79–006

106TH CONGRESS REPT. 106–706 " ! HOUSE OF REPRESENTATIVES 2d Session Part 1

NEW MARKETS INITIATIVE ACT OF 1999

JUNE 28, 2000.—Ordered to be printed

Mr. LEACH, from the Committee on Banking and Financial

Services, submitted the following

R E P O R T

[To accompany H.R. 2848]

The Committee on Banking and Financial Services, to whom was

referred the bill (H.R. 2848) to amend the Small Business Investment Act of 1958 and the Small Business Act to establish a New

Markets Venture Capital Program, to establish an America’s Private Investment Company Program, to amend the Internal Revenue Code of 1986 to establish a New Markets Tax Credit, and for

other purposes, having considered the same, report favorably thereon with amendments and recommend that the bill as amended do

pass.

The amendments (stated in terms of the page and line numbers

of the introduced bill) are as follows:

Page 2, strike title III in the table of contents and insert the following:

TITLE III—AMERICA’S PRIVATE INVESTMENT COMPANIES

Sec. 301. Short Title.

Sec. 302. Findings and purposes.

Sec. 303. Definitions.

Sec. 304. Authorization.

Sec. 305. Selection of APICs.

Sec. 306. Operations of APICs.

Sec. 307. Credit enhancement by the Federal Government.

Sec. 308. APIC requests for guarantee actions.

Sec. 309. Examination and monitoring of APICs.

Sec. 310. Penalties.

Sec. 311. Effective date.

Sec. 312. Sunset.

Page 29, strike line 3 and all that follows through line 23 on

page 62 and insert the following:

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TITLE III—AMERICA’S PRIVATE

INVESTMENT COMPANIES

SEC. 301. SHORT TITLE.

This title may be cited as the ‘‘America’s Private Investment Companies Act’’.

SEC. 302. FINDINGS AND PURPOSES.

(a) FINDINGS.—The Congress finds that—

(1) people living in distressed areas, both urban and

rural, that are characterized by high levels of joblessness, poverty, and low incomes have not benefited adequately from the economic expansion experienced by

the Nation as a whole;

(2) unequal access to economic opportunities continues to make the social costs of joblessness and poverty to our Nation very high; and

(3) there are significant untapped markets in our

Nation, and many of these are in areas that are underserved by institutions that can make equity and

credit investments.

(b) PURPOSES.—The purposes of this title are to—

(1) license private for profit community development

entities that will focus on making equity and credit investments for large-scale business developments that

benefit low-income communities;

(2) provide credit enhancement for those entities for

use in low-income communities; and

(3) provide a vehicle under which the economic and

social returns on financial investments made pursuant

to this title may be available both to the investors in

these entities and to the residents of the low-income

communities.

SEC. 303. DEFINITIONS.

As used in this title:

(1) ADMINISTRATOR.—The term ‘‘Administrator’’

means the Administrator of the Small Business Administration.

(2) AGENCY.—The term ‘‘agency’’ has the meaning

given such term in section 551(1) of title 5, United

States Code.

(3) APIC.—The term ‘‘APIC’’ means a business entity that has been licensed under the terms of this title

as an America’s Private Investment Company, and the

license of which has not been revoked.

(4) COMMUNITY DEVELOPMENT ENTITY.—The term

‘‘community development entity’’ means an entity the

primary mission of which is serving or providing investment capital for low-income communities or lowincome 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

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of Housing and Urban Development, as the context requires.

(6) LICENSE.—The term ‘‘license’’ means a license

issued by HUD as provided in section 304.

(7) LOW-INCOME COMMUNITY.—The term ‘‘low-income

community’’ means—

(A) a census tract or tracts that have—

(i) a poverty rate of 20 percent or greater,

based on the most recent census data; or

(ii) a median family income that does not

exceed 80 percent of the greater of (I) the median family income for the metropolitan area

in which such census tract or tracts are located, or (II) the median family income for the

State in which such census tract or tracts are

located; or

(B) a property that was located on a military installation that was closed or realigned pursuant to

title II of the Defense Authorization Amendments

and Base Closure and Realignment Act (Public

Law 100–526; 10 U.S.C. 2687 note), the Defense

Base Closure and Realignment Act of 1990 (part

A of title XXIX of Public Law 101–510; 10 U.S.C.

2687 note), section 2687 of title 10, United States

Code, or any other similar law enacted after the

date of the enactment of this Act that provides for

closure or realignment of military installations.

(8) LOW-INCOME PERSON.—The term ‘‘low-income

person’’ means a person who is a member of a low-income family, as such term is defined in section 104 of

the Cranston-Gonzalez National Affordable Housing

Act (42 U.S.C. 12704).

(9) PRIVATE EQUITY CAPITAL.—

(A) IN GENERAL.—The term ‘‘private equity

capital’’—

(i) in the case of a corporate entity, the

paid-in capital and paid-in surplus of the corporate entity;

(ii) in the case of a partnership entity, the

contributed capital of the partners of the partnership entity;

(iii) in the case of a limited liability company entity, the equity investment of the

members of the limited liability company entity; and

(iv) earnings from investments of the entity

that are not distributed to investors and are

available for reinvestment by the entity.

(B) EXCLUSIONS.—Such term does not include

any—

(i) funds borrowed by an entity from any

source or obtained through the issuance of leverage; except that this clause may not be

construed to exclude amounts evidenced by a

legally binding and irrevocable investment

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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 lowincome communities; and

(D) less than 5 percent of the aggregate

unadjusted bases of the property of which is attributable to certain financial property, as the

Secretary shall set forth in regulations, or in collectibles, other than collectibles held primarily for

sale to customers.

(11) QUALIFIED DEBENTURE.—The term ‘‘qualified

debenture’’ means a debt instrument having terms

that meet the requirements established pursuant to

section 306(c)(1).

(12) QUALIFIED LOW-INCOME COMMUNITY INVEST- MENT.—The term ‘‘qualified low-income community investment’’ mean an equity investment in, or a loan to,

a qualified active business.

(13) SECRETARY.—The term ‘‘Secretary’’ means the

Secretary of Housing and Urban Development, unless

otherwise specified in this title.

SEC. 304. AUTHORIZATION.

(a) LICENSES.—The Secretary is authorized to license

community development entities as America’s Private Investment Companies, in accordance with the terms of this

title.

(b) REGULATIONS.—The Secretary shall regulate APICs

for compliance with sound financial management practices,

and the program and procedural goals of this title and

other related Acts, and other purposes as required or authorized by this title, or determined by the Secretary. The

Secretary shall issue such regulations as are necessary to

carry out the licensing and regulatory and other duties

under this title, and may issue notices and other guidance

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or directives as the Secretary determines are appropriate

to carry out such duties.

(c) USE OF CREDIT SUBSIDY FOR LICENSES.—

(1) NUMBER OF LICENSES.—The number of APICs licensed at any one time may not exceed—

(A) the number that may be supported by the

amount of budget authority appropriated in accordance with section 504(b) of the Federal Credit

Reform Act of 1990 (2 U.S.C. 661c) for the cost (as

such term is defined in section 502 of such Act) of

the subsidy and the investment strategies of such

APICs; or

(B) to the extent the limitation under section

305(e)(1) applies, the number authorized under

such section.

(2) USE OF ADDITIONAL CREDIT SUBSIDY.—Subject to

the limitation under paragraph (1), the Secretary may

use any budget authority available after credit subsidy

has been allocated for the APICs initially licensed pursuant to section 305 as follows:

(A) ADDITIONAL LICENSES.—To license additional

APICs.

(B) CREDIT SUBSIDY INCREASES.—To increase the

credit subsidy allocated to an APIC as an award

for high performance under this title, except that

such increases may be made only in accordance

with the following requirements and limitations:

(i) TIMING.—An increase may only be provided for an APIC that has been licensed for

a period of not less than 2 years.

