[House Report 106-785]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-785
======================================================================
NEW MARKETS VENTURE CAPITAL PROGRAM ACT OF 2000
_______
July 25, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Talent, from the Committee on Small Business, submitted the
following
R E P O R T
[To accompany H.R. 4530]
[Including cost estimate of the Congressional Budget Office]
The Committee on Small Business, to whom was referred the
bill (H.R. 4530) to amend the Small Business Investment Act of
1958 to direct the Administrator of the Small Business
Administration to establish a New Markets Venture Capital
Program, and for other purposes, having considered the same,
report favorably thereon without amendment and recommend that
the bill do pass.
Purpose
The purpose of H.R. 4530, the ``New Markets Venture Capital
Program Act of 2000,'' is to promote economic development,
wealth and job opportunities in low- and moderate-income (LMI)
areas by encouraging venture capital investments and offering
technical assistance to small enterprises. The central goal of
the legislation is to fulfill the unmet equity investment needs
of small enterprises primarily located in LMI areas.
The bill creates a developmental venture capital program by
amending the Small business Investment Act to authorize the
U.S. Small Administration (SBA) to enter into participation
agreements with 10 to 20 New Markets Venture Capital (NMVC)
companies in a public/private partnership. It further
authorizes SBA to guarantee debentures of NMVC companies to
enable them to make venture capital investments in smaller
enterprises in LMI areas. And it authorizes SBA to make grants
to NMVC companies, and to other entities, for the purpose of
providing technical assistance to smaller enterprises that are
financed, or expected to be financed, by such-companies.
H.R. 4530 also enhances the ability of existing Small
Business Investment Companies (SBICs) to invest in LMI areas.
It allows them to have access to the leverage capital
authorized under the program, without entering into a
participation agreement with SBA to act as an NMVC company.
Finally, H.R. 4530 enhances the ability of existing
Specialized Small Business Investment Companies (SSBICs) to
invest in LMI areas. It allows them to have access to the
operational assistance grant funds authorized under the
program, also without entering into a participation agreement
with SBA to act as an NMVC company.
Need for Legislation
Despite our unprecedented economic prosperity, there remain
places in America that have yet to reap the benefits of this
prosperity. Although many Americans enjoy strong income and
wage growth, millions in underserved areas still do not have
access to jobs or entrepreneurial opportunities.
For example, between 1997 and 1998, the median income for
the nation's households rose 3.5 percent in real terms. Yet
12.7 percent of Americans (34.5 million people) still live
below the poverty level. These 34.5 million people live in the
inner cities and rural areas of America, where jobs are scarce
and there is little to attract would-be small business
investors.
The overall poverty rate for the U.S. in 1998 was 12.7
percent, but the poverty rate among both African American and
Latino populations was 26 percent--double the national average.
In rural communities, poverty remains a persistent problem. Job
growth is well below the national average, with unemployment
hovering at or above 14%. Additionally, the unemployment levels
in many urban communities range from 7.5% for African Americans
to 6.4% for Hispanics. Both are nearly double the national
average.
It is not enough to merely create jobs in these pockets of
poverty. Rather, we must create a small business backbone, an
economic infrastructure to enable these communities to develop
their full potential and participate fully in the economic
mainstream.
H.R. 4530 uses SBA resources targeted to corporations and
small businesses that want to do business in the untapped
markets of our underserved communities. It is a wise investment
in the hopes of millions of families who are not sharing in the
American Dream.
There is a pressing need for this legislation. There are
virtually no institutional sources of equity capital in
distressed communities. The national venture capital industry
for community development comprises only 25 firms managing
approximately $157 million. Only 14 of those are capitalized at
$5 million or more--the absolute minimum for economic
viability.
H.R. 4530 will tap unrealized resources in our nation, thus
benefiting our economy as a whole. It will increase the
attractiveness of investment in places with high unemployment
and too few businesses. The more the business community knows
about these new markets, the more likely they will invest in
them--and the more businesses that invest in these new markets,
the more these areas will share in our nation's economic
prosperity. This legislation provides a road map for the next
generation to succeed, and it makes good sense from both a
public policy and business standpoint.
Committee Action
The Committee on Small Business held no separate hearings
on H.R. 4530. During the committee's hearing on the
Reauthorization of the Small Business Administration programs
and the Agency's Fiscal Year 2001 Budget Request held on March
1, 2000, SBA Administrator Alvarez outlined the Agency's
position on the New Markets Venture Capital Program. The
Administrator's statement included reference to SBA's request
for $21.6 million in budget authority to support a $150 million
program level, and an additional $30 million for technical
assistance for the NMVC Program.
Administrator Alvarez went on to discuss the absence of
equity-type venture capital in America's distressed communities
and cited SBA's own analysis of community development venture
capital companies which indicates that one direct job is
created for each $10,000-$15,000 of equity investment.
Finally, the Administrator indicated that SBA's
calculations concerning the cost of the program were conducted
using the most conservative assumptions; therefore, SBA
believes the cost will go down as they develop more experience
with this new program.
Consideration of H.R. 4530
At 10:00 a.m. on May 25, 2000, the Committee on Small
Business met to consider and report H.R. 4530. Following brief
opening statements by the Chairman and the Ranking Democratic
Member, the Chairman declared the bill open for amendment.
No amendments were offered. Chairman Talent then moved the
bill be reported, and at 10:25 a.m., by unanimous voice vote, a
quorum being present, the Committee passed H.R. 4530 and
ordered it reported.
Section-by-Section Analysis
Section 1. Short Title
Designates the bill as the ``New Markets Venture Capital
Program Act of 2000.''
Section 2. New Markets Venture Capital Program
This Section amends Title III of the Small Business
Investment Act of 1958 by adding new Sections 351 through 368
to establish the ``New Markets Venture Capital Program.''
H.R. 4530 will add the following new sections to the Small
Business Investment Act:
SEC. 351. DEFINITIONS.
Establishes definitions for developmental venture capital,
New Markets Venture Capital Companies, low- or moderate-income
geographic area, operational assistance, participation
agreement, and Specialized Small Business Investment Companies
as used in the legislation.
