the America's Private Investment Companies Act,''.
SEC. 307. CREDIT ENHANCEMENT BY THE FEDERAL GOVERNMENT.
(a) Issuance and Guarantee of Qualified Debentures.--
(1) Authority.--To the extent consistent with the
Federal Credit Reform Act of 1990, the Secretary is
authorized to make commitments to guarantee and
guarantee the timely payment of all principal and
interest as scheduled on qualified debentures issued by
APICs. Such commitments and guarantees may only be made
in accordance with the terms and conditions established
under paragraph (2).
(2) Terms and conditions.--The Secretary shall
establish such terms and conditions as the Secretary
determines to be appropriate for commitments and
guarantees under this subsection, including terms and
conditions relating to amounts, expiration, number,
priorities of repayment, security, collateral,
amortization, payment of interest (including the timing
thereof), and fees and charges. The terms and
conditions applicable to any particular commitment or
guarantee may be established in documents that the
Secretary approves for such commitment or guarantee.
(3) Seniority.--Notwithstanding any other provision
of Federal law or any law or the constitution of any
State, qualified debentures guaranteed under this
subsection by the Secretary shall be senior to any
other debt obligation, equity contribution or earnings,
or the distribution of dividends, interest, or other
amounts, of an APIC.
(b) Issuance of Trust Certificates.--The Secretary, or an
agent or entity selected by the Secretary, is authorized to
issue trust certificates representing ownership of all or a
fractional part of guaranteed qualified debentures issued by
APICs and held in trust.
(c) Guarantee of Trust Certificates.--
(1) In general.--The Secretary is authorized, upon
such terms and conditions as the Secretary determines
to be appropriate, to guarantee the timely payment of
the principal of and interest on trust certificates
issued by the Secretary, or an agent or other entity,
for purposes of this section. Such guarantee shall be
limited to the extent of principal and interest on the
guaranteed qualified debentures which compose the
trust.
(2) Substitution option.--The Secretary shall have
the option to replace in the corpus of the trust any
prepaid or defaulted qualified debenture with a
debenture, another full faith and credit instrument, or
any obligations of the United States, that may
reasonably substitute for such prepaid or defaulted
qualified debenture.
(3) Proportionate reduction option.--In the event
that the Secretary elects not to exercise the option
under paragraph (2), and a qualified debenture in such
trust is prepaid, or in the event of default of a
qualified debenture, the guarantee of timely payment of
principal and interest on the trust certificate shall
be reduced in proportion to the amount of principal and
interest that such prepaid qualified debenture
represents in the trust. Interest on prepaid or
defaulted qualified debentures shall accrue and be
guaranteed by the Secretary only through the date of
payment of the guarantee. During the term of a trust
certificate, it may be called for redemption due to
prepayment or default of all qualified debentures that
are in the corpus of the trust.
(d) Full Faith and Credit Backing of Guarantees.--The full
faith and credit of the United States is pledged to the timely
payment of all amounts which may be required to be paid under
any guarantee by the Secretary pursuant to this section.
(e) Subrogation and Liens.--
(1) Subrogation.--In the event the Secretary pays a
claim under a guarantee issued under this section, the
Secretary shall be subrogated fully to the rights
satisfied by such payment.
(2) Priority of liens.--No State or local law, and no
Federal law, shall preclude or limit the exercise by the
Secretary of its ownership rights in the debentures in
the corpus of a trust under this section.
(f) Registration.--
(1) In general.--The Secretary shall provide for a
central registration of all trust certificates issued
pursuant to this section.
(2) Agents.--The Secretary may contract with an agent
or agents to carry out on behalf of the Secretary the
pooling and the central registration functions of this
section notwithstanding any other provision of law,
including maintenance on behalf of and under the
direction of the Secretary, such commercial bank
accounts or investments in obligations of the United
States as may be necessary to facilitate trusts backed
by qualified debentures guaranteed under this title and
the issuance of trust certificates to facilitate
formation of the corpus of the trusts. The Secretary
may require such agent or agents to provide a fidelity
bond or insurance in such amounts as the Secretary
determines to be necessary to protect the interests of
the Government.
(3) Form.--Book-entry or other electronic forms of
registration for trust certificates under this title
are authorized.
(g) Timing of Issuance of Guarantees of Qualified Debentures
and Trust Certificates.--The Secretary may, from time to time
in the Secretary's discretion, exercise the authority to issue
guarantees of qualified debentures under this title or trust
certificates under this title.
SEC. 308. APIC REQUESTS FOR GUARANTEE ACTIONS.
(a) In General.--The Secretary may issue a guarantee under
this title for a qualified debenture that an APIC intends to
issue only pursuant to a request to the Secretary by the APIC
for such guarantee that is made in accordance with regulations
governing the content and procedures for such requests, that
the Secretary shall prescribe. Such regulations shall provide
that each such request shall include--
(1) a description of the manner in which the APIC
intends to use the proceeds from the qualified
debenture;
(2) a certification by the APIC that the APIC is in
substantial compliance with--
(A) this title and other applicable laws,
including any requirements established under
this title by the Secretary;
(B) all terms and conditions of its license,
any cease-and-desist order issued under section
310, and of any penalty or condition that may
have arisen from examination or monitoring by
the Secretary or otherwise, including the
satisfaction of any financial audit exception
that may have been outstanding; and
(C) all requirements relating to the
allocation and use of New Markets Tax Credits,
to the extent such credits are established
under Federal law; and
(3) any other information or certification that the
Secretary considers appropriate.
(b) Requests for Guarantee of Qualified Debentures That
Include Funding for Initial Expenditure for a Project or
Activity.--In addition to the description and certification
that an APIC is required to supply in all requests for
guarantee action under subsection (a), in the case of an APIC's
request for a guarantee that includes a qualified debenture,
the proceeds of which the APIC expects to be used as its
initial expenditure for a project or activity in which the APIC
intends to invest, and the expenditure for which would require
an environmental assessment under the National Environmental
Policy Act of 1969 and other related laws that further the
purposes of such Act, such request for guarantee action shall
include evidence satisfactory to the Secretary of the
certification of the completion of environmental review of the
project or activity required of the cognizant State or local
government under subsection (c). If the environmental review
responsibility for the project or activity has not been assumed
by a State or local government under subsection (c), then the
Secretary shall be responsible for carrying out the applicable
responsibilities under the National Environmental Policy Act of
1969 and other provisions of law that further the purposes of
such Act that relate to the project or activity, and the
Secretary shall execute such responsibilities before acting on
the APIC's request for the guarantee that is covered by this
subsection.
(c) Responsibility for Environmental Reviews.--
(1) Execution of responsibility by the secretary.--
This subsection shall apply to guarantees by the
Secretary of qualified debentures under this title, the
proceeds of which would be used in connection with
qualified low-income community investments of APICs
under this title.
(2) Assumption of responsibility by cognizant unit of
general government.--
(A) Guarantee of qualified debentures.--In
order to assure that the policies of the
National Environmental Policy Act of 1969 and
other provisions of law that further the
purposes of such Act (as specified in
regulations issued by the Secretary) are most
effectively implemented in connection with the
expenditure of funds under this title, and to
assure to the public undiminished protection of
the environment, the Secretary may, under such
regulations, in lieu of the environmental
protection procedures otherwise applicable,
provide for the guarantee of qualified
debentures, any part of the proceeds of which
are to fund particular qualified low-income
community investments of APICs under this
title, if a State or unit of general local
government, as designated by the Secretary in
accordance with regulations issued by the
Secretary, assumes all of the responsibilities
for environmental review, decisionmaking, and
action pursuant to the National Environmental
Policy Act of 1969 and such other provisions of
law that further such Act as the regulations of
the Secretary specify, that would otherwise
apply to the Secretary were the Secretary to
undertake the funding of such investments as a
Federal action.
(B) Implementation.--The Secretary shall
issue regulations to carry out this subsection
only after consultation with the Council on
Environmental Quality. Such regulations shall--
(i) specify any other provisions of
law which further the purposes of the
National Environmental Policy Act of
1969 and to which the assumption of
responsibility as provided in this
subsection applies;
(ii) provide eligibility criteria and
procedures for the designation of a
State or unit of general local
government to assume all of the
responsibilities in this subsection;
(iii) specify the purposes for which
funds may be committed without regard
to the procedure established under
paragraph (3);
(iv) provide for monitoring of the
performance of environmental reviews
under this subsection;
(v) in the discretion of the
Secretary, provide for the provision or
facilitation of training for such
performance; and
(vi) subject to the discretion of the
Secretary, provide for suspension or
termination by the Secretary of the
assumption under subparagraph (A).
(C) Responsibilities of states and units of
general local government.--The Secretary's duty
under subparagraph (B) shall not be construed
to limit any responsibility assumed by a State
or unit of general local government with
respect to any particular request for guarantee
under subparagraph (A), or the use of funds for
a qualified investment.
(3) Procedure.--Subject to compliance by the APIC
with the requirements of this title, the Secretary
shall approve the request for guarantee of a qualified
debenture, any part of the proceeds of which is to fund
particular qualified low-income community investments
of an APIC under this title, that is subject to the
procedures authorized by this subsection only if, not
less than 15 days prior to such approval and prior to
any commitment of funds to such investment (except for
such purposes specified in the regulations issued under
paragraph (2)(B)), the APIC submits to the Secretary a
request for guarantee of a qualified debenture that is
accompanied by evidence of a certification of the State
or unit of general local government which meets the
requirements of paragraph (4). The approval by the
Secretary of any such certification shall be deemed to
satisfy the Secretary's responsibilities pursuant to
paragraph (1) under the National Environmental Policy Act
of 1969 and such other provisions of law as the regulations
of the Secretary specify insofar as those responsibilities
relate to the guarantees of qualified debentures, any
parts of the proceeds of which are to fund such investments,
which are covered by such certification.
(4) Certification.--A certification under the
procedures authorized by this subsection shall--
(A) be in a form acceptable to the Secretary;
(B) be executed by the chief executive
officer or other officer of the State or unit
of general local government who qualifies under
regulations of the Secretary;
(C) specify that the State or unit of general
local government under this subsection has
fully carried out its responsibilities as
described under paragraph (2); and
(D) specify that the certifying officer--
(i) consents to assume the status of
a responsible Federal official under
the National Environmental Policy Act
of 1969 and each provision of law
specified in regulations issued by the
Secretary insofar as the provisions of
such Act or other such provision of law
apply pursuant to paragraph (2); and
(ii) is authorized and consents on
behalf of the State or unit of general
local government and himself or herself
to accept the jurisdiction of the
Federal courts for the purpose of
enforcement of the responsibilities as
such an official.
SEC. 309. EXAMINATION AND MONITORING OF APICS.
(a) In General.--The Secretary shall, under regulations,
through audits, performance agreements, license conditions, or
otherwise, examine and monitor the operations and activities of
APICs for compliance with sound financial management practices,
and for satisfaction of the program and procedural goals of
this title and other related Acts. The Secretary may undertake
any responsibility under this section in cooperation with an
APIC liaison committee, or any agency that is a member of such
a committee, or other agency.
(b) Monitoring, Updating, and Program Review.--
(1) Reporting and updating.--The Secretary shall
establish such annual or more frequent reporting
requirements for APICs, and such requirements for the
updating of the statement of public purpose goals,
investment strategy (including the benchmarks in such
strategy), and other documents that may have been used
in the license application process under this title, as
the Secretary determines necessary to assist the
Secretary in monitoring the compliance and performance
of APICs.
(2) Annual audits.--The Secretary shall require each
APIC to have an independent audit conducted annually of
the operations of the APIC. The Secretary, in
consultation with the Administrator and the Secretary
of the Treasury, shall establish requirements and
standards for such audits, including requirements that
such audits be conducted in accordance with generally
accepted accounting principles, that the APIC submit
the results of the audit to Secretary, and that specify
the information to be submitted.
(3) Examinations.--The Secretary shall, no less often
than once every 2 years, examine the operations and
portfolio of each APIC licensed under this title for
compliance with sound financial management practices,
and for compliance with this title.