(ii) COMPETITION.—An increase may only be

provided for a fiscal year pursuant to a competition for such fiscal year among APICs eligible for, and requesting, such an increase.

The competition shall be based upon criteria

that the Secretary shall establish, which shall

include the financial soundness and performance of the APICs, as measured by achievement of the public performance goals included

in the APICs statements required under section 305(a)(6) and audits conducted under section 309(b)(2). Among the criteria established

by the Secretary to determine priority for selection under this section, the Secretary shall

include making investments in and loans to

qualified active businesses in urban or rural

areas that have been designated under subchapter U of Chapter 1 of the Internal Revenue Code of 1986 as empowerment zones or

enterprise communities.

(d) COOPERATION AND COORDINATION.—

(1) PROGRAM POLICIES.—The Secretary is authorized

to coordinate and cooperate, through memoranda of

understanding, an APIC liaison committee, or otherwise, with the Administrator, the Secretary of the

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Treasury, and other agencies in the discretion of the

Secretary, on implementation of this title, including

regulation, examination, and monitoring of APICs

under this title.

(2) FINANCIAL SOUNDNESS REQUIREMENTS.—The Secretary shall consult with the Administrator and the

Secretary of the Treasury, and may consult with such

other heads of agencies as the Secretary may consider

appropriate, in establishing any regulations, requirements, guidelines, or standards for financial soundness or management practices of APICs or entities applying for licensing as APICs. In implementing and

monitoring compliance with any such regulations, requirements, guidelines, and standards, the Secretary

shall enter into such agreements and memoranda of

understanding with the Administrator and the Secretary of the Treasury as may be appropriate to provide for such officials to provide any assistance that

may be agreed to.

(3) OPERATIONS.—The Secretary may carry out this

title—

(A) directly, through agreements with other

Federal entities under section 1535 of title 31,

United States Code, or otherwise, or

(B) indirectly, under contracts or agreements, as

the Secretary shall determine.

(e) FEES AND CHARGES FOR ADMINISTRATIVE COSTS.—To

the extent provided in appropriations Acts, the Secretary

is authorized to impose fees and charges for application,

review, licensing, and regulation, or other actions under

this title, and to pay for the costs of such activities from

the fees and charges collected.

(f) GUARANTEE FEES.—The Secretary is authorized to set

and collect fees for loan guarantee commitments and loan

guarantees that the Secretary makes under this title.

(g) FUNDING.—

(1) AUTHORIZATION OF APPROPRIATIONS FOR LOAN

GUARANTEE COMMITMENTS.—For each of fiscal years

2000, 2001, 2002, 2003, and 2004, there is authorized

to be appropriated up to $36,000,000 for the cost (as

such term is defined in section 502(5) of the Federal

Credit Reform Act of 1990) of annual loan guarantee

commitments under this title. Amounts appropriated

under this paragraph shall remain available until expended.

(2) AGGREGATE LOAN GUARANTEE COMMITMENT LIMITATION.—The Secretary may make commitments to

guarantee loans only to the extent that the total loan

principal, any part of which is guaranteed, will not exceed $1,000,000,000, unless another such amount is

specified in appropriation Acts for any fiscal year.

(3) AUTHORIZATION OF APPROPRIATIONS FOR ADMINISTRATIVE EXPENSES.—For each of the fiscal years 2000,

2001, 2002, 2003, and 2004, there is authorized to be

appropriated $1,000,000 for administrative expenses

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for carrying out this title. The Secretary may transfer

amounts appropriated under this paragraph to any appropriation account of HUD or another agency, to

carry out the program under this title. Any agency to

which the Secretary may transfer amounts under this

title is authorized to accept such transferred amounts

in any appropriation account of such agency.

SEC. 305. SELECTION OF APICS.

(a) ELIGIBLE APPLICANTS.—An entity shall be eligible to

be selected for licensing under section 304 as an APIC only

if the entity submits an application in compliance with the

requirements established pursuant to subsection (b) and

the entity meets or complies with the following requirements:

(1) ORGANIZATION.—The entity shall be a private,

for-profit entity that qualifies as a community development entity for the purposes of the New Markets Tax

Credits, to the extent such credits are established

under Federal law.

(2) MINIMUM PRIVATE EQUITY CAPITAL.—The amount

of private equity capital reasonably available to the

entity, as determined by the Secretary, at the time

that a license is approved may not be less than

$25,000,000.

(3) QUALIFIED MANAGEMENT.—The management of

the entity shall, in the determination of the Secretary,

meet such standards as the Secretary shall establish

to ensure that the management of the APIC is qualified, and has the financial expertise, knowledge, experience, and capability necessary, to make investments

for community and economic development in low-income communities.

(4) CONFLICT OF INTEREST.—The entity shall demonstrate that, in accordance with sound financial management practices, the entity is structured to preclude

financial conflict of interest between the APIC and a

manager or investor.

(5) INVESTMENT STRATEGY.—The entity shall prepare

and submit to the Secretary an investment strategy

that includes benchmarks for evaluation of its

progress, that includes an analysis of existing locally

owned businesses in the communities in which the investments under the strategy will be made, that

prioritizes such businesses for investment opportunities, and that fulfills the specific public purpose goals

of the entity.

(6) STATEMENT OF PUBLIC PURPOSE GOALS.—The entity shall prepare and submit to the Secretary a statement of the public purpose goals of the entity, which

shall—

(A) set forth goals that shall promote community and economic development, which shall

include—

(i) making investments in low-income communities that further economic development

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objectives by targeting such investments in

businesses or trades that comply with the requirements under subparagraphs (A) through

(C) of section 303(10) relating to low-income

communities in a manner that benefits low-income persons;

(ii) creating jobs in low-income communities

for residents of such communities;

(iii) involving community-based organizations and residents in community development activities;

(iv) such other goals as the Secretary shall

specify; and

(v) such elements as the entity may set

forth to achieve specific public purpose goals;

(B) include such other elements as the Secretary

shall specify; and

(C) include proposed measurements and strategies for meeting the goals.

(7) COMPLIANCE WITH LAWS.—The entity shall agree

to comply with applicable laws, including Federal executive orders, Office of Management and Budget circulars, and requirements of the Department of the

Treasury, and such operating and regulatory requirements as the Secretary may impose from time to time.

(8) OTHER.—The entity shall satisfy any other application requirements that the Secretary may impose by

regulation or Federal Register notice.

(b) COMPETITIONS.—The Secretary shall select eligible

entities under subsection (a) to be licensed under section

304 as APICs on the basis of competitions. The Secretary

shall announce each such competition by causing a notice

to be published in the Federal Register that invites applications for licenses and sets forth the requirements for application and such other terms of the competition not otherwise provided for, as determined by the Secretary.

(c) SELECTION.—In competitions under subsection (b),

the Secretary shall select eligible entities under subsection

(a) for licensing as APICs on the basis of—

(1) the extent to which the entity is expected to

achieve the goals of this title by meeting or exceeding

criteria established under subsection (d); and

(2) to the extent practicable and subject to the existence of approvable applications, ensuring geographical

diversity among the applicants selected and diversity

of APICs investment strategies, so that urban and

rural communities are both served, in the determination of the Secretary, by the program under this title.

(d) SELECTION CRITERIA.—The Secretary shall establish

selection criteria for competitions under subsection (b),

which shall include the following criteria:

(1) CAPACITY.—

(A) MANAGEMENT.—The extent to which the entity’s management has the quality, experience,

and expertise to make and manage successful inVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00008 Fmt 6659 Sfmt 6969 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
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vestments for community and economic development in low-income communities.

(B) STATE AND LOCAL COOPERATION.—The extent

to which the entity demonstrates a capacity to cooperate with States or units of general local government and with community-based organizations

and residents of low-income communities.

(2) INVESTMENT STRATEGY.—The quality of the entity’s investment strategy submitted in accordance with

subsection (a)(5) and the extent to which the investment strategy furthers the goals of this title pursuant

to paragraph (3) of this subsection.