``Developmental venture capital'' is defined as equity
capital invested in businesses, with a primary objective of
fostering economic development in low- or moderate-income
geographic areas. For the purposes of this Act, the Committee
considers equity investments to mean stock of any class in a
corporation, stock options, warrants, limited partnership
interests, membership interests in a limited liability company,
or joint venture interests. Financings containing debt-type
acceleration provisions or redemption provisions allowing
redemption within five years would be considered debt
transactions.
A ``New Markets Venture Capital Company'' is defined as a
company that has been approved by the Administration to operate
under the New Markets Venture Capital Program, and has entered
into a participation agreement with the Administration to make
equity investments and provide technical assistance to small
enterprises located in low- or moderate-income areas.
The term ``low- or moderate-income geographic area'' means
a census tract, or the equivalent county division as defined by
the Bureau of the Census for purposes of defining poverty
areas, in which the poverty rate is not less than 20 percent.
This also includes any area located within a HUBZone, an Urban
Empowerment Zone or an Urban Enterprise Community, or a rural
Empowerment Zone or a Rural Enterprise Community.
The term ``operational assistance'' is defined as
management, marketing, and other technical assistance that
assists a small business concern with business development.
``Participation agreement'' is defined as an agreement
between the Administration and an NMVC Company detailing the
company's operating plan and investment criteria; and requiring
that investments be made in smaller enterprises at least 80
percent of which are located in low- or moderate-income
geographic areas.
``Specialized Small Business Investment Company'' means any
small business investment company that was licensed under
section 301(d) as in effect before September 30, 1996.
SEC. 352. PURPOSES.
Describes the purposes of this Act, which are:
(1) to promote economic development and the creation
of wealth and job opportunities in low- or moderate-
income geographic areas and among individuals living in
such areas by encouraging developmental venture capital
investments in smaller enterprises primarily located in
such areas; and
(2) to establish a developmental venture capital
program, with the mission of addressing the unmet
equity investment needs of small entrepreneurs located
in low- or moderate-income areas; to be administered by
the Small Business Administration; to enter into a
participation agreement with NMVC companies; to
guarantee debentures of NMVC companies to enable each
such company to make developmental venture capital
investments in smaller enterprises in low- or moderate-
income geographic areas; and to make grants to NMVC
companies for the purpose of providing operational
assistance to smaller enterprises financed, or expected
to be financed, by such companies.
SEC. 353. ESTABLISHMENT.
Authorizies the SBA to establish the NMVC Program, under
which the SBA may form New Markets Venture Capital companies by
entering into participation agreements with firms that are
granted final approval under the requirements set forth in
Section 354 and formed for the purposes outlined in Section
352.
This Section also authorizes SBA to guarantee the
debentures issued by the NMVC Companies as provided in Section
355; and to make operational assistance grants to NMVC
Companies and other entities in accordance with Section 358.
SEC. 354. SELECTION OF THE NEW MARKETS VENTURE CAPITAL COMPANIES.
Establishes the criteria to be followed by SBA in selecting
the NMVC Companies. This section provides for specific
selection criteria to be developed by the SBA--based on the
criteria enumerated in this legislation--and designed to ensure
that a variety of investment models are chosen and that
appropriate public policy goals are addressed. Geographic
dispersion must also be taken into account in the selection
process.
H.R. 4530 requires Program participants to satisfy the
following application requirements:
(1) Each NMVC must be a newly formed, for-profit
entity with at least $5 million of contributed capital
or binding capital commitments from non-Federal
investors, and with the primary objective of economic
development in low- or moderate-income geographic
areas.
(2) Each NMVC's management team must be experienced
in some form of community development or venture
capital financing.
(3) Each NMVC must concentrate its activities on
serving its investment areas, and submit a proposal
that will expand economic opportunities and address the
unmet capital needs within the investment areas.
(4) Each applicant must submit a strong proposal to
provide operational assistance, including the possible
use of outside, licensed professionals.
(5) Each NMVC must have binding commitments (in cash
or in-kind) for operational assistance and overhead,
payable or available over a multi-year period not to
exceed 10 years, in an amount equal to 30% of its
committed and contributed capital. These commitments
may be from any non-SBA source and the cash portion may
be invested in an annuity payable semi-annually over a
multi-year period not to exceed 10 years.
The Committee is well aware that it will be difficult for
some NMVCs to raise their entire match during the application
stage. Those NMVCs that are unable to raise the required match,
but have submitted a reasonable plan to the Administrator to
meet the requirement, may be granted a conditional approval
from the Administrator and be allowed to draw one dollar of
federal matching funds for every dollar of private funds
raised. This conditional approval shall be made with the
expectation that the required funding commitments will be
obtained within two years of the conditional approval.
The Committee believes that it is important to give NMVCs
the flexibility to obtain the required private operational
assistance funds, however, from a safety and soundness
standpoint, federal assistance funds should not be placed at
greater risk than private assistance funds.
The bill also authorizes SBA to select firms that have
experience with investing in enterprises located in low- or
moderate-income areas to participate as NMVCs. SBA will enter
into an agreement with each NMVC setting forth the specific
terms of that firm's participation in the program. Each
agreement will be tailored to the particular NMVC's operations
and will be based on the NMVC's own proposal, submitted as part
of the NMVC's application form. The agreement will require that
investments be made by the NMVC in smaller enterprises, at
least 80% of which are located in low- or moderate-income
geographic areas.
In order for an investment to be counted toward the 80%
goal under H.R. 4530, the investment must be made in a small
business concern located in an LMI area. This ensures that the
New Markets Venture Capital Company Program will focus
investment capital where it is most needed, rather than
duplicating existing SBA programs.
The Committee believes that the targeting of low-income
communities is the most important element of H.R. 4530. If
congress and the Administration are serious about helping our
nation's low-income cities, towns, and rural areas we should
demonstrate our commitment by ensuring that this bill is
focused on these areas. The Committee has accomplished this by
requiring that 80% of all investment will concentrate on those
needing this help the most.