(4) Examination standards.--
(A) Sound financial management practices.--
The Secretary shall examine each APIC to
ensure, as a matter of sound financial
management practices, substantial compliance
with this and other applicable laws, including
Federal executive orders, Department of
Treasury and Office of Management and Budget
guidance, circulars, and application and
licensing requirements on a continuing basis.
The Secretary may, by regulation, establish any
additional standards for sound financial
management practices, including standards that
address solvency and financial exposure.
(B) Performance and other examinations.--The
Secretary shall monitor each APIC's progress in
meeting the goals in the APIC's statement of
public purpose goals, executing the APIC's
investment strategy, and other matters.
(c) Inspector General Responsibility.--In carrying out
monitoring of HUD's responsibilities under this title and for
purposes of ensuring that the program under this title is
operated in accordance with sound financial management
practices, the Inspector General of the Department of Housing
and Urban Development shall consult with the Inspector General
of the Department of the Treasury and the Inspector General of
the Small Business Administration, as appropriate, and may
enter into such agreements and memoranda of understanding as
may be necessary to obtain the cooperation of the Inspectors
General of the Department of the Treasury and the Small
Business Administration in carrying out such function.
(d) Annual Report By Secretary.--The Secretary shall submit a
report to the Congress annually regarding the operations,
activities, financial health, and achievements of the APIC
program under this title. The report shall list each investment
made by an APIC and include a summary of the examinations
conducted under subsection (b)(3), the guarantee actions of
HUD, and any regulatory or policy actions taken by HUD. The
report shall distinguish recently licensed APICs from APICs
that have held licenses for a longer period for purposes of
indicating program activities and performance.
(e) GAO Report.--
(1) Requirement.--Not later than 2 years after the
date of the enactment of this Act, the Comptroller
General of the United States shall submit a report to
the Congress regarding the operation of the program
under this title for licensing and guarantees for
APICs.
(2) Contents.--The report shall include--
(A) an analysis of the operations and
monitoring by HUD of the APIC program under
this title;
(B) the administrative and capacity needs of
HUD required to ensure the integrity of the
program;
(C) the extent and adequacy of any credit
subsidy appropriated for the program; and
(D) the management of financial risk and
liability of the Federal Government under the
program.
SEC. 310. PENALTIES.
(a) Violations Subject to Penalty.--The Secretary may impose
a penalty under this subsection on any APIC or manager of an
APIC that, by any act, practice, or failure to act, engages in
fraud, mismanagement, or noncompliance with this title, the
regulations under this title, or a condition of the APIC's
license under this title. The Secretary shall, by regulation,
identify, by generic description of a role or responsibilities,
any manager of an APIC that is subject to a penalty under this
section.
(b) Penalties Requiring Notice and an Opportunity to
Respond.--If, after notice in writing to an APIC or the manager
of an APIC that the APIC or manager has engaged in any action,
practice, or failure to act that, under subsection (a), is
subject to a penalty, and after an opportunity for the APIC or
manager to respond to the notice, the Secretary determines that
the APIC or manager engaged in such action or failure to act,
the Secretary may, in addition to other penalties imposed--
(1) assess a civil money penalty, except than any
civil money penalty under this subsection shall be in
an amount not exceeding $10,000;
(2) issue an order to cease and desist with respect
to such action, practice, or failure to act of the APIC
or manager;
(3) suspend, or condition the use of, the APIC's
license, including deferring, for the period of the
suspension, any commitment to guarantee any new
qualified debenture of the APIC, except that any
suspension or condition under this paragraph may not
exceed 90 days; and
(4) impose any other penalty that the Secretary
determines to be less burdensome to the APIC than a
penalty under subsection (c).
(c) Penalties Requiring Notice and Hearing.--If, after notice
in writing to an APIC or the manager of an APIC that an APIC or
manager has engaged in any action, practice, or failure to act
that, under subsection (a), is subject to a penalty, and after
an opportunity for administrative hearing, the Secretary
determines that the APIC or manager engaged in such action or
failure to act, the Secretary may--
(1) assess a civil money penalty against the APIC or
a manager in any amount;
(2) require the APIC to divest any interest in an
investment, on such terms and conditions as the
Secretary may impose; or
(3) revoke the APIC's license.
(d) Effective Date of Penalties.--
(1) Prior notice requirement.--Except as provided in
paragraph (2) of this subsection, a penalty under
subsection (b) or (c) shall not be due and payable and
shall not otherwise take effect or be subject to
enforcement by an order of a court, before notice of
the penalty is published in the Federal Register.
(2) Cease-and-desist orders and suspension or
conditioning of license.--In the case of a cease-and-
desist order under subsection (b)(2) or the suspension
or conditioning of an APIC's license under subsection
(b)(3), the following procedures shall apply:
(A) Action without published notice.--The
Secretary may order an APIC or manager to cease
and desist from an action, practice, or failure
to act or may suspend or condition an APIC's
license, for not more than 45 days without
prior publication of notice in the Federal
Register, but such cease-and-desist order or
suspension or conditioning shall take effect
only after the Secretary has issued a written
notice (which may include a writing in
electronic form) of such action to the APIC.
Notwithstanding subsection (b), such written
notice shall be effective without regard to
whether the APIC has been accorded an
opportunity to respond. Upon such notice, such
cease-and-desist order or suspension or
conditioning shall be subject to enforcement by
an order of a court.
(B) Publication of notice of suspension or
conditioning of license.--Upon a suspension or
conditioning of a license taking effect
pursuant to subparagraph (A), the Secretary
shall promptly cause a notice of suspension or
conditioning of such license for a period of
not more than 90 days to be published in the
Federal Register. The Secretary shall provide
the APIC an opportunity to respond to such
notice. For purposes of the determining the
duration of the period of any suspension or
conditioning under this subparagraph, the first
day of such period shall be the day of issuance
of the written notice under this paragraph of
the suspension or conditioning.
(C) Revocation of license.--During the period
of the suspension or conditioning of an APIC's
license, the Secretary may take action under
subsection (c)(3) to revoke the license of the
APIC, in accordance with the procedures
applicable to such subsection. Notwithstanding
any other provision of this section, if the
Secretary takes such action, the Secretary may
extend the suspension or conditioning of the
APIC's license, for one or more periods of not
more than 90 days each, by causing notice of
such action to be published in the Federal
Register--
(i) for the first such extension,
before the expiration of the period
under subparagraph (B); and
(ii) for any subsequent extension,
before the expiration of the preceding
extension period under this
subparagraph.
(D) Term of effectiveness.--A cease-and-desist
order or the suspension or conditioning of an
APIC's license by the Secretary under this
paragraph shall remain in effect in accordance
with the terms of the order, suspension, or
conditioning until final adjudication in any
action undertaken to challenge the order, or
the suspension or conditioning, or the
revocation, of an APIC's license.
SEC. 311. EFFECTIVE DATE.
(a) In General.--Except as provided in subsection (b), this
title shall take effect upon the expiration of the 6-month
period beginning on the date of the enactment of this Act.
(b) Issuance of Regulations and Guidelines.--Any authority
under this title of the Secretary, the Administrator, and the
Secretary of the Treasury to issue regulations, standards,
guidelines, or licensing requirements, and any authority of
such officials to consult or enter into agreements or memoranda
of understanding regarding such issuance, shall take effect on
the date of the enactment of this Act.
SEC. 312. SUNSET.
After the expiration of the 5-year period beginning upon the
date that the Secretary awards the first license for an APIC
under this title--
(1) the Secretary may not license any APIC; and
(2) no amount may be appropriated for the costs (as
such term is defined in section 502 of the Federal
Credit Reform Act of 1990 (2 U.S.C. 661c)) of any
guarantee under this title for any debenture issued by
an APIC.
This section may not be construed to prohibit, limit, or affect
the award, allocation, or use of any budget authority for the
costs of such guarantees that is appropriated before the
expiration of such period.
Explanation of the Legislation
H.R. 2848, the ``New Markets Initiative Act of 1999''
authorizes in Title III (entitled ``America's Private
Investment Companies Act'') the Secretary of Housing and Urban
Development (HUD) to license a number of privately managed,
for-profit investment companies for purposes of making large-
scale, equity and debt investments in low-income urban and
rural areas. Each America's Private Investment Company
(``APIC'') must have a minimum of $25 million in private equity
capital contributed by investors in order to be licensed by
HUD. An APIC would be eligible to issue debentures, guaranteed
by the government, for twice (200%) the amount of its total
equity capital. The contributed equity and amounts raised
through issuance of debentures are to be invested in businesses
operating in low and moderate-income areas. The government-
guaranteed debt would be repaid first.
The legislation provides that APIC licensees are to be
chosen by HUD pursuant to a competition. The number of APICs
licensed at any one time would depend upon the amount of budget
authority available to support the total credit subsidy
provided to the program, but would be limited in the first year
to no more than fifteen. Of those APICs chosen in the first
year, subject to the existence of an approvable application, at
least one shall have as its primary mission objective business
investment in Native American lands.
HUD shall monitor each APIC as to its progress in meeting
its stated public purpose goals. The Secretary may reward well-
performing APICs which exceed their public purpose investment
goals by increasing the credit subsidy allocated to those
APICs, to the extent there is credit subsidy still available.
Such APICs must have been licensed for a minimum of two years.
Any such increases are to be provided based on a competition of
eligible APICs.
The proposed credit subsidy for the program is $36 million
each fiscal year for FY 2000 through FY 2004. HUD estimates
this level will support $1 billion in investments. In addition,
$1 million is authorized for each of these fiscal years (2000-
2004), for administrative expenses in connection with carrying
out the provisions of the legislation.
In addition to monitoring APICs' progress in meeting their
public purpose goals, the Secretary of HUD shall, for purposes
of managing the financial risk of the federal government,
regulate APICs for financial soundness and ensure that each
APIC is structured so as to operate based on sound management
practices. The HUD Secretary shall consult with the Secretary
of the Treasury for purposes of accomplishing these functions.
The legislation requires each APIC to submit an annual
independent audit to the Secretary detailing its investments.
The legislation also requires the HUD Secretary to report
annually to Congress on the status of the APIC program. In
addition, the General Accounting Office is required to report
on the APIC program two years after the date of enactment of
the legislation.
The effective date of the legislation, for licensing and
other operations, is six months after the date of enactment.
Authority to grant licenses shall sunset five years after the
date that the Secretary awards the first license for an APIC
under this Act.
Legislative History
H.R. 2848, the ``New Markets Initiative Act of 1999'', was
introduced by Representatives Watts, Talent, Leach and Baker at
the request of the Administration on September 13, 1999, and
contains the Administration's New Markets Initiative
legislative program. H.R. 2764 was introduced by Ranking Member
LaFalce on August 5, 1999 and contains the APIC portion of the
Administration's legislative proposals. H.R. 2764 is
substantively the same as Title III of H.R. 2848, both of which
fall under the jurisdiction of the Committee.
On November 10, 1999, the Subcommittee on Capital Markets,
Securities, and GSEs held a hearing on capital formation in
underserved areas. The hearing focused on the APIC proposal
embodied in H.R. 2764 and on other ideas for promoting economic
growth in these areas. The Committee held a markup of H.R. 2764
and Title III of H.R. 2848 on April 12, 2000.
During the markup, the Committee approved one amendment, by
unanimous consent, which inserted in lieu the provisions of
H.R. 2764 as marked up and ordered reported on April 12, 2000.
With a quorum present, a motion to adopt H.R. 2848 and
favorably report the bill, as amended, to the House was
approved by voice vote.
Background and Need for Legislation
In an era of unprecedented economic growth and prosperity,
there remain many economically distressed communities, both
rural and urban, where many people have not benefited to any
great degree from the most recent economic expansion enjoyed by
our Nation. In these communities, levels of unemployment,
poverty, and other indicia of social distress, remain
stubbornly high--yet untapped market opportunities exist to
establish and expand businesses and to develop jobs and
community assets.
