[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 3242 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 3242

 To amend the Consolidated Farm and Rural Development Act to encourage 
equity investment in rural cooperatives and other rural businesses, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            October 25 (legislative day, September 22), 2000

Mr. Harkin (for himself, Mr. Craig, Mr. Daschle, Mr. Jeffords, and Mr. 
   Johnson) introduced the following bill; which was read twice and 
   referred to the Committee on Agriculture, Nutrition, and Forestry

_______________________________________________________________________

                                 A BILL


 
 To amend the Consolidated Farm and Rural Development Act to encourage 
equity investment in rural cooperatives and other rural businesses, and 
                          for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. NATIONAL RURAL COOPERATIVE AND BUSINESS EQUITY FUND.

    The Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et 
seq.) is amended by adding at the end the following:

   ``Subtitle F--National Rural Cooperative and Business Equity Fund

``SEC. 391A. SHORT TITLE.

    ``This subtitle may be cited as the `National Rural Cooperative and 
Business Equity Fund Act'.

``SEC. 391B. PURPOSE.

    ``The purpose of this subtitle is to revitalize rural communities 
and enhance farm income through sustainable rural business development 
by providing Federal funds and credit enhancements to a private equity 
fund in order to encourage investments by institutional and 
noninstitutional investors for the benefit of rural America.

``SEC. 391C. DEFINITIONS.

    ``In this subtitle:
            ``(1) Authorized private investor.--The term `authorized 
        private investor' means an individual, legal entity, or 
        affiliate or subsidiary of an individual or legal entity that--
                    ``(A) is eligible to receive a loan guarantee under 
                this title;
                    ``(B) is eligible to receive a loan guarantee under 
                the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
                seq.);
                    ``(C) is created under the National Consumer 
                Cooperative Bank Act (12 U.S.C. 3011 et seq.);
                    ``(D) is an insured depository institution; or
                    ``(E) is determined by the Fund to be an 
                appropriate investor in the Fund.
            ``(2) Board.--The term `Board' means the board of directors 
        of the Fund established under section 391G.
            ``(3) Fund.--The term `Fund' means the National Rural 
        Cooperative and Business Equity Fund established under section 
        391D.
            ``(4) Group of similar investors.--The term `group of 
        similar investors' means any 1 of the following:
                    ``(A) Insured depository institutions with total 
                assets of more than $250,000,000.
                    ``(B) Insured depository institutions with total 
                assets equal to or less than $250,000,000.
                    ``(C) Farm Credit System institutions under the 
                Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.).
                    ``(D) Cooperative financial institutions (other 
                than Farm Credit System institutions).
                    ``(E) Authorized private investors, other than 
                those described in subparagraphs (A) through (D).
                    ``(F) Other nonprofit organizations, including 
                credit unions.
            ``(5) Insured depository institution.--The term `insured 
        depository institution' means any bank or savings association 
        the deposits of which are insured under the Federal Deposit 
        Insurance Act (12 U.S.C. 1811 et seq.).
            ``(6) Rural area.--The term `rural area' means an area that 
        is located--
                    ``(A) outside a standard metropolitan statistical 
                area; or
                    ``(B) within a community that has a population of 
                50,000 individuals or fewer.
            ``(7) Rural business.--The term `rural business' means a 
        rural cooperative, a value-added agricultural enterprise, or 
        any other business located or locating in a rural area.

``SEC. 391D. ESTABLISHMENT OF THE FUND.

    ``(a) In General.--
            ``(1) Authority to establish.--A group of authorized 
        private investors may establish, as a non-Federal entity under 
        State law, and manage a fund to be known as the `National Rural 
        Cooperative and Business Equity Fund', to raise and provide 
        equity capital to rural businesses.
            ``(2) Composition of group.--The group of authorized 
        private investors referred to in paragraph (1) shall be 
        composed, to the maximum extent practicable, of representatives 
        of a majority of groups of similar investors.
    ``(b) Purposes.--The purposes of the Fund shall be--
            ``(1) to strengthen the economy of rural areas;
            ``(2) to further sustainable rural business development;
            ``(3) to encourage start-up rural businesses, increased 
        opportunities for small and minority-owned rural businesses, 
        and the formation of new rural businesses;
            ``(4) to enhance rural employment opportunities;
            ``(5) to provide equity capital to rural businesses that 
        have been unable to obtain equity capital; and
            ``(6) to leverage non-Federal funds for rural businesses.
    ``(c) Articles of Incorporation and By-Laws.--The articles of 
incorporation and by-laws of the Fund shall set forth purposes of the 
Fund that are consistent with subsection (b).