By clearly focusing this legislation on the communities
that need assistance the most, the Committee has maximized the
impact of this program. It is also the Committee's view that by
investing the majority of funds in low- or moderate-income
communities, we will not only provide the benefit of increased
opportunities for working families, but H.R. 4530 will also
provide the benefit of improving the physical community. This
double benefit ensures that the resources spent under H.R. 4530
will provide the maximum economic impact on the low- or
moderate-income communities to which this bill is targeted.
The Committee recognizes that the legislation may offer
some benefits to working families located outside of the LMI
areas as defined by the legislation. To address this concern,
up to 20% of a New markets Venture Capital Company's
investments are permitted in those businesses that are in need
of equity investment, but fall outside the LMI areas as defined
by the legislation. However, it is the Committee's strong
opinion that to reduce the targeting below 80% would
significantly diminish the impact in the LMI areas, and would
be contrary to the intent of the program.
SEC. 355. DEBENTURES.
Authorizes SBA to guarantee debentures issued by NMVC
companies. The terms for the guaranteed debentures issued under
this section may not exceed 15 years and the maximum total
guarantee for any NMVC company shall not exceed 150 percent of
a company's private capital.
SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.
Authorizes SBA to issue and guarantee trust certificates
representing ownership of all or part of the debentures issued
by an NMVC company and guaranteed by the Administration. Each
guarantee issued under this section is limited to the amount of
the principal and interest on the guaranteed debentures that
compose the trust or pool of certificates.
This section grants SBA subrogation and ownership rights
over the trust certificates guaranteed under this section, but
prohibits SBA from collecting a fee for any guarantee of a
trust certificate issued under this section. Finally, this
section allows SBA to contract with an agent to carry out the
pooling and central registration functions for the trust
certificates issued.
SEC. 357. FEES.
Authorizes SBA to charge such fees as it deems appropriate
with respect to any guarantee or grant issued to an NMVC
company.
This authorization is subject to the prohibition contained
in Section 356 that prohibits SBA from collecting a fee for any
guarantee of a trust certificate issued under that section.
SEC. 358. OPERATIONAL ASSISTANCE GRANTS.
Authorizes SBA to make operational assistance grants to New
Markets Venture Capital Companies established under the
legislation and to certain Specialized Small Business
Investment Companies.
Each NMVC is eligible for one or more grants, on a matching
basis, in an amount equal to the amount the NMVC makes
available for operational assistance. The operational
assistance grant will be made available to the NMVC semi-
annually over a multi-year period not to exceed 10 years. SBA
is also authorized to provide supplemental grants to NMVCs.
This section of the bill also allows Specialized Small
Business Investigation Companies (``SSBICs'') access to the
operational assistance grant funds authorized under the program
without entering into a participation agreement with SBA to act
as an NMVC company. The participation of the SSBICs, however,
is limited only to investments they make in LMI areas after the
date of enactment, and they must match the operational
assistance funds to one LMI investment.
This section of the bill explicitly prohibits NMVCs and
SSBICs from using operational assistance grants, both the
federal contribution and the match, to supplement their own
bottom line. This prohibition includes items that are not aimed
at directly benefiting the small enterprises, such as, but not
limited to--the purchase of furniture, office supplies,
physical improvements to the NMVCs' or SSBICs' places of
business, and marketing services. The Committee included this
limitation to ensure that the investments made through this
program will be for the benefit of small businesses located in
LMI areas, which is the intent of the legislation.
It is the Committee's view that this provision does allow
for operational assistance funds under the legislation to be
used for salaries of those NMVC or SSBIC employees that are
providing direct technical assistance to the small enterprise.
NMVCs and SSBICs that use their own staff to provide the
necessary direct assistance to smaller enterprises may be
reimbursed for the direct cost of staff out of grant funds, but
only to the extent such costs are allocable to the operational
assistance.
This section also requires the NMVC companies to use
licensed professionals (e.g., licensed attorneys and Certified
Public Accountants) when providing technical assistance that
requires such expertise. This ensures that the NMVC companies
will provide the best assistance possible to the small business
concerns.
Evidence presented to the Committee by the community
development venture capital advocates indicates that providing
technical assistance to a small business dramatically increases
that business' chance of success. The Committee is taking this
one step further by ensuring that all small businesses
receiving technical assistance under this program will receive
the best technical assistance available. We believe this will
further increase the businesses' chances of success.
SEC. 359. BANK PARTICIPATION.
Allows any national bank, and any member bank of the
Federal Reserve System to invest in an NMVC company formed
under this legislation so long as the investment would not
exceed 5 percent of the capital and surplus of the bank.
Banks that are not members of the federal Reserve system
are allowed to invest in an NMVC company formed under this
legislation so long as such investment is allowed under
applicable State law, and so long as the investment would not
exceed 5 percent of the capital and surplus of the bank.
SEC. 360. FEDERAL FINANCING BANK.
Establishes that Section 318 of the Small Business
Investment Act does not apply to any NMVC Company created under
this legislation.
SEC. 361. REPORTING REQUIREMENTS.
Establishes reporting requirements for the NMVC Companies.
Specifically, the NMVC companies are required to provide to SBA
such information as the Administration requires, including:
information related to the measurement criteria that the NMVC
proposed in its program application; and, for each case in
which the NMVC makes an investment or a grant to a business
located outside of an LMI area, a report on the number and
percentage of employees of the business who reside in an LMI
area.
SEC. 362. EXAMINATIONS.
Requires that each NMVC company shall be subjected to
examinations made at the direction of the Investment Division
of SBA. This section allows for examinations to be conducted
with the assistance of a private sector entity that has both
the necessary qualifications and expertise.
It is the intent of the Committee that the oversight of the
NMVC program be modeled after that developed for the SBIC
program and administered by SBA's Investment Division.
Oversight should include a close working relationship between
SBA analysts and NMVC management teams, detailed reporting
requirements, frequent on-site examinations to evaluate
performance and conformance with the operating plan, and
careful analysis of the firm's economic impact.
SEC. 363. INJUNCTIONS AND OTHER ORDERS.
