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[House Report 106-638]
[From the U.S. Government Publishing Office]

106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-638

======================================================================

 
               AMERICA'S PRIVATE INVESTMENT COMPANIES ACT

                                _______
                                

  May 23, 2000.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                        [To accompany H.R. 2764]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Banking and Financial Services, to whom 
was referred the bill (H.R. 2764) to license America's Private 
Investment Companies and provide enhanced credit to stimulate 
private investment in low-income communities, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION. 1. SHORT TITLE.

  This Act may be cited as the ``America's Private Investment Companies 
Act''.

SEC. 2. FINDINGS AND PURPOSES.

  (a) Findings.--The Congress finds that--
          (1) people living in distressed areas, both urban and rural, 
        that are characterized by high levels of joblessness, poverty, 
        and low incomes have not benefited adequately from the economic 
        expansion experienced by the Nation as a whole;
          (2) unequal access to economic opportunities continues to 
        make the social costs of joblessness and poverty to our Nation 
        very high; and
          (3) there are significant untapped markets in our Nation, and 
        many of these are in areas that are underserved by institutions 
        that can make equity and credit investments.
  (b) Purposes.--The purposes of this Act are to--
          (1) license private for profit community development entities 
        that will focus on making equity and credit investments for 
        large-scale business developments that benefit low-income 
        communities;
          (2) provide credit enhancement for those entities for use in 
        low-income communities; and
          (3) provide a vehicle under which the economic and social 
        returns on financial investments made pursuant to this Act may 
        be available both to the investors in these entities and to the 
        residents of the low-income communities.

SEC. 3. DEFINITIONS.

  As used in this Act:
          (1) Administrator.--The term ``Administrator'' means the 
        Administrator of the Small Business Administration.
          (2) Agency.--The term ``agency'' has the meaning given such 
        term in section 551(1) of title 5, United States Code.
          (3) APIC.--The term ``APIC'' means a business entity that has 
        been licensed under the terms of this Act as an America's 
        Private Investment Company, and the license of which has not 
        been revoked.
          (4) Community development entity.--The term ``community 
        development entity'' means an entity the primary mission of 
        which is serving or providing investment capital for low-income 
        communities or low-income persons and which maintains 
        accountability to residents of low-income communities.
          (5) HUD.--The term ``HUD'' means the Secretary of Housing and 
        Urban Development or the Department of Housing and Urban 
        Development, as the context requires.
          (6) License.--The term ``license'' means a license issued by 
        HUD as provided in section 4.
          (7) Low-income community.--The term ``low-income community'' 
        means--
                  (A) a census tract or tracts that have--
                          (i) a poverty rate of 20 percent or greater, 
                        based on the most recent census data; or
                          (ii) a median family income that does not 
                        exceed 80 percent of the greater of (I) the 
                        median family income for the metropolitan area 
                        in which such census tract or tracts are 
                        located, or (II) the median family income for 
                        the State in which such census tract or tracts 
                        are located; or
                  (B) a property that was located on a military 
                installation that was closed or realigned pursuant to 
                title II of the Defense Authorization Amendments and 
                Base Closure and Realignment Act (Public Law 100-526; 
                10 U.S.C. 2687 note), the Defense Base Closure and 
                Realignment Act of 1990 (part A of title XXIX of Public 
                Law 101-510; 10 U.S.C. 2687 note), section 2687 of 
                title 10, United States Code, or any other similar law 
                enacted after the date of the enactment of this Act 
                that provides for closure or realignment of military 
                installations.
          (8) Low-income person.--The term ``low-income person'' means 
        a person who is a member of a low-income family, as such term 
        is defined in section 104 of the Cranston-Gonzalez National 
        Affordable Housing Act (42 U.S.C. 12704).
          (9) Private equity capital.--
                  (A) In general.--The term ``private equity 
                capital''--
                          (i) in the case of a corporate entity, the 
                        paid-in capital and paid-in surplus of the 
                        corporate entity;
                          (ii) in the case of a partnership entity, the 
                        contributed capital of the partners of the 
                        partnership entity;
                          (iii) in the case of a limited liability 
                        company entity, the equity investment of the 
                        members of the limited liability company 
                        entity; and
                          (iv) earnings from investments of the entity 
                        that are not distributed to investors and are 
                        available for reinvestment by the entity.
                  (B) Exclusions.--Such term does not include any--
                          (i) funds borrowed by an entity from any 
                        source or obtained through the issuance of 
                        leverage; except that this clause may not be 
                        construed to exclude amounts evidenced by a 
                        legally binding and irrevocable investment 
                        commitment in the entity, or the use by an 
                        entity of a pledge of such investment 
                        commitment to obtain bridge financing from a 
                        private lender to fund the entity's activities 
                        on an interim basis; or
                          (ii) funds obtained directly or indirectly 
                        from any Federal, State, or local government or 
                        any government agency, except for--
                                  (I) funds invested by an employee 
                                welfare benefit plan or pension plan; 
                                and
                                  (II) credits against any Federal, 
                                State, or local taxes.
          (10) Qualified active business.--The term ``qualified active 
        business'' means a business or trade--
                  (A) that, at the time that an investment is made in 
                the business or trade, is deriving at least 50 percent 
                of its gross income from the conduct of trade or 
                business activities in low-income communities;
                  (B) a substantial portion of the use of the tangible 
                property of which is used within low-income 
                communities;
                  (C) a substantial portion of the services that the 
                employees of which perform are performed in low-income 
                communities; and
                  (D) less than 5 percent of the aggregate unadjusted 
                bases of the property of which is attributable to 
                certain financial property, as the Secretary shall set 
                forth in regulations, or in collectibles, other than 
                collectibles held primarily for sale to customers.
          (11) Qualified debenture.--The term ``qualified debenture'' 
        means a debt instrument having terms that meet the requirements 
        established pursuant to section 6(c)(1).
          (12) Qualified low-income community investment.--The term 
        ``qualified low-income community investment'' mean an equity 
        investment in, or a loan to, a qualified active business.
          (13) Secretary.--The term ``Secretary'' means the Secretary 
        of Housing and Urban Development, unless otherwise specified in 
        this Act.

SEC. 4. AUTHORIZATION.

  (a) Licenses.--The Secretary is authorized to license community 
development entities as America's Private Investment Companies, in 
accordance with the terms of this Act.
  (b) Regulations.--The Secretary shall regulate APICs for compliance 
with sound financial management practices, and the program and 
procedural goals of this and other related Acts, and other purposes as 
required or authorized by this Act, or determined by the Secretary. The 
Secretary shall issue such regulations as are necessary to carry out 
the licensing and regulatory and other duties under this Act, and may 
issue notices and other guidance or directives as the Secretary 
determines are appropriate to carry out such duties.
  (c) Use of Credit Subsidy for Licenses.--
          (1) Number of licenses.--The number of APICs licensed at any 
        one time may not exceed--
                  (A) the number that may be supported by the amount of 
                budget authority appropriated in accordance with 
                section 504(b) of the Federal Credit Reform Act of 1990 
                (2 U.S.C. 661c) for the cost (as such term is defined 
                in section 502 of such Act) of the subsidy and the 
                investment strategies of such APICs; or
                  (B) to the extent the limitation under section 
                5(e)(1) applies, the number authorized under such 
                section.
          (2) Use of additional credit subsidy.--Subject to the 
        limitation under paragraph (1), the Secretary may use any 
        budget authority available after credit subsidy has been 
        allocated for the APICs initially licensed pursuant to section 
        5 as follows:
                  (A) Additional licenses.--To license additional 
                APICs.
                  (B) Credit subsidy increases.--To increase the credit 
                subsidy allocated to an APIC as an award for high 
                performance under this Act, except that such increases 
                may be made only in accordance with the following 
                requirements and limitations:
                          (i) Timing.--An increase may only be provided 
                        for an APIC that has been licensed for a period 
                        of not less than 2 years.
                          (ii) Competition.--An increase may only be 
                        provided for a fiscal year pursuant to a 
                        competition for such fiscal year among APICs 
                        eligible for, and requesting, such an increase. 
                        The competition shall be based upon criteria 
                        that the Secretary shall establish, which shall 
                        include the financial soundness and performance 
                        of the APICs, as measured by achievement of the 
                        public performance goals included in the APICs 
                        statements required under section 5(a)(6) and 
                        audits conducted under section 9(b)(2). Among 
                        the criteria established by the Secretary to 
                        determine priority for selection under this 
                        section, the Secretary shall include making 
                        investments in and loans to qualified active 
                        businesses in urban or rural areas that have 
                        been designated under subchapter U of Chapter 1 
                        of the Internal Revenue Code of 1986 as 
                        empowerment zones or enterprise communities.
  (d) Cooperation and Coordination.--
          (1) Program policies.--The Secretary is authorized to 
        coordinate and cooperate, through memoranda of understanding, 
        an APIC liaison committee, or otherwise, with the 
        Administrator, the Secretary of the Treasury, and other 
        agencies in the discretion of the Secretary, on implementation 
        of this Act, including regulation, examination, and monitoring 
        of APICs under this Act.
          (2) Financial soundness requirements.--The Secretary shall 
        consult with the Administrator and the Secretary of the 
        Treasury, and may consult with such other heads of agencies as 
        the Secretary may consider appropriate, in establishing any 
        regulations, requirements, guidelines, or standards for 
        financial soundness or management practices of APICs or 
        entities applying for licensing as APICs. In implementing and 
        monitoring compliance with any such regulations, requirements, 
        guidelines, and standards, the Secretary shall enter into such 
        agreements and memoranda of understanding with the 
        Administrator and the Secretary of the Treasury as may be 
        appropriate to provide for such officials to provide any 
        assistance that may be agreed to.
          (3) Operations.--The Secretary may carry out this Act--
                  (A) directly, through agreements with other Federal 
                entities under section 1535 of title 31, United States 
                Code, or otherwise, or
                  (B) indirectly, under contracts or agreements, as the 
                Secretary shall determine.
  (e) Fees and Charges for Administrative Costs.--To the extent 
provided in appropriations Acts, the Secretary is authorized to impose 
fees and charges for application, review, licensing, and regulation, or 
other actions under this Act, and to pay for the costs of such 
activities from the fees and charges collected.
  (f) Guarantee Fees.--The Secretary is authorized to set and collect 
fees for loan guarantee commitments and loan guarantees that the 
Secretary makes under this Act.
  (g) Funding.--
          (1) Authorization of appropriations for loan guarantee 
        commitments.--For each of fiscal years 2000, 2001, 2002, 2003, 
        and 2004, there is authorized to be appropriated up to 
        $36,000,000 for the cost (as such term is defined in section 
        502(5) of the Federal Credit Reform Act of 1990) of annual loan 
        guarantee commitments under this Act. Amounts appropriated 
        under this paragraph shall remain available until expended.
          (2) Aggregate loan guarantee commitment limitation.--The 
        Secretary may make commitments to guarantee loans only to the 
        extent that the total loan principal, any part of which is 
        guaranteed, will not exceed $1,000,000,000, unless another such 
        amount is specified in appropriation Acts for any fiscal year.
          (3) Authorization of appropriations for administrative 
        expenses.--For each of the fiscal years 2000, 2001, 2002, 2003, 
        and 2004, there is authorized to be appropriated $1,000,000 for 
        administrative expenses for carrying out this Act. The 
        Secretary may transfer amounts appropriated under this 
        paragraph to any appropriation account of HUD or another 
        agency, to carry out the program under this Act. Any agency to 
        which the Secretary may transfer amounts under this Act is 
        authorized to accept such transferred amounts in any 
        appropriation account of such agency.

SEC. 5. SELECTION OF APICS.