(3) PUBLIC PURPOSE GOALS.—With respect to the

statement of public purpose goals of the entity submitted in accordance with subsection (a)(6), and the

strategy and measurements included therein—

(A) the extent to which such goals promote community and economic development;

(B) the extent to which such goals provide for

making qualified investments in low-income communities that further economic development objectives, such as—

(i) creating, within 2 years of the completion of the initial such investment, job opportunities, opportunities for ownership, and

other economic opportunities within a low-income community, both short-term and of a

longer duration;

(ii) improving the economic vitality of a lowincome community, including stimulating

other business development;

(iii) bringing new income into a low-income

community and assisting in the revitalization

of such community;

(iv) converting real property for the purpose

of creating a site for business incubation and

location, or business district revitalization;

(v) enhancing economic competition, including the advancement of technology;

(vi) rural development;

(vii) mitigating, rehabilitating, and reusing

real property considered subject to the Solid

Waste Disposal Act (42 U.S.C. 6901 et seq.;

commonly referred to as the Resource Conservation and Recovery Act) or restoring coal

mine-scarred land;

(viii) creation of local wealth through investments in employee stock ownership companies or resident-owned ventures; and

(ix) any other objective that the Secretary

may establish to further the purposes of this

title;

(C) the quality of jobs to be created for residents

of low-income communities, taking into consideration such factors as the payment of higher

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wages, job security, employment benefits, opportunity for advancement, and personal asset building;

(D) the extent to which achievement of such

goals will involve community-based organizations

and residents in community development activities; and

(E) the extent to which the investments referred

to in subparagraph (B) are likely to benefit existing small business in low-income communities or

will encourage the growth of small business in

such communities.

(4) OTHER.—Any other criteria that the Secretary

may establish to carry out the purposes of this title.

(e) FIRST YEAR REQUIREMENTS.—

(1) NUMERICAL LIMITATION.—The number of APICs

may not, at any time during the 1-year period that begins upon the Secretary awarding the first license for

an APIC under this title, exceed 15.

(2) LIMITATION ON ALLOCATION OF AVAILABLE CREDIT

SUBSIDY.—Of the amount of budget authority initially

made available for allocation under this title for

APICs, the amount allocated for any single APIC may

not exceed 20 percent.

(3) NATIVE AMERICAN PRIVATE INVESTMENT COMPANY.—Subject only to the absence of an approvable

application from an entity, during the 1-year period

referred to in paragraph (1), of the entities selected

and licensed by the Secretary as APICs, at least one

shall be an entity that has as its primary purpose the

making of qualified low-income community investments in areas that are within Indian country (as

such term is defined in section 1151 of title 18, United

States Code) or within lands that have status as Hawaiian home land under section 204 of the Hawaiian

Homes Commission Act, 1920 (42 Stat. 108) or are acquired pursuant to such Act. The Secretary may establish specific selection criteria for applicants under this

paragraph.

(f) COMMUNICATIONS BETWEEN HUD AND APPLICANTS.—

(1) IN GENERAL.—The Secretary shall set forth in

regulations the procedures under which HUD and applicants for APIC licenses, and others, may communicate. Such regulations shall—

(A) specify by position the HUD officers and employees who may communicate with such applicants and others;

(B) permit HUD officers and employees to request and discuss with the applicant and others

(such as banks or other credit or business references, or potential investors, that the applicant

specifies in writing) any more detailed information

that may be desirable to facilitate HUD’s review

of the applicant’s application;

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(C) restrict HUD officers and employees from

revealing to any applicant—

(i) the fact or chances of award of a license

to such applicant, unless there has been a

public announcement of the results of the

competition; and

(ii) any information with respect to any

other applicant; and

(D) set forth requirements for making and keeping records of any communications conducted

under this subsection, including requirements for

making such records available to the public after

the award of licenses under an initial or subsequent notice, as appropriate, under subsection (a).

(2) TIMING.—Regulations under this subsection may

be issued as interim rules for effect on or before the

date of publication of the first notice under subsection

(a), and shall apply only with respect to applications

under such notice. Regulations to implement this subsection with respect to any notice after the first such

notice shall be subject to notice and comment rulemaking.

(3) INAPPLICABILITY OF DEPARTMENT OF HUD ACT

PROVISION.—Section 12(e)(2) of the Department of

Housing and Urban Development Act (42 U.S.C.

3537a(e)(2)) is amended by inserting before the period

at the end the following: ‘‘or any license provided

under the America’s Private Investment Companies

Act’’.

SEC. 306. OPERATIONS OF APICS.

(a) POWERS AND AUTHORITIES.— (1) IN GENERAL.—An APIC shall have any powers or

authorities that—

(A) the APIC derives from the jurisdiction in

which it is organized, or that the APIC otherwise

has;

(B) may be conferred by a license under this

title; and

(C) the Secretary may prescribe by regulation.

(2) NEW MARKET ASSISTANCE.—Nothing in this title

shall preclude an APIC or its investors from receiving

an allocation of New Market Tax Credits (to the extent

such credits are established under Federal law) if the

APIC satisfies any applicable terms and conditions

under the Internal Revenue Code of 1986.

(b) INVESTMENT LIMITATIONS.—

(1) QUALIFIED LOW-INCOME COMMUNITY INVESTMENTS.—Substantially all investments that an APIC

makes shall be qualified low-income community investments if the investments are financed with—

(A) amounts available from the proceeds of the

issuance of an APIC’s qualified debenture guaranteed under this title;

(B) proceeds of the sale of obligations described

under subsection (c)(3)(C)(iii); or

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(C) the use of private equity capital, as determined by the Secretary, in an amount specified in

the APIC’s license.

(2) SINGLE BUSINESS INVESTMENTS.—An APIC shall

not, as a matter of sound financial practice, invest in

any one business an amount that exceeds an amount

equal to 35 percent of the sum of—

(A) the APIC’s private equity capital; plus

(B) an amount equal to the percentage limit

that the Secretary determines that an APIC may

have outstanding at any one time, under subsection (c)(2)(A).

(c) BORROWING POWERS; QUALIFIED DEBENTURES.—

(1) ISSUANCE.—An APIC may issue qualified debentures. The Secretary shall, by regulation, specify the

terms and requirements for debentures to be considered qualified debentures for purposes of this title, except that the term to maturity of any qualified debenture may not exceed 21 years and each qualified debenture shall bear interest during all or any part of

that time period at a rate or rates approved by the

Secretary.

(2) LEVERAGE LIMITS.—In general, as a matter of

sound financial management practices—

(A) the total amount of qualified debentures

that an APIC issues under this title that an APIC

may have outstanding at any one time shall not

exceed an amount equal to 200 percent of the private equity capital of the APIC, as determined by

the Secretary; and

(B) an APIC shall not have more than

$300,000,000 in face value of qualified debentures

issued under this title outstanding at any one

time.

(3) REPAYMENT.—

(A) CONDITION OF BUSINESS WIND-UP.—An APIC

shall have repaid, or have otherwise been relieved

of indebtedness, with respect to any interest or

principal amounts of borrowings under this subsection no less than 2 years before the APIC may

dissolve or otherwise complete the wind-up of its

business.

(B) TIMING.—An APIC may repay any interest

or principal amounts of borrowings under this

subsection at any time: Provided, That the repayment of such amounts shall not relieve an APIC

of any duty otherwise applicable to the APIC

under this title, unless the Secretary orders such

relief.

(C) USE OF INVESTMENT PROCEEDS BEFORE REPAYMENT.—Until an APIC has repaid all interest

and principal amounts on APIC borrowings under

this subsection, an APIC may use the proceeds of

investments, in accordance with regulations

issued by the Secretary, only to—

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(i) pay for proper costs and expenses the

APIC incurs in connection with such investments;

(ii) pay for the reasonable administrative

expenses of the APIC;

(iii) purchase Treasury securities;

(iv) repay interest and principal amounts on

APIC borrowings under this subsection;

(v) make interest, dividend, or other distributions to or on behalf of an investor; or

(vi) undertake such other purposes as the

Secretary may approve.