Grants SBA the power of injunction over NMVC companies and
the authority to act as a trustee or receiver of a company if
appointed by a court.
This section of the legislation closely tracks the existing
injunction provision (Section 311) of the Small Business
Investment Act of 1958. Again, it is the Committee's intent
that oversight of the NMVC program be modeled after that
developed for the SBIC program and administered by SBA's
Investment Division. This oversight should include a close
working relationship between SBA analysts and NMVC management
teams, detailed reporting requirements, frequent on-site
examinations to evaluate performance and conformance with the
operating plan, and careful analysis of the firm's economic
impact.
SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE.
Grants SBA or the Attorney General the authority to file a
cause of action against an NMVC company for non-compliance.
Should a court find that a company violated or failed to comply
with provisions of this legislation or other provisions of the
Small Business Investment Act of 1958, this section grants SBA
the authority to void the participation agreement between the
company and the SBA.
SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY DUTY.
Defines what is to be considered as a violation of this
legislation, who is considered to have a fiduciary duty, and
who is ineligible to serve as an officer, director, or employee
of any NMVC company because of unlawful acts.
This section of the legislation closely tracks the unlawful
acts provision (Section 314) of the Small Business Investment
Act of 1958. It is the Committee's intent to grant SBA the same
authority over NMVC companies that it has over Small Business
Investment Companies with respect to unlawful acts and the
breach of fiduciary responsibility.
SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.
Grants SBA the authority to use the procedures set forth in
Section 313 of the Small Business Investment Act of 1958 to
remove or suspend any director or officer of an NMVC company.
SEC. 367. REGULATIONS.
Authorizes the Small Business Administration to issue such
regulations as it deems necessary to carry out the provisions
of the legislation.
SEC. 368. AUTHORIZATION OF APPROPRIATIONS.
Authorizes appropriations for the Program for Fiscal Years
2000 through 2005. This section authorizes such subsidy budget
authority as necessary to guarantee $150,000,000 of debentures
and $30,000,000 to make operational assistance grants.
The Committee estimates that the Program will only require
a one-time appropriation of $45 million--$15 million for loan
guarantees and $30 million for operational assistance grants.
This $15 million will allow SBA to back $150 million in loans
to small business in low- or moderate-income areas.
Section 3. Conforming amendment
Makes a conforming change to the Small Business Investment
Act of 1958 to account for the changes made by this
legislation.
Section 4. Calculation of maximum amount of SBIC leverage
Allows Small Business Investment Companies (``SBICs'') to
have access to the leverage capital authorized under the
program without entering into a participation agreement with
SBA to act as an NMVC company. The participation of the SBICs,
however, is limited only to investments they make in LMI areas.
This section provides that investments made through the
NMVC program will not apply against the leverage cap of the
individual SBIC as long as the total amount invested through
the program does not exceed 50% of the SBIC's paid-in capital.
Section 5. Bankruptcy exemption for new markets venture capital
companies
Adds NMVC companies to the list of entities that may not be
considered a debtor under a Title 11 bankruptcy proceeding.
Section 6. Federal savings associations
Amends the ``Home Owners Loan Act'' to allow federal
savings associations to invest in an NMVC company formed under
this legislation so long as the investment would not exceed 5
percent of the capital and surplus of the savings association.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives the Committee includes a cost estimate
on H.R. 4530 prepared by the Congressional Budget Office.
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 6, 2000.
Hon. James M. Talent,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4530, the New
Markets Venture Capital Program Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Hadley
(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. 4530--New Markets Venture Capital Program Act of 2000
Summary: H.R. 4530 would authorize appropriations for
fiscal years 2000 through 2005 for the New Markets Venture
Capital (NMVC) program within the Small Business Administration
(SBA). This program would provide federal loan guarantees to
venture capital corporations that invest in small businesses
located in low-income and moderate-income communities. The bill
would authorize the appropriation of $30 million for technical
assistance grants and such sums as may be necessary to cover
the subsidy costs of such loan guarantees. SBA could make
commitments to guarantee loans only to the extent that the
total loan principal, any part of which is guaranteed, would
not exceed $150 million or the amount specified in
appropriation acts.
CBO estimates that implementing H.R. 4530 would cost a
total of $47 million over the 2001-2005 period, assuming
appropriation of the necessary amounts. Because H.R. 4530 would
not affect direct spending or receipts, pay-as-you-go
procedures would not apply. H.R. 4530 contains an
intergovernmental mandate as defined in the Unfunded Mandates
Reform Act (UMRA), but CBO estimates that the cost of the
mandate would not be significant. The bill does not contain any
new private-sector mandates.
Estimated Cost to the Federal Government: For this
estimate, CBO assumes that H.R. 4530 will be enacted in fiscal
year 2000 and that funds will be provided for its
implementation each year. The estimated budgetary impact of
H.R. 4530 is shown in the following table. The costs of this
legislation fall within budget function 370 (commerce and
housing credit).
------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------
2000 2001 2002 2003 2004 2005
------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
Spending for NMVC Under
Current Law:
Budget Authority \1\...... 15 0 0 0 0 0
Estimated Outlays......... 3 9 2 0 0 0
Proposed Changes:
Estimated Authorization 0 18 17 5 5 5
Level....................
Estimated Outlays......... 0 11 16 9 6 5
Spending Under H.R. 4530:
Estimated Authorization 15 18 17 5 5 5
Level....................
Estimated Outlays......... 3 20 18 9 6 5
------------------------------------------------------------------------
\1\ $15 million is the amount appropriated for fiscal year 2000.
Basis of Estimate: 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 $150 million in
NMVC loan guarantees. For this estimate, CBO assumes SBA would
guarantee 100 percent of any loans under this program.
CBO estimates that H.R. 4530 would authorize the
appropriation of an additional $50 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.
4530 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. In addition, CBO estimates that it would cost about $30
million to subsidize $150 million in NMVC loan guarantees,
which is $24 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 trends in 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 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. 4530 would authorize SBA to
guarantee up to $150 million of loans, we estimate that this
program would require the appropriation of about $30 million
for credit subsidies.