  (a) Eligible Applicants.--An entity shall be eligible to be selected 
for licensing under section 4 as an APIC only if the entity submits an 
application in compliance with the requirements established pursuant to 
subsection (b) and the entity meets or complies with the following 
requirements:
          (1) Organization.--The entity shall be a private, for-profit 
        entity that qualifies as a community development entity for the 
        purposes of the New Markets Tax Credits, to the extent such 
        credits are established under Federal law.
          (2) Minimum private equity capital.--The amount of private 
        equity capital reasonably available to the entity, as 
        determined by the Secretary, at the time that a license is 
        approved may not be less than $25,000,000.
          (3) Qualified management.--The management of the entity 
        shall, in the determination of the Secretary, meet such 
        standards as the Secretary shall establish to ensure that the 
        management of the APIC is qualified, and has the financial 
        expertise, knowledge, experience, and capability necessary, 
        to make investments for community and economic development 
        in low-income communities.
          (4) Conflict of interest.--The entity shall demonstrate that, 
        in accordance with sound financial management practices, the 
        entity is structured to preclude financial conflict of interest 
        between the APIC and a manager or investor.
          (5) Investment strategy.--The entity shall prepare and submit 
        to the Secretary an investment strategy that includes 
        benchmarks for evaluation of its progress, that includes an 
        analysis of existing locally owned businesses in the 
        communities in which the investments under the strategy will be 
        made, that prioritizes such businesses for investment 
        opportunities, and that fulfills the specific public purpose 
        goals of the entity.
          (6) Statement of public purpose goals.--The entity shall 
        prepare and submit to the Secretary a statement of the public 
        purpose goals of the entity, which shall--
                  (A) set forth goals that shall promote community and 
                economic development, which shall include--
                          (i) making investments in low-income 
                        communities that further economic development 
                        objectives by targeting such investments in 
                        businesses or trades that comply with the 
                        requirements under subparagraphs (A) through 
                        (C) of section 3(10) relating to low-income 
                        communities in a manner that benefits low-
                        income persons;
                          (ii) creating jobs in low-income communities 
                        for residents of such communities;
                          (iii) involving community-based organizations 
                        and residents in community development 
                        activities;
                          (iv) such other goals as the Secretary shall 
                        specify; and
                          (v) such elements as the entity may set forth 
                        to achieve specific public purpose goals;
                  (B) include such other elements as the Secretary 
                shall specify; and
                  (C) include proposed measurements and strategies for 
                meeting the goals.
          (7) Compliance with laws.--The entity shall agree to comply 
        with applicable laws, including Federal executive orders, 
        Office of Management and Budget circulars, and requirements of 
        the Department of the Treasury, and such operating and 
        regulatory requirements as the Secretary may impose from time 
        to time.
          (8) Other.--The entity shall satisfy any other application 
        requirements that the Secretary may impose by regulation or 
        Federal Register notice.
  (b) Competitions.--The Secretary shall select eligible entities under 
subsection (a) to be licensed under section 4 as APICs on the basis of 
competitions. The Secretary shall announce each such competition by 
causing a notice to be published in the Federal Register that invites 
applications for licenses and sets forth the requirements for 
application and such other terms of the competition not otherwise 
provided for, as determined by the Secretary.
  (c) Selection.--In competitions under subsection (b), the Secretary 
shall select eligible entities under subsection (a) for licensing as 
APICs on the basis of--
          (1) the extent to which the entity is expected to achieve the 
        goals of this Act by meeting or exceeding criteria established 
        under subsection (d); and
          (2) to the extent practicable and subject to the existence of 
        approvable applications, ensuring geographical diversity among 
        the applicants selected and diversity of APICs investment 
        strategies, so that urban and rural communities are both 
        served, in the determination of the Secretary, by the program 
        under this Act.
  (d) Selection Criteria.--The Secretary shall establish selection 
criteria for competitions under subsection (b), which shall include the 
following criteria:
          (1) Capacity.--
                  (A) Management.--The extent to which the entity's 
                management has the quality, experience, and expertise 
                to make and manage successful investments for community 
                and economic development in low-income communities.
                  (B) State and local cooperation.--The extent to which 
                the entity demonstrates a capacity to cooperate with 
                States or units of general local government and with 
                community-based organizations and residents of low-
                income communities.
          (2) Investment strategy.--The quality of the entity's 
        investment strategy submitted in accordance with subsection 
        (a)(5) and the extent to which the investment strategy furthers 
        the goals of this Act pursuant to paragraph (3) of this 
        subsection.
          (3) Public purpose goals.--With respect to the statement of 
        public purpose goals of the entity submitted in accordance with 
        subsection (a)(6), and the strategy and measurements included 
        therein--
                  (A) the extent to which such goals promote community 
                and economic development;
                  (B) the extent to which such goals provide for making 
                qualified investments in low-income communities that 
                further economic development objectives, such as--
                          (i) creating, within 2 years of the 
                        completion of the initial such investment, job 
                        opportunities, opportunities for ownership, and 
                        other economic opportunities within a low-
                        income community, both short-term and of a 
                        longer duration;
                          (ii) improving the economic vitality of a 
                        low-income community, including stimulating 
                        other business development;
                          (iii) bringing new income into a low-income 
                        community and assisting in the revitalization 
                        of such community;
                          (iv) converting real property for the purpose 
                        of creating a site for business incubation and 
                        location, or business district revitalization;
                          (v) enhancing economic competition, including 
                        the advancement of technology;
                          (vi) rural development;
                          (vii) mitigating, rehabilitating, and reusing 
                        real property considered subject to the Solid 
                        Waste Disposal Act (42 U.S.C. 6901 et seq.; 
                        commonly referred to as the Resource 
                        Conservation and Recovery Act) or restoring 
                        coal mine-scarred land;
                          (viii) creation of local wealth through 
                        investments in employee stock ownership 
                        companies or resident-owned ventures; and
                          (ix) any other objective that the Secretary 
                        may establish to further the purposes of this 
                        Act;
                  (C) the quality of jobs to be created for residents 
                of low-income communities, taking into consideration 
                such factors as the payment of higher wages, job 
                security, employment benefits, opportunity for 
                advancement, and personal asset building;
                  (D) the extent to which achievement of such goals 
                will involve community-based organizations and 
                residents in community development activities; and
                  (E) the extent to which the investments referred to 
                in subparagraph (B) are likely to benefit existing 
                small business in low-income communities or will 
                encourage the growth of small business in such 
                communities.
          (4) Other.--Any other criteria that the Secretary may 
        establish to carry out the purposes of this Act.
  (e) First Year Requirements.--
          (1) Numerical limitation.--The number of APICs may not, at 
        any time during the 1-year period that begins upon the 
        Secretary awarding the first license for an APIC under this 
        Act, exceed 15.
          (2) Limitation on allocation of available credit subsidy.--Of 
        the amount of budget authority initially made available for 
        allocation under this Act for APICs, the amount allocated for 
        any single APIC may not exceed 20 percent.
          (3) Native american private investment company.--Subject only 
        to the absence of an approvable application from an entity, 
        during the 1-year period referred to in paragraph (1), of the 
        entities selected and licensed by the Secretary as APICs, at 
        least one shall be an entity that has as its primary purpose 
        the making of qualified low-income community investments in 
        areas that are within Indian country (as such term is defined 
        in section 1151 of title 18, United States Code) or within 
        lands that have status as Hawaiian home land under section 204 
        of the Hawaiian Homes Commission Act, 1920 (42 Stat. 108) or 
        are acquired pursuant to such Act. The Secretary may establish 
        specific selection criteria for applicants under this 
        paragraph.
  (f) Communications Between HUD and Applicants.--
          (1) In general.--The Secretary shall set forth in regulations 
        the procedures under which HUD and applicants for APIC 
        licenses, and others, may communicate. Such regulations shall--
                  (A) specify by position the HUD officers and 
                employees who may communicate with such applicants and 
                others;
                  (B) permit HUD officers and employees to request and 
                discuss with the applicant and others (such as banks or 
                other credit or business references, or potential 
                investors, that the applicant specifies in writing) any 
                more detailed information that may be desirable to 
                facilitate HUD's review of the applicant's application;
                  (C) restrict HUD officers and employees from 
                revealing to any applicant--
                          (i) the fact or chances of award of a license 
                        to such applicant, unless there has been a 
                        public announcement of the results of the 
                        competition; and
                          (ii) any information with respect to any 
                        other applicant; and
                  (D) set forth requirements for making and keeping 
                records of any communications conducted under this 
                subsection, including requirements for making such 
                records available to the public after the award of 
                licenses under an initial or subsequent notice, as 
                appropriate, under subsection (a).
          (2) Timing.--Regulations under this subsection may be issued 
        as interim rules for effect on or before the date of 
        publication of the first notice under subsection (a), and shall 
        apply only with respect to applications under such notice. 
        Regulations to implement this subsection with respect to any 
        notice after the first such notice shall be subject to notice 
        and comment rulemaking.
          (3) Inapplicability of department of hud act provision.--
        Section 12(e)(2) of the Department of Housing and Urban 
        Development Act (42 U.S.C. 3537a(e)(2)) is amended by inserting 
        before the period at the end the following: ``or any license 
        provided under the America's Private Investment Companies 
        Act''.

SEC. 6. OPERATIONS OF APICS.

  (a) Powers and Authorities.--
          (1) In general.--An APIC shall have any powers or authorities 
        that--
                  (A) the APIC derives from the jurisdiction in which 
                it is organized, or that the APIC otherwise has;
                  (B) may be conferred by a license under this Act; and
                  (C) the Secretary may prescribe by regulation.
          (2) New market assistance.--Nothing in this Act shall 
        preclude an APIC or its investors from receiving an allocation 
        of New Market Tax Credits (to the extent such credits are 
        established under Federal law) if the APIC satisfies any 
        applicable terms and conditions under the Internal Revenue Code 
        of 1986.
  (b) Investment Limitations.--
          (1) Qualified low-income community investments.--
        Substantially all investments that an APIC makes shall be 
        qualified low-income community investments if the investments 
        are financed with--
                  (A) amounts available from the proceeds of the 
                issuance of an APIC's qualified debenture guaranteed 
                under this Act;
                  (B) proceeds of the sale of obligations described 
                under subsection (c)(3)(C)(iii); or
                  (C) the use of private equity capital, as determined 
                by the Secretary, in an amount specified in the APIC's 
                license.
          (2) Single business investments.--An APIC shall not, as a 
        matter of sound financial practice, invest in any one business 
        an amount that exceeds an amount equal to 35 percent of the sum 
        of--
                  (A) the APIC's private equity capital; plus
                  (B) an amount equal to the percentage limit that the 
                Secretary determines that an APIC may have outstanding 
                at any one time, under subsection (c)(2)(A).
  (c) Borrowing Powers; Qualified Debentures.--
          (1) Issuance.--An APIC may issue qualified debentures. The 
        Secretary shall, by regulation, specify the terms and 
        requirements for debentures to be considered qualified 
        debentures for purposes of this Act, except that the term to 
        maturity of any qualified debenture may not exceed 21 years and 
        each qualified debenture shall bear interest during all or any 
        part of that time period at a rate or rates approved by the 
        Secretary.
          (2) Leverage limits.--In general, as a matter of sound 
        financial management practices--
                  (A) the total amount of qualified debentures that an 
                APIC issues under this Act that an APIC may have 
                outstanding at any one time shall not exceed an amount 
                equal to 200 percent of the private equity capital of 
                the APIC, as determined by the Secretary; and
                  (B) an APIC shall not have more than $300,000,000 in 
                face value of qualified debentures issued under this 
                Act outstanding at any one time.
          (3) Repayment.--
                  (A) Condition of business wind-up.--An APIC shall 
                have repaid, or have otherwise been relieved of 
                indebtedness, with respect to any interest or principal 
                amounts of borrowings under this subsection no less 
                than 2 years before the APIC may dissolve or otherwise 
                complete the wind-up of its business.
                  (B) Timing.--An APIC may repay any interest or 
                principal amounts of borrowings under this subsection 
                at any time: Provided, That the repayment of such 
                amounts shall not relieve an APIC of any duty otherwise 
                applicable to the APIC under this Act, unless the 
                Secretary orders such relief.
                  (C) Use of investment proceeds before repayment.--
                Until an APIC has repaid all interest and principal 
                amounts on APIC borrowings under this subsection, an 
                APIC may use the proceeds of investments, in accordance 
                with regulations issued by the Secretary, only to--
                          (i) pay for proper costs and expenses the 
                        APIC incurs in connection with such 
                        investments;
                          (ii) pay for the reasonable administrative 
                        expenses of the APIC;
                          (iii) purchase Treasury securities;
                          (iv) repay interest and principal amounts on 
                        APIC borrowings under this subsection;
                          (v) make interest, dividend, or other 
                        distributions to or on behalf of an investor; 
                        or
                          (vi) undertake such other purposes as the 
                        Secretary may approve.
                  (D) Use of investment proceeds after repayment.--
                After an APIC has repaid all interest and principal 
                amounts on APIC borrowings under this subsection, and 
                subject to continuing compliance with subsection (a), 
                the APIC may use the proceeds from investments to make 
                interest, dividend, or other distributions to or on 
                behalf of investors in the nature of returns on 
                capital, or the withdrawal of private equity capital, 
                without regard to subparagraph (C) but in conformity 
                with the APIC's investment strategy and statement of 
                public purpose goals.
  (d) Reuse of Qualified Debenture Proceeds.--An APIC may use the 
proceeds of sale of Treasury securities purchased under subsection 
(c)(3)(C)(iii) to make qualified low-income community investments, 
subject to the Secretary's approval. In making the request for the 
Secretary's approval, the APIC shall follow the procedures applicable 
to an APIC's request for HUD guarantee action, as the Secretary may 
modify such procedures for implementation of this subsection. Such 
procedures shall include the description and certifications that an 
APIC must include in all requests for guarantee action, and the 
environmental certification applicable to initial expenditures for a 
project or activity.
  (e) Antipirating.--Notwithstanding any other provision of law, an 
APIC may not use any private equity capital required to be contributed 
under this Act, or the proceeds from the sale of any qualified 
debenture under this Act, to make an investment, as determined by the 
Secretary, to assist directly in the relocation of any industrial or 
commercial plant, facility, or operation, from 1 area to another area, 
if the relocation is likely to result in a significant loss of 
employment in the labor market area from which the relocation occurs.
  (f) Exclusion of APIC From Definition of Debtor Under Bankruptcy 
Provisions.--Section 109(b)(2) of title 11, United States Code, is 
amended by inserting before ``credit union'' the following: ``America's 
Private Investment Company licensed under the America's Private 
Investment Companies Act,''.