There is bipartisan consensus in Congress that the federal
government can and should play a role in encouraging
investments in these communities. For several years both
Republicans and Democrats have proposed and supported granting
tax and regulatory relief, including capital gains tax relief
to businesses operating within distressed areas. Many of these
proposals were part of H.R. 815, the ``American Community
Renewal Act,'' introduced by Representatives Jim Talent and
J.C. Watts, which would have designated a number of these areas
as ``renewal communities'' eligible for such benefits. The
House has already passed the tax provisions of H.R. 815, and
this Committee has passed provisions relating to HUD property
disposition within these communities as part of H.R. 1776, the
``American Homeownership and Economic Opportunity Act of
2000.''
The Administration has also proposed a series of programs,
collectively known as the ``New Markets Initiative,'' also
intended to foster economic development in low-income
communities. These proposals include tax credits for businesses
in these areas (``New Markets Tax Credits''), a small business
component (establishing a ``New Markets Venture Capital
Program''), and the formation of a number of companies intended
to make relatively large scale equity and credit investments in
distressed areas--APICs. The FY 2000 VA/HUD Appropriations Act
provided that $20 million in credit subsidy would be available
for use by APICs for Fiscal Year 2000 if the program was
authorized by June 30, 2000. If the program is not authorized
by that date, the funding reverts to the Community Development
Financial Institutions program administered by the Department
of the Treasury.
The APIC portion of the New Markets Initiative falls under
the jurisdiction of this Committee. The proposal is closely
related in concept to the Small Business Investment Companies
(``SBIC'') program currently administered by the Small Business
Administration (SBA), except that the SBIC program is limited
in the size of projects it can serve and that SBICs invest in
ventures only, not real estate. Community development
organizations maintain that the infusion of additional amounts
of equity capital is especially vital for enabling large-scale
investments to occur in distressed areas. Importantly, these
investments would be economically viable as freestanding
business entities, providing a profitable return to investors.
However, because the costs of establishing these businesses in
some of these distressed areas are higher relative to other
areas due to a variety of factors (remediation of environmental
contamination, for example), the return on investors equity is
not as high as demanded by these investors. APICs are intended
to lessen the cost of capital so that these large-scale
investments would be made.
APICs are not intended to fund or subsidize the operations
of businesses, that are not economically viable. On the
contrary, the goal of these entities is to encourage the
establishment of fundamentally sound businesses in certain
locations. Possible uses for APICs' funds include the
establishment of a new facility, such as a call center, data
processing ``back office,'' or factory, by a large company (or
a small company joint venturing with a large one). In addition,
a mid-size manufacturing company seeking to increase production
could use APIC investments for expansion of an existing
facility, the upgrading of equipment or the hiring of new
employees. Other uses could include expansion of the service
area of a mid-size service company, such as a trucking company,
building contractor, or home health care firm; development of a
multi-tenant shopping center; or opening or expanding a large
retail company in a new geographic area. Buyout of a company to
be revitalized in its existing facility, acquisition of the
property of a departing large company, and development of an
incubator or industrial park, or investment in another fund
that invests in businesses locating or expanding in targeted
low-to-moderate income areas are all methods whereby an APIC
could fulfill its public purpose investment role.
By passing this APIC legislation, the hope and expectation
of this Committee is that a bipartisan, comprehensive package
of measures to help revitalize America's distressed urban and
rural communities, which would include the best elements of the
American Community Renewal Act and the New Markets Initiative,
be enacted this year.
Committee Actions Regarding Introduced Legislation
The Committee adopted a Managers' Amendment during the
markup of H.R. 2764, sponsored by Chairman Leach, Mr. Lazio,
Ranking Member LaFalce, and Mr. Kanjorski, which made
substantial changes to the original bill. H.R. 2764, as marked
up by the Committee, was subsequently substituted for Title III
of H.R. 2848, which was then reported by the Committee.
In broad terms, the changes in the Managers' Amendment were
meant to accomplish three major goals. The first of these goals
was to minimize the potential for fraud and abuse and protect
the American taxpayer from unnecessary exposure. Second, the
Committee wanted to ensure that the statutory language clearly
reflected Congressional intent, and provided adequate direction
for the program so that it gives rise to types of investments
in low-income communities that will truly improve the lives of
our citizens. Finally, the Managers' Amendment contained
provisions designed to address concerns with HUD's current
capacity to administer the program, and to ensure HUD's sound
management of the program established by the legislation.
Minimizing the potential for fraud and abuse
The Managers' Amendment adopted by the Committee added
certain defined terms to the legislation found in Section 303
of H.R. 2848, ``Definitions,'' and further defined some
existing terms of the bill. These additions and revisions make
more specific and strengthen the language of the bill. The most
important of these is a new definition for ``private equity
capital''. A central feature of the APIC program is its
reliance on market discipline. APIC investors and managers make
investment decisions based on the ability of a business
ultimately to succeed because the investor's equity is at-risk
first if the business fails. The interests of the investor
therefore coincide, with the interest of the taxpayer. The
legislation as introduced, however, provided that ``equity''
was to be defined through guidelines issued by the HUD
Secretary. The Committee felt that, at a minimum and as a
matter of prudence, the legislation should include a statutory
definition of equity that would prevent an overly expansive
definition from allowing APIC investors to comply with the
letter of the law without truly risking any of their own
capital. In accomplishing this goal, the Committee looked to
existing statutes, such as those governing SBA programs similar
in concept to the APIC program, and worked through the
specifics of the definition with HUD to ensure that it was not
overly restrictive or that it conflicts with guidelines issued
by the Department of the Treasury which would govern tax
credits under the New Markets program.
Additional changes were included in the Managers' Amendment
to enhance the integrity of the program. For example, the
Committee believed it was important to set forth more clearly
in Section 307 of the bill the seniority of the federal
government's position in relation to any other obligation the
APIC may have. A change to require the HUD Secretary to make a
determination, prior to the licensing of any APIC, that the
management of the entity is clearly qualified was also made.
Section 309, ``Examination and Monitoring of APICs'' has been
revised to require that each APIC submit an annual independent
audit detailing its investments to the Secretary. Changes were
also made to Section 309 to require the HUD Secretary to report
annually to Congress on APICs and their investments. Finally,
in Section 310, ``Penalties'', the Committee strengthened the
power and sanctions available to HUD so that the Department can more
effectively avert any undue taxpayer losses.
Clearly stating congressional intent regarding APIC investments
This Committee intends that an APIC licensed under the
provisions of this legislation shall be in the business of
making investments that benefit low-income people and
communities, and that such an entity does not become an example
of ``corporate welfare'' by making investments that would bring
profits to its investors without the requisite social benefits
accruing to distressed areas from these investments. The
Committee is aware of well-intended programs once administered
by HUD, such as the Urban Development Action Grants (UDAG)
program, that spent government funds on projects that could
easily have been financed through private sources, and which
resulted in little or no additional benefit to distressed
areas. The intent of the Committee is that APIC investments be
made in communities where they are truly needed, and not in
areas which technically may be within a low-income community
but where incomes may in reality be much higher. Affluent
sections can coexist within very distressed areas in census
tracts that would meet the definitions for low- and moderate-
income areas eligible for APIC investments. However, a
statutory requirement that HUD define all of these areas
nationwide would have been overly burdensome and impractical in
the Committee's view.
For this reason, language added by the Managers' Amendment
and appearing in Section 305(a)(6), ``Statement of Public
Purpose Goals,'' refers to investments ``that further economic
development objectives by targeting such investments in
businesses that comply with the requirements [of this Act] * *
* in a manner that benefits low-income persons.'' The Committee
intends by addition of this language that APICs channel their
activities toward truly meritorious investments without
precisely delineating within individual census tracts where the
businesses these APICs invest in must be located. The Committee
does not intend that APICs meet compliance requirements under
this legislation by primarily making investments in subareas of
an otherwise qualifying low-income community that have resident
incomes disproportionately higher, or that show patterns of
displacement and more rapidly increasing property values, than
those of the larger qualifying area. By the same token, in
determining compliance with the ``qualified active business''
test for APIC investments, the term ``low-income community''
may be interpreted to include specific locations in an area
with a very high population density that are located
immediately adjacent to, but not within, a low-income
community. Investments that qualify under this interpretation
must primarily benefit low-income persons within the qualifying
adjacent low-income community.
The Committee notes that under Section 306(b),
``Substantially all investments that an APIC makes shall be
qualified low-income investments * * *'' Rather than
establishing a specific percentage in the statute, the intent
of the Committee is that the term ``substantially all'' in this
context be read in accordance with and reflect existing
Treasury guidelines and Internal Revenue Service regulations
governing investments in low- and moderate-income areas, such
as those existing for investments made in empowerment zones,
for example. Similarly, under Section 142 of the IRS Code, 95%
of proceeds raised under the provision must be used for the
purposes specified. The intent of the Committee is that
``substantially all'' in the context of APIC investments be
read to mean this approximately 95% level that currently
permeates the world of tax-exempt financing.
In addition to providing additional guidance and
Congressional direction as to where APIC investments should be
made, the Committee was concerned with the legislative language
governing selection of APICs. In the Committee's view, the
selection process for licensing APICs as set forth in the
original legislation did not provide enough direction to the
Secretary, either as to the types of entities that should be
chosen or the criteria that should be used in making these
determinations.
Regarding the types of entities that should be chosen as
APICs, the Committee believed further specificity was required
in the legislation to set forth examples of the underlying
public purpose goals and nature of each APIC. Specifically, in
Section 305, ``Selection of APICs'', the Committee believed a
further delineation of the types of goals that licensed APICs
can be expected to pursue was appropriate. Therefore, Section
305(A)(6) now includes references to the following: creating
jobs within two years of making an investment; enhancing
economic competition, including the advancement of technology;
promoting rural development; achieving certain environmental
goals; and benefiting small business. By setting forth more
clearly in statute the types of goals to be pursued and the
activities in which these APICs are to be engaged, the
Committee intends to provide additional guidance to the
Secretary as to the types of APICs which should be considered
favorably in the selection process.
In terms of specific selection criteria, the Committee
believes that the criteria as set forth in the original
legislation served as minimum eligibility requirements rather
than as true measures for selecting among various applicants.
For example, the Secretary under the original legislation could
determine whether an applicant had qualified management prior
to licensing the applicant as an APIC. The Committee, however,
intends that the statute reflect the Secretary's ability to
make qualitative distinctions regarding management, allowing
licensing of one APIC over another based on the existence of an
exceptional management record and proven expertise in making
investments benefiting low-income communities. In other words,
the Committee believes the Secretary should choose among the
applicants those APICs that meet not just the minimum statutory
requirements, but whose investments are more likely to result
in the most benefit to low- and moderate-income communities.
With that in mind, the Managers' Amendment added language in
Section 305(d) establishing selection criteria the Secretary
shall use to determine which APICs are to be licensed. An APIC
applicant will be chosen for licensing based on the extent such
applicant is expected to achieve the goals of the legislation
by meeting or exceeding the selection criteria established
under this subsection, which may include additional criteria
established by the Secretary.
The Committee intends that rural and small communities not
be unfairly or arbitrarily disadvantaged in the selection
process. For this reason, Section 305(c)(2) was added by the
Managers' Amendment to provide that when selecting APICs for
licensing, the HUD Secretary to the extent practicable ensure
geographical diversity and a mix of APICs so that both rural
and urban communities may be served by this program. The
Committee notes that in addition to large cities, there are
also economically distressed areas in mid-sized and smaller
metropolitan areas and non-metropolitan areas. Consideration of
the needs of these communities should not be absent from APIC
selection process. The intent of the Committee is that the Secretary
strive for balance, fairness and diversity in the selection process.
In adding legislative language regarding the selection
process, the Committee attempted to avoid imposing requirements
as to exactly how many of each type of APIC should be chosen in
the selection process. In the Committee's view, imposing
numerical requirements would not be the proper approach because
neither Congress nor the Administration can know in advance
exactly what entities will apply to be licensed. The Committee
made one important exception to this approach regarding the
selection process for Native Americans. By definition, most of
the lands on reservations would qualify for investments by
APICs, as would rural and other low-income communities.