Pay-as-You-Go Considerations: None.
Impact on State, Local, and Tribal Governments: H.R. 4530
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.
Such a preemption of state law is an intergovernmental mandate
as defined in UMRA, but CBO estimates that this mandate would
impose no significant costs on state, local, or tribal
governments.
Impact on the Private Sector: This bill contains no new
private-sector mandates as defined in UMRA.
Previous CBO Estimate: On June 26, 2000, CBO transmitted a
cost estimate for H.R. 2848, the New Markets Initiative Act of
1999, as ordered reported by the House Committee on Banking and
Financial Services on April 13, 2000. H.R. 2848 would authorize
loan guarantees under the NMVC program of up to $100 million,
and technical assistance to borrowers. CBO estimated those
provisions would cost $40 million over the 2001-2005 period.
Estimate Prepared by: Federal Costs: Mark Hadley. 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.
Committee Estimate of Costs
Pursuant to the Congressional Budget Act of 1974, and
clause 3(d)(2)(B) of rule XIII of the Rules of the House of
Representatives the Committee estimates that the amendments to
the Small Business Investment Act contained in H.R. 4530, if
fully funded, will increase discretionary spending by
approximately $45 million over the next five fiscal years. The
Committee also estimates that H.R. 4530 will not affect direct
spending. This estimate concurs with Congressional Budget
Office (CBO) estimates.
Furthermore, pursuant to clause 3(d)(2)(A) of rule XIII of
the Rules of the House of Representatives, the Committee
estimates that implementation of H.R. 4530 will increase
administrative costs at the Small Business Administration by
approximately $1,000,000 per annum for the next five fiscal
years.
Unfunded Mandates
H.R. 4530 contains no unfunded private sector mandates as
defined in the Unfunded Mandates Reform Act, Public Law 104-4.
Oversight Findings
In accordance with clause 4(c)(2) of rule X of the Rules of
the House of Representatives, the Committee states that no
oversight findings or recommendations have been made by the
Committee on Government Reform with respect to the subject
matter contained in H.R. 4530.
In accordance with clause (2)(b)(1) of rule X of the Rules
of the House of Representatives, the oversight findings and
recommendations of the Committee on Small Business with respect
to the subject matter contained in H.R. 4530 are incorporated
into the descriptive portions of this report.
Statement of Constitutional Authority
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in Article I, section 8, clause 18, of the
Constitution of the United States.
Federal Advisory Committee Statement
H.R. 4530 does not create or authorize the establishment of
any new advisory committees.
Congressional Accountability Act
The Committee finds that H.R. 4530 does not relate to the
terms and conditions of employment or access to public services
or accommodations within the meaning of section 102(b)(3) of
the Congressional Accountability Act (P.L. 104-1).
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 III--[SMALL BUSINESS INVESTMENT COMPANIES] INVESTMENT DIVISION
PROGRAMS
Part A_Small Business Investment Companies
organization of small business investment companies
Sec. 301. (a) A small business investment company shall be an
incorporated body, a limited liability company, or a limited
partnership organized and chartered or otherwise existing under
State law solely for the purpose of performing the functions
and conducting the activities contemplated under this title,
which, if incorporated, has succession for a period of not less
than thirty years unless sooner dissolved by its shareholders,
and if a limited partnership, has succession for a period of
not less than ten years, and possesses the powers reasonably
necessary to perform such functions and conduct such
activities. The area in which the company is to conduct its
operations, and the establishment of branch offices or agencies
(if authorized by the articles), shall be subject to the
approval of the Administration.
* * * * * * *
Sec. 303. (a) * * *
(b) To encourage the formation and growth of small business
investment companies the Administration is authorized when
authorized in appropriation Acts, to purchase, or to guarantee
the timely payment of all principal and interest as scheduled
on, debentures or participating securities issued by such
companies. Such purchases or guarantees may be made by the
Administration on such terms and conditions as it deems
appropriate, pursuant to regulations issued by the
Administration. The full faith and credit of the United States
is pledged to the payment of all amounts which may be required
to be paid under any guarantee under this subsection.
Debentures purchased or guaranteed by the Administration under
this subsection shall be subordinate to any other debenture
bonds, promissory notes, or other debts and obligations of such
companies, unless the Administration in its exercise of
reasonable investment prudence and in considering the financial
soundness of such company determines otherwise. Such debentures
may be issued for a term of not to exceed fifteen years and
shall bear interest at a rate not less than a rate determined
by the Secretary of the Treasury taking into consideration the
current average market yield on outstanding marketable
obligations of the United States with remaining periods to
maturity comparable to the average maturities on such
debentures, adjusted to the nearest one-eighth of 1 per centum,
plus an additional charge of 1 percent per annum which shall be
paid to and retained by the Administration. The debentures or
participating securities shall also contain such other terms as
the Administration may fix, and shall be subject to the
following restrictions and limitations:
(1) * * *
[(2) After March 31, 1993, the maximum amount of
outstanding leverage made available to a company
licensed under section 301(c) of this Act shall be
determined by the amount of such company's private
capital--
[(A) if the company has private capital of
not more than $15,000,000, the total amount of
leverage shall not exceed 300 per centum of
private capital;
[(B) if the company has private capital of
more than $15,000,000 but not more than
$30,000,000, the total amount of leverage shall
not exceed $45,000,000 plus 200 per centum of
the amount of private capital over $15,000,000;
and
[(C) if the company has private capital of
more than $30,000,000, the total amount of
leverage shall not exceed $75,000,000 plus 100
per centum of the amount of private capital
over $30,000,000 but not to exceed an
additional $15,000,000.
[(D)(i) The dollar amounts in subparagraphs
(A), (B), and (C) shall be adjusted annually to
reflect increases in the Consumer Price Index
established by the Bureau of Labor Statistics
of the Department of Labor.
[(ii) The initial adjustments made under this
subparagraph after the date of enactment of the
Small Business Reauthorization Act of 1997
shall reflect only increases from March 31,
1993.]