(D) USE OF INVESTMENT PROCEEDS AFTER REPAYMENT.—After an APIC has repaid all interest and

principal amounts on APIC borrowings under this

subsection, and subject to continuing compliance

with subsection (a), the APIC may use the proceeds from investments to make interest, dividend, or other distributions to or on behalf of investors in the nature of returns on capital, or the

withdrawal of private equity capital, without regard to subparagraph (C) but in conformity with

the APIC’s investment strategy and statement of

public purpose goals.

(d) REUSE OF QUALIFIED DEBENTURE PROCEEDS.—An

APIC may use the proceeds of sale of Treasury securities

purchased under subsection (c)(3)(C)(iii) to make qualified

low-income community investments, subject to the Secretary’s approval. In making the request for the Secretary’s approval, the APIC shall follow the procedures applicable to an APIC’s request for HUD guarantee action, as

the Secretary may modify such procedures for implementation of this subsection. Such procedures shall include the

description and certifications that an APIC must include

in all requests for guarantee action, and the environmental

certification applicable to initial expenditures for a project

or activity.

(e) ANTIPIRATING.—Notwithstanding any other provision

of law, an APIC may not use any private equity capital required to be contributed under this title, or the proceeds

from the sale of any qualified debenture under this title,

to make an investment, as determined by the Secretary, to

assist directly in the relocation of any industrial or commercial plant, facility, or operation, from 1 area to another

area, if the relocation is likely to result in a significant loss

of employment in the labor market area from which the relocation occurs.

(f) EXCLUSION OF APIC FROM DEFINITION OF DEBTOR

UNDER BANKRUPTCY PROVISIONS.—Section 109(b)(2) of

title 11, United States Code, is amended by inserting before ‘‘credit union’’ the following: ‘‘America’s Private Investment Company licensed under the America’s Private Investment Companies Act,’’.

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SEC. 307. CREDIT ENHANCEMENT BY THE FEDERAL GOVERNMENT.

(a) ISSUANCE AND GUARANTEE OF QUALIFIED DEBENTURES.—

(1) AUTHORITY.—To the extent consistent with the

Federal Credit Reform Act of 1990, the Secretary is

authorized to make commitments to guarantee and

guarantee the timely payment of all principal and interest as scheduled on qualified debentures issued by

APICs. Such commitments and guarantees may only

be made in accordance with the terms and conditions

established under paragraph (2).

(2) TERMS AND CONDITIONS.—The Secretary shall establish such terms and conditions as the Secretary determines to be appropriate for commitments and guarantees under this subsection, including terms and conditions relating to amounts, expiration, number, priorities of repayment, security, collateral, amortization,

payment of interest (including the timing thereof), and

fees and charges. The terms and conditions applicable

to any particular commitment or guarantee may be established in documents that the Secretary approves

for such commitment or guarantee.

(3) SENIORITY.—Notwithstanding any other provision of Federal law or any law or the constitution of

any State, qualified debentures guaranteed under this

subsection by the Secretary shall be senior to any

other debt obligation, equity contribution or earnings,

or the distribution of dividends, interest, or other

amounts, of an APIC.

(b) ISSUANCE OF TRUST CERTIFICATES.—The Secretary,

or an agent or entity selected by the Secretary, is authorized to issue trust certificates representing ownership of

all or a fractional part of guaranteed qualified debentures

issued by APICs and held in trust.

(c) GUARANTEE OF TRUST CERTIFICATES.—

(1) IN GENERAL.—The Secretary is authorized, upon

such terms and conditions as the Secretary determines

to be appropriate, to guarantee the timely payment of

the principal of and interest on trust certificates

issued by the Secretary, or an agent or other entity,

for purposes of this section. Such guarantee shall be

limited to the extent of principal and interest on the

guaranteed qualified debentures which compose the

trust.

(2) SUBSTITUTION OPTION.—The Secretary shall have

the option to replace in the corpus of the trust any

prepaid or defaulted qualified debenture with a debenture, another full faith and credit instrument, or any

obligations of the United States, that may reasonably

substitute for such prepaid or defaulted qualified debenture.

(3) PROPORTIONATE REDUCTION OPTION.—In the

event that the Secretary elects not to exercise the option under paragraph (2), and a qualified debenture in

15

such trust is prepaid, or in the event of default of a

qualified debenture, the guarantee of timely payment

of principal and interest on the trust certificate shall

be reduced in proportion to the amount of principal

and interest that such prepaid qualified debenture

represents in the trust. Interest on prepaid or defaulted qualified debentures shall accrue and be guaranteed by the Secretary only through the date of payment of the guarantee. During the term of a trust certificate, it may be called for redemption due to prepayment or default of all qualified debentures that are in

the corpus of the trust.

(d) FULL FAITH AND CREDIT BACKING OF GUARANTEES.—

The full faith and credit of the United States is pledged to

the timely payment of all amounts which may be required

to be paid under any guarantee by the Secretary pursuant

to this section.

(e) SUBROGATION AND LIENS.—

(1) SUBROGATION.—In the event the Secretary pays

a claim under a guarantee issued under this section,

the Secretary shall be subrogated fully to the rights

satisfied by such payment.

(2) PRIORITY OF LIENS.—No State or local law, and

no Federal law, shall preclude or limit the exercise by

the Secretary of its ownership rights in the debentures

in the corpus of a trust under this section.

(f) REGISTRATION.—

(1) IN GENERAL.—The Secretary shall provide for a

central registration of all trust certificates issued pursuant to this section.

(2) AGENTS.—The Secretary may contract with an

agent or agents to carry out on behalf of the Secretary

the pooling and the central registration functions of

this section notwithstanding any other provision of

law, including maintenance on behalf of and under the

direction of the Secretary, such commercial bank accounts or investments in obligations of the United

States as may be necessary to facilitate trusts backed

by qualified debentures guaranteed under this title

and the issuance of trust certificates to facilitate formation of the corpus of the trusts. The Secretary may

require such agent or agents to provide a fidelity bond

or insurance in such amounts as the Secretary determines to be necessary to protect the interests of the

Government.

(3) FORM.—Book-entry or other electronic forms of

registration for trust certificates under this title are

authorized.

(g) TIMING OF ISSUANCE OF GUARANTEES OF QUALIFIED

DEBENTURES AND TRUST CERTIFICATES.—The Secretary

may, from time to time in the Secretary’s discretion, exercise the authority to issue guarantees of qualified debentures under this title or trust certificates under this title.

16

SEC. 308. APIC REQUESTS FOR GUARANTEE ACTIONS.

(a) IN GENERAL.—The Secretary may issue a guarantee

under this title for a qualified debenture that an APIC intends to issue only pursuant to a request to the Secretary

by the APIC for such guarantee that is made in accordance

with regulations governing the content and procedures for

such requests, that the Secretary shall prescribe. Such regulations shall provide that each such request shall

include—

(1) a description of the manner in which the APIC

intends to use the proceeds from the qualified debenture;

(2) a certification by the APIC that the APIC is in

substantial compliance with—

(A) this title and other applicable laws, including any requirements established under this title

by the Secretary;

(B) all terms and conditions of its license, any

cease-and-desist order issued under section 310,

and of any penalty or condition that may have

arisen from examination or monitoring by the Secretary or otherwise, including the satisfaction of

any financial audit exception that may have been

outstanding; and

(C) all requirements relating to the allocation

and use of New Markets Tax Credits, to the extent such credits are established under Federal

law; and

(3) any other information or certification that the

Secretary considers appropriate.