SEC. 7. CREDIT ENHANCEMENT BY THE FEDERAL GOVERNMENT.

  (a) Issuance and Guarantee of Qualified Debentures.--
          (1) Authority.--To the extent consistent with the Federal 
        Credit Reform Act of 1990, the Secretary is authorized to make 
        commitments to guarantee and guarantee the timely payment of 
        all principal and interest as scheduled on qualified debentures 
        issued by APICs. Such commitments and guarantees may only be 
        made in accordance with the terms and conditions established 
        under paragraph (2).
          (2) Terms and conditions.--The Secretary shall establish such 
        terms and conditions as the Secretary determines to be 
        appropriate for commitments and guarantees under this 
        subsection, including terms and conditions relating to amounts, 
        expiration, number, priorities of repayment, security, 
        collateral, amortization, payment of interest (including the 
        timing thereof), and fees and charges. The terms and conditions 
        applicable to any particular commitment orguarantee may be 
established in documents that the Secretary approves for such 
commitment or guarantee.
          (3) Seniority.--Notwithstanding any other provision of 
        Federal law or any law or the constitution of any State, 
        qualified debentures guaranteed under this subsection by the 
        Secretary shall be senior to any other debt obligation, equity 
        contribution or earnings, or the distribution of dividends, 
        interest, or other amounts, of an APIC.
  (b) Issuance of Trust Certificates.--The Secretary, or an agent or 
entity selected by the Secretary, is authorized to issue trust 
certificates representing ownership of all or a fractional part of 
guaranteed qualified debentures issued by APICs and held in trust.
  (c) Guarantee of Trust Certificates.--
          (1) In general.--The Secretary is authorized, upon such terms 
        and conditions as the Secretary determines to be appropriate, 
        to guarantee the timely payment of the principal of and 
        interest on trust certificates issued by the Secretary, or an 
        agent or other entity, for purposes of this section. Such 
        guarantee shall be limited to the extent of principal and 
        interest on the guaranteed qualified debentures which compose 
        the trust.
          (2) Substitution option.--The Secretary shall have the option 
        to replace in the corpus of the trust any prepaid or defaulted 
        qualified debenture with a debenture, another full faith and 
        credit instrument, or any obligations of the United States, 
        that may reasonably substitute for such prepaid or defaulted 
        qualified debenture.
          (3) Proportionate reduction option.--In the event that the 
        Secretary elects not to exercise the option under paragraph 
        (2), and a qualified debenture in such trust is prepaid, or in 
        the event of default of a qualified debenture, the guarantee of 
        timely payment of principal and interest on the trust 
        certificate shall be reduced in proportion to the amount of 
        principal and interest that such prepaid qualified debenture 
        represents in the trust. Interest on prepaid or defaulted 
        qualified debentures shall accrue and be guaranteed by the 
        Secretary only through the date of payment of the guarantee. 
        During the term of a trust certificate, it may be called for 
        redemption due to prepayment or default of all qualified 
        debentures that are in the corpus of the trust.
  (d) Full Faith and Credit Backing of Guarantees.--The full faith and 
credit of the United States is pledged to the timely payment of all 
amounts which may be required to be paid under any guarantee by the 
Secretary pursuant to this section.
  (e) Subrogation and Liens.--
          (1) Subrogation.--In the event the Secretary pays a claim 
        under a guarantee issued under this section, the Secretary 
        shall be subrogated fully to the rights satisfied by such 
        payment.
          (2) Priority of liens.--No State or local law, and no Federal 
        law, shall preclude or limit the exercise by the Secretary of 
        its ownership rights in the debentures in the corpus of a trust 
        under this section.
  (f) Registration.--
          (1) In general.--The Secretary shall provide for a central 
        registration of all trust certificates issued pursuant to this 
        section.
          (2) Agents.--The Secretary may contract with an agent or 
        agents to carry out on behalf of the Secretary the pooling and 
        the central registration functions of this section 
        notwithstanding any other provision of law, including 
        maintenance on behalf of and under the direction of the 
        Secretary, such commercial bank accounts or investments in 
        obligations of the United States as may be necessary to 
        facilitate trusts backed by qualified debentures guaranteed 
        under this Act and the issuance of trust certificates to 
        facilitate formation of the corpus of the trusts. The Secretary 
        may require such agent or agents to provide a fidelity bond or 
        insurance in such amounts as the Secretary determines to be 
        necessary to protect the interests of the Government.
          (3) Form.--Book-entry or other electronic forms of 
        registration for trust certificates under this Act are 
        authorized.
  (g) Timing of Issuance of Guarantees of Qualified Debentures and 
Trust Certificates.--The Secretary may, from time to time in the 
Secretary's discretion, exercise the authority to issue guarantees of 
qualified debentures under this Act or trust certificates under this 
Act.

SEC. 8. APIC REQUESTS FOR GUARANTEE ACTIONS.

  (a) In General.--The Secretary may issue a guarantee under this Act 
for a qualified debenture that an APIC intends to issue only pursuant 
to a request to the Secretary by the APIC for such guarantee that is 
made in accordance with regulations governing the content and 
procedures for such requests, that the Secretary shall prescribe. Such 
regulations shall provide that each such request shall include--
          (1) a description of the manner in which the APIC intends to 
        use the proceeds from the qualified debenture;
          (2) a certification by the APIC that the APIC is in 
        substantial compliance with--
                  (A) this Act and other applicable laws, including any 
                requirements established under this Act by the 
                Secretary;
                  (B) all terms and conditions of its license, any 
                cease-and-desist order issued under section 10, and of 
                any penalty or condition that may have arisen from 
                examination or monitoring by the Secretary or 
                otherwise, including the satisfaction of any financial 
                audit exception that may have been outstanding; and
                  (C) all requirements relating to the allocation and 
                use of New Markets Tax Credits, to the extent such 
                credits are established under Federal law; and
          (3) any other information or certification that the Secretary 
        considers appropriate.
  (b) Requests for Guarantee of Qualified Debentures That Include 
Funding for Initial Expenditure for a Project or Activity.--In addition 
to the description and certification that an APIC is required to supply 
in all requests for guarantee action under subsection (a), in the case 
of an APIC's request for a guarantee that includes a qualified 
debenture, the proceeds of which the APIC expects to be used as its 
initial expenditure for a project or activity in which the APIC intends 
to invest, and the expenditure for which would require an environmental 
assessment under the National Environmental Policy Act of 1969 and 
other related laws that further the purposes of such Act, such request 
for guarantee action shall include evidence satisfactory to the 
Secretary of the certification of the completion of environmental 
review of the project or activity required of the cognizant State or 
local government under subsection (c). If the environmental review 
responsibility for the project or activity has not been assumed by a 
State or local government under subsection (c), then the Secretary 
shall be responsible for carrying out the applicable responsibilities 
under the National Environmental Policy Act of 1969 and other 
provisions of law that further the purposes of such Act that relate to 
the project or activity, and the Secretary shall execute such 
responsibilities before acting on the APIC's request for the guarantee 
that is covered by this subsection.
  (c) Responsibility for Environmental Reviews.--
          (1) Execution of responsibility by the secretary.--This 
        subsection shall apply to guarantees by the Secretary of 
        qualified debentures under this Act, the proceeds of which 
        would be used in connection with qualified low-income community 
        investments of APICs under this Act.
          (2) Assumption of responsibility by cognizant unit of general 
        government.--
                  (A) Guarantee of qualified debentures.--In order to 
                assure that the policies of the National Environmental 
                Policy Act of 1969 and other provisions of law that 
                further the purposes of such Act (as specified in 
                regulations issued by the Secretary) are most 
                effectively implemented in connection with the 
                expenditure of funds under this Act, and to assure to 
                the public undiminished protection of the environment, 
                the Secretary may, under such regulations, in lieu of 
                the environmental protection procedures otherwise 
                applicable, provide for the guarantee of qualified 
                debentures, any part of the proceeds of which are to 
                fund particular qualified low-income community 
                investments of APICs under this Act, if a State or unit 
                of general local government, as designated by the 
                Secretary in accordance with regulations issued by the 
                Secretary, assumes all of the responsibilities for 
                environmental review, decisionmaking, and action 
                pursuant to the National Environmental Policy Act of 
                1969 and such other provisions of law that further such 
                Act as the regulations of the Secretary specify, that 
                would otherwise apply to the Secretary were the 
                Secretary to undertake the funding of such investments 
                as a Federal action.
                  (B) Implementation.--The Secretary shall issue 
                regulations to carry out this subsection only after 
                consultation with the Council on Environmental Quality. 
                Such regulations shall--
                          (i) specify any other provisions of law which 
                        further the purposes of the National 
                        Environmental Policy Act of 1969 and to which 
                        the assumption of responsibility as provided in 
                        this subsection applies;
                          (ii) provide eligibility criteria and 
                        procedures for the designation of a State or 
                        unit of general local government to assume all 
                        of the responsibilities in this subsection;
                          (iii) specify the purposes for which funds 
                        may be committed without regard to the 
                        procedure established under paragraph (3);
                          (iv) provide for monitoring of the 
                        performance of environmental reviews under this 
                        subsection;
                          (v) in the discretion of the Secretary, 
                        provide for the provision or facilitation of 
                        training for such performance; and
                          (vi) subject to the discretion of the 
                        Secretary, provide for suspension or 
                        termination by the Secretary of the assumption 
                        under subparagraph (A).
                  (C) Responsibilities of states and units of general 
                local government.--The Secretary's duty under 
                subparagraph (B) shall not be construed to limit any 
                responsibility assumed by a State or unit of general 
                local government with respect to any particular request 
                for guarantee under subparagraph (A), or the use of 
                funds for a qualified investment.
          (3) Procedure.--Subject to compliance by the APIC with the 
        requirements of this title, the Secretary shall approve the 
        request for guarantee of a qualified debenture, any part of the 
        proceeds of which is to fund particular qualified low-income 
        community investments of an APIC under this Act, that is 
        subject to the procedures authorized by this subsection only 
        if, not less than 15 days prior to such approval and prior to 
        any commitment of funds to such investment (except for such 
        purposes specified in the regulations issued under paragraph 
        (2)(B)), the APIC submits to the Secretary a request for 
        guarantee of a qualified debenture that is accompanied by 
        evidence of a certification of the State or unit of general 
        local government which meets the requirements of paragraph (4). 
        The approval by the Secretary of any such certification shall 
        be deemed to satisfy the Secretary's responsibilities pursuant 
        to paragraph (1) under the National Environmental Policy Act of 
        1969 and such other provisions of law as the regulations of the 
        Secretary specify insofar as those responsibilities relate to 
        the guarantees of qualified debentures, any parts of the 
        proceeds of which are to fund such investments, which are 
        covered by such certification.
          (4) Certification.--A certification under the procedures 
        authorized by this subsection shall--
                  (A) be in a form acceptable to the Secretary;
                  (B) be executed by the chief executive officer or 
                other officer of the State or unit of general local 
                government who qualifies under regulations of the 
                Secretary;
                  (C) specify that the State or unit of general local 
                government under this subsection has fully carried out 
                its responsibilities as described under paragraph (2); 
                and
                  (D) specify that the certifying officer--
                          (i) consents to assume the status of a 
                        responsible Federal official under the National 
                        Environmental Policy Act of 1969 and each 
                        provision of law specified in regulations 
                        issued by the Secretary insofar as the 
                        provisions of such Act or other such provision 
                        of law apply pursuant to paragraph (2); and
                          (ii) is authorized and consents on behalf of 
                        the State or unit of general local government 
                        and himself or herself to accept the 
                        jurisdiction of the Federal courts for the 
                        purpose of enforcement of the responsibilities 
                        as such an official.

SEC. 9. EXAMINATION AND MONITORING OF APICS.