(2) Maximum leverage.--
(A) In general.--After March 31, 1993, the
maximum amount of outstanding leverage made
available to a company licensed under section
301(c) of this Act shall be determined by the
amount of such company's private capital--
(i) if the company has private
capital of not more than $15,000,000,
the total amount of leverage shall not
exceed 300 percent of private capital;
(ii) if the company has private
capital of more than $15,000,000 but
not more than $30,000,000, the total
amount of leverage shall not exceed
$45,000,000 plus 200 percent of the
amount of private capital over
$15,000,000; and
(iii) if the company has private
capital of more than $30,000,000, the
total amount of leverage shall not
exceed $75,000,000 plus 100 percent of
the amount of private capital over
$30,000,000 but not to exceed an
additional $15,000,000.
(B) Adjustments.--
(i) In general.--The dollar amounts
in clauses (i), (ii), and (iii) of
subparagraph (A) shall be adjusted
annually to reflect increases in the
Consumer Price Index established by the
Bureau of Labor Statistics of the
Department of Labor.
(ii) Initial adjustments.--The
initial adjustments made under this
subparagraph after the date of
enactment of the Small Business
Reauthorization Act of 1997 shall
reflect only increases from March 31,
1993.
(C) Investments in low- or moderate-income
areas.--In calculating the outstanding leverage
of a company for the purposes of subparagraph
(A), the Administrator shall not include the
amount of the cost basis of any equity
investment made by the company in a smaller
enterprise located in a low- or moderate-income
geographic area (as defined in section 351), to
the extent that the total of such amounts does
not exceed 50 percent of the company's private
capital.
* * * * * * *
(4) Maximum aggregate amount of leverage.--
(A) * * *
* * * * * * *
(D) Investments in low- or moderate-income
areas.--In calculating the aggregate
outstanding leverage of a company for the
purposes of subparagraph (A), the Administrator
shall not include the amount of the cost basis
of any equity investment made by the company in
a smaller enterprise located in a low- or
moderate-income geographic area (as defined in
section 351), to the extent that the total of
such amounts does not exceed 50 percent of the
company's private capital.
* * * * * * *
Part B--New Markets Venture Capital Program
SEC. 351. DEFINITIONS.
In this part, the following definitions apply:
(1) Developmental venture capital.--The term
``developmental venture capital'' means capital in the
form of equity investments in businesses made with a
primary objective of fostering economic development in
low- or moderate-income geographic areas.
(2) Low- or moderate-income geographic area.--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;
(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; or
(B) any area located within--
(i) a historically underutilized
business zone (HUBZone), as defined in
section 3(p) of the Small Business Act
(15 U.S.C. 632(p));
(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.
(3) New markets venture capital company.--The term
``New Markets Venture Capital company'' means a company
that--
(A) has been granted final approval by the
Administration under section 354(e); and
(B) has entered into a participation
agreement with the Administration.
(4) Operational assistance.--The term ``operational
assistance'' means management, marketing, and other
technical assistance that assists a small business
concern with business development.
(5) Participation agreement.--The term
``participation agreement'' means an agreement, between
the Administration and a company granted final approval
under section 354(e), that--
(A) details the company's operating plan and
investment criteria; and
(B) requires the company to make investments
in smaller enterprises at least 80 percent of
which are located in low- or moderate-income
geographic areas.
(6) Specialized small business investment company.--
The term ``specialized small business investment
company'' means any small business investment company
that--
(A) invests solely in small business concerns
that contribute to a well-balanced national
economy by facilitating ownership in such
concerns by persons whose participation in the
free enterprise system is hampered because of
social or economic disadvantages;
(B) is organized or chartered under State
business or nonprofit corporations statutes, or
formed as a limited partnership; and
(C) was licensed under section 301(d), as in
effect before September 30, 1996.
SEC. 352. PURPOSES.
The purposes of the New Markets Venture Capital Program
established under this part are--
(1) to promote economic development and the creation
of wealth and job opportunities in low- or moderate-
income geographic areas and among individuals living in
such areas by encouraging developmental venture capital
investments in smaller enterprises primarily located in
such areas; and
(2) to establish a developmental venture capital
program, with the mission of addressing the unmet
equity investment needs of small enterprises located in
low- and moderate-income geographic areas, to be
administered by the Administration--
(A) to enter into participation agreements
with New Markets Venture Capital companies;
(B) to guarantee debentures of New Markets
Venture Capital companies to enable each such
company to make developmental venture capital
investments in smaller enterprises in low- or
moderate-income geographic areas; and
(C) to make grants to New Markets Venture
Capital companies, and to other entities, for
the purpose of providing operational assistance
to smaller enterprises financed, or expected to
be financed, by such companies.
SEC. 353. ESTABLISHMENT.
In accordance with this part, the Administration shall
establish a New Markets Venture Capital Program, under which
the Administration may--
(1) enter into participation agreements with
companies granted final approval under section 354(e)
for the purposes set forth in section 352;
(2) guarantee the debentures issued by New Markets
Venture Capital companies as provided in section 355;
and
(3) make grants to New Markets Venture Capital
companies, and to other entities, under section 358.
SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.
(a) Eligibility.--A company shall be eligible to apply to
participate, as a New Markets Venture Capital company, in the
program established under this part if--
(1) the company is a newly formed for-profit entity
or a newly formed for-profit subsidiary of an existing
entity;
(2) the company has a management team with experience
in community development financing or relevant venture
capital financing; and
(3) the company has a primary objective of economic
development of low- or moderate-income geographic
areas.
(b) Application.--To participate as a New Markets Venture
Capital company in the program established under this part a
company meeting the eligibility requirements set forth in
subsection (a) shall submit an application to the
Administration that includes--
(1) a business plan describing how the company
intends to make successful developmental venture
capital investments in identified low- or moderate-
income geographic areas;
(2) information regarding the community development
finance or relevant venture capital qualifications and
general reputation of the company's management;
(3) a description of how the company intends to work
with community organizations and to seek to address the
unmet capital needs of the communities served;
(4) a proposal describing how the company will use
the grant funds provided under this part to provide
operational assistance to smaller enterprises financed
by the company, including information regarding whether
the company will use licensed professionals, where
applicable, on the company's staff or from an outside
entity;
(5) with respect to binding commitments to be made to
the company under this part, an estimate of the ratio
of cash to in-kind contributions;
(6) a description of the criteria to be used to
evaluate whether and to what extent the company meets
the objectives of the program established under this
part;
(7) 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
(8) 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 company will meet
the goals of its business plan.