(b) REQUESTS FOR GUARANTEE OF QUALIFIED DEBENTURES THAT INCLUDE FUNDING FOR INITIAL EXPENDITURE

FOR A PROJECT OR ACTIVITY.—In addition to the description and certification that an APIC is required to supply

in all requests for guarantee action under subsection (a),

in the case of an APIC’s request for a guarantee that includes a qualified debenture, the proceeds of which the

APIC expects to be used as its initial expenditure for a

project or activity in which the APIC intends to invest, and

the expenditure for which would require an environmental

assessment under the National Environmental Policy Act

of 1969 and other related laws that further the purposes

of such Act, such request for guarantee action shall include

evidence satisfactory to the Secretary of the certification of

the completion of environmental review of the project or

activity required of the cognizant State or local government under subsection (c). If the environmental review responsibility for the project or activity has not been assumed by a State or local government under subsection (c),

then the Secretary shall be responsible for carrying out the

applicable responsibilities under the National Environmental Policy Act of 1969 and other provisions of law that

further the purposes of such Act that relate to the project

or activity, and the Secretary shall execute such responVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00016 Fmt 6659 Sfmt 6969 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
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sibilities before acting on the APIC’s request for the guarantee that is covered by this subsection.

(c) RESPONSIBILITY FOR ENVIRONMENTAL REVIEWS.—

(1) EXECUTION OF RESPONSIBILITY BY THE SECRETARY.—This subsection shall apply to guarantees by

the Secretary of qualified debentures under this title,

the proceeds of which would be used in connection

with qualified low-income community investments of

APICs under this title.

(2) ASSUMPTION OF RESPONSIBILITY BY COGNIZANT

UNIT OF GENERAL GOVERNMENT.—

(A) GUARANTEE OF QUALIFIED DEBENTURES.—In

order to assure that the policies of the National

Environmental Policy Act of 1969 and other provisions of law that further the purposes of such Act

(as specified in regulations issued by the Secretary) are most effectively implemented in connection with the expenditure of funds under this

title, and to assure to the public undiminished

protection of the environment, the Secretary may,

under such regulations, in lieu of the environmental protection procedures otherwise applicable,

provide for the guarantee of qualified debentures,

any part of the proceeds of which are to fund particular qualified low-income community investments of APICs under this title, if a State or unit

of general local government, as designated by the

Secretary in accordance with regulations issued by

the Secretary, assumes all of the responsibilities

for environmental review, decisionmaking, and action pursuant to the National Environmental Policy Act of 1969 and such other provisions of law

that further such Act as the regulations of the

Secretary specify, that would otherwise apply to

the Secretary were the Secretary to undertake the

funding of such investments as a Federal action.

(B) IMPLEMENTATION.—The Secretary shall

issue regulations to carry out this subsection only

after consultation with the Council on Environmental Quality. Such regulations shall—

(i) specify any other provisions of law which

further the purposes of the National Environmental Policy Act of 1969 and to which the

assumption of responsibility as provided in

this subsection applies;

(ii) provide eligibility criteria and procedures for the designation of a State or unit of

general local government to assume all of the

responsibilities in this subsection;

(iii) specify the purposes for which funds

may be committed without regard to the procedure established under paragraph (3);

(iv) provide for monitoring of the performance of environmental reviews under this subsection;

18

(v) in the discretion of the Secretary, provide for the provision or facilitation of training for such performance; and

(vi) subject to the discretion of the Secretary, provide for suspension or termination

by the Secretary of the assumption under subparagraph (A).

(C) RESPONSIBILITIES OF STATES AND UNITS OF

GENERAL LOCAL GOVERNMENT.—The Secretary’s

duty under subparagraph (B) shall not be construed to limit any responsibility assumed by a

State or unit of general local government with respect to any particular request for guarantee

under subparagraph (A), or the use of funds for a

qualified investment.

(3) PROCEDURE.—Subject to compliance by the APIC

with the requirements of this title, the Secretary shall

approve the request for guarantee of a qualified debenture, any part of the proceeds of which is to fund particular qualified low-income community investments of

an APIC under this title, that is subject to the procedures authorized by this subsection only if, not less

than 15 days prior to such approval and prior to any

commitment of funds to such investment (except for

such purposes specified in the regulations issued

under paragraph (2)(B)), the APIC submits to the Secretary a request for guarantee of a qualified debenture

that is accompanied by evidence of a certification of

the State or unit of general local government which

meets the requirements of paragraph (4). The approval

by the Secretary of any such certification shall be

deemed to satisfy the Secretary’s responsibilities pursuant to paragraph (1) under the National Environmental Policy Act of 1969 and such other provisions of

law as the regulations of the Secretary specify insofar

as those responsibilities relate to the guarantees of

qualified debentures, any parts of the proceeds of

which are to fund such investments, which are covered

by such certification.

(4) CERTIFICATION.—A certification under the procedures authorized by this subsection shall—

(A) be in a form acceptable to the Secretary;

(B) be executed by the chief executive officer or

other officer of the State or unit of general local

government who qualifies under regulations of the

Secretary;

(C) specify that the State or unit of general local

government under this subsection has fully carried out its responsibilities as described under

paragraph (2); and

(D) specify that the certifying officer—

(i) consents to assume the status of a responsible Federal official under the National

Environmental Policy Act of 1969 and each

provision of law specified in regulations

19

issued by the Secretary insofar as the provisions of such Act or other such provision of

law apply pursuant to paragraph (2); and

(ii) is authorized and consents on behalf of

the State or unit of general local government

and himself or herself to accept the jurisdiction of the Federal courts for the purpose of

enforcement of the responsibilities as such an

official.

SEC. 309. EXAMINATION AND MONITORING OF APICS.

(a) IN GENERAL.—The Secretary shall, under regulations, through audits, performance agreements, license

conditions, or otherwise, examine and monitor the operations and activities of APICs for compliance with sound

financial management practices, and for satisfaction of the

program and procedural goals of this title and other related Acts. The Secretary may undertake any responsibility under this section in cooperation with an APIC liaison committee, or any agency that is a member of such a

committee, or other agency.

(b) MONITORING, UPDATING, AND PROGRAM REVIEW.— (1) REPORTING AND UPDATING.—The Secretary shall

establish such annual or more frequent reporting requirements for APICs, and such requirements for the

updating of the statement of public purpose goals, investment strategy (including the benchmarks in such

strategy), and other documents that may have been

used in the license application process under this title,

as the Secretary determines necessary to assist the

Secretary in monitoring the compliance and performance of APICs.

(2) ANNUAL AUDITS.—The Secretary shall require

each APIC to have an independent audit conducted

annually of the operations of the APIC. The Secretary,

in consultation with the Administrator and the Secretary of the Treasury, shall establish requirements

and standards for such audits, including requirements

that such audits be conducted in accordance with generally accepted accounting principles, that the APIC

submit the results of the audit to Secretary, and that

specify the information to be submitted.

(3) EXAMINATIONS.—The Secretary shall, no less

often than once every 2 years, examine the operations

and portfolio of each APIC licensed under this title for

compliance with sound financial management practices, and for compliance with this title.

(4) EXAMINATION STANDARDS.—

(A) SOUND FINANCIAL MANAGEMENT PRACTICES.—The Secretary shall examine each APIC to

ensure, as a matter of sound financial management practices, substantial compliance with this

and other applicable laws, including Federal executive orders, Department of Treasury and Office

of Management and Budget guidance, circulars,

and application and licensing requirements on a

20

continuing basis. The Secretary may, by regulation, establish any additional standards for sound

financial management practices, including standards that address solvency and financial exposure.

(B) PERFORMANCE AND OTHER EXAMINATIONS.— The Secretary shall monitor each APIC’s progress

in meeting the goals in the APIC’s statement of

public purpose goals, executing the APIC’s investment strategy, and other matters.