  (a) In General.--The Secretary shall, under regulations, through 
audits, performance agreements, license conditions, or otherwise, 
examine and monitor the operations and activities of APICs for 
compliance with sound financial management practices, and for 
satisfaction of the program and procedural goals of this Act and other 
related Acts. The Secretary may undertake any responsibility under this 
section in cooperation with an APIC liaison committee, or any agency 
that is a member of such a committee, or other agency.
  (b) Monitoring, Updating, and Program Review.--
          (1) Reporting and updating.--The Secretary shall establish 
        such annual or more frequent reporting requirements for APICs, 
        and such requirements for the updating of the statement of 
        public purpose goals, investment strategy (including the 
        benchmarks in such strategy), and other documents that may have 
        been used in the license application process under this Act, as 
        the Secretary determines necessary to assist the Secretary in 
        monitoring the compliance and performance of APICs.
          (2) Annual audits.--The Secretary shall require each APIC to 
        have an independent audit conducted annually of the operations 
        of the APIC. The Secretary, in consultation with the 
        Administrator and the Secretary of the Treasury, shall 
        establish requirements and standards for such audits, including 
        requirements that such audits be conducted in accordance with 
        generally accepted accounting principles, that the APIC submit 
        the results of the audit to Secretary, and that specify the 
        information to be submitted.
          (3) Examinations.--The Secretary shall, no less often than 
        once every 2 years, examine the operations and portfolio of 
        each APIC licensed under this Act for compliance with sound 
        financial management practices, and for compliance with this 
        Act.
          (4) Examination standards.--
                  (A) Sound financial management practices.--The 
                Secretary shall examine each APIC to ensure, as a 
                matter of sound financial management practices, 
                substantial compliance with this and other applicable 
                laws, including Federal executive orders, Department of 
                Treasury and Office of Management and Budget guidance, 
                circulars, and application and licensing requirements 
                on a continuing basis. The Secretary may, by 
                regulation, establish any additional standards for 
                sound financial management practices, including 
                standards that address solvency and financial exposure.
                  (B) Performance and other examinations.--The 
                Secretary shall monitor each APIC's progress in meeting 
                the goals in the APIC's statement of public purpose 
                goals, executing the APIC's investment strategy, and 
                other matters.
  (c) Inspector General Responsibility.--In carrying out monitoring of 
HUD's responsibilities under this Act and for purposes of ensuring that 
the program under this Act is operated in accordance with sound 
financial management practices, the Inspector General of the Department 
of Housing and Urban Development shall consult with the Inspector 
General of the Department of the Treasury and the Inspector General of 
the Small Business Administration, as appropriate, and may enter into 
such agreements and memoranda of understanding as may be necessary to 
obtain the cooperation of the Inspectors General of the Department of 
the Treasury and the Small Business Administration in carrying out such 
function.
  (d) Annual Report By Secretary.--The Secretary shall submit a report 
to the Congress annually regarding the operations, activities, 
financial health, and achievements of the APIC program under this Act. 
The report shall list each investment made by an APIC and include a 
summary of the examinations conducted under subsection (b)(3), the 
guarantee actions of HUD, and any regulatory or policy actions taken by 
HUD. The report shall distinguish recently licensed APICs from APICs 
that have held licenses for a longer period for purposes of indicating 
program activities and performance.
  (e) GAO Report.--
          (1) Requirement.--Not later than 2 years after the date of 
        the enactment of this Act, the Comptroller General of the 
        United States shall submit a report to the Congress regarding 
        the operation of the program under this Act for licensing and 
        guarantees for APICs.
          (2) Contents.--The report shall include--
                  (A) an analysis of the operations and monitoring by 
                HUD of the APIC program under this Act;
                  (B) the administrative and capacity needs of HUD 
                required to ensure the integrity of the program;
                  (C) the extent and adequacy of any credit subsidy 
                appropriated for the program; and
                  (D) the management of financial risk and liability of 
                the Federal Government under the program.

SEC. 10. PENALTIES.

  (a) Violations Subject to Penalty.--The Secretary may impose a 
penalty under this subsection on any APIC or manager of an APIC that, 
by any act, practice, or failure to act, engages in fraud, 
mismanagement, or noncompliance with this Act, the regulations under 
this Act, or a condition of the APIC's license under this Act. The 
Secretary shall, by regulation, identify, by generic description of a 
role or responsibilities, any manager of an APIC that is subject to a 
penalty under this section.
  (b) Penalties Requiring Notice and an Opportunity to Respond.--If, 
after notice in writing to an APIC or the manager of an APIC that the 
APIC or managerhas engaged in any action, practice, or failure to act 
that, under subsection (a), is subject to a penalty, and after an 
opportunity for the APIC or manager to respond to the notice, the 
Secretary determines that the APIC or manager engaged in such action or 
failure to act, the Secretary may, in addition to other penalties 
imposed--
          (1) assess a civil money penalty, except that any civil money 
        penalty under this subsection shall be in an amount not 
        exceeding $10,000;
          (2) issue an order to cease and desist with respect to such 
        action, practice, or failure to act of the APIC or manager;
          (3) suspend, or condition the use of, the APIC's license, 
        including deferring, for the period of the suspension, any 
        commitment to guarantee any new qualified debenture of the 
        APIC, except that any suspension or condition under this 
        paragraph may not exceed 90 days; and
          (4) impose any other penalty that the Secretary determines to 
        be less burdensome to the APIC than a penalty under subsection 
        (c).
  (c) Penalties Requiring Notice and Hearing.--If, after notice in 
writing to an APIC or the manager of an APIC that an APIC or manager 
has engaged in any action, practice, or failure to act that, under 
subsection (a), is subject to a penalty, and after an opportunity for 
administrative hearing, the Secretary determines that the APIC or 
manager engaged in such action or failure to act, the Secretary may--
          (1) assess a civil money penalty against the APIC or a 
        manager in any amount;
          (2) require the APIC to divest any interest in an investment, 
        on such terms and conditions as the Secretary may impose; or
          (3) revoke the APIC's license.
  (d) Effective Date of Penalties.--
          (1) Prior notice requirement.--Except as provided in 
        paragraph (2) of this subsection, a penalty under subsection 
        (b) or (c) shall not be due and payable and shall not otherwise 
        take effect or be subject to enforcement by an order of a 
        court, before notice of the penalty is published in the Federal 
        Register.
          (2) Cease-and-desist orders and suspension or conditioning of 
        license.--In the case of a cease-and-desist order under 
        subsection (b)(2) or the suspension or conditioning of an 
        APIC's license under subsection (b)(3), the following 
        procedures shall apply:
                  (A) Action without published notice.--The Secretary 
                may order an APIC or manager to cease and desist from 
                an action, practice, or failure to act or may suspend 
                or condition an APIC's license, for not more than 45 
                days without prior publication of notice in the Federal 
                Register, but such cease-and-desist order or suspension 
                or conditioning shall take effect only after the 
                Secretary has issued a written notice (which may 
                include a writing in electronic form) of such action to 
                the APIC. Notwithstanding subsection (b), such written 
                notice shall be effective without regard to whether the 
                APIC has been accorded an opportunity to respond. Upon 
                such notice, such cease-and-desist order or suspension 
                or conditioning shall be subject to enforcement by an 
                order of a court.
                  (B) Publication of notice of suspension or 
                conditioning of license.--Upon a suspension or 
                conditioning of a license taking effect pursuant to 
                subparagraph (A), the Secretary shall promptly cause a 
                notice of suspension or conditioning of such license 
                for a period of not more than 90 days to be published 
                in the Federal Register. The Secretary shall provide 
                the APIC an opportunity to respond to such notice. For 
                purposes of the determining the duration of the period 
                of any suspension or conditioning under this 
                subparagraph, the first day of such period shall be the 
                day of issuance of the written notice under this 
                paragraph of the suspension or conditioning.
                  (C) Revocation of license.--During the period of the 
                suspension or conditioning of an APIC's license, the 
                Secretary may take action under subsection (c)(3) to 
                revoke the license of the APIC, in accordance with the 
                procedures applicable to such subsection. 
                Notwithstanding any other provision of this section, if 
                the Secretary takes such action, the Secretary may 
                extend the suspension or conditioning of the APIC's 
                license, for one or more periods of not more than 90 
                days each, by causing notice of such action to be 
                published in the Federal Register--
                          (i) for the first such extension, before the 
                        expiration of the period under subparagraph 
                        (B); and
                          (ii) for any subsequent extension, before the 
                        expiration of the preceding extension period 
                        under this subparagraph.
                  (D) Term of effectiveness.--A cease-and-desist order 
                or the suspension or conditioning of an APIC's license 
                by the Secretary under this paragraph shall remain in 
                effect in accordance with the terms of the order, 
                suspension, or conditioning until final adjudication in 
                any action undertaken to challenge the order, or the 
                suspension or conditioning, or the revocation, of an 
                APIC's license.

SEC. 11. EFFECTIVE DATE.

  (a) In General.--Except as provided in subsection (b), this Act shall 
take effect upon the expiration of the 6-month period beginning on the 
date of the enactment of this Act.
  (b) Issuance of Regulations and Guidelines.--Any authority under this 
Act of the Secretary, the Administrator, and the Secretary of the 
Treasury to issue regulations, standards, guidelines, or licensing 
requirements, and any authority of such officials to consult or enter 
into agreements or memoranda of understanding regarding such issuance, 
shall take effect on the date of the enactment of this Act.

SEC. 12. SUNSET.

  After the expiration of the 5-year period beginning upon the date 
that the Secretary awards the first license for an APIC under this 
Act--
          (1) the Secretary may not license any APIC; and
          (2) no amount may be appropriated for the costs (as such term 
        is defined in section 502 of the Federal Credit Reform Act of 
        1990 (2 U.S.C. 661c)) of any guarantee under this Act for any 
        debenture issued by an APIC.
This section may not be construed to prohibit, limit, or affect the 
award, allocation, or use of any budget authority for the costs of such 
guarantees that is appropriated before the expiration of such period.

                     Explanation of the Legislation

    H.R. 2764, ``America's Private Investment Companies Act'' 
authorizes the Secretary of Housing and Urban Development (HUD) 
to license a number of privately managed, for-profit investment 
companies for purposes of making large-scale, equity and debt 
investments in distressed urban and rural areas. Each America's 
Private Investment Company (``APIC'') must have a minimum of 
$25 million in private equity capital contributed by investors 
in order to be licensed by HUD. An APIC would be eligible to 
issue debentures, guaranteed by the government, for twice 
(200%) the amount of its total equity capital. The contributed 
equity and amounts raised through issuance of debentures are to 
be invested in businesses operating in low and moderate-income 
areas. The return from those business investments would go 
first to repay the government-guaranteed debt.
    The legislation provides that APIC licensees are to be 
chosen by HUD pursuant to a competition. The number of APICs 
licensed at any one time would depend upon the amount of budget 
authority available to support the total credit subsidy 
provided to the program, but would be limited in the first year 
to no more than fifteen APICs. Of those APICs chosen in the 
first year, subject to the existence of an approvable 
application, at least one APIC shall have as its primary 
mission objective business investment in Native American lands.
    HUD shall monitor each APIC as to its progress in meeting 
its stated public purpose goals. The Secretary may reward well-
performing APICs which exceed their public purpose investment 
goals by increasing the credit subsidy allocated to those 
APICs, to the extent there is credit subsidy still available. 
Such APICs must have been licensed for a minimum of two years 
and any such increases are to be provided based on a 
competition of eligible APICs.
    The proposed credit subsidy for the program is $36 million 
each fiscal year for FY 2000 through FY 2004. HUD estimates 
this level will support $1 billion in investments. In addition, 
$1 million is authorized for each of these fiscal years (2000-
2004), for administrative expenses in connection with carrying 
out the provisions of the legislation.
    In addition to monitoring APICs' progress on their public 
purpose goals, the Secretary of HUD shall, for purposes of 
managing the financial risk of the federal government, regulate 
APICs for financial soundness and ensure that each APIC is 
structured so as to operate based on sound management 
practices. The HUD Secretary shall consult with the Secretary 
of the Treasury for purposes of accomplishing these functions. 
The legislation requires each APIC to submit an annual 
independent audit to the Secretary detailing its investments. 
The legislation also requires the HUD Secretary to report 
annually to Congress on the status of the APIC program. In 
addition, the General Accounting Office is required to report 
on the APIC program two years after the date of enactment of 
the legislation.
    The effective date of the legislation, for licensing and 
other operations, is six months after the date of enactment. 
Authority to grant licenses shall sunset five years after the 
date that the Secretary awards the first license for an APIC 
under this Act.

                          Legislative History

    H.R. 2764 was introduced by Ranking Member LaFalce on 
August 5, 1999 and contains the APIC portion of the 
Administration's legislative proposals. H.R. 2848, the ``New 
Markets Initiative Act of 1999'', was introduced by 
Representatives Watts, Talent, Leach and Baker at the request 
of the Administration on September 13, 1999, and contains the 
Administration's complete New Markets Initiative legislative 
program. H.R. 2764 is substantively the same as Title III of 
H.R. 2848, both of which fall under the jurisdiction of the 
Committee.
    On November 10, 1999, the Subcommittee on Capital Markets, 
Securities, and GSEs held a hearing on capital formation in 
underserved areas. The hearing focused on the APIC proposal 
embodied in H.R 2764 and on other ideas for promoting economic 
growth in these areas. The Committee held a markup of H.R. 2764 
and Title III of H.R 2848 on April 12, 2000.

