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[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.

           *       *       *       *       *       *       *

                              ----------                              

                  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.

           *       *       *       *       *       *       *

                              ----------                              

              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

           *       *       *       *       *       *       *

                              ----------                              

                 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.

           *       *       *       *       *       *       *

                                  
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