However, the Committee was concerned that the added complexity
of investing on Native American lands, including dealing with
the Bureau of Indian Affairs, unfamiliarity with the varied
tribal laws, and what in too many cases amounts to a cultural
discomfort on the part of much of the finance community in
doing business on Indian lands, were factors making business
investment in Native Americans lands qualitatively different,
and much more difficult, than investments in other low-income
rural or urban communities. The Committee was concerned that
the available applicants would not include entities with the
capacity, or which viewed as their mission, to invest
specifically on Native American lands. For this reason, the
Managers' Amendment included a requirement that of those APICs
selected in the first year, one would be a Native American
Private Investment Company. The Committee believes that this
would encourage application by would-be APICs that would serve
Native Americans. Any such applicant would still need to meet
all of the requirements for licensing contained in this bill.
Native Americans should not be unintentionally excluded from
benefiting under this program.
The Committee notes that under Section 305(b)(1) of the
legislation, an APIC applicant must be a for-profit entity in
order to be licensed as an APIC. The Committee notes that this
is not intended to exclude for-profit entities controlled by
non-profit organizations, such as through a subsidiary,
partnership, or limited liability structure.
Regarding the application of federal securities laws to
APICs, and for that matter to New Market Venture Capital
companies (``NVCCs'') created under other provisions of the
Administration's New Markets Initiative, the Committee notes
that nothing in this legislation alters or affects any Federal
securities laws or regulations promulgated under the Federal
securities laws. Further, federal securities laws continue to
apply to NVCCs and APICs created under this legislation, to any
securities issued by or on behalf of NVCCs or APICs, and to
their distribution. NVCCs and APICs may seek to qualify for
certain exclusions contained in the Investment Company Act.
Notably, in order for NVCCs and APICs to qualify for the
exclusion from regulation under the Investment Company Act
provided by Section 3(c)(7) of the Act, they must make only a
private offering of their securities and each of their
investors must meet the definition of ``qualified purchaser''
in Section 2(a)(51) of the Investment Company Act of 1940, 15
U.S.C. 80a-2(a) (51). The Committee expects that private
offerings of NVCC and APIC securities (including those relying
on the exclusion from regulation under the Act provided by
Section 3(c)(1)) generally will entail an evaluation of whether
the NVCC or APIC securities are suitable investments for the
proposed investors.
Ensuring HUD's capacity to administer the APIC program
The Committee was concerned with HUD's current capacity to
administer the proposed APIC program. While the Committee notes
that the Secretary has made great efforts to improve the
management of HUD's programs, there are still many areas which
require attention. Adding another program to those already
administered by HUD, and especially one as complex in terms of
the required financial expertise as the program envisioned by
this legislation, called for careful, bipartisan consideration.
An alternative approach, which was indeed debated during the
Committee's markup of the legislation, was for the program to
be administered by the Department of the Treasury rather than
HUD. A crucial reason for having HUD administer the program,
however, was the Department's experience in dealing with
distressed areas and with complex, large-scale community
development investments, in particular. In order to address the
Committee's concerns regarding capacity and taxpayer
safeguards, key changes to the original legislation were made
by the Managers' Amendment regarding program administration.
The Committee's goal was to ensure that HUD had the
expertise and the time available to structure and administer
this program properly, and that the program not be too complex
to administer in the beginning stages so that HUD would be able
to develop capacity. Therefore, the legislation as revised by
the Committeee, now imposes a first year limit on the number of
APICs of 15, with no one APIC receiving more than 20% of the
available credit subsidy. This accomplishes two things--it
keeps the number of APICs at a manageable level in the first
year, to give HUD experience in working with this program, and
it diversifies the government's risk by ensuring that no one
APIC is too large. In addition, the Committee included a
provision setting the effective date of the legislation at six
months after enactment, so that HUD would have the time to
develop adequate procedures in a deliberative fashion, working
with the private sector as well as nonprofit and government
entities important to community economic development.
The Committee also strengthened financial soundness
provisions by setting forth the HUD Secretary's duty to
cooperate with Treasury in determining what procedures to
follow to ensure competent management of APICs. Because the
Committee wishes to approach conservatively those matters
involving the federal government's financial exposure,
particularly at the program's inception, the program feature
allowing an increase in leverage for a class of APICs from 200%
to 300% was also deleted.
In order to ensure close oversight of the program, the
Committee added a requirement for an Annual Report from the
Secretary to Congress on the achievements of APICs, which would
provide information on all APIC investments, the level of
financial exposure, and other such matters. In addition, the
legislation now requires a report by the General Accounting
Office on the APIC program two years after enactment of the
program. Finally, language granting the HUD Inspector General
the authority to work with the Small Business Administration
Inspector General in monitoring the APIC program at HUD was
added in order to ensure that monitoring experience of these
types of programs was available. The many changes made by the
Committee to address the concerns with HUD's management of the
program should give some assurance that this program will be
structured and administered in a proper fashion, with the
interests and protection of the taxpayer as priorities.
Committee Consideration and Votes (Rule XI, Clause 2(l)(2)(B)
The Committee met in open session to mark up H.R. 2848,
``New Markets Initiative Act of 1999'' on April 12, 2000. The
Committee considered H.R. 2848, as introduced, as the text for
purposes of amendments.
During the markup, the Committee approved one amendment, by
unanimous consent, which inserted in lieu thereof the
provisions of H.R. 2764 as amended and ordered reported by the
Committee on April 12, 2000. With a quorum present, a motion to
adopt H.R. 2848 and favorably report the bill, as amended, to
the House was approved by voice vote.
Committee Oversight Findings
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings and recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of
the Rules of the House of Representatives.
Constitutional Authority
In compliance with clause 2(l)(4) of rule XI of the Rules
of the House of Representatives, the constitutional authority
for Congress to enact this legislation is derived from the
general welfare clause (Article I, Sec. 8).
New Budget Authority and Tax Expenditures
Clause 2(l)(3)(B) of rule XI of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority for increased tax
expenditures.
Congressional Budget Office Costs Estimate and Unfunded Mandate
Analysis
The cost estimate pursuant to clause 3(c)(3) of rule XIII
of the Rules of the House of Representatives and section 402 of
the Congressional Budget Act of 1974 is attached herewith:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 26, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2848, the New
Markets Initiative Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Hadley
and Lanette Keith (for federal costs), and Victoria Heid Hall
(for the state and local impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 2848--New Markets Initiative Act of 1999
Summary: H.R. 2848 would provide credit assistance and tax
credits in exchange for private investments in certain
communities. The bill would authorize appropriations for two
federal loan guarantee programs: the America's Private
Investment Companies (APIC) program within the Department of
Housing and Urban Development (HUD) and a New Markets Venture
Capital (NMVC) program within the Small Business Administration
(SBA). In both cases, the federal government would guarantee
loans made to venture-capital corporations that agree to
operate in low-income or moderate-income communities. The NMVC
investments would be targeted to small businesses and start-up
companies. Other provisions would modify SBA's general business
program by reducing fees for certain loan guarantees and
increasing the limit on the portion of a loan that can be
guaranteed by the government. Finally, the bill would establish
a new tax credit for taxpayers who invest in qualified
community development entities.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing H.R. 2848 would cost $1.4 billion
over the 2000-2005 period, including revenue losses from the
new tax credits. The Joint Committee on Taxation (JCT)
estimates that the revenue loss associated with this
legislation would be $1,061 million over the 2000-2005 period
and $1.781 million over the 2000-2010 period. CBO estimates
that costs to be paid from appropriated funds would total $338
million from 2000 through 2005. We also estimate that
provisions modifying the terms of existing loans would increase
direct spending by $45 million in 2000. Because H.R. 2848 would
affect direct spending and receipts, pay-as-you-go procedures
would apply.
H.R. 2848 contains intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that
the cost of the mandates would not be significant. The
legislation does not contain any new private-sector mandates.
Estiamted cost to the Federal Government: The estimated
budgetary impact of H.R. 2848 is shown in the following table.
The costs of this legislation fall within budget functions 370
(commerce and housing credit) and 450 (community development).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Authorization Level....................................... 17 86 85 78 79 43
Estimated Outlays......................................... 1 42 68 75 78 74
CHANGES IN DIRECT SPENDING
Estiamted Budget Authority................................ 45 0 0 0 0 0
Estimated Outlays......................................... 45 0 0 0 0 0
CHANGES IN REVENUES
Estimated Revenues........................................ -5 -30 -119 -234 -322 -351
----------------------------------------------------------------------------------------------------------------
Basis of estimate: For this estimate, CBO assumes H.R. 2848
will be enacted in fiscal year 2000 and that the amounts
authorized will be appropriated for each year. CBO expects
outlays to follow trends for similar programs.
The majority of the discretionary costs associated with
this bill would result from implementing the APIC and NMVC
programs. For each year over the 2000-2004 period, the bill
would authorize the appropriation of $36 million to cover the
subsidy costs of the APIC program and $1 million annually for
related administrative expenses. The NMVC program would be
authorized for six years (fiscal years 2000 through 2005), with
appropriations limited to $30 million for technical assistance
and such sums as necessary to subsidize and administer up to
$100 million in NMVC loan guarantees. H.R. 2848 also would
increase the cost of guaranteeing new business loans by an
average of $35 million a year, assuming the program is extended
beyond 2000. The estimated increase in direct spending reflects
the cost of modifying the fees paid on outstanding general
business loan guarantees made by SBA. Finally, JCT estimates
that the new tax credit for qualified community
developmententities would reduce revenues by $1,061 million over the
2000-2005 period and $1.781 million over the 2000-2010 period.
Spending subject to appropriation
The majority of the discretionary costs associated with
H.R. 2848 would be for credit subsidies. The Federal Credit
Reform Act of 1990 requires appropriation of the subsidy costs
and administrative costs for operating credit programs. The
subsidy cost is the estimated long-term cost to the government
of a direct loan or loan guarantee, calculated on a net present
value basis, excluding administrative costs. In fiscal year
2000, the Congress appropriated a total of $35 million for
subsidy and other costs related to the proposed APIC and NMVC
programs.
America's Private Investment Companies. CBO estimates that
H.R. 2848 would authorize an additional $17 million for APIC
activities in fiscal year 2000 and $38 million a year over the
2001-2004 period. (The current appropriation for 2000 is $20
million.) This annual sum includes the $36 million specified in
the bill for subsidy costs and an estimated $2 million for
administrative expenses. While the bill would authorize the
appropriation of $1 million annually over the 2000-2004 period
for administrative costs, CBO estimates this amount would not
be sufficient to administer these loan guarantees after fiscal
year 2000. Based on the operation of similar SBA programs, we
estimate that about $2 million annually would be needed to
administer the APIC loan guarantees over the 10-year term of
the guarantees.
New Markets Venture Capital program. CBO estimates that
H.R. 2848 would authorize the appropriation of an additional
$40 million over the 2001-2005 period for the NMVC program.
This cost reflects the difference between the total amounts
authorized in the bill and the $15 million appropriated for the
current year. Specifically, H.R. 2848 would authorize the
appropriation of up to $30 million over the 2000-2005 period
for technical assistance, which is $21 million more than has
been appropriated for fiscal year 2000. Likewise, CBO estimates
that it would cost about $20 million to subsidize $100 million
in NMVC loan guarantees, which is $14 million more than was
appropriated for NMVC subsidies in fiscal year 2000. Finally,
experience with other SBA programs suggests that it would cost
an average of about $1 million a year to administer the
program, net of any examination fees paid by borrowers.