                  Background and Need for Legislation

    In an era of unprecedented economic growth and prosperity, 
there remain many economically distressed communities, both 
rural and urban, which have not benefited to any great degree 
from the most recent economic expansion enjoyed by our Nation. 
In these communities, levels of unemployment, poverty, and 
other indicia of social distress, remain stubbornly high--yet 
untapped market opportunities exist, in many of these areas, to 
establish and expand businesses and to develop jobs and 
community assets.
    There is bipartisan consensus in Congress that the federal 
government can and should play a role in encouraging 
investments in these communities. For several years both 
Republicans and Democrats have proposed and supported granting 
tax and regulatory relief, including capital gains tax relief 
to businesses operating within distressed areas. Many of these 
proposals were part of H.R. 815, the ``American Community 
Renewal Act,'' introduced by Representatives Jim Talent and 
J.C. Watts, which would have designated a number of these 
distressed areas as ``renewal communities'' eligible for such 
benefits. The House has already passed the tax provisions of 
H.R. 815, and this Committee has passed provisions relating to 
HUD property disposition within these communities as part of 
H.R. 1776, the ``American Homeownership and Economic 
Opportunity Act of 2000.''
    The Administration has also proposed a series of programs, 
collectively known as the ``New Markets Initiative,'' also 
intended to foster economic development in distressed 
communities. These proposals include tax credits for businesses 
in these areas (``New Markets Tax Credits''), a small business 
component (establishing a ``New Markets Venture Capital 
Program''), and the formation of a number of companies intended 
to make relatively large scale equity and credit investments in 
distressed areas--APICs. The FY 2000 VA/HUD Appropriations Act 
providedthat $20 million in credit subsidy would be available 
for use by APICs for Fiscal Year 2000 if the program was authorized by 
June 30, 2000. If the program is not authorized by that date, the 
funding reverts to the Community Development Financial Institutions 
program administered by the Department of the Treasury.
    The APIC portion of the New Markets Initiative falls under 
the jurisdiction of this Committee. The concept is closely 
related in concept to the Small Business Investment Companies 
(``SBIC'') program currently administered by the Small Business 
Administration (SBA), except that the SBIC program is limited 
in the size of projects it can serve and that SBICs invest in 
ventures only (not real estate). Community development 
organizations maintain that the infusion of additional amounts 
of equity capital are especially vital for enabling large-scale 
investments to occur in distressed areas. Importantly, these 
investments would be economically viable as freestanding 
business entities, providing a profitable return to investors. 
However, because the costs of establishing these businesses in 
some of these distressed areas are higher relative to other 
areas due to a variety of factors (such as remediation of 
environmental contamination, for example), the return on 
investors equity is not as high as demanded by these investors. 
APICs are intended to lessen the cost of capital so that these 
large-scale investments would then be made.
    APICs are not intended to fund or subsidize the operations 
of businesses, which are not economically viable. On the 
contrary, these entities exist to encourage the establishment 
of fundamentally sound businesses in certain locations. 
Possible uses for APICs' funds include the establishment of a 
new facility, such as a call center, data processing ``back 
office,'' or factory, by a large company (or a small company 
joint venturing with a large one). In addition, a mid-size 
manufacturing company seeking to increase production could use 
APIC investments for expansion of an existing facility, the 
upgrading of equipment or the expansion of staff. Other uses 
could include expansion of the service area of a mid-size 
service company, such as a trucking company, building 
contractor, or home health care firm, development of a multi-
tenant shopping center, or opening or expanding a large retail 
company in a new geographic area. Buyout of a company to be 
revitalized in its existing facility, acquisition of the 
property of a departing large company and development of an 
incubator or industrial park, or investment in another fund 
that invests in businesses locating or expanding in targeted 
low-to-moderate income areas are all methods whereby an APIC 
can fulfill its public purpose investment role.
    By passing this APIC legislation, the hope and expectation 
of this Committee is that a bipartisan, comprehensive package 
of measures to help revitalize America's distressed urban and 
rural communities, which would include the best elements of the 
American Community Renewal Act and the New Markets Initiative, 
be enacted this year.

           Committee Actions Regarding Introduced Legislation

    The Committee adopted a Managers' Amendment sponsored by 
Chairman Leach, Mr. Lazio, Ranking Member LaFalce, and Mr. 
Kanjorski, which made substantial changes to the original bill. 
In broad terms, the changes in the Managers' Amendment were 
meant to accomplish three major goals. The first of these goals 
was to minimize the potential for fraud and abuse and protect 
the American taxpayer from unnecessary exposure. Second, the 
Committee wanted to ensure that the statutory language clearly 
reflected Congressional intent, and provided adequate direction 
for the program so that it gives rise to types of investments 
in low-income communities that will truly improve the lives of 
our citizens. Finally, the Managers' Amendment contained 
provisions designed to address concerns with HUD's current 
capacity to administer the program, and to ensure HUD's sound 
management of the program established by the legislation.

              Minimizing the Potential for Fraud and Abuse

    The Managers' Amendment adopted by the Committee added 
certain defined terms to the legislation in Section 3, 
``Definitions,'' and further defined some existing terms of the 
bill. These additions and revisions make more specific and 
strengthen the language of the bill. The most important of 
these is a new definition for ``private equity capital''. A 
central feature of the APIC program is its reliance on market 
discipline. APIC investors and managers make investment 
decisions based on the ability of a business ultimately to 
succeed because the investor's equity is at-risk first if the 
business fails. The interests of the investor coincide 
therefore, with the interest of the taxpayer. The legislation 
as introduced, however, provided that ``equity'' was to be 
defined through guidelines issued by the HUD Secretary. The 
Committee felt that, at a minimum and as a matter of prudence, 
the legislation should include a statutory definition of equity 
that would prevent an overly expansive definition from allowing 
APIC investors to comply with the letter of the law without 
truly risking any of their own capital. In accomplishing this 
goal, the Committee looked to existing statutes, such as those 
governing SBA programs similar in concept to the APIC program, 
and worked through the specifics of the definition with HUD to 
ensure that it was not overly restrictive or that it conflicts 
with guidelines issued by the Department of the Treasury which 
would govern tax credits under the New Markets program.
    Additional changes were included in the Managers' Amendment 
to enhance the integrity of the program. For example, the 
Committee believed it was important to set forth more clearly 
in Section 7 of the bill the seniority of the federal 
government's position in relation to any other obligation the 
APIC may have. A change to require the HUD Secretary to make a 
determination, prior to the licensing of any APIC, that the 
management of the entity is clearly qualified was also made. 
Section 9, ``Examination and Monitoring of APICs'' has been 
revised to require that each APIC submit an annual independent 
audit detailing its investments to the Secretary. Changes were 
also made to Section 9 to require the HUD Secretary to report 
annually to Congress on APICs and their investments. Finally, 
in Section 10, ``Penalties'', the Committee strengthened the 
power and sanctions available to HUD so that the Department can 
more effectively avert any undue taxpayer losses.

    Clearly Stating Congressional Intent Regarding APIC Investments

    This Committee intends that an APIC licensed under the 
provisions of this legislation shall be in the business of 
making investments that benefit low-income people and 
communities, and that such an entity does not become an example 
of ``corporate welfare'' by making investments thatwould bring 
profits to its investors without the requisite social benefits accruing 
to distressed areas from these investments. The Committee is aware of 
well-intended programs once administered by HUD, such as the Urban 
Development Action Grants (UDAG) program, that spent government funds 
on projects that could easily have been financed through private 
sources, which resulted in little or no benefit to distressed areas. 
The intent of the Committee is that APIC investments be made in 
communities where they are truly needed, and not in areas which 
technically may be within a low-income community but where incomes may 
in reality be much higher. Affluent sections can coexist within very 
distressed areas in census tracts that would meet the definitions for 
low- and moderate-income areas eligible for APIC investments. However, 
a statutory requirement that HUD define all of these areas nationwide 
would have been overly burdensome and impractical in the Committee's 
view.
    For this reason, language added by the Managers' Amendment 
and appearing in Section 5(a)(6), ``Statement of Public Purpose 
Goals,'' refers to investments ``that further economic 
development objectives by targeting such investments in 
businesses that comply with the requirements [of this Act] . . 
. in a manner that benefits low-income persons.'' The Committee 
intends by addition of this language that APICs channel their 
activities toward truly meritorious investments without 
precisely delineating within individual census tracts where the 
businesses these APICs invest in must be located. The Committee 
does not intend that APICs meet compliance requirements under 
this legislation by primarily making investments in subareas of 
an otherwise qualifying low-income community that have resident 
incomes disproportionately higher, or that show patterns of 
displacement and more rapidly increasing property values, than 
those of the larger qualifying area. By the same token, in 
determining compliance with the ``qualified active business'' 
test for APIC investments, the term ``low-income community'' 
may be interpreted to include specific locations in an area 
with a very high population density that are located 
immediately adjacent to, but not within, a low-income 
community. Investments that qualify under this interpretation 
must primarily benefit low-income persons within the qualifying 
adjacent low-income community.
    The Committee notes that under Section (6)(b), 
``Substantially all investments that an APIC makes shall be 
qualified low-income investments . . .'' Rather than 
establishing a specific percentage in the statute, the intent 
of the Committee is that the term ``substantially all'' in this 
context be read in accordance with and reflect existing 
Treasury guidelines and Internal Revenue Service regulations 
governing investments in low- and moderate-income areas, such 
as those existing for investments made in empowerment zones, 
for example. Similarly, under Section 142 of the IRS Code, 95% 
of proceeds raised under the provision must be used for the 
purposes specified. The intent of the committee is that 
``substantially all'' in the context of APIC investments be 
read to mean this approximately 95% level that currently 
permeates the world of tax-exempt financing.
    In addition to providing additional guidance and 
Congressional direction as to where APIC investments should be 
made, the Committee was concerned with the legislative language 
governing selection of APICs. In the Committee's view, the 
selection process for licensing APICs as set forth in the 
original legislation did not provide enough direction to the 
Secretary, either as to the types of entities that should be 
chosen or the criteria that should be used in making these 
determinations.
    Regarding the types of entities that should be chosen as 
APICs, the Committee believed further specificity was required 
in the legislation to set forth examples of the underlying 
public purpose goals and nature of each APIC. Specifically, in 
Section 5, ``Selection of APICs'', the Committee believed a 
further delineation of the types of goals that licensed APICs 
can be expected to pursue was appropriate. Therefore, Section 
5(A)(6) now includes references to the following: creating jobs 
within 2 years of making an investment; enhancing economic 
competition, including the advancement of technology; promoting 
rural development; achieving certain environmental goals; and 
benefiting small business. By setting forth more clearly in 
statute the types of goals to be pursued and the activities in 
which these APICs are to be engaged, the Committee intends to 
provide additional guidance to the Secretary as to the types of 
APICs which should be considered favorably in the selection 
process.
    In terms of specific selection criteria, the Committee 
believes that the criteria as set forth in the original 
legislation served as minimum eligibility requirements rather 
than as true measures for selecting among various applicants. 
For example, the Secretary under the original legislation could 
determine whether an applicant had qualified management prior 
to licensing the applicant as an APIC. The Committee, however, 
intends that the statute reflect the Secretary's ability to 
make qualitative distinctions regarding management, allowing 
licensing of one APIC over another based on the existence of an 
exceptional management record and proven expertise in making 
investments benefiting low-income communities. In other words, 
the Committee believes the Secretary should choose among the 
applicants those APICs that meet not just the minimum statutory 
requirements, but whose investments are more likely to result 
in the most benefit to low- and moderate-income communities. 
With that in mind, the Managers' Amendment added language in 
Section 5(d) establishing selection criteria the Secretary 
shall use to determine which APICs are to be licensed. An APIC 
applicant will be chosen for licensing based on the extent such 
applicant is expected to achieve the goals of the legislation 
by meeting or exceeding the selection criteria established 
under this subsection, which may include additional criteria 
established by the Secretary.
    The Committee intends that rural and small communities not 
be unfairly or arbitrarily disadvantaged in the selection 
process. For this reason, Section 5(c)(2) was added by the 
Managers' Amendment to provide that when selecting APICs for 
licensing, the HUD Secretary to the extent practicable ensure 
geographical diversity and a mix of APICs so that both rural 
and urban communities may be served by this program. The 
Committee notes that in addition to large cities, there are 
also economically distressed areas in mid-sized and smaller 
metropolitan areas and non-metropolitan areas. Consideration of 
the needs of these communities should not be absent from APIC 
selection process. The intent of the Committee is that the 
Secretary strive for balance, fairness and diversity in the 
selection process.
    In adding legislative language regarding the selection 
process, the Committee attempted to avoid imposing requirements 
as to exactly how many of each type of APIC should be chosen in 
the selection process. In the Committee's view, imposing 
numerical requirements would not be the proper approach because 
neither Congress nor the Administration can know in advance 
exactly what entities will apply to be licensed. The Committee 
made one important exception to this approach regarding the 
selection process for Native Americans. By definition, most of 
the landson reservations would qualify for investments by 
APICs, as would rural and other low-income communities. However, the 
Committee was concerned that the added complexity of investing on 
Native American lands, including dealing with the Bureau of Indian 
Affairs, unfamiliarity with the varied tribal laws, and what in too 
many cases amounts to a cultural discomfort on the part of much of the 
finance community in doing business on Indian lands, were factors 
making business investment in Native Americans lands qualitatively 
different, and much more difficult, than investments in other low-
income rural or urban communities. The Committee was concerned that the 
available applicants would not include entities with the capacity, or 
which viewed as their mission, to invest specifically on Native 
American lands. For this reason, the Managers' Amendment included a 
requirement that of those APICs selected in the first year, one would 
be a Native American Private Investment Company. The Committee believes 
that this would encourage application by would-be APICs that would 
serve Native Americans. Any such applicant would still need to meet all 
of the requirements for licensing contained in this bill. Native 
Americans should not be unintentionally excluded from benefiting under 
this program.
    The Committee notes that under Section 5(b)(1) of the 
legislation, an APIC applicant must be a for-profit entity in 
order to be licensed as an APIC. The Committee notes that this 
is not intended to exclude for-profit entities controlled by 
non-profit organizations, such as through a subsidiary, 
partnership, or limited liability structure.
    Regarding the application of federal securities laws to 
APICs, and for that matter to New Market Venture Capital 
companies (``NVCCs'') created under other provisions of the 
Administration's New Markets Initiative, the Committee notes 
that nothing in this legislation alters or affects any Federal 
securities laws or regulations promulgated under the Federal 
securities laws. Further, federal securities laws continue to 
apply to NVCCs and APICs created under this legislation, to any 
securities issued by or on behalf of NVCCs or APICs, and to 
their distribution. NVCCs and APICs may seek to qualify for 
certain exclusions contained in the Investment Company Act. 
Notably, in order for NVCCs and APICs to qualify for the 
exclusion from regulation under the Investment Company Act 
provided by Section 3(c)(7) of the Act, they must make only a 
private offering of their securities and each of their 
investors must meet the definition of ``qualified purchaser'' 
in Section 2(a)(51) of the Investment Company Act of 1940, 15 
U.S.C. 80a-2(a)(51). The Committee expects that private 
offerings of NVCC and APIC securities (including those relying 
on the exclusion from regulation under the Act provided by 
Section 3(c)(1)) generally will entail an evaluation of whether 
the NVCC or APIC securities are suitable investments for the 
proposed investors.