``SEC. 391E. INVESTMENT IN THE FUND.

    ``(a) In General.--The Secretary, using funds of the Commodity 
Credit Corporation, shall--
            ``(1) subject to subsection (b)(1), make available to the 
        Fund $50,000,000 for each of fiscal years 2001 through 2003;
            ``(2) subject to subsection (c), guarantee 50 percent of 
        each investment made by an authorized private investor in the 
        Fund; and
            ``(3) subject to subsection (d), guarantee the repayment of 
        principal to authorized private investors in debentures issued 
        by the Fund.
    ``(b) Private Investment.--
            ``(1) Matching requirement.--Under subsection (a)(1), the 
        Secretary shall make an amount available to the Fund only after 
        an equal amount has been invested in the Fund by authorized 
        private investors in accordance with this subtitle and the 
        terms and conditions set forth in the by-laws of the Fund.
            ``(2) Investments by insured depository institutions.--
        Investments in the Fund by an insured depository institution 
        shall be considered part of the record of the insured 
        depository institution for meeting the credit needs of its 
        entire community for the purposes of Federal law.
    ``(c) Guarantee of Private Investments.--
            ``(1) In general.--The Secretary shall guarantee, under 
        terms and conditions determined by the Secretary, 50 percent of 
        any loss of the principal of an investment made in the Fund by 
        an authorized private investor.
            ``(2) Maximum total guarantee.--The aggregate liability of 
        the Secretary with respect to all guarantees under paragraph 
        (1) shall not apply to more than $300,000,000 in private 
        investments.
            ``(3) Redemption of guarantee.--
                    ``(A) Date.--An authorized private investor in the 
                Fund may redeem a guarantee under paragraph (1), with 
                respect to the total investments in the Fund and the 
                total losses of the authorized private investor as of 
                the date of redemption--
                            ``(i) on the date that is 5 years after the 
                        date of incorporation of the Fund; or
                            ``(ii) annually thereafter.
                    ``(B) Effect of redemption.--On redemption of a 
                guarantee under subparagraph (A)--
                            ``(i) the shares in the Fund of the 
                        authorized private investor shall be redeemed; 
                        and
                            ``(ii) the authorized private investor 
                        shall be prohibited from making any future 
                        investment in the Fund.
    ``(d) Debt.--
            ``(1) In general.--The Fund may, at the discretion of the 
        Board, raise additional capital through the issuance of 
        debentures and through other means determined to be appropriate 
        by the Board.
            ``(2) Guarantee of debt by secretary.--
                    ``(A) In general.--The Secretary may guarantee 100 
                percent of the principal of, and accrued interest on, 
                debentures issued by the Fund that are approved by the 
                Secretary.
                    ``(B) Maximum debt guaranteed by secretary.--The 
                outstanding value of debentures issued by the Fund and 
                guaranteed by the Secretary shall not exceed the lesser 
                of--
                            ``(i) the amount equal to twice the value 
                        of the assets held by the Fund; or
                            ``(ii) $500,000,000.
                    ``(C) Recapture of guarantee payments.--If the 
                Secretary makes a payment on a debenture issued by the 
                Fund as a result of a guarantee of the Secretary under 
                this paragraph, the Secretary shall have priority over 
                other creditors for repayment of the debenture.
            ``(3) Authorized private investors.--An authorized private 
        investor may purchase debentures and other securities issued by 
        the Fund.

``SEC. 391F. INVESTMENTS AND OTHER ACTIVITIES OF THE FUND.