(c) INSPECTOR GENERAL RESPONSIBILITY.—In carrying

out monitoring of HUD’s responsibilities under this title

and for purposes of ensuring that the program under this

title is operated in accordance with sound financial management practices, the Inspector General of the Department of Housing and Urban Development shall consult

with the Inspector General of the Department of the

Treasury and the Inspector General of the Small Business

Administration, as appropriate, and may enter into such

agreements and memoranda of understanding as may be

necessary to obtain the cooperation of the Inspectors General of the Department of the Treasury and the Small

Business Administration in carrying out such function.

(d) ANNUAL REPORT BY SECRETARY.—The Secretary

shall submit a report to the Congress annually regarding

the operations, activities, financial health, and achievements of the APIC program under this title. The report

shall list each investment made by an APIC and include

a summary of the examinations conducted under subsection (b)(3), the guarantee actions of HUD, and any regulatory or policy actions taken by HUD. The report shall

distinguish recently licensed APICs from APICs that have

held licenses for a longer period for purposes of indicating

program activities and performance.

(e) GAO REPORT.— (1) REQUIREMENT.—Not later than 2 years after the

date of the enactment of this Act, the Comptroller

General of the United States shall submit a report to

the Congress regarding the operation of the program

under this title for licensing and guarantees for

APICs.

(2) CONTENTS.—The report shall include—

(A) an analysis of the operations and monitoring

by HUD of the APIC program under this title;

(B) the administrative and capacity needs of

HUD required to ensure the integrity of the program;

(C) the extent and adequacy of any credit subsidy appropriated for the program; and

(D) the management of financial risk and liability of the Federal Government under the program.

SEC. 310. PENALTIES.

(a) VIOLATIONS SUBJECT TO PENALTY.—The Secretary

may impose a penalty under this subsection on any APIC

or manager of an APIC that, by any act, practice, or failure to act, engages in fraud, mismanagement, or nonVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00020 Fmt 6659 Sfmt 6969 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
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compliance with this title, the regulations under this title,

or a condition of the APIC’s license under this title. The

Secretary shall, by regulation, identify, by generic description of a role or responsibilities, any manager of an APIC

that is subject to a penalty under this section.

(b) PENALTIES REQUIRING NOTICE AND AN OPPORTUNITY

TO RESPOND.—If, after notice in writing to an APIC or the

manager of an APIC that the APIC or manager has engaged in any action, practice, or failure to act that, under

subsection (a), is subject to a penalty, and after an opportunity for the APIC or manager to respond to the notice,

the Secretary determines that the APIC or manager engaged in such action or failure to act, the Secretary may,

in addition to other penalties imposed—

(1) assess a civil money penalty, except than any

civil money penalty under this subsection shall be in

an amount not exceeding $10,000;

(2) issue an order to cease and desist with respect

to such action, practice, or failure to act of the APIC

or manager;

(3) suspend, or condition the use of, the APIC’s license, including deferring, for the period of the suspension, any commitment to guarantee any new qualified debenture of the APIC, except that any suspension or condition under this paragraph may not exceed

90 days; and

(4) impose any other penalty that the Secretary determines to be less burdensome to the APIC than a

penalty under subsection (c).

(c) PENALTIES REQUIRING NOTICE AND HEARING.—If,

after notice in writing to an APIC or the manager of an

APIC that an APIC or manager has engaged in any action,

practice, or failure to act that, under subsection (a), is subject to a penalty, and after an opportunity for administrative hearing, the Secretary determines that the APIC or

manager engaged in such action or failure to act, the Secretary may—

(1) assess a civil money penalty against the APIC or

a manager in any amount;

(2) require the APIC to divest any interest in an investment, on such terms and conditions as the Secretary may impose; or

(3) revoke the APIC’s license.

(d) EFFECTIVE DATE OF PENALTIES.—

(1) PRIOR NOTICE REQUIREMENT.—Except as provided in paragraph (2) of this subsection, a penalty

under subsection (b) or (c) shall not be due and payable and shall not otherwise take effect or be subject

to enforcement by an order of a court, before notice of

the penalty is published in the Federal Register.

(2) CEASE-AND-DESIST ORDERS AND SUSPENSION OR

CONDITIONING OF LICENSE.—In the case of a cease-anddesist order under subsection (b)(2) or the suspension

or conditioning of an APIC’s license under subsection

(b)(3), the following procedures shall apply:

22

(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 ceaseand-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

23

to challenge the order, or the suspension or conditioning, or the revocation, of an APIC’s license.

SEC. 311. EFFECTIVE DATE.

(a) IN GENERAL.—Except as provided in subsection (b),

this title shall take effect upon the expiration of the 6-

month period beginning on the date of the enactment of

this Act.

(b) ISSUANCE OF REGULATIONS AND GUIDELINES.—Any

authority under this title of the Secretary, the Administrator, and the Secretary of the Treasury to issue regulations, standards, guidelines, or licensing requirements, and

any authority of such officials to consult or enter into

agreements or memoranda of understanding regarding

such issuance, shall take effect on the date of the enactment of this Act.

SEC. 312. SUNSET.

After the expiration of the 5-year period beginning upon

the date that the Secretary awards the first license for an

APIC under this title—

(1) the Secretary may not license any APIC; and

(2) no amount may be appropriated for the costs (as

such term is defined in section 502 of the Federal

Credit Reform Act of 1990 (2 U.S.C. 661c)) of any

guarantee under this title for any debenture issued by

an APIC.

This section may not be construed to prohibit, limit, or affect the award, allocation, or use of any budget authority

for the costs of such guarantees that is appropriated before

the expiration of such period.

EXPLANATION OF THE LEGISLATION

H.R. 2848, the ‘‘New Markets Initiative Act of 1999’’ authorizes

in Title III (entitled ‘‘America’s Private Investment Companies

Act’’) the Secretary of Housing and Urban Development (HUD) to

license a number of privately managed, for-profit investment companies for purposes of making large-scale, equity and debt investments in low-income urban and rural areas. Each America’s Private Investment Company (‘‘APIC’’) must have a minimum of $25

million in private equity capital contributed by investors in order

to be licensed by HUD. An APIC would be eligible to issue debentures, guaranteed by the government, for twice (200%) the amount

of its total equity capital. The contributed equity and amounts

raised through issuance of debentures are to be invested in businesses operating in low and moderate-income areas. The government-guaranteed debt would be repaid first.

The legislation provides that APIC licensees are to be chosen by

HUD pursuant to a competition. The number of APICs licensed at

any one time would depend upon the amount of budget authority

available to support the total credit subsidy provided to the program, but would be limited in the first year to no more than fifteen. Of those APICs chosen in the first year, subject to the existence of an approvable application, at least one shall have as its primary mission objective business investment in Native American

lands.

24

HUD shall monitor each APIC as to its progress in meeting its

stated public purpose goals. The Secretary may reward well-performing APICs which exceed their public purpose investment goals

by increasing the credit subsidy allocated to those APICs, to the extent there is credit subsidy still available. Such APICs must have

been licensed for a minimum of two years. Any such increases are

to be provided based on a competition of eligible APICs.

The proposed credit subsidy for the program is $36 million each

fiscal year for FY 2000 through FY 2004. HUD estimates this level

will support $1 billion in investments. In addition, $1 million is authorized for each of these fiscal years (2000–2004), for administrative expenses in connection with carrying out the provisions of the

legislation.

In addition to monitoring APICs’ progress in meeting their public

purpose goals, the Secretary of HUD shall, for purposes of managing the financial risk of the federal government, regulate APICs

for financial soundness and ensure that each APIC is structured so

as to operate based on sound management practices. The HUD Secretary shall consult with the Secretary of the Treasury for purposes

of accomplishing these functions. The legislation requires each

APIC to submit an annual independent audit to the Secretary detailing its investments. The legislation also requires the HUD Secretary to report annually to Congress on the status of the APIC

program. In addition, the General Accounting Office is required to

report on the APIC program two years after the date of enactment

of the legislation.

The effective date of the legislation, for licensing and other operations, is six months after the date of enactment. Authority to

grant licenses shall sunset five years after the date that the Secretary awards the first license for an APIC under this Act.