         Ensuring HUD's Capacity to Administer the APIC Program

    The Committee was concerned with HUD's current capacity to 
administer the proposed APIC program. While the Committee notes 
that the Secretary has made great efforts to improve the 
management of HUD's programs, there are still many areas which 
require attention. Adding another program to those already 
administered by HUD, and especially one as complex in terms of 
the required financial expertise as the program envisioned by 
this legislation, called for careful, bipartisan consideration. 
An alternative approach, which was indeed debated during the 
Committee's markup of the legislation, was for the program to 
be administered by the Department of the Treasury rather than 
HUD. A crucial reason for having HUD administer the program, 
however, was the Department's experience in dealing with 
distressed areas and with complex, large-scale community 
development investments, in particular. In order to address the 
Committee's concerns regarding capacity and taxpayer 
safeguards, key changes to the original legislation were made 
by the Managers' Amendment regarding program administration.
    The Committee's goal was to ensure that HUD had the 
expertise and the time available to it to structure and 
administer this program properly, and that the program not be 
so complex to administer in the beginning stages so that HUD 
would be able to develop capacity. Therefore, the legislation 
as revised by the Committee now imposes a first year limit on 
the number of APICs of 15, with no one APIC receiving more than 
20% of the available credit subsidy. This accomplishes two 
things--it keeps the number of APICs at a manageable level in 
the first year, to give HUD experience in working with this 
program, and it diversifies the government's risk by ensuring 
that no one APIC is too large. In addition, the Committee 
included a provision setting the effective date of the 
legislation at six months after enactment, so that HUD would 
have the time to develop adequate procedures in a deliberative 
fashion, working with the private sector as well as nonprofit 
and government entities important to community economic 
development.
    The Committee also strengthened financial soundness 
provisions by setting forth the HUD Secretary's duty to 
cooperate with Treasury in determining what procedures to 
follow to ensure competent management of APICs. Further changes 
include deleting the program feature to increase leverage for a 
class of APICs from 200% to 300%. The Committee wishes to 
approach conservatively on matters involving the federal 
government's financial exposure, particularly at the program's 
inception.
    In order to ensure close oversight of the program, the 
Committee added a requirement for an Annual Report from the 
Secretary to Congress on the achievements of APICs, which would 
provide information on all APIC investments, the level of 
financial exposure, and other such matters. In addition, the 
legislation now requires a report by the General Accounting 
Office on the APIC program two years after enactment of the 
program. Finally, language granting the HUD Inspector General 
the authority to work with the Small Business Administration 
Inspector General in monitoring the APIC program at HUD was 
added in order to ensure that monitoring experience of these 
types of programs was available. The many changes made by the 
Committee to address the concerns with HUD's management of the 
program should give some assurance that this program will be 
structured and administered in a proper fashion, with the 
interests and protection of the taxpayer as priorities.

     Committee Consideration and Votes (Rule XI, Clause 2(l)(2)(B)

    The Committee met in open session to mark up H.R. 2764, 
``America's Private Investment Companies Act'' on April 12, 
2000. The Committee considered H.R. 2764, as introduced, as the 
text for purposes of amendments.
    During the markup, the Committee approved a total of 8 
amendments, as follows: 3 amendments, including a managers 
amendment by voice vote, 3 amendments by unanimous consent, 
and, 2 amendments by recorded vote. The Committee also defeated 
a total of 3 amendments, as follows: 1 amendment by voice vote, 
and, 2 amendments by recorded vote. Two amendments were ruled 
non-germane on a point of order. Pursuant to the provisions of 
clause 2(1)(2)(B) of rule XI of the House of Representatives, 
the results of each roll call vote and the motion to report, 
together with the names of those voting for and those against 
are printed below:

                             ROLLCALL NO. 1

    Date: April 12, 2000.
    Measure: America's Private Investment Companies Act.
    Motion by: Mr. LaFalce.
    Description of Motion: Allows an APIC to be eligible for 
additional credit subsidy if in existence for at least two 
years, is a high performer and is selected through a 
competition created by the HUD Secretary.
    Results: Adopted: Ayes 24, Nays 20.
        YEAS                          NAYS
Mr. LaFalce                         Mr. Leach
Mr. Frank                           Mr. McCollum
Mr. Kanjorski                       Mr. Baker
Ms. Waters                          Mr. Lazio
Mr. Sanders                         Mr. Castle
Mrs. Maloney                        Mr. King
Mr. Gutierrez                       Mr. Royce
Ms. Velazquez                       Mr. Lucas
Mr. Watt                            Mr. Metcalf
Mr. Ackerman                        Mr. Ney
Mr. Bentsen                         Mrs. Kelly
Mr. Maloney                         Mr. Ryun of Kansas
Ms. Hooley                          Mr. Hill
Mr. Weygand                         Mr. LaTourette
Mr. Sherman                         Mr. Ryan of Wisconsin
Mr. Meeks, G.                       Mr. Ose
Ms. Lee                             Mrs. Biggert
Mr. Mascara                         Mr. Terry
Mr. Inslee                          Mr. Green
Ms. Schakowsky                      Mr. Toomey
Mr. Moore
Mrs. Jones
Mr. Capuano
Mr. Forbes

                             ROLLCALL NO. 2

    Date: April 12, 2000.
    Measure: America's Private Investment Companies Act.
    Motion by: Mr. Sanders.
    Description of Motion: Allows non-profits to be eligible 
APICs.
    Results: Defeated: Ayes 20, Nays 22, Pass 1.
        YEAS                          NAYS
Mr. Hill                            Mr. McCollum
Mr. LaFalce                         Mrs. Roukema
Mr. Frank                           Mr. Baker
Mr. Kanjorski                       Mr. Lazio
Mr. Sanders                         Mr. Castle
Mrs. Maloney                        Mr. King
Ms. Velazquez                       Mr. Royce
Mr. Watt                            Mr. Lucas
Mr. Bentsen                         Mr. Metcalf
Mr. Maloney                         Mr. Ney
Ms. Hooley                          Mr. Barr
Mr. Weygand                         Mrs. Kelly
Mr. Sherman                         Dr. Paul
Ms. Lee                             Dr. Weldon
Mr. Inslee                          Mr. Ryun of Kansas
Ms. Schakowsky                      Mr. Riley
Mr. Moore                           Mr. Ryan of Wisconsin
Mrs. Jones                          Mr. Ose
Mr. Capuano                         Mrs. Biggert
Mr. Forbes                          Mr. Terry
                                    Mr. Green
                                    Mr. Toomey

                                    PASS: Mr. Leach.

                             ROLLCALL NO. 3

    Date: April 12, 2000.
    Measure: America's Private Investment Companies Act.
    Motion by: Mr. Baker.
    Description of Motion: Adds sunset of APIC program after 5-
year period.
    Results: Adopted: Ayes 24, Nays 23.
        YEAS                          NAYS
Mr. Leach                           Mr. LaFalce
Mrs. Roukema                        Mr. Vento
Mr. Bereuter                        Mr. Frank
Mr. Baker                           Mr. Sanders
Mr. Lazio                           Mrs. Maloney
Mr. Castle                          Mr. Gutierrez
Mr. King                            Ms. Velazquez
Mr. Lucas                           Mr. Watt
Mr. Ney                             Mr. Bentsen
Mr. Barr                            Mr. Maloney
Mrs. Kelly                          Ms. Hooley
Dr. Paul                            Mr. Weygand
Dr. Weldon                          Mr. Sherman
Mr. Ryun of Kansas                  Mr. Meeks, G.
Mr. Riley                           Ms. Lee
Mr. Hill                            Mr. Mascara
Mr. LaTourette                      Mr. Inslee
Mr. Ryan of Wisconsin               Ms. Schakowsky
Mr. Ose                             Mr. Moore
Mrs. Biggert                        Mr. Gonzalez
Mr. Terry                           Mrs. Jones
Mr. Green                           Mr. Capuano
Mr. Toomey                          Mr. Forbes
Mr. Kanjorski

                             ROLLCALL NO. 4

    Date: April 12, 2000.
    Measure: America's Private Investment Companies Act.
    Motion by: Mr. Ryan of Wisconsin.
    Description of Motion: Amendment in the nature of a 
substitute to require a GAO study.
    Results: Defeated: Ayes 15, Nays 31.
        YEAS                          NAYS
Mr. McCollum                        Mr. Leach
Mr. Bereuter                        Mrs. Roukema
Mr. Royce                           Mr. Lazio
Mr. Barr                            Mr. King
Mrs. Kelly                          Mr. LaFalce
Dr. Paul                            Mr. Vento
Dr. Weldon                          Mr. Frank
Mr. Ryun of Kansas                  Mr. Kanjorski
Mr. Riley                           Ms. Waters
Mr. Ryan of Wisconsin               Mr. Sanders
Mr. Sweeney                         Mrs. Maloney
Mrs. Biggert                        Mr. Gutierrez
Mr. Terry                           Ms. Velazquez
Mr. Green                           Mr. Watt
Mr. Toomey                          Mr. Ackerman
                                    Mr. Bentsen
                                    Mr. Maloney
                                    Ms. Hooley
                                    Ms. Carson
                                    Mr. Weygand
                                    Mr. Sherman
                                    Mr. Meeks, G.
                                    Ms. Lee
                                    Mr. Mascara
                                    Mr. Inslee
                                    Ms. Schakowsky
                                    Mr. Moore
                                    Mr. Gonzalez
                                    Mrs. Jones
                                    Mr. Capuano
                                    Mr. Forbes
    A motion to adopt H.R. 2764 and favorably report the bill, 
as amended, to the House was approved by a recorded vote of 33 
Ayes and 14 Nays on April 12, 2000.
        YEAS                          NAYS
Mr. Leach                           Mr. McCollum
Mr. Baker                           Mrs. Roukema
Mr. Lazio                           Mr. Bereuter
Mr. King                            Mr. Royce
Mrs. Kelly                          Mr. Barr
Mr. Riley                           Dr. Paul
Mr. LaFalce                         Dr. Weldon
Mr. Vento                           Mr. Ryun of Kansas
Mr. Frank                           Mr. Ryan of Wisconsin
Mr. Kanjorski                       Mr. Sweeney
Ms. Waters                          Mrs. Biggert
Mr. Sanders                         Mr. Terry
Mrs. Maloney                        Mr. Green
Mr. Gutierrez                       Mr. Toomey
Ms. Velazquez
Mr. Watt
Mr. Ackerman
Mr. Bentsen
Mr. Maloney
Ms. Hooley
Ms. Carson
Mr. Weygand
Mr. Sherman
Mr. Meeks, G.
Ms. Lee
Mr. Mascara
Mr. Inslee
Ms. Schakowsky
Mr. Moore
Mr. Gonzalez
Mrs. Jones
Mr. Capuano
Mr. Forbes

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of 
the Rules of the House of Representatives.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
general welfare clause (Article I, Sec. 8).

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of rule XI of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority for increased tax 
expenditures.

    Congressional Budget Office Costs Estimate and Unfunded Mandate 
                                Analysis

    The cost estimate pursuant to clause 3(c)(3) of rule XIII 
of the Rules of the House of Representatives and section 402 of 
the Congressional Budget Act of 1974 is attached herewith:
                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 5, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2764, the 
America's Private Investment Companies Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Lanette 
Keith.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippin, Director).
    Enclosure.