(B) The experience and background of the
company's management team.
(C) The need for developmental venture
capital investments in the geographic areas in
which the company intends to invest.
(D) The extent to which the company will
concentrate its activities on serving the
geographic 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 geographic areas in which
the company intends to invest.
(G) The strength of the company's proposal to
provide operational assistance under this part
as the proposal relates to the ability of the
applicant to meet applicable cash requirements
and properly utilize in-kind contributions,
including the use of resources for the services
of licensed professionals whether provided by
persons on the company's staff or by persons
outside of the company.
(H) Any other factors deemed appropriate by
the Administration.
(3) Nationwide distribution.--The Administration
shall select companies under paragraph (1) in such a
way that promotes investment nationwide.
(d) Requirements To Be Met for Final Approval.--The
Administration shall grant each conditionally approved company
a period of time, not to exceed 2 years, to satisfy the
following requirements:
(1) Capital requirement.--Each conditionally approved
company must raise not less than $5,000,000 of private
capital or binding capital commitments from 1 or more
investors (other than agencies or departments of the
Federal Government) who meet criteria established by
the Administration.
(2) Nonadministration resources for operational
assistance.--In order to provide operational assistance
to smaller enterprises expected to be financed by the
company, each conditionally approved company--
(A) must have binding commitments (for
contribution 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 not less than 30
percent of the total amount of capital
and commitments raised under paragraph
(1);
(B) must have purchased an annuity--
(i) from an insurance company
acceptable to the Administration;
(ii) using funds (other than the
funds raised under paragraph (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 not less than 30 percent
of the total amount of capital and
commitments raised under paragraph (1);
or
(C) must have binding commitments (for
contributions in cash or in kind) of the type
described in subparagraph (A) and must have
purchased an annuity of the type described in
subparagraph (B), which in the aggregate make
available, over a multiyear period acceptable
to the Administration (not to exceed 10 years),
an amount not less than 30 percent of the total
amount of capital and commitments raised under
paragraph (1).
(e) Final Approval.--The Administration shall grant to a
company conditionally approved under subsection (c) final
approval to participate in the program established under this
part after the company has met the requirements set forth in
subsection (d).
SEC. 355. DEBENTURES.
(a) In General.--The Administration may guarantee the timely
payment of principal and interest, as scheduled, on debentures
issued by any New Markets Venture Capital company.
(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 is pledged to pay all
amounts that may be required to be paid under any guarantee
under this part.
(d) Maximum Guarantee.--
(1) In general.--Under this section, the
Administration may guarantee the debentures issued by a
New Markets Venture Capital company only to the extent
that the total face amount of outstanding guaranteed
debentures of such company does not exceed 150 percent
of the private capital of the company, as determined by
the Administration.
(2) Treatment of certain federal funds.--For the
purposes of paragraph (1), private capital shall
include capital that is considered to be Federal funds,
if such capital is contributed by an investor other
than an agency or department of the Federal Government.
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 a New Markets Venture Capital company
and guaranteed by the Administration under this part, 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 it deems appropriate, guarantee
the timely payment of the principal of and interest on
trust certificates issued by the Administration or its
agents for purposes of this section.
(2) Limitation.--Each guarantee under this subsection
shall be limited to the extent of principal and
interest on the guaranteed debentures that 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 is pledged to pay all
amounts that may be required to be paid under any guarantee of
a trust certificate issued by the Administration or its agents
under this section.
(d) Fees.--The Administration shall not collect a fee for any
guarantee of a trust certificate 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).
(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 Administration 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, of 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 part; and
(ii) the issuance of trust
certificates to facilitate the creation
of such trusts or pools.
(B) Fidelity bond or insurance requirement.--
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) Applicability of the securities exchange act of
1934.--Notwithstanding section 3(a)(42) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(42)),
trust certificates issued under this section shall not
be treated as government securities for the purposes of
that Act.
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. OPERATIONAL ASSISTANCE GRANTS.
(a) In General.--
(1) Authority.--In accordance with this section, the
Administration may make grants to New Markets Venture
Capital companies and to other entities, as authorized
by this part, to provide operational assistance to
smaller enterprises financed, or expected to be
financed, by such companies or other entities.
(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.
(3) Grants to specialized small business investment
companies.--
(A) Authority.--In accordance with this
section, the Administration may make grants to
specialized small business investment companies
to provide operational assistance to smaller
enterprises financed, or expected to be
financed, by such companies after the effective
date of the New Markets Venture Capital Program
Act of 2000.
(B) Use of funds.--
(i) In general.--The proceeds of a
grant made under this paragraph may be
used by the company receiving such
grant only to provide operational
assistance in connection with an equity
investment (made with capital raised
after the effective date of the New
Markets Venture Capital Program Act of
2000) in a business located in a low-
or moderate-income geographic area.
(ii) Additional limitation.--
Operational assistance referred to in
clause (i) may not be provided in
connection with more than 1 equity
investment.
(C) Submission of plans.--A specialized small
business investment company shall be eligible
for a grant under this section only if the
company submits to the Administrator, in such
form and manner as the Administrator may
require, a plan for use of the grant.
(4) Grant amount.--
(A) New markets venture capital companies.--
The amount of a grant made under this
subsection to a New Markets Venture Capital
company shall be equal to the resources (in
cash or in kind) raised by the company under
section 354(d)(2).
(B) Other entities.--The amount of a grant
made under this subsection to any entity other
than a New Markets Venture capital company
shall be equal to the resources (in cash or in
kind) raised by the entity in accordance with
the requirements applicable to New Markets
Venture Capital companies set forth in section
354(d)(2).