LEGISLATIVE HISTORY

H.R. 2848, the ‘‘New Markets Initiative Act of 1999’’, was introduced by Representatives Watts, Talent, Leach and Baker at the

request of the Administration on September 13, 1999, and contains

the Administration’s New Markets Initiative legislative program.

H.R. 2764 was introduced by Ranking Member LaFalce on August

5, 1999 and contains the APIC portion of the Administration’s legislative proposals. H.R. 2764 is substantively the same as Title III

of H.R. 2848, both of which fall under the jurisdiction of the Committee.

On November 10, 1999, the Subcommittee on Capital Markets,

Securities, and GSEs held a hearing on capital formation in underserved areas. The hearing focused on the APIC proposal embodied

in H.R. 2764 and on other ideas for promoting economic growth in

these areas. The Committee held a markup of H.R. 2764 and Title

III of H.R. 2848 on April 12, 2000.

During the markup, the Committee approved one amendment, by

unanimous consent, which inserted in lieu the provisions of H.R.

2764 as marked up and ordered reported on April 12, 2000. With

a quorum present, a motion to adopt H.R. 2848 and favorably report the bill, as amended, to the House was approved by voice vote.

25

BACKGROUND AND NEED FOR LEGISLATION

In an era of unprecedented economic growth and prosperity,

there remain many economically distressed communities, both

rural and urban, where many people have not benefited to any

great degree from the most recent economic expansion enjoyed by

our Nation. In these communities, levels of unemployment, poverty,

and other indicia of social distress, remain stubbornly high—yet

untapped market opportunities exist to establish and expand businesses and to develop jobs and community assets.

There is bipartisan consensus in Congress that the federal government can and should play a role in encouraging investments in

these communities. For several years both Republicans and Democrats have proposed and supported granting tax and regulatory relief, including capital gains tax relief to businesses operating within distressed areas. Many of these proposals were part of H.R. 815,

the ‘‘American Community Renewal Act,’’ introduced by Representatives Jim Talent and J.C. Watts, which would have designated a

number of these areas as ‘‘renewal communities’’ eligible for such

benefits. The House has already passed the tax provisions of H.R.

815, and this Committee has passed provisions relating to HUD

property disposition within these communities as part of H.R. 1776,

the ‘‘American Homeownership and Economic Opportunity Act of

2000.’’

The Administration has also proposed a series of programs, collectively known as the ‘‘New Markets Initiative,’’ also intended to

foster economic development in low-income communities. These

proposals include tax credits for businesses in these areas (‘‘New

Markets Tax Credits’’), a small business component (establishing a

‘‘New Markets Venture Capital Program’’), and the formation of a

number of companies intended to make relatively large scale equity

and credit investments in distressed areas—APICs. The FY 2000

VA/HUD Appropriations Act provided that $20 million in credit

subsidy would be available for use by APICs for Fiscal Year 2000

if the program was authorized by June 30, 2000. If the program is

not authorized by that date, the funding reverts to the Community

Development Financial Institutions program administered by the

Department of the Treasury.

The APIC portion of the New Markets Initiative falls under the

jurisdiction of this Committee. The proposal is closely related in

concept to the Small Business Investment Companies (‘‘SBIC’’) program currently administered by the Small Business Administration

(SBA), except that the SBIC program is limited in the size of

projects it can serve and that SBICs invest in ventures only, not

real estate. Community development organizations maintain that

the infusion of additional amounts of equity capital is especially

vital for enabling large-scale investments to occur in distressed

areas. Importantly, these investments would be economically viable

as freestanding business entities, providing a profitable return to

investors. However, because the costs of establishing these businesses in some of these distressed areas are higher relative to

other areas due to a variety of factors (remediation of environmental contamination, for example), the return on investors equity

is not as high as demanded by these investors. APICs are intended

26

to lessen the cost of capital so that these large-scale investments

would be made.

APICs are not intended to fund or subsidize the operations of

businesses, that are not economically viable. On the contrary, the

goal of these entities is to encourage the establishment of fundamentally sound businesses in certain locations. Possible uses for

APICs’ funds include the establishment of a new facility, such as

a call center, data processing ‘‘back office,’’ or factory, by a large

company (or a small company joint venturing with a large one). In

addition, a mid-size manufacturing company seeking to increase

production could use APIC investments for expansion of an existing

facility, the upgrading of equipment or the hiring of new employees. Other uses could include expansion of the service area of a

mid-size service company, such as a trucking company, building

contractor, or home health care firm; development of a multi-tenant

shopping center; or opening or expanding a large retail company in

a new geographic area. Buyout of a company to be revitalized in

its existing facility, acquisition of the property of a departing large

company, and development of an incubator or industrial park, or

investment in another fund that invests in businesses locating or

expanding in targeted low-to-moderate income areas are all methods whereby an APIC could fulfill its public purpose investment

role.

By passing this APIC legislation, the hope and expectation of

this Committee is that a bipartisan, comprehensive package of

measures to help revitalize America’s distressed urban and rural

communities, which would include the best elements of the American Community Renewal Act and the New Markets Initiative, be

enacted this year.

COMMITTEE ACTIONS REGARDING INTRODUCED LEGISLATION

The Committee adopted a Managers’ Amendment during the

markup of H.R. 2764, sponsored by Chairman Leach, Mr. Lazio,

Ranking Member LaFalce, and Mr. Kanjorski, which made substantial changes to the original bill. H.R. 2764, as marked up by

the Committee, was subsequently substituted for Title III of H.R.

2848, which was then reported by the Committee.

In broad terms, the changes in the Managers’ Amendment were

meant to accomplish three major goals. The first of these goals was

to minimize the potential for fraud and abuse and protect the

American taxpayer from unnecessary exposure. Second, the Committee wanted to ensure that the statutory language clearly reflected Congressional intent, and provided adequate direction for

the program so that it gives rise to types of investments in low-income communities that will truly improve the lives of our citizens.

Finally, the Managers’ Amendment contained provisions designed

to address concerns with HUD’s current capacity to administer the

program, and to ensure HUD’s sound management of the program

established by the legislation.

Minimizing the potential for fraud and abuse

The Managers’ Amendment adopted by the Committee added certain defined terms to the legislation found in Section 303 of H.R.

2848, ‘‘Definitions,’’ and further defined some existing terms of the

bill. These additions and revisions make more specific and

27

strengthen the language of the bill. The most important of these

is a new definition for ‘‘private equity capital’’. A central feature of

the APIC program is its reliance on market discipline. APIC investors and managers make investment decisions based on the ability

of a business ultimately to succeed because the investor’s equity is

at-risk first if the business fails. The interests of the investor therefore coincide, with the interest of the taxpayer. The legislation as

introduced, however, provided that ‘‘equity’’ was to be defined

through guidelines issued by the HUD Secretary. The Committee

felt that, at a minimum and as a matter of prudence, the legislation should include a statutory definition of equity that would prevent an overly expansive definition from allowing APIC investors

to comply with the letter of the law without truly risking any of

their own capital. In accomplishing this goal, the Committee looked

to existing statutes, such as those governing SBA programs similar

in concept to the APIC program, and worked through the specifics

of the definition with HUD to ensure that it was not overly restrictive or that it conflicts with guidelines issued by the Department

of the Treasury which would govern tax credits under the New

Markets program.

Additional changes were included in the Managers’ Amendment

to enhance the integrity of the program. For example, the Committee believed it was important to set forth more clearly in Section 307 of the bill the seniority of the federal government’s position in relation to any other obligation the APIC may have. A

change to require the HUD Secretary to make a determination,

prior to the licensing of any APIC, that the management of the entity is clearly qualified was also made. Section 309, ‘‘Examination

and Monitoring of APICs’’ has been revised to require that each

APIC submit an annual independent audit detailing its investments to the Secretary. Changes were also made to Section 309 to

require the HUD Secretary to report annually to Congress on

APICs and their investments. Finally, in Section 310, ‘‘Penalties’’,

the Committee strengthened the power and sanctions available to

HUD so that the Department can more effectively avert any undue

taxpayer losses.