CBO estimates, that the subsidy cost of the NMVC program
would be about 20 percent of the amount guaranteed. We based
this estimate on defaults and recoveries for similar SBA
programs and on information regarding the likely terms and
conditions of the guarantees. Experience with other programs
suggests that NMVC borrowers would default on about 45 percent
of guaranteed loans. In the event of a default, CBO expects
that the agency would liquidate the NMVC investments and that
recoveries would average about 50 percent of the loan balance
three years after default. Information from the Office of
Management and Budget (OMB) suggests that SBA would allow
borrowers a grace period of five years during which they would
not pay interest; instead, such interest would be added to the
outstanding debt. Because H.R. 2848 would authorize SBA to
guarantee up to $100 million of loans, we estimate that this
program would require the appropriation of about $20 million
for credit subsidies.
SBA's general business loan guarantee program. CBO
estimates that provisions modifying certain aspects of SBA's
existing general business program would increase the subsidy
rate for those guaranteed loans by between 0.25 percent and 0.5
percent. Under H.R. 2848, certain borrowers would pay a smaller
up-front fee for guaranteed loans (reduced from 3 percent to 2
percent); some would pay lower annual fees on guaranteed loans
(reduced from 0.5 percent to 0.3 percent); and some would be
eligible to have the federal government guarantee a higher
portion of the loan (up to 80 percent from the current limit of
75 percent).
Assuming that the general business program is extended
beyond 2000 at the $10 billion loan level specified in the
fiscal year 2000 appropriation act, CBO estimates that those
modifications would require the appropriation of an additional
$35 million a year. The modifications also would affect the
subsidy cost of any loans guaranteed in the months remaining in
fiscal year 2000 after enactment of the bill, but we assume
that any increase in the subsidy cost of new commitments in
fiscal year 2000 would lead to a reduction in the volume of
loan obligations rather than additional appropriations.
Direct spending
In addition to its effects on future discretionary
spending, CBO estimates that reducing the annual fee on loans
guaranteed under SBA's general business program would increase
direct spending by a total of $45 million in 2000. H.R. 2848
would reduce the annual fee on guaranteed loans from 0.5
percent to 0.3 percent of the outstanding balance on loans that
were originally for $150,000 or less. This change would modify
the expected cost of the guarantees SBA has provided for
existing loans under the general business program. According to
OMB's Circular A-11, Preparation and Submission of Budget
Estimates, ``If the modification is mandated in legislation,
the legislation itself provides the budget authority to incur
the subsidy cost obligation (whether explicitly stated or
not).'' CBO estimates that this provision would increase the
subsidy rate by an average of about 1 percent on $4.5 billion
of outstanding loans at the end of 2000.
Revenues
H.R. 2848 would establish a new tax credit for up to 6
percent of the amount taxpayers invest in a qualified community
development entity. The Joint Committee on Taxation expects
that these provisions would result in an increase in tax-exempt
financing and a subsequent loss of federal revenue. JCT
estimates that the revenue loss would be $1,061 million over
the 2000-2005 period and $1,781 million over the 2000-2010
period.
This bill also would provide for civil penalties against
APICs that fail to comply with regulations that would be
established under H.R. 2848. Payments of these civil penalties
would be recorded as governmental receipts to the Treasury. CBO
expects that any increase in penalty collections as a result of
this provision would not be significant.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in outlays and governmental receipts that are subject
to pay-as-you-go procedures are shown in the following table.
For the purposes of enforcing pay-as-you-go procedures, only
the effects in the current year, the budget year, and the
succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year in millions of dollars--
--------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays......................................... 45 0 0 0 0 0 0 0 0 0 0
Changes in receipts........................................ -5 -30 -119 -234 -322 -351 -331 -240 -122 -31 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated impact on state, local, and tribal governments:
Title I would preempt state laws by prohibiting states from
limiting SBA's ability to exercise its ownership rights in
certain debentures issued by a New Markets Venture Capital
company. Title III would preempt state laws with regard to the
seniority of debt issued by APICs. Such preemptions of state
law are intergovernmental mandates as defined in UMRA, but CBO
estimates that these mandates would impose no significant costs
on state, local, or tribal governments.
Title III also provides that state and local governments
may choose to assume responsibility for environmental reviews
needed for certain projects and activities financed by an APIC.
Any costs to carry out such environmental reviews would be
incurred voluntarily.
Estimated impact on the private sector: H.R. 2848 contains
no new private-sector mandates as defined in UMRA.
Estimate prepared by: Federal Costs: Mark Hadley and
Lanette Keith; Impact on State, Local, and Tribal Governments:
Victoria Heid Hall; Impact on the Private Sector: Patrice
Gordon.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.
Congressional Budget Office Costs Estimate
The cost estimate pursuant to Clause 2(l)(3)(C) of rule XI,
of the Rules of the House of Representatives and Section 403 of
the Congressional Budget Act of 1974 has been requested, but
had not been prepared as of the filing of Part I of this
report. The estimate will be included in Part II of this report
to be filed at a future date.
Advisory Committee Statement
No advisory committees within the meaning of Section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Congressional Accountability Act
The reporting requirement under Section 102(b)(3) of the
Congressional Accountability Act (P.L. 104-1) is inapplicable
because this legislation does not relate to terms and
conditions of employment or access to public services or
accommodations.
Section-By-Section of Committee Amendment
Section 301. Short title
The act may be cited as the America's Private Investment
Companies Act.
Section 302. Findings and purpose
Section 302 finds that: (1) people living in distressed
areas, both urban and rural, characterized by high levels of
joblessness, poverty, and low incomes, have not adequately
benefited from economic expansion experienced by the Nation as
a whole; (2) the costs of joblessness and poverty to our Nation
are very high; and (3) there are significant untapped markets
in our Nation, and many of these are in areas that are
underserved by institutions that can make equity and credit
investments.
Purposes of this title are to: (1) license private for-
profit community development entities that will focus on making
equity and credit investments for large-scale business
developments that benefit low-income communities; (2) provide
credit enhancement for those entities for use in low-income
communities; and (3) provide a vehicle under which the economic
and social returns on financial investments made pursuant to
this Act may be available both to the investors in these
entities and to the residents of the low-income communities.
Section 303. Definitions
Defines terms used in legislation, including
``Administrator'', ``agency'', ``APIC'', ``community
development entity'', ``HUD'', ``license'', ``low-income
community'', ``low-income person'', ``private equity capital'',
``qualified active business'', ``qualified debenture'',
``qualified low-income community investment'', and
``Secretary''.
Section 304. Authorization
Authorizes the Secretary of HUD to license and regulate
America's Private Investment Companies (``APICs''). The number
of APICs licensed at any one time would depend upon the amount
of budget authority available to support the total credit
subsidy provided to the APICs, subject to a first year
limitation of 15 APICs. After the initial appropriation, the
Secretary is authorized to license and allocate credit subsidy
to additional APICs, or, as provided, increase the credit
subsidy allocated to an APIC as reward for high performance.
Any such credit subsidy increase shall be provided only to an
APIC that has been licensed for not less than two years, and
pursuant to a competition among eligible APICs. The Secretary
shall establish criteria for selecting among APICs eligible for
a credit subsidy increase, which criteria shall include such
factors as the financial soundness and performance of the APICs
as measured by achievement of the public performance goals
required under the Act.
Requires that the HUD Secretary consult with the
Administrator of the Small Business Administration and the
Secretary of the Treasury in establishing regulations,
requirements or procedures regarding the financial soundness
and management of APICs. Authorizes budget authority of $36
million in credit subsidy for Fiscal Year 2000 to guarantee an
estimated $1 billion in debt. An additional $36 million would
be authorized to be appropriated for each of Fiscal Years 2001-
2003, with an additional $1 million authorized for the
administrative expenses incurred in carrying out the Act for FY
2000-FY 2003. Requires APICs to be regulated by HUD in
cooperation with SBA and the Department of the Treasury. The
Secretary is authorized to impose fees and charges for the
operation of APICs.
Section 305. Selection of APICs
Establishes procedures for selection of APICs, sets forth
minimum eligibility requirements, and sets forth selection
criteria to be used by the Secretary in selecting among
applicants for licensing as APICs. An entity applying for an
APIC license must: (1) be a private, for-profit entity that
qualifies as a ``community development entity'' as defined in
the legislation; (2) have a minimum private equity capital of
$25 million; (3) have qualified financial management, with
experience in direct equity investment and portfolio management
and expertise in community development settings, as determined
by the Secretary; (4) be structured to preclude financial
conflict of interests between the APIC and its managers or
investors; (5) submit an investment strategy with evaluation
benchmarks; (6) submit a statement of public purpose goals,
examples of which are delineated in the statute; (7) agree to
comply with other federal requirements imposed from time to
time (i.e., Executive Orders or OMB circulars); and (8) satisfy
any other application criteria that the Secretary may impose by
regulation or notice.
The Secretary shall select eligible entities for licensing
based on a competition. Selections shall be made on the basis
of the extent to which the entity is expected to meet or exceed
the selection criteria set forth in the legislation. Selection
criteria include factors such as the APICs capacity, investment
strategy, public purpose goals, and other criteria the
Secretary may establish to carry out the purposes of this Act.
To the extent practicable, in selecting APICs the Secretary
shallstrive for geographic diversity and a diversity of the
types of APICs chosen so that both rural and urban communities are
served by the program. Of those APICs selected in the first year, at
least one must be devoted primarily to making investments on Native
American lands.
Section 306. Operations of APICs
Sets forth requirements for the operation of APICs.
Requires that substantially all APIC investments that use
government-guaranteed proceeds be in qualified low- to
moderate-income (LMI) areas, and prohibits an APIC from having
an investment in any one business that would amount to more
than 35% of the APIC's equity capital plus the limit of
outstanding debt allowable (the leverage limit) under Section
306(c)(2) of this title.
Provides that an APIC may issue debentures guaranteed by
the Secretary pursuant to the provisions of the Act. The total
amount of debentures that an APIC may have outstanding at any
one time shall not exceed 200% of the equity capital of the
APIC. An APIC may not have more than $300 million in face value
of debentures issued at any one time. Sets forth requirements
for repayment by APIC of debt.
Includes an ``anti-pirating'' provision prohibiting APICs
from using funds to make an investment that would assist
directly in the relocation of any industrial or commercial
plant, facility or operation from one area to another if such
relocation would result in a significant loss of employment in
the labor area from which the relocation occurs. Also provides
for reuse of debenture proceeds of sale of Treasury securities
and excludes APIC from the definition of debtor under
bankruptcy provisions.
Section 307. Credit enhancement by the Federal Government
Authorizes HUD to make commitments to guarantee the timely
payment of all principal and interest on qualified debentures
issued by the APICs. The qualified debentures guaranteed by HUD
would be senior to any other debt or equity. The qualified
debentures could be issued by APICs for up to 21 years and
could be pooled and sold.
Section 308. APIC requests for guarantee actions
Sets forth procedures for APICs to request loan guarantees
from HUD, which shall include a description of the manner in
which the APIC intends to use the proceeds from such debentures
and a certification from the APIC that it is in substantial
compliance with: (1) the terms of this Act and applicable laws;
(2) the terms and conditions of its license; (3) requirements
relating to the allocation and use of New Market Tax Credits.
The APIC must also provide any other requirements established
by the Secretary. Sets forth procedures for compliance with
provisions of the National Environmental Policy Act of 1969
regarding environmental reviews.
Section 309. Examination and monitoring of APICs
Requires that the Secretary examine and monitor the
activities of APICs for compliance with sound financial
management practices and for satisfaction of program goals.
Requires the Secretary to establish annual or more frequent
reporting requirements for APICs. Requires that each APIC have
an independent annual audit conducted annually. The Secretary,
in consultation with the Administrator of the SBA and the
Secretary of the Treasury, shall establish requirements and
standards for such audits. Not less than every two years, the
Secretary shall examine the operations and portfolio of each
APIC to assure compliance with sound financial management
practices.