(5) 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 paragraph (4), the Administration shall
make pro rata reductions in the amounts otherwise
payable to each company and entity under such
paragraph.
(b) Supplemental Grants.--
(1) In general.--The Administration may make
supplemental grants to New Markets Venture Capital
companies and to other entities, as authorized by this
part, under such terms as the Administration may
require, to provide additional operational assistance
to smaller enterprises financed, or expected to be
financed, by the companies.
(2) Matching requirement.--The Administration may
require, as a condition of any supplemental grant made
under this subsection, that the company or entity
receiving the grant provide from resources (in cash or
in kind), other than those provided by the
Administration, a matching contribution equal to the
amount of the supplemental grant.
(c) Limitation.--None of the assistance made available under
this section may be used for any operating expense of a New
Markets Venture Capital company or a specialized small business
investment company.
SEC. 359. BANK PARTICIPATION.
(a) In General.--Except as provided in subsection (b), any
national bank, any member bank of the Federal Reserve System,
and (to the extent permitted under applicable State law) any
insured bank that is not a member of such system, 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. 360. FEDERAL FINANCING BANK.
Section 318 shall not apply to any debenture issued by a New
Markets Venture Capital company under this part.
SEC. 361. REPORTING REQUIREMENTS.
Each New Markets Venture Capital company that participates in
the program established under this part shall provide to the
Administration such information as the Administration may
require, including--
(1) information related to the measurement criteria
that the company proposed in its program application;
and
(2) in each case in which the company under this part
makes an investment in, or a loan or grant to, a
business that is not located in a low- or moderate-
income geographic area, a report on the number and
percentage of employees of the business who reside in
such areas.
SEC. 362. EXAMINATIONS.
(a) In General.--Each New Markets Venture Capital company
that participates in the program established under this part
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 and the
expertise necessary to conduct such examinations.
(c) Costs.--
(1) Assessment.--
(A) In general.--The Administration may
assess the cost of examinations under this
section, including compensation of the
examiners, against the company examined.
(B) Payment.--Any company against which the
Administration assesses costs under this
paragraph shall pay such costs.
(2) Deposit of funds.--Funds collected under this
section shall be deposited in the account for salaries
and expenses of the Administration.
SEC. 363. INJUNCTIONS AND OTHER ORDERS.
(a) In General.--Whenever, in the judgment of the
Administration, 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, or 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 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) Jurisdiction.--In any proceeding under subsection (a),
the court as a court of equity may, to such extent as it deems
necessary, take exclusive jurisdiction of the New Market
Venture Capital company and the assets thereof, wherever
located, and 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) Authority.--The Administration may act as trustee
or receiver of a New Markets Venture Capital company.
(2) Appointment.--Upon request of 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 by reason of the
special circumstances involved.
SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE.
(a) In General.--With respect to any New Markets Venture
Capital company that violates or fails to comply with any of
the provisions of this Act, of any regulation issued under this
Act, or of any participation agreement entered into under this
Act, the Administration may in accordance with this section--
(1) void the participation agreement between the
Administration and the company; and
(2) cause the company to forfeit all of the rights
and privileges derived by the company from this Act.
(b) Adjudication of Noncompliance.--
(1) In general.--Before the Administration may cause
a New Markets Venture Capital company to forfeit rights
or privileges under subsection (a), a court of the
United States of competent jurisdiction must find that
the company committed a violation, or failed to comply,
in a cause of action brought for that purpose in the
district, territory, or other place subject to the
jurisdiction of the United States, in which the
principal office of the company is located.
(2) Parties authorized to file causes of action.--
Each cause of action brought by the United States under
this subsection shall be brought by the Administration
or by the Attorney General.
SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY DUTY.
(a) Parties Deemed To Commit a Violation.--Whenever any New
Markets Venture Capital company violates any provision of this
Act, of a regulation issued under this Act, or of a
participation agreement entered into under this Act, by reason
of its failure to comply with its terms or by reason of its
engaging in any act or practice that 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 that
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 of the affairs of a New Markets Venture
Capital company to engage in any act or practice, or to omit
any act or practice, in breach of the person's fiduciary duty
as such officer, director, employee, agent, or participant if,
as a result thereof, the company suffers 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 any New Markets Venture
Capital company, or to become an agent or participant
in the conduct of the affairs or management of such a
company, if the person--
(A) has been convicted of a felony, or any
other criminal offense involving dishonesty or
breach of trust, or
(B) has been found civilly liable in damages,
or has been 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;
and
(2) for any person to 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 is 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.
SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.
Using the procedures for removing or suspending a director or
an officer of a licensee set forth in section 313 (to the
extent such procedures are not inconsistent with the
requirements of this part), the Administration may remove or
suspend any director or officer of any New Markets Venture
Capital company.
SEC. 367. REGULATIONS.
The Administration may issue such regulations as it deems
necessary to carry out the provisions of this part in
accordance with its purposes.
SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.
(a) In General.--For fiscal years 2000 through 2005, the
Administration is authorized to be appropriated, to remain
available until expended--
(1) such subsidy budget authority as may be necessary
to guarantee $150,000,000 of debentures under this
part; and
(2) $30,000,000 to make grants under this part.
(b) Funds Collected for Examinations.--Funds deposited under
section 362(c)(2) are authorized to be appropriated only for
the costs of examinations under section 362 and for the costs
of other oversight activities with respect to the program
established under this part.
* * * * * * *
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SECTION 20 OF THE SMALL BUSINESS ACT
Sec. 20. (a) * * *
* * * * * * *
(e) Fiscal Year 2000.--
(1) Program levels.--The following program levels are
authorized for fiscal year 2000:
(A) * * *
* * * * * * *
(C) For the programs authorized by part A of
title III of the Small Business Investment Act
of 1958, the Administration is authorized to
make--
(i) $1,500,000,000 in purchases of
participating securities; and
(ii) $800,000,000 in guarantees of
debentures.
* * * * * * *
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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 351 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, 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
* * * * * * *
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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 351 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.
* * * * * * *