    ``(a) Investments.--
            ``(1) In general.--
                    ``(A) Types.--Subject to subparagraphs (B) and (C), 
                the Fund may--
                            ``(i) make equity investments in an entity 
                        that meets the requirements of paragraph (6) 
                        and such other requirements as the Board may 
                        establish; and
                            ``(ii) extend credit to such an entity in--
                                    ``(I) the form of mezzanine debt or 
                                subordinated debt; or
                                    ``(II) any other form of quasi-
                                equity.
                    ``(B) Limitation on equity investments.--After the 
                initial equity investment in an entity described in 
                subparagraph (A)(i), the Fund may not make additional 
                equity investments in the entity if the additional 
                equity investments would result in the Fund owning more 
                than 30 percent of the equity of the entity.
                    ``(C) Limitation on nonequity investments.--Except 
                in the case of a project to assist a rural cooperative, 
                the total amount of nonequity investments described in 
                subparagraph (A)(ii) that may be provided by the Fund 
                shall not exceed 20 percent of the total investments of 
                the Fund in the project.
            ``(2) Procedures.--The Fund shall implement procedures to 
        ensure that--
                    ``(A) the financing arrangements of the Fund meet 
                the Fund's primary focus of providing equity capital; 
                and
                    ``(B) the Fund does not compete with conventional 
                sources of credit.
            ``(3) Diversity of projects.--The Fund--
                    ``(A) shall seek to make equity investments in a 
                variety of viable projects, with a significant share of 
                investments--
                            ``(i) in smaller projects in rural 
                        communities of diverse sizes; and
                            ``(ii) in cooperative and noncooperative 
                        enterprises; and
                    ``(B) shall be managed in such a way as to 
                diversify the risks to the Fund among a variety of 
                projects.
            ``(4) Limitation on rural businesses assisted.--The Fund 
        shall not invest in any rural business that is primarily retail 
        in nature (as determined by the Board), other than a purchasing 
        cooperative.
            ``(5) Interest rate limitations.--Returns on investments in 
        and by the Fund and returns on the extension of credit by 
        participants in projects assisted by the Fund, shall not be 
        subject to any State or Federal law establishing a maximum 
        allowable interest rate.
            ``(6) Requirements for recipients.--
                    ``(A) Other investments.--Any recipient of amounts 
                from the Fund shall make or obtain a significant 
                investment from a source of capital other than the 
                Fund.
                    ``(B) Sponsorship.--Rural business investment 
                projects to be considered for an equity investment from 
                the Fund shall be sponsored by a regional, State, or 
                local sponsoring or endorsing organization such as--
                            ``(i) a financial institution;
                            ``(ii) a development organization; or
                            ``(iii) any other established entity 
                        engaging or assisting in rural business 
                        development, including a rural cooperative.
    ``(b) Technical Assistance.--The Board shall use not less than 1 
percent of the net earnings of the Fund to provide technical assistance 
to rural businesses seeking an equity investment from the Fund.
    ``(c) Annual Audit.--
            ``(1) In general.--The Board shall authorize an annual 
        audit of the financial statements of the Fund by a nationally 
        recognized auditing firm using generally accepted auditing 
        procedures.
            ``(2) Availability of audit results.--The results of the 
        audit required by paragraph (1) shall be made available to 
        investors in the Fund.
    ``(d) Annual Report.--The Board shall prepare and make available to 
the public an annual report that--
            ``(1) describes the projects funded with amounts from the 
        Fund;
            ``(2) specifies the recipients of amounts from the Fund;
            ``(3) specifies the co-investors in all projects that 
        receive amounts from the Fund; and
            ``(4) meets the reporting requirements, if any, of the 
        State under the law of which the Fund is established.
    ``(e) Other Authorities.--The Board may exercise such other 
authorities as are necessary to carry out this subtitle.

``SEC. 391G. GOVERNANCE OF THE FUND.

    ``(a) In General.--The Fund shall be governed by a board of 
directors that represents all of the authorized private investors in 
the Fund and the Federal Government and that consists of--
            ``(1) the Secretary or a designee;
            ``(2) 2 members who are appointed by the Secretary and are 
        not Federal employees, including--
                    ``(A) 1 member with expertise in venture capital 
                investment; and
                    ``(B) 1 member with expertise in cooperative 
                development;
            ``(3) 8 members who are elected by the authorized private 
        investors with investments in the Fund; and
            ``(4) 1 member who is appointed by the Board and who is a 
        community banker from an insured depository institution with 
        total assets equal to or less than $250,000,000.
    ``(b) Limitation on Voting Control.--No individual investor or 
group of similar investors may control more than 25 percent of the 
votes on the Board.''.
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