Provides that in carrying out its monitoring of HUD's
responsibilities under this Act, the Inspector General of HUD
shall consult, as appropriate, with the Inspectors General of
the Department of the Treasury or the Small Business
Administration, and may enter into memoranda of understanding
as may be necessary to carry out this function. Requires the
Secretary to report to Congress annually regarding the
operations, activities, financial health and achievements of
APICs, listing each investment made by each APIC. Requires the
General Accounting Office, not later than two years after the
date of enactment of the Act, to submit a report to Congress
regarding the operation of the APIC program.
Section 310. Penalties
Authorizes the Secretary to impose penalties on any APIC
that commits an act of fraud, mismanagement or noncompliance
with regulations. Penalties include civil monetary penalties
not to exceed $10,000, cease-and-desist orders, suspension or
revocation of an APIC's license for very serious infractions,
or other penalties that the Secretary determines to be less
burdensome than the aforementioned penalties.
Section 311. Effective date
Provides that the Act shall take effect six months after
the date of enactment. Authority of the Secretary to issue
regulations, standards, guidelines or licensing requirements,
and the authority of any official to enter into agreements or
memoranda of understanding regarding such issuances, shall take
effect upon enactment of the legislation.
Section 312. Sunset
Provides that the Secretary may not license any APIC, nor
provide credit subsidy for any APIC, after the expiration of
the five-year period beginning upon the date the Secretary
awards the first APIC license. The section does not affect any
license or credit subsidy provided for an APIC before the
expiration of such period.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SMALL BUSINESS INVESTMENT ACT OF 1958
TITLE I--SHORT TITLE, STATEMENT OF POLICY, AND DEFINITIONS
* * * * * * *
TITLE III--[SMALL BUSINESS INVESTMENT COMPANIES] INVESTMENT DIVISION
PROGRAMS
Part A--Small Business Investment Companies
organization of small business investment companies
Sec. 301. * * *
* * * * * * *
Part B--New Markets Venture Capital Program
SEC. 350. DEFINITIONS.
In this part--
(1) the term ``New Markets Venture Capital company''
means a company that--
(A) has been approved by the Administration
under section 353(e) to operate under the New
Markets Venture Capital Program; and
(B) has entered into a participation
agreement with the Administration; and
(2) the term ``low- or moderate-income geographic
area'' means--
(A) a census tract, or the equivalent county
division as defined by the Bureau of the Census
for purposes of defining poverty areas, in
which--
(i) the poverty rate is not less than
20 percent; or
(ii) in the case of a census tract or
division located within a metropolitan
area, the median family income for such
tract or division does not exceed the
greater of 80 percent of the statewide
median family income or 80 percent of
the metropolitan-area median family
income: or
(iii) in the case of a census tract
or division not located within a
metropolitan area, the median family
income for such tract or division does
not exceed 80 percent of the statewide
median family income; and
(B) any area located within--
(i) a HUBZone (as defined in section
126.103 of title 13, Code of Federal
Regulations);
(ii) an Urban Empowerment Zone or an
Urban Enterprise Community, as
designated by the Secretary of the
Department of Housing and Urban
Development; or
(iii) a rural Empowerment Zone or a
Rural Enterprise Community, as
designated by the Secretary of the
Department of Agriculture; and
(3) the term ``participation agreement'' means an
agreement between the Administration and a New Markets
Venture Capital company--
(A) detailing the company's operating plan
and investment criteria; and
(B) requiring that investments be made in
smaller enterprises at least 60 percent of
which are located in low- or moderate-income
geographic areas.
SEC. 351. PURPOSES.
The purposes of the New Markets Venture Capital Program are--
(1) to encourage venture capital investment in
smaller enterprises located in urban and rural areas;
and
(2) to establish a venture capital program to be
administered by the Small Business Administration--
(A) to enter into a participation agreement
with New Markets Venture Capital companies;
(B) to guarantee debentures of New Markets
Venture Capital companies to enable each such
company to make venture capital investments in
smaller enterprises in urban and rural areas;
and
(C) to make grants to New Markets Venture
Capital companies for the purpose of providing
marketing, management, and technical assistance
to smaller enterprises financed, or expected to
be financed, by such company.
SEC. 352. ESTABLISHMENT OF PROGRAM.
The Administration shall establish a New Markets Venture
Capital Program, under which the Administration may--
(1) enter into a participation agreement with each
New Markets Venture Capital company for the purposes
set forth in section 351;
(2) guarantee debentures issued by each New Markets
Venture Capital company as provided in section 354; and
(3) make grants to each New Markets Venture Capital
company as provided in section 355.
SEC. 353. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.
(a) Eligibility.--A company shall be eligible for
participation in the New Markets Venture Capital Program if--
(1) it is a newly formed for-profit entity or a newly
formed for-profit subsidiary of an existing entity; and
(2) it has a management team with experience in
community development financing or venture capital
financing.
(b) Application.--To participate in the New Markets Venture
Capital Program, an eligible company shall submit an
application to the Administration that includes--
(1) a business plan describing how the company
intends to make successful venture capital investments
in low- or moderate-income geographic areas;
(2) information regarding the qualifications of the
company's management;
(3) a description of how the company intends to work
with community organizations;
(4) a description of how the company will use the
grant funds provided under this part to provide
marketing, management, and technical assistance to
smaller enterprises;
(5) a description of the criteria the company will
use to evaluate whether and to what extent it meets the
objectives of the program established under this part;
(6) information regarding the management and
financial strength of any parent firm, affiliated firm,
or any other firm essential to the success of the
company's business plan; and
(7) such other information as the Administration may
require.
(c) Conditional Approval.--
(1) In general.--From among companies submitting
applications under subsection (b), the Administration
shall in accordance with this subsection conditionally
approve companies to participate in the New Markets
Venture Capital Program.
(2) Selection criteria.--In selecting companies under
paragraph (1), the Administration shall consider the
following:
(A) The likelihood that the applicant will
meet the goals of its business plan.
(B) The experience and background of the
company's management team.
(C) The need for equity investments in the
areas in which the company intends to invest.
(D) The extent to which the company will
concentrate its activities on serving the areas
in which it intends to invest.
(E) The likelihood that the company will be
able to satisfy the conditions under subsection
(d).
(F) The extent to which the activities
proposed by the company will expand economic
opportunities in the areas in which the company
intends to invest.
(G) Any other factors deemed appropriate by
the Administration.
(3) Nationwide distribution.--In selecting companies
under paragraph (1), the Administration shall ensure
that companies are chosen in such a way that
investments under the New Markets Venture Capital
Program will be made nationwide.
(d) Conditions To Be Met for Final Approval.--The
Administration shall give each conditionally approved company a
period of time, not to exceed 24 months, to satisfy the
following conditions:
(1) Capital requirement.--Each conditionally approved
company must raise not less than $5,000,000 of
contributed capital or binding capital commitments from
1 or more investors (other than an agency of the
Federal Government) who meet criteria established by
the Administration; and
(2) Non-Administration resources for technical
assistance.--
(A) In general.--In order to provide
marketing, management, and technical
assistance, each conditionally approved company
must--
(i) have binding commitments (in cash
or in-kind)--
(I) from any sources other
than the Administration that
meet criteria established by
the Administration:
(II) payable or available
over a multiyear period
acceptable to the
Administration (not to exceed
10 years): and
(III) in an amount equal to
30 percent of the capital and
commitments raised under
subsection (d)(1); or
(ii) must have purchased an annuity--
(I) from an insurance company
acceptable to the
Administration;
(II) using funds (other than
the funds raised to satisfy
subsection (d)(1)) from any
source other than the
Administration; and
(III) that yields cash
payments over a multiyear
period acceptable to the
Administration (not to exceed
10 years) in an amount equal to
30 percent of the capital and
commitments raised under
subsection (d)(1); or
(iii) must have binding commitments
(in cash or in-kind) of the type
described in subsection (d)(2)(A)(i)
and must have purchased an annuity of
the type described in subsection
(d)(2)(A)(ii), which in the aggregate
make available, over a multiyear period
acceptable to the Administration (not
to exceed 10 years), an amount equal to
30 percent of the capital and
commitments raised under subsection
(d)(1).
(B) Special rule.--On a showing of special
circumstances and good cause, the Administrator
may with respect to a particular company waive
the requirements of subsection (d)(2) if the
Administrator considers the company to have a
viable business plan that reasonably projects
the company's capacity to raise the amount (in
cash or in-kind) required under subsection
(d)(2)(A).
(e) Final Approval.--The Administration shall grant to a
conditionally approved company final approval to participate in
the New Markets Venture Capital Program as a New Markets
Venture Capital company after the company--
(1) has satisfied the conditions under subsection
(d); and
(2) has entered into a participation agreement with
the Administration.
SEC. 354. DEBENTURES.
(a) In General.--The Administration may, to the extent
authorized in advance in appropriations Acts, guarantee the
timely payment of principal and interest as scheduled on
debentures issued by New Markets Venture Capital companies.
(b) Terms and Conditions.--The Administration may make
guarantees under this section on such terms and conditions as
it deems appropriate, except that the term of any debenture
guaranteed under this section shall not exceed 15 years.
(c) Full Faith and Credit of the United States.--The full
faith and credit of the United States shall be pledged to the
payment of all amounts which may be required to be paid under
any guarantee under this part.
(d) Maximum Guarantee.--The Administration may provide
guarantees under this section for the debentures issued by any
New Markets Venture Capital company only to the extent that
such guarantees do not exceed 150 percent of the contributed
capital of the company, as determined by the Administration.
Contributed capital shall include capital that is deemed to be
Federal funds contributed by an investor other than an agency
of the Federal Government.
SEC. 355. TECHNICAL ASSISTANCE GRANTS.
(a) In General.--
(1) Authority.--In accordance with this section, the
Administration may make grants to each New Markets
Venture Capital company to provide marketing,
management, and technical assistance for the benefit of
smaller enterprises financed, or expected to be
financed, by the company.
(2) Terms.--Grants made under this subsection shall
be made over a multiyear period not to exceed 10 years,
under such other terms as the Administration may
require.
(2) Grant amount.--
(A) In general.--The amount of a grant made
under this subsection to each New Markets
Venture Capital company shall be equal to the
amount resources raised by the company (in cash
or in-kind) under section 353(d)(2).
(B) Special rule.--Notwithstanding
subparagraph (A), the Administration may make a
grant under this section in an amount other
than that set forth in subparagraph (A), if the
Administration considers the grant to be in the
best interests of the New Markets Venture
Capital Program.
(3) Pro rata reductions.--If the amount made
available to carry out this section is insufficient for
the Administration to provide grants in the amounts
provided for in subsection (a)(2), the Administration
shall make pro rata reductions in the amounts otherwise
payable to each New Markets Venture Capital company
under such subsection.
(b) Supplemental Grants.--
(1) In general.--The Administration may make
supplemental grants to any New Markets Venture Capital
company, containing such terms as the Administration
may require, to provide additional marketing,
management, and technical assistance for the benefit of
smaller enterprises financed, or expected to be
financed, by the New Markets Venture Capital company.
(2) Matching requirement.--The Administration may
require, as a condition of any supplemental grant made
under this subsection, that the New Markets Venture
Capital company provide from resources (in cash or in-
kind) other than those provided by the Administration
an amount equal to the amount of the supplemental
grant.
SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.
(a) Issuance.--The Administration may issue trust
certificates representing ownership of all or a fractional part
of debentures issued by New Markets Venture Capital companies
and guaranteed by the Administration under this Act, if such
certificates are based on and backed by a trust or pool
approved by the Administration and composed solely of
guaranteed debentures.
(b) Guarantee.--
(1) In general.--The Administration may, under such
terms and conditions as the Administration deems
appropriate, guarantee the timely payment of the
principal of and interest on trust certificates issued
by the Administration or its agent for purposes of this
section.
(2) Limitation.--Guarantees under this subsection
shall be limited to the extent of principal and
interest on the guaranteed debentures which compose the
trust or pool.
(3) Prepayment or default.--In the event that a
debenture in a trust or pool is prepaid, or in the
event of default of such a debenture, the guarantee of
timely payment of principal and interest on the trust
certificates shall be reduced in proportion to the
amount of principal and interest such prepaid debenture
represents in the trust or pool. Interest on prepaid or
defaulted debentures shall accrue and be guaranteed by
the Administration only through the date of payment of
the guarantee. At any time during its term, a trust
certificate may be called for redemption due to
prepayment or default of all debentures.