               Congressional Budget Office Cost Estimate

H.R. 2764--America's Private Investment Companies Act

    Summary: H.R. 2764 would establish the America's Private 
Investment Companies (APIC) program within the Department of 
Housing and Urban Development (HUD) to provide federal loan 
guarantees to qualified venture capital corporations that 
invest in low-income communities. The bill would authorize 
appropriations of $36 million a year over the 2000-2004 period 
to cover the subsidy costs of such loan guarantees. For each 
fiscal year. HUD could make commitments to guarantee loans only 
to the extent that the total loan principal, any part of which 
is guaranteed, would not exceed $1 billion or the amount 
specified in appropriation acts. The bill would also authorize 
the appropriation of $1 million annually over the five-year 
period for administrative expenses.
    CBO estimates that implementing H.R. 2764 would cost about 
$145 million for loan subsidy and administrative costs over the 
2000-2005 period, assuming appropriation of the necessary 
amounts. Because H.R. 2764 could affect offsetting receipts (a 
form of direct spending), pay-as-you-go procedures would apply. 
CBO estimates, however, that any impact on direct spending 
would not be significant. H.R. 2764 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 mandate as defined by UMRA.
    Estimated cost to the Federal Government: For the purpose 
of this estimate, CBO assumes that H.R. 2764 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. 2764 is shown in the following table. The costs of this 
legislation fall within budget function 450 (community and 
regional development).

                                        SPENDING SUBJECT TO APPROPRIATION
----------------------------------------------------------------------------------------------------------------
                                                                By fiscal year, in millions of dollars
                                                     -----------------------------------------------------------
                                                        2000      2001      2002      2003      2004      2005
----------------------------------------------------------------------------------------------------------------
Spending for APIC Under Current Law:
    Budget Authority 1..............................        20         0         0         0         0         0
    Estimated Outlays...............................         2         6         8         4         0         0
Proposed Changes:
    Estimated Authorization Level...................        17        38        38        38        39         3
    Estimated Outlays...............................         1        12        24        34        39        35
Spending Under H.R. 2764:
    Estimated Authorization Level 1.................        37        38        38        38        39         3
    Estimated Outlays...............................         3        18        32        38        39        35
----------------------------------------------------------------------------------------------------------------
1 For 2000 $20 million has been appropriated for this program conongent upon authorization of the APIC program
  before June 30, 2000.

    Basis of estimate: Under procedures established by the 
Federal Credit Reform Act of 1990, the subsidy cost of a loan 
guarantee is the estimated long-term cost to the government, 
calculated on a net present value basis. Based on the past 
performance of similar Small Business Administration (SBA) 
programs. CBO expects that APIC borrowers would default on 
between 25 percent and 30 percent of guaranteed loans. In the 
event of a default, CBO expects that the agency would liquidate 
the APIC investments, but this process would take a number of 
years. Consequently, CBO estimates that HUD would recover only 
about 50 percent of the loan balance three years after default. 
In addition, based on information from the Administration, we 
assume that HUD would charge a 1 percent origination fee when 
the loan is disbursed and a 0.77 percent annual fee. Under 
these assumptions, the program would operate at a subsidy cost 
equal to 5 percent of the amounts guaranteed.
    H.R. 2764 would authorized the appropriation of $36 million 
annually for the subsidy cost of APIC loan guarantees, and this 
estimate assumes such appropriations. CBO estimates that this 
amount would be sufficient to cover the subsidy costs of $720 
million of loan guarantees under this program. (The estimated 
subsidy cost to guarantee $1 billion in loans under the APIC 
program would be about $50 million annually.) While the bill 
would authorize the appropriation of $1 million annually over 
the 2000-2004 period for administrative costs, CBO estimates 
this amount would not be sufficient to administer these loan 
guarantees.
    Based on the operation of similar SBA programs, we estimate 
that $2 million to $3 million would be needed each year to 
administer these loan guarantees, and that these costs would 
continue over the 10-year term of the guarantees.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending and receipts. Section 
111 would provide for civil penalties against APICs that fail 
to comply with regulations that would be established under H.R. 
2764. Payments of these civil penalties would be recorded as 
miscellaneous receipts to the Treasury. CBO expects that any 
increase in penalty collections as a result of this provision 
would not be significant.
    Impact on State, local, and tribal governments: H.R. 2764 
would preempt State laws with regard to the seniority of debt 
issued by APICs. 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.
    The bill also provides that State and local governments may 
choose to assume responsibility for environmental reviews 
needed for certain projects and activities financed by an APIC. 
Any costs to carry out such environmental reviews would be 
incurred voluntarily.
    Impact on the private sector: H.R. 2764 contains no new 
private-sector mandates as defined in URMA.
    Estimate prepared by: Federal costs: Lanette Keith and Mark 
Hadley; impact on State, local, and tribal governments: 
Victoria Heid Hall; and impact on the private sector: Patrice 
Gordon.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                      Advisory Committee Statement

    No advisory committees within the meaning of Section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under Section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

                           Section-by-Section

Section 1. Short title

    The act may be cited as the America's Private Investment 
Companies Act.

Section 2. Findings and purpose

    Section 2 finds that (1) people living in distressed areas, 
both urban and rural, characterized by high levels of 
joblessness, poverty, and low incomes, have not adequately 
benefited from economic expansion experienced by the Nation as 
a whole; (2) the costs of joblessness and poverty to our Nation 
are very high; and (3) there are significant untapped markets 
in our Nation, and many of these are in areas that are 
underserved by institutions that can make equity and credit 
investments.
    Purposes of this title are to (1) license private for-
profit community development entities that will focus on making 
equity and credit investments for large-scale business 
developments that benefit low-income communities; (2) provide 
credit enhancement for those entities for use in low-income 
communities; and (3) provide a vehicle under which the economic 
and social returns on financial investments made pursuant to 
this Act may be available both to the investors in these 
entities and to the residents of the low-income communities.

Section 3. Definitions

    Defines terms used in legislation, including 
``Administrator'', ``agency'', ``APIC'', ``community 
development entity'', ``HUD'', ``license'', ``low-income 
community'', ``low-income person'', ``private equity capital'', 
``qualified active business'', ``qualified debenture'', 
``qualified low-income community investment'', and 
``Secretary''.

Section 4. Authorization

    Authorizes the Secretary of HUD to license and regulate 
America's Private Investment Companies (``APICs''). The number 
of APICs licensed at any one time would depend upon the amount 
of budget authority available to support the total credit 
subsidy provided to the APICs, subject to a first year 
limitation of 15 APICs. After the initial appropriation, the 
Secretary is authorized to license and allocate credit subsidy 
to additional APICs, or, as provided, increase the credit 
subsidy allocated to an APIC as reward for high performance. 
Any such credit subsidy increase shall be provided only to an 
APIC that has been licensed for not less than two years, and 
pursuant to a competition among eligible APICs. The Secretary 
shall establish criteria for selecting among APICs eligible for 
a credit subsidy increase, which criteria shall include such 
factors as the financial soundness and performance of the APICs 
as measured by achievement of the public performance goals 
required under the Act.
    Requires that the HUD Secretary consult with the 
Administrator of the Small Business Administration and the 
Secretary of the Treasury in establishing regulations, 
requirements or procedures regarding the financial soundness 
and management of APICs. Authorizes budget authority of $36 
million in credit subsidy for Fiscal Year 2000 to guarantee an 
estimated $1 billion in debt. An additional $36 million would 
be authorized to be appropriated for each of Fiscal Years 2001-
2003, with an additional $1 million authorized for the 
administrative expenses incurred in carrying out the Act for FY 
2000-FY 2003. Requires APICs to be regulated by HUD in 
cooperation with SBA and the Department of the Treasury. The 
Secretary is authorized to impose fees and charges for the 
operation of APICs.

Section 5. Selection of APICs

    Establishes procedures for selection of APICs, sets forth 
minimum eligibility requirements, and sets forth selection 
criteria to be used by the Secretary in selecting among 
applicants for licensing as APICs. An entity applying for an 
APIC license must: (1) be a private, for-profit entity that 
qualifies as a ``community development entity'' as defined in 
the legislation; (2) have a minimum private equity capital of 
$25 million; (3) have qualified financial management, with 
experience in direct equity investment and portfolio management 
and expertise in community development settings, as determined 
by the Secretary; (4) be structured to preclude financial 
conflict of interests between the APIC and its managers or 
investors; (5) submit an investment strategy with evaluation 
benchmarks; (6) submit a statement of public purpose goals, 
examples of which are delineated in the statute; (7) agree to 
comply with other federal requirements imposed from time to 
time (i.e. Executive Orders or OMB circulars); and (8) satisfy 
any other application criteria that the Secretary may impose by 
regulation or notice.
    The Secretary shall select eligible entities for licensing 
based on a competition. Selections shall be made on the basis 
of the extent to which the entity is expected to meet or exceed 
the selection criteria set forth in the legislation. Selection 
criteria include factors such as the APICs capacity, investment 
strategy, public purpose goals, and other criteria the 
Secretary may establish to carry out the purposes of this Act. 
To the extent practicable, in selecting APICs the Secretary 
shall strive for geographic diversity and a diversity of the 
types of APICs chosen so that both rural and urban communities 
are served by the program. Of those APICs selected in the first 
year, at least one must be devoted primarily to making 
investments on Native American lands.

Section 6. Operations of APICs

    Sets forth requirements for the operation of APICs. 
Requires that substantially all APICinvestments that use 
government-guaranteed proceeds be in qualified low- to moderate-income 
(LMI) areas, and prohibits an APIC from having an investment in any one 
business that would amount to more than 35% of the APIC's equity 
capital plus the limit of outstanding debt allowable (the leverage 
limit) under Section 106(c)(2) of this title.
    Provides that an APIC may issue debentures guaranteed by 
the Secretary pursuant to the provisions of the Act. The total 
amount of debentures that an APIC may have outstanding at any 
one time shall not exceed 200% of the equity capital of the 
APIC. An APIC may not have more than $300 million in face value 
of debentures issued at any one time. Sets forth requirements 
for repayment by APIC of debt.
    Includes an ``anti-pirating'' provision prohibiting APICs 
from using funds to make an investment that would assist 
directly in the relocation of any industrial or commercial 
plant, facility or operation from one area to another if such 
relocation would result in a significant loss of employment in 
the labor area from which the relocation occurs. Also provides 
for reuse of debenture proceeds of sale of Treasury securities 
and excludes APIC from the definition of debtor under 
bankruptcy provisions.

Section 7. Credit enhancement by the Federal Government

    Authorizes HUD to make commitments to guarantee the timely 
payment of all principal and interest on qualified debentures 
issued by the APICs. The qualified debentures guaranteed by HUD 
would be senior to any other debt or equity. The qualified 
debentures could be issued by APICs for up to 21 years and 
could be pooled and sold.

Section 8. APIC requests for guarantee actions

    Sets forth procedures for APICs to request loan guarantees 
from HUD, which shall include a description of the manner in 
which the APIC intends to use the proceeds from such debentures 
and a certification from the APIC that it is in substantial 
compliance with (1) the terms of this Act and applicable laws; 
(2) the terms and conditions of its license; (3) requirements 
relating to the allocation and use of New Market Tax Credits. 
The APIC must also provide any other requirements established 
by the Secretary. Sets forth procedures for compliance with 
provisions of the National Environmental Policy Act of 1969 
regarding environmental reviews.

Section 9. Examination and monitoring of APICs

    Requires that the Secretary examine and monitor the 
activities of APICs for compliance with sound financial 
management practices and for satisfaction of program goals. 
Requires the Secretary to establish annual or more frequent 
reporting requirements for APICs. Requires that each APIC have 
an independent annual audit conducted annually. The Secretary, 
in consultation with the Administrator of the SBA and the 
Secretary of the Treasury, shall establish requirements and 
standards for such audits. Not less than every two years, the 
Secretary shall examine the operations and portfolio of each 
APIC to assure compliance with sound financial management 
practices.
    Provides that in carrying out its monitoring of HUD's 
responsibilities under this Act, the Inspector General of HUD 
shall consult, as appropriate, with the Inspectors General of 
the Department of the Treasury or the Small Business 
Administration, and may enter into memoranda of understanding 
as may be necessary to carry out this function. Requires the 
Secretary to report to Congress annually regarding the 
operations, activities, financial health and achievements of 
APICs, listing each investment made by each APIC. Requires the 
General Accounting Office, not later than two years after the 
date of enactment of the Act, to submit a report to Congress 
regarding the operation of the APIC program.

Section 10. Penalties

    Authorizes the Secretary to impose penalties on any APIC 
that commits an act of fraud, mismanagement or noncompliance 
with regulations. Penalties include civil monetary penalties 
not to exceed $10,000, cease-and-desist orders, suspension or 
revocation of an APIC's license for very serious infractions, 
or other penalties that the Secretary determines to be less 
burdensome than the aforementioned penalties.

Section 11. Effective date

    Provides that the Act shall take effect six months after 
the date of enactment. Authority of the Secretary to issue 
regulations, standards, guidelines or licensing requirements, 
and the authority of any official to enter into agreements or 
memoranda of understanding regarding such issuances, shall take 
effect upon enactment of the legislation.