(c) Full Faith and Credit of the United States.--The full
faith and credit of the United States shall be pledged to the
payment of all amounts which may be required to be paid under
any guarantee of such trust certificates issued by the
Administration or its agent under this section.
(d) Fees.--The Administration shall not collect a fee for any
guarantee under this section, but any agent of the
Administration may collect a fee approved by the Administration
for the functions described in subsection (f)(2) of this
section.
(e) Subrogation and Ownership Rights.--
(1) Subrogation.--In the event the Administration
pays a claim under a guarantee issued under this
section, it shall be subrogated fully to the rights
satisfied by such payment.
(2) Ownership rights.--No Federal, State, or local
law shall preclude or limit the exercise by the
Administration of its ownership rights in the
debentures residing in a trust or pool against which
trust certificates are issued under this section.
(f) Management and Administration.--
(1) Registration.--
(A) In general.--The Administration may
provide for a central registration of all trust
certificates issued under this section.
(B) Forms of registration.--Nothing in this
subsection shall prohibit the use of a book
entry or other electronic form of registration
for trust certificates.
(2) Contracting of functions.--
(A) In general.--The Administrator may
contract with an agent or agents to carry out
on behalf of the Administration the pooling and
the central registration functions provided for
in this section including, notwithstanding any
other provision of law--
(i) maintenance on behalf of and
under the direction of the
Administration, such commercial bank
accounts or investments in obligations
of the United States as may be
necessary to facilitate the creation of
trusts or pools backed by debentures
guaranteed under this Act; and
(ii) the issuance of trust
certificates to facilitate the creation
of such trusts or pools.
(B) Protection of the interests of the united
states.--Any agent performing functions on
behalf of the Administration under this
paragraph shall provide a fidelity bond or
insurance in such amounts as the Administration
determines to be necessary to fully protect the
interests of the United States.
(3) Regulation of brokers and dealers.--The
Administrator may regulate brokers and dealers in trust
certificates sold under this section.
SEC. 357. FEES.
Except as provided in section 356(d), the Administration may
charge such fees as it deems appropriate with respect to any
guarantee or grant issued under this part.
SEC. 358. BANK PARTICIPATION.
(a) In General.--To the extent provided for in subsection
(b), any national bank, any member bank of the Federal Reserve
System, and any bank that is not a member of such system but
which is insured to the extent permitted under applicable State
law, may invest in any New Markets Venture Capital company, or
in any entity established to invest solely in New Markets
Venture Capital companies.
(b) Limitation.--No bank described in subsection (a) may make
investments described in such subsection that are greater than
5 percent of the capital and surplus of the bank.
SEC. 359. FEDERAL FINANCING BANK.
Section 318 shall not apply to any debenture issued by a New
Markets Venture Capital company under this part.
SEC. 360. REPORTING REQUIREMENTS.
Each New Markets Venture Capital company shall provide to the
Administration such information as the Administration may
require, including information on the measurement criteria that
the New Markets Venture Capital company proposed in its program
application.
SEC. 361. EXAMINATIONS.
(a) In General.--Each New Markets Venture Capital company
shall be subject to examinations made at the direction of the
Investment Division of the Administration in accordance with
this section.
(b) Assistance of Private Sector Entities.--Examinations
under this section may be conducted with the assistance of a
private sector entity that has both the qualifications to
conduct and expertise in conducting such examinations.
(c) Costs.--
(A) In general.--The Administrator may assess
the cost of examinations under this section,
including compensation of the examiners,
against the company examined.
(B) Deposit of funds.--Funds collected under
this section shall be deposited in the account
for salaries and expenses of the
Administration.
(C) Authorization of appropriations.--Funds
deposited under subparagraph (B) are authorized
to be appropriated solely to cover the costs of
examinations and other program oversight
activities.
SEC. 362. INJUNCTIONS AND OTHER ORDERS.
(a) In General.--Whenever, if the Administrator considers
that a New Markets Venture Capital company, or any other
person, has engaged or is about to engage in any acts or
practices which constitute, or will constitute, a violation of
any provision of this Act, of any rule or regulation under this
Act, or of any order issued under this Act, the Administration
may make application to the proper district court of the United
States or to a United States court of any place subject to the
jurisdiction of the United States for an order enjoining such
acts or practices, or for an order enforcing compliance with
such provision, rule, regulation, or order, and such courts
shall have jurisdiction of such actions and, upon a showing by
the Administration that such New Markets Venture Capital
company or other person has engaged or is about to engage in
any such acts or practices, a permanent or temporary
injunction, restraining order, or other order, shall be granted
without bond.
(b) Seizing of Assets.--In any such proceeding the court, as
a court of equity may, to the extent it deems necessary, take
exclusive jurisdiction of the New Markets Venture Capital
company and the assets thereof, wherever located. The court
shall have jurisdiction in any such proceeding to appoint a
trustee or receiver to hold or administer under the direction
of the court the assets so possessed.
(c) Administration as Trustee or Receiver.--
(1) In general.--The Administration may act as
trustee or receiver under subsection (b) of a New
Markets Venture Capital company.
(2) Appointment.--At the request by the
Administration, the court may appoint the
Administration to act as a trustee or receiver of a New
Markets Venture Capital company unless the court deems
such appointment inequitable or otherwise
inappropriate.
SEC. 363. UNLAWFUL ACTS AND OMISSIONS BY OFFICERS, DIRECTORS,
EMPLOYEES, OR AGENTS; BREACH OF FIDUCIARY DUTY.
(a) Parties Deemed To Commit a Violation.--Whenever an New
Markets Venture Capital company violates any provision of this
Act, or any regulation issued thereunder, by reason of its
failure to comply with its terms or by reason of its engaging
in any act or practice which constitutes or will constitute a
violation thereof, such violation shall also be deemed to be a
violation and an unlawful act committed by any person who,
directly or indirectly, authorizes, orders, participates in,
causes, brings about, counsels, aids, or abets in the
commission of any acts, practices, or transactions which
constitute or will constitute, in whole or in part, such
violation.
(b) Fiduciary Duties.--It shall be unlawful for any officer,
director, employee, agent, or other participant in the
management or conduct or the affairs of an New Markets Venture
Capital company to engage in any act or practice, or to omit
any act, in breach of his fiduciary duty as such officer,
director, employee, agent, or participant if, as a result
thereof, the New Markets Venture Capital company has suffered
or is in imminent danger of suffering financial loss or other
damage.
(c) Unlawful Acts.--Except with the written consent of the
Administration, it shall be unlawful--
(1) for any person to take office as an officer,
director, or employee of an New Markets Venture Capital
company, or to become an agent or participant in the
conduct of the affairs or management of an New Markets
Venture Capital company, if the person--
(A) has been convicted of a felony, or any
other criminal offense involving dishonesty or
breach of trust, or
(B) the person has been found civilly liable
in damages, or has been permanently or
temporarily enjoined by order, judgment, or
decree of a court of competent jurisdiction, by
reason of any act or practice involving fraud,
or breach of trust; and
(2) for any person continue to serve in any of the
capacities described in paragraph (1), if--
(A) the person is convicted of a felony, or
any other criminal offense involving dishonesty
or breach of trust, or
(B) the person found civilly liable in
damages, or is permanently or temporarily
enjoined by an order, judgment, or decree of a
court of competent jurisdiction, by reason of
any act or practice involving fraud or breach
of trust.
(d) Removal or Suspension.--
(1) In general.--As provided in section 313, the
Administration may remove or suspend any person upon
whom the Administration has served a notice under this
subsection.
(2) Notice.--The Administration may serve upon any
person who is an officer, director, or employee of a
New Markets Venture Capital company, or an agent or
participant in the conduct of the affairs or management
of the company, a written notice of the
Administration's intention to remove or suspend such
person from the person's office or position, if in the
opinion of the Administration, such person--
(A) has willfully and knowingly committed any
substantial violation of--
(i) this Act,
(ii) any regulation issued under this
Act, or
(iii) a cease-and-desist order which
has become final, or
(B) has willfully and knowingly committed or
engaged in any act, omission, or practice which
constitutes a substantial breach of his
fiduciary duty, and that such violation or such
breach of fiduciary duty is one involving
personal dishonesty on the part of such person.
SEC. 364. REGULATIONS.
The Administration is authorized to issue such regulations as
it deems necessary to carry out the provisions of this part in
accordance with its purposes.
SEC. 365. AUTHORIZATION OF APPROPRIATIONS.
For fiscal years 2000 through 2005, the Administration is
authorized to be appointed such subsidy budget authority as may
be necessary to guarantee up to $100,000,000 of debentures, and
up to $30,000,000 to make technical assistance grants, for the
purposes of this part, to remain available until expended. This
authority shall be in effect for the period commencing with
fiscal year 2000 through fiscal year 2005.
* * * * * * *
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SECTION 109 OF TITLE 11, UNITED STATES CODE
Sec. 109. Who may be a debtor
(a) * * *
* * * * * * *
(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) a railroad;
(2) a domestic insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association, a
New Markets Venture Capital company as defined in
section 350 of the Small Business Investment Act of
1958, a small business investment company licensed by
the Small Business Administration under subsection (c)
or (d) of section 301 of the Small Business Investment
Act of 1958, America's Private Investment Company
licensed under the America's Private Investment
Companies Act, credit union, or industrial bank or
similar institution which is an insured bank as defined
in section 3(h) of the Federal Deposit Insurance Act;
or
(3) * * *
* * * * * * *
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SECTION 5 OF THE HOME OWNERS' LOAN ACT
SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.
(a) * * *
* * * * * * *
(c) Loans and Investments.--To the extent specified in
regulations of the Director, a Federal savings association may
invest in, sell, or otherwise deal in the following loans and
other investments:
(1) * * *
* * * * * * *
(4) Other loans and investments.--The following
additional loans and other investments to the extent
authorized below:
(A) * * *
* * * * * * *
(F) New markets venture capital companies.--A
Federal savings association may invest in
stock, obligations, or other securities of any
New Markets Venture Capital company as defined
in section 350 of the Small Business investment
Act of 1958, except that a Federal savings
association may not make any investment under
this subparagraph if its aggregate outstanding
investment under this subparagraph would exceed
5 percent of the capital and surplus of such
savings association.
* * * * * * *
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SECTION 7 OF THE SMALL BUSINESS ACT
Sec. 7. (a) Loans to Small Business Concerns; Allowable
Purposes; Qualified Business; Restrictions and Limitations.--
The Administration is empowered to the extent and in such
amounts as provided in advance in appropriation Acts to make
loans for plant acquisition, construction, conversion, or
expansion, including the acquisition of land, material,
supplies, equipment, and working capital, and to make loans to
any qualified small business concern, including those owned by
qualified Indian tribes, for purposes of this Act. Such
financings may be made either directly or in cooperation with
banks or other financial institutions through agreements to
participate on an immediate or deferred (guaranteed) basis.
These powers shall be subject, however, to the following
restrictions, limitations, and provisions:
(1) * * *
(2) Level of participation in guaranteed loans.--
(A) In general.--Except as provided in
subparagraph (B), in an agreement to
participate in a loan on a deferred basis under
this subsection (including a loan made under
the Preferred Lenders Program), such
participation by the Administration shall be
equal to--
(i) 75 percent of the balance of the
financing outstanding at the time of
disbursement of the loan, if such
balance exceeds [$100,000] $150,000; or
(ii) 80 percent of the balance of the
financing outstanding at the time of
disbursement of the loan, if such
balance is less than or equal to
[$100,000] $150,000.
* * * * * * *
(18) Guarantee fees.--
(A) * * *
(B) Exception for certain loans.--
Notwithstanding subparagraph (A), if the total
deferred participation share of a loan
guaranteed under this subsection is less than
or equal to [$80,000] $120,000, the guarantee
fee collected under subparagraph (A) shall be
in an amount equal to 2 percent of the total
deferred participation share of the loan.
* * * * * * *
(23) Annual fee.--
(A) In general.--With respect to each loan
guaranteed under this subsection, the
Administration shall, in accordance with such
terms and procedures as the Administration
shall establish by regulation, assess and
collect an annual fee in an amount equal to 0.5
percent of the outstanding balance of the
deferred participation share of the loan[.],
except that with respect to each loan of less
than $150,000 guaranteed under this subsection,
the Administration shall assess and collect an
annual fee in an amount equal to 0.3 percent of
the outstanding balance of the deferred
participation share of the loan.
* * * * * * *
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SECTION 12 OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ACT
Sec. 12. (a) * * *
* * * * * * *
(e) Definitions.--For purposes of this section:
(1) * * *
(2) Assistance.--The term ``assistance'' means any
grant, loan, subsidy, guarantee, or other financial
assistance under a program administered by the
Secretary that provides by statute, regulation, or
otherwise for the competitive distribution of such
assistance. The term does not include any mortgage
insurance provided under a program administered by the
Secretary or any license provided under the America's
Private Investment Companies Act.
* * * * * * *
----------
INTERNAL REVENUE CODE OF 1986
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--Determination of tax liability
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart D--Business Related Credits
Sec. 38. General business credit.
* * * * * * *
Sec. 45D. New markets tax credit.
* * * * * * *
SEC. 38. GENERAL BUSINESS CREDIT.
(a) * * *
(b) Current Year Business Credit.--For purposes of this
subpart, the amount of the current year business credit is the
sum of the following credits determined for the taxable year:
(1) * * *
* * * * * * *
(11) the employer social security credit determined
under section 45B(a), [plus]
(12) the orphan drug credit determined under section
45C(a)[.], plus
(13) the new markets tax credit determined under
section 45D(a).
* * * * * * *
SEC. 39. CARRYBACK AND CARRYFORWARD OF UNUSED CREDITS.
(a) * * *
* * * * * * *
(d) Transitional Rules.--
(1) * * *
* * * * * * *
(9) No carryback of new markets tax credit before
january 1, 2000.--No portion of the unused business
credit for any taxable year which is attributable to
the credit under section 45D may be carried back to a
taxable year ending before January 1, 2000.
* * * * * * *
SEC. 45D. NEW MARKETS TAX CREDIT.
(a) Allowance of Credit.--
(1) In general.--For purposes of section 38, in the
case of a taxpayer who holds a qualified equity
investment on a credit allowance date of such
investment which occurs during the taxable year, the
new markets tax credit determined under this section
for such taxable year is an amount equal to 6 percent
of the amount paid to the qualified community
development entity for such investment at its original
issue.
(2) Credit allowance date.--The term ``credit
allowance date'' means, with respect to any qualified
equity investment--
(A) the date on which such investment is
initially made, and
(B) each of the 4 anniversary dates of such
date thereafter.
(b) Qualified Equity Investment.--For purposes of this
section--
(1) In general.--The term ``qualified equity
investment'' means any equity investment in a qualified
community development entity if--
(A) such investment is acquired by the
taxpayer at its original issue (directly or
through an underwriter) solely in exchange for
cash,
(B) substantially all of such cash is used by
the qualified community development entity to
make qualified low-income community
investments, and
(C) such investment is designated for
purposes of this section by the qualified
community development entity.
Such term shall not include any equity investment
issued by a qualified community development entity more
than 5 years after the date that such entity receives
an allocation under subsection (f). Any allocation not
used within such 5-year period may be reallocated by
the Secretary under subsection (f).
(2) Limitation.--The maximum amount of equity
investments issued by a qualified community development
entity which may be designated under paragraph (1)(C)
by such entity shall not exceed the portion of the
limitation amount allocated under subsection (f) to
such entity.
(3) Safe harbor for determining use of cash.--The
requirement of paragraph (1)(B) shall be treated as met
if at least 85 percent of the aggregate gross assets of
the qualified community development entity are invested
in qualified low-income community investments.
(4) Treatment of subsequent purchasers.--The term
``qualified equity investment'' includes any equity
investment which would (but for paragraph (1)(A)) be a
qualified equity investment in the hands of the
taxpayer if such investment was a qualified equity
investment in the hands of a prior holder.
(5) Redemptions.--A rule similar to the rule of
section 1202(c)(3) shall apply for purposes of this
subsection.
(6) Equity investment.--The term ``equity
investment'' means--
(A) any stock in a qualified community
development entity which is a corporation, and
(B) any capital interest in a qualified
community development entity which is a
partnership.
(c) Qualified Community Development Entity.--For purposes of
this section--
(1) In general.--The term ``qualified community
development entity'' means any domestic corporation or
partnership if--
(A) the primary mission of the entity is
serving, or providing investment capital for,
low-income communities or low-income persons,
(B) the entity maintains accountability to
residents of low-income communities through
representation on governing or advisory boards
or otherwise, and
(C) the entity is certified by the Secretary
for purposes of this section as being a
qualified community development entity.
(2) Special rules for certain organizations.--The
requirements of paragraph (1) shall be treated as met
by--
(A) any specialized small business investment
company (as defined in section 1044(c)(3)), and
(B) any community development financial
institution (as defined in section 103 of the
Community Development Banking and Financial
Institutions Act of 1994 (12 U.S.C. 4702)).
(d) Qualified Low-Income Community Investments.--For purposes
of this section--
(1) In general.--The term ``qualified low-income
community investment'' means--
(A) any equity investment in, or loan to, any
qualified active low-income community business,
(B) the purchase from another community
development entity of any loan made by such
entity which is a qualified low-income
community investment if the amount received by
such other entity from such purchase is used by
such other entity to make qualified low-income
community investments,
(C) financial counseling and other services
specified in regulations prescribed by the
Secretary to businesses located in, and
residents of, low-income communities, and
(D) any equity investment in, or loan to, any
qualified community development entity if
substantially all of the investment or loan is
used by such entity to make qualified low-
income community investments described in
subparagraphs (A), (B), and (C).
(2) Qualified active low-income community business.--
(A) In general.--For purposes of paragraph
(1), the term ``qualified active low-income
community business'' means, with respect to any
taxable year, any corporation or partnership if
for such year--
(i) at least 50 percent of the total
gross income of such entity is derived
from the active conduct of a qualified
business within any low-income
community,
(ii) a substantial portion of the use
of the tangible property of such entity
(whether owned or leased) is within any
low-income community,
(iii) a substantial portion of the
services performed for such entity by
its employees are performed in any low-
income community,
(iv) less than 5 percent of the
average of the aggregate unadjusted
bases of the property of such entity is
attributable to collectibles (as
defined in section 408(m)(2)) other
than collectibles that are held
primarily for sale to customers in the
ordinary course of such business, and
(v) less than 5 percent of the
average of the aggregate unadjusted
bases of the property of such entity is
attributable to nonqualified financial
property (as defined in section
1397B(e)).
(B) Proprietorship.--Such term shall include
any business carried on by an individual as a
proprietor if such business would meet the
requirements of subparagraph (A) were it
incorporated.
(C) Portions of business may be qualified
active low-income community business.--The term
``qualified active low-income community
business'' includes any trades or businesses
which would qualify as a qualified active low-
income community business if such trades or
businesses were separately incorporated.
(3) Qualified business.--For purposes of this
subsection, the term ``qualified business'' has the
meaning given to such term by section 1397B(d); except
that--
(A) in lieu of applying paragraph (2)(B)
thereof, the rental to others of real property
located in any low-income community shall be
treated as a qualified business if there are
substantial improvements located on such
property,
(B) paragraph (3) thereof shall not apply,
and
(C) such term shall not include any business
if a significant portion of the equity
interests in such business are held by any
person who holds a significant portion of the
equity investments in the community development
entity.
(e) Low-Income Community.--For purposes of this section--
(1) In general.--The term ``low-income community''
means any population census tract if--
(A) the poverty rate for such tract is at
least 20 percent, or
(B)(i) in the case of a tract not located
within a metropolitan area, the median family
income for such tract does not exceed 80
percent of statewide median family income, or
(ii) in the case of a tract located within a
metropolitan area, the median family income for
such tract does not exceed 80 percent of the
greater of statewide median family income or
the metropolitan area median family income.
(2) Areas not within census tracts.--In the case of
an area which is not tracted for population census
tracts, the equivalent county divisions (as defined by
the Bureau of the Census for purposes of defining
poverty areas) shall be used for purposes of
determining poverty rates and median family income.
(f) National Limitation on Amount of Investments
Designated.--
(1) In general.--There is a new markets tax credit
limitation of $1,200,000,000 for each of calendar years
2000 through 2004.
(2) Allocation of limitation.--The limitation under
paragraph (1) shall be allocated by the Secretary among
qualified community development entities selected by
the Secretary. In making allocations under the
preceding sentence, the Secretary shall give priority
to entities with records of having successfully
provided capital or technical assistance to
disadvantaged businesses or communities.
(3) Carryover of unused limitation.--If the new
markets tax credit limitation for any calendar year
exceeds the aggregate amount allocated under paragraph
(2) for such year, such limitation for the succeeding
calendar year shall be increased by the amount of such
excess.
(g) Recapture of Credit In Certain Cases.--
(1) In general.--If, at any time during the 5-year
period beginning on the date of the original issue of a
qualified equity investment in a qualified community
development entity, there is a recapture event with
respect to such investment, then the tax imposed by
this chapter for the taxable year in which such event
occurs shall be increased by the credit recapture
amount.
(2) Credit recapture amount.--For purposes of
paragraph (1), the credit recapture amount is an amount
equal to the sum of--
(A) the aggregate decrease in the credits
allowed to the taxpayer under section 38 for
all prior taxable years which would have
resulted if no credit had been determined under
this section with respect to such investment,
plus
(B) interest at the overpayment rate
established under section 6621 on the amount
determined under subparagraph (A) for each
prior taxable year for the period beginning on
the due date for filing the return for the
prior taxable year involved.
No deduction shall be allowed under this chapter for
interest described in subparagraph (B).
(3) Recapture event.--For purposes of paragraph (1),
there is a recapture event with respect to an equity
investment in a qualified community development entity
if--
(A) such entity ceases to be a qualified
community development entity,
(B) the proceeds of the investment cease to
be used as required of subsection (b)(1)(B), or
(C) such investment is redeemed by such
entity.
(4) Special rules.--
(A) Tax benefit rule.--The tax for the
taxable year shall be increased under paragraph
(1) only with respect to credits allowed by
reason of this section which were used to
reduce tax liability. In the case of credits
not so used to reduce tax liability, the
carryforwards and carrybacks under section 39
shall be appropriately adjusted.
(B) No credits against tax.--Any increase in
tax under this subsection shall not be treated
as a tax imposed by this chapter for purposes
of determining the amount of any credit under
this chapter or for purposes of section 55.
(h) Basis Reduction.--The basis of any qualified equity
investment shall be reduced by the amount of any credit
determined under this section with respect to such investment.
(i) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to carry out this section,
including regulations--
(1) which limit the credit for investments which are
directly or indirectly subsidized by other Federal
benefits (including the credit under section 42 and the
exclusion from gross income under section 103),
(2) which prevent the abuse of the provisions of this
section through the use of related parties,
(3) which impose appropriate reporting requirements,
and
(4) which apply the provisions of this section to
newly formed entities.
* * * * * * *
Subchapter B--Computation of Taxable Income
* * * * * * *
PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS
* * * * * * *
SEC. 196. DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.
(a) * * *
* * * * * * *
(c) Qualified Business Credits.--For purposes of this
section, the term ``qualified business credits'' means--
(1) * * *
* * * * * * *
(7) the Indian employment credit determined under
section 45A(a), [and]
(8) the employer Social Security credit determined
under section 45B(a)[.], and
(9) the new markets tax credit determined under
section 45D(a).
* * * * * * *