Section 12. Sunset

    Provides that the Secretary may not license any APIC, nor 
provide credit subsidy for any APIC, after the expiration of 
the five-year period beginning upon the date the Secretary 
awards the first APIC license. The section does not affect any 
license or credit subsidy provided for an APIC before the 
expiration of such period.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

   SECTION 12 OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ACT

    Sec. 12. (a) * * *

           *       *       *       *       *       *       *

    (e) Definitions.--For purposes of this section:
          (1) * * *
          (2) Assistance.--The term ``assistance'' means any 
        grant, loan, subsidy, guarantee, or other financial 
        assistance under a program administered by the 
        Secretary that provides by statute, regulation, or 
        otherwise for the competitive distribution of such 
        assistance. The term does not include any mortgage 
        insurance provided under a program administered by the 
        Secretary or any license provided under the America's 
        Private Investment Companies Act.

           *       *       *       *       *       *       *

                              ----------                              

              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 
        small business investment company licensed by the Small 
        Business Administration under subsection (c) or (d) of 
        section 301 of the Small Business Investment Act of 
        1958, America's Private Investment Company licensed 
        under the America's Private Investment Companies Act, 
        credit union, or industrial bank or similar institution 
        which is an insured bank as defined in section 3(h) of 
        the Federal Deposit Insurance Act; or
          (3) * * *

           *       *       *       *       *       *       *

                            ADDITIONAL VIEWS

    The approval of the APIC legislation by the House Committee 
on Banking and Financial Services represents a bold effort to 
bring economic opportunities and quality jobs to individuals 
and communities being left behind during our nation's strong 
economic expansion. It also represents the first committee 
approval of any portion of the Administration's New Markets 
Initiative.
    Despite strong income and wage growth for much of our 
population, millions of Americans still do not have access to 
jobs that pay decent wages and offer real opportunities for 
advancement. And, many urban, suburban, and rural communities 
and neighborhoods are not fully participating in our economic 
prosperity. APIC is a private sector oriented approach to 
leverage scarce federal resources to foster billions of dollars 
of investments in a way that will bring hope and opportunity to 
those persons and communities being left behind.
    APIC is structured to ensure that federal resources are 
targeted to create opportunities for lower-income families and 
individuals. ``Substantially all'' investments made with APIC-
guaranteed loans or equity used to support such loans must be 
made in ``low-income communities''--defined as census tracts 
with poverty rate of excess of 20% or median family income 
levels below the greater of 80% of either the local or state 
median. And, successful APIC licensees must pursue public 
purpose goals, which include creating good paying jobs, making 
investments in low-income communities, and working with 
community-based organizations and residents.
    APIC is structured to avoid federal micromanagement of 
individual investment decisions, and instead give APIC 
investment companies the flexibility to make market-oriented 
investments, with maximal local impact. Once an APIC meets the 
rigorous financial and managerial criteria required for 
licensee selection, the APIC uses its expertise to make 
autonomous investment decisions, subject only to the market 
discipline of having to repay debentures and meeting public 
purpose goals.
    APIC is structured to make maximum use of scarce federal 
resources. Leverage and equity requirements ensure that federal 
resources create substantial amounts of private sector equity 
investments. Use of federal loan guarantees (as opposed to 
outright federal grants) imposes market discipline and 
dramatically limits the need for federal appropriations of 
funds. The result is that a federal credit subsidy of only $36 
million a year, as determined by OMB, will create at least $7.5 
billion in targeted investments over the next five years.
    Finally, APIC is structured to protect the federal 
taxpayer. Successful APIC licensees are required to provide at 
least $25 million in private equity capital, which is put at 
risk of loss ahead of any federal liability under the guarantee 
debentures. APICs must demonstrate that their management must 
be qualified, and have the financial expertise, experience, and 
capability to make investments in low-income communities and 
use federal loan guarantees under the program.
    As sponsors of the APIC legislation, we believe that H.R. 
2764, as introduced, was soundly drafted, with substantial 
management and financial controls on the APICs themselves, as 
well as appropriate federal oversight. For example, H.R. 2764 
as introduced included a number of provisions to ensure sound 
federal oversight. Section 109, ``Examination and Monitoring of 
APICs'' directs the HUD Secretary to examine and monitor the 
operations and activities of APICs for compliance with sound 
financial management practices and program goals--through 
audits, performance agreements, and license agreements. HUD is 
specifically authorized to establish annual or more frequent 
audit and reporting requirements for APICs, including audits, 
in meeting this obligation.
    Furthermore, at least every two years, HUD is required to 
examine the operations and portfolio of each APIC for 
compliance with sound financial management practices and for 
compliance with the act. And, under Section 110 of the original 
bill, HUD is given authority to take appropriate action in 
response to fraud, mismanagement, or non-compliance on the part 
of any APIC, including the authority to assess civil money 
penalties, require divestiture, and revoke a license.
    Despite these safeguards, we were more than willing to work 
with the majority to craft a managers' amendment to build on 
the original bill's financial and managerial controls and 
federal oversight. For example, the managers' amendment 
specifically requires each APIC to conduct an annual 
independent audit. It also requires the HUD Secretary to submit 
an annual report to Congress regarding the operations, 
activities, financial health, and achievements of the program. 
The manager's amendment orders a GAO report on the program, and 
requires the HUD IG, in its traditional oversight role, to 
consult with the Treasury and SAB IG with respect to the APIC 
program. Finally, the managers' amendment expands on the 
Section 110 penalties dealing with potential fraud, 
mismanagement, or noncompliance.
    The other major focus of the managers' amendment was to 
provide more detail about various provisions or definitions in 
the bill. As sponsors of the original legislation, we believe 
H.R. 2764 includes very clear provisions to target APIC 
investments to low-income communities and persons, and to set 
forth investment goals which are designed to foster good paying 
jobs and involve community-based organizations and residents. 
These targeting provisions are at the heart of the bill's goal 
of helping those individuals and communities being left behind 
our economic recovery.
    However, we view the revisions included in the managers' as 
constructive. Most notably, the criteria set our for the 
selection of APICs are re-organized to more clearly delineate 
minimum threshold requirements from those criteria that are 
used to select those applicants best qualified to meet the 
goals of the program. The managers' amendment also adds or 
modifies certain definitions, including ``private equity 
capital,'' ``low-income community,'' and ``low-income person.'' 
These changes are all consistent with the original intent of 
the bill.
    The resulting legislation, after adoption of the managers' 
amendment, retains the core provisions of H.R. 2764, as 
originally introduced. This bill holds great promise for 
unleashing private sector investments for the benefit of low-
income persons and communities. Last year's VA-HUD 
appropriations bill already provided the credit subsidy for the 
first round of APIC licensing, subject only to program 
authorization.
    Therefore, we urge prompt Congressional action to enact 
APIC into law.

                                   John J. LaFalce.
                                   Paul E. Kanjorski.

                            ADDITIONAL VIEW

    There are some encouraging developments that this bill 
illustrates such as the bipartisan approach and the shift of 
attention to our own constituents. However, the best way to 
help our constitutes would be to follow sound fiscal and credit 
policies that create the best conditions for economic 
development; low taxes, limited government and sound money. 
This bill does not follow that approach.
    The federal budget is an example of economic scarcity: 
unlimited wants and limited resources. Ever dollar allocated 
for one program comes at the expense of another. With this 
understanding in mind, I introduced an amendment that would 
have shifted our priorities from exporting U.S. jobs to one of 
developing jobs at home. My amendment would have established a 
trust fund for APIC and recommended transferring $2.5 billion 
from the OPIC trust fund to the APIC fund.
    When Congress created the Overseas Private Investment Crop 
(OPIC), the U.S. Treasury established a ``trust fund'' for it 
and gave the trust fund billions of non-marketable securities 
(U.S. bonds). The trust fund retained the earnings from the 
bonds in order to fund OPIC--despite claims that the program 
was ``self-sustaining'' and ``not operating at taxpayer 
expense.'' It was, of course, the taxpayers who pay the bonds 
whose interest funds the program.
    According to OPIC's last annul report, it had over $4 
billion in assets (97% of them U.S. Treasury securities) in 
1999, up from $3.7 billion in 1998. Revenues totaled almost 
$400 million (up from $365 million the previous year) was 
interested ``earned'' on U.S. Treasury securities contributing 
about half of its revenues. According to the February Monthly 
Statement of the Public Debt, the ``Overseas Private Investment 
Corporation, Insurance and Equity Non Credit Account'' (the 
OPIC trust fund) was issued $3.2 billion with about $3 billion 
outstanding.
    Now that OPIC has had a chance to establish itself, a 
portion of the nest egg gifted to it by Treasury should be used 
to fund an APIC trust fund (with a corresponding offset in 
appropriations) and the remainder shifted to the Social 
Security trust fund.

                                                          Ron Paul.

                            DISSENTING VIEWS

    The American Private Investment Companies' (APIC) proposed 
goal of bringing large-scale businesses to economically 
distressed communities is a laudable ad important goal. 
However, H.R. 2764, the American Private Investment Companies 
Act, subsequently incorporated into H.R. 2848, the New Markets 
Initiative as Title III, accepts the various impediments to 
investing in the inner city and rural communities and simply 
offers businesses a subsidy for risky investment. Further, the 
legislation duplicates several existing programs. It has not 
been adequately scored to take government loan guarantee risk 
into consideration, and is to be administered by the Department 
of Housing and Urban Development (HUD), which is inadequately 
prepared for the responsibility.
    A lack of capital is not keeping businesses from investing 
in these areas, especially not the large-scale, established 
businesses that the APIC program would target--the problem is 
the high cost of doing business. Instead of attacking the 
fundamental problems of these areas, a program such as APIC 
reduces urban and rural areas' incentives to change what makes 
investment in these communities difficult in the first place--
penalizing tax rates, burdensome regulatory policies, a lack of 
public infrastructure, and high crime rates.
    Further, a lack of venture capital is not an issue. The 
companies the APIC proposal targets are not entrepreneurial 
start-ups, nor are they small businesses. They are companies 
like Safeway or Wal-Mart. Location of venture capital is also 
not an issue. In today's information economy where technology 
facilitates long-distance interpersonal communication, venture 
capital flows to where it can earn a high rate of return, 
whether the investment is in Chicago or the Appalachian 
Mountains.
    At least eight federal programs already exist that have 
similar goals as the APIC program. We understand each program 
is structured slightly differently and awards loans and grants 
differently than APICs, but the outcome remains the same. These 
include Community Development Block Grants (CDBG) Section 108 
Loan Guarantees, Community Development Financial Institutions 
(CDFIs), Small Business Investment Companies (SBICs), and the 
Business and Industry Loan program administered by the USDA.
    The APIC proposal creates quasi-GSEs, by relying on 
government subsidies to back ``private'' loans. This is not a 
private market initiative. HUD is granted authority to create a 
secondary market in APIC debt, similar to how Ginnie Mae 
guarantees mortgage debt. Creation of this secondary market 
further lowers the cost of capital, but increases taxpayer 
risk.
    In fact, under H.R. 2764, APICs are expected to lose $36 
million for every $1 billion invested. CBO believes that this 
loss could be greater if the true value of risk is calculated. 
In addition, CBO wrote that although the APIC legislation 
``authorizes the appropriation of $36 million annually for the 
subsidy cost of loan guarantees and $1 million annually for 
administrative expenses . . . based on the experience of 
similar loan guarantee programs administered by the SBA. CBO 
estimates that the subsidy cost to guarantee $1 billion in 
loans under the APIC program would cost about $50 million 
annually.'' Based on SBA programs, ``CBO expects that APIC 
borrowers would default on between 25% and 30% of the 
guaranteed loans.''
    To put this in perspective, CRS contrasts the expected 3.6% 
subsidy rate with both CDFIs and SBICs. CDFIs have a FY 1999 
subsidy rate of over 39% and SBICs have a subsidy rate of 25% 
(as of 1996). Accordingly, CRS, as well as CBO, the proposed 
3.6% subsidy rate far too low.
    Finally, HUD is a highly political department and has 
demonstrated a lack of success in handling new programs, such 
as the community builders program. Unlike the Treasury 
Department or the Small Business Administration (SBA), HUD has 
no expertise in managing a large-scale business investment 
program.
    For the reasons outlined above, we believe that the APIC 
program is not the preferred means of addressing poverty and 
unemployment in economically distressed urban and rural areas. 
Its band-aid approach as a government subsidized investment 
program does not reduce the cost of business in these areas, 
aside from reducing the cost of capital for large companies who 
can easily find funds in the private market. The best way to 
promote economic growth is to reduce federal, state and local 
tax and regulatory burdens, which would encourage local 
entrepreneurs--with their own capital at risk--to determine 
what works best in their community.

                                   Paul Ryan.
                                   Ed Royce.
                                   Jim Ryun.
                                   Pat Toomey.
                                   Mark Green.
                                   Ron Paul.
                                   Bob Barr.
                                   Doug Ose.

                                  
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