Clearly stating congressional intent regarding APIC investments

This Committee intends that an APIC licensed under the provisions of this legislation shall be in the business of making investments that benefit low-income people and communities, and that

such an entity does not become an example of ‘‘corporate welfare’’

by making investments that would bring profits to its investors

without the requisite social benefits accruing to distressed areas

from these investments. The Committee is aware of well-intended

programs once administered by HUD, such as the Urban Development Action Grants (UDAG) program, that spent government

funds on projects that could easily have been financed through private sources, and which resulted in little or no additional benefit

to distressed areas. The intent of the Committee is that APIC investments be made in communities where they are truly needed,

and not in areas which technically may be within a low-income

community but where incomes may in reality be much higher. Affluent sections can coexist within very distressed areas in census

tracts that would meet the definitions for low- and moderate-inVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00027 Fmt 6659 Sfmt 6602 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
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come areas eligible for APIC investments. However, a statutory requirement that HUD define all of these areas nationwide would

have been overly burdensome and impractical in the Committee’s

view.

For this reason, language added by the Managers’ Amendment

and appearing in Section 305(a)(6), ‘‘Statement of Public Purpose

Goals,’’ refers to investments ‘‘that further economic development

objectives by targeting such investments in businesses that comply

with the requirements [of this Act] * * * in a manner that benefits

low-income persons.’’ The Committee intends by addition of this

language that APICs channel their activities toward truly meritorious investments without precisely delineating within individual

census tracts where the businesses these APICs invest in must be

located. The Committee does not intend that APICs meet compliance requirements under this legislation by primarily making investments in subareas of an otherwise qualifying low-income community that have resident incomes disproportionately higher, or

that show patterns of displacement and more rapidly increasing

property values, than those of the larger qualifying area. By the

same token, in determining compliance with the ‘‘qualified active

business’’ test for APIC investments, the term ‘‘low-income community’’ may be interpreted to include specific locations in an area

with a very high population density that are located immediately

adjacent to, but not within, a low-income community. Investments

that qualify under this interpretation must primarily benefit lowincome persons within the qualifying adjacent low-income community.

The Committee notes that under Section 306(b), ‘‘Substantially

all investments that an APIC makes shall be qualified low-income

investments * * *’’ Rather than establishing a specific percentage

in the statute, the intent of the Committee is that the term ‘‘substantially all’’ in this context be read in accordance with and reflect

existing Treasury guidelines and Internal Revenue Service regulations governing investments in low- and moderate-income areas,

such as those existing for investments made in empowerment

zones, for example. Similarly, under Section 142 of the IRS Code,

95% of proceeds raised under the provision must be used for the

purposes specified. The intent of the Committee is that ‘‘substantially all’’ in the context of APIC investments be read to mean this

approximately 95% level that currently permeates the world of taxexempt financing.

In addition to providing additional guidance and Congressional

direction as to where APIC investments should be made, the Committee was concerned with the legislative language governing selection of APICs. In the Committee’s view, the selection process for licensing APICs as set forth in the original legislation did not provide enough direction to the Secretary, either as to the types of entities that should be chosen or the criteria that should be used in

making these determinations.

Regarding the types of entities that should be chosen as APICs,

the Committee believed further specificity was required in the legislation to set forth examples of the underlying public purpose

goals and nature of each APIC. Specifically, in Section 305, ‘‘Selection of APICs’’, the Committee believed a further delineation of the

types of goals that licensed APICs can be expected to pursue was

29

appropriate. Therefore, Section 305(A)(6) now includes references

to the following: creating jobs within two years of making an investment; enhancing economic competition, including the advancement of technology; promoting rural development; achieving certain

environmental goals; and benefiting small business. By setting

forth more clearly in statute the types of goals to be pursued and

the activities in which these APICs are to be engaged, the Committee intends to provide additional guidance to the Secretary as

to the types of APICs which should be considered favorably in the

selection process.

In terms of specific selection criteria, the Committee believes

that the criteria as set forth in the original legislation served as

minimum eligibility requirements rather than as true measures for

selecting among various applicants. For example, the Secretary

under the original legislation could determine whether an applicant

had qualified management prior to licensing the applicant as an

APIC. The Committee, however, intends that the statute reflect the

Secretary’s ability to make qualitative distinctions regarding management, allowing licensing of one APIC over another based on the

existence of an exceptional management record and proven expertise in making investments benefiting low-income communities. In

other words, the Committee believes the Secretary should choose

among the applicants those APICs that meet not just the minimum

statutory requirements, but whose investments are more likely to

result in the most benefit to low- and moderate-income communities. With that in mind, the Managers’ Amendment added language in Section 305(d) establishing selection criteria the Secretary

shall use to determine which APICs are to be licensed. An APIC

applicant will be chosen for licensing based on the extent such applicant is expected to achieve the goals of the legislation by meeting or exceeding the selection criteria established under this subsection, which may include additional criteria established by the

Secretary.

The Committee intends that rural and small communities not be

unfairly or arbitrarily disadvantaged in the selection process. For

this reason, Section 305(c)(2) was added by the Managers’ Amendment to provide that when selecting APICs for licensing, the HUD

Secretary to the extent practicable ensure geographical diversity

and a mix of APICs so that both rural and urban communities may

be served by this program. The Committee notes that in addition

to large cities, there are also economically distressed areas in midsized and smaller metropolitan areas and non-metropolitan areas.

Consideration of the needs of these communities should not be absent from APIC selection process. The intent of the Committee is

that the Secretary strive for balance, fairness and diversity in the

selection process.

In adding legislative language regarding the selection process,

the Committee attempted to avoid imposing requirements as to exactly how many of each type of APIC should be chosen in the selection process. In the Committee’s view, imposing numerical requirements would not be the proper approach because neither Congress

nor the Administration can know in advance exactly what entities

will apply to be licensed. The Committee made one important exception to this approach regarding the selection process for Native

Americans. By definition, most of the lands on reservations would

30

qualify for investments by APICs, as would rural and other low-income communities. However, the Committee was concerned that

the added complexity of investing on Native American lands, including dealing with the Bureau of Indian Affairs, unfamiliarity

with the varied tribal laws, and what in too many cases amounts

to a cultural discomfort on the part of much of the finance community in doing business on Indian lands, were factors making business investment in Native Americans lands qualitatively different,

and much more difficult, than investments in other low-income

rural or urban communities. The Committee was concerned that

the available applicants would not include entities with the capacity, or which viewed as their mission, to invest specifically on Native American lands. For this reason, the Managers’ Amendment

included a requirement that of those APICs selected in the first

year, one would be a Native American Private Investment Company. The Committee believes that this would encourage application by would-be APICs that would serve Native Americans. Any

such applicant would still need to meet all of the requirements for

licensing contained in this bill. Native Americans should not be unintentionally excluded from benefiting under this program.

The Committee notes that under Section 305(b)(1) of the legislation, an APIC applicant must be a for-profit entity in order to be

licensed as an APIC. The Committee notes that this is not intended

to exclude for-profit entities controlled by non-profit organizations,

such as through a subsidiary, partnership, or limited liability structure.

Regarding the application of federal securities laws to APICs,

and for that matter to New Market Venture Capital companies

(‘‘NVCCs’’) created under other provisions of the Administration’s

New Markets Initiative, the Committee notes that nothing in this

legislation alters or affects any Federal securities laws or regulations promulgated under the Federal securities laws. Further, federal securities laws continue to apply to NVCCs and APICs created

under this legislation, to any securities issued by or on behalf of

NVCCs or APICs, and to their distribution. NVCCs and APICs may

seek to qualify for certain exclusions contained in the Investment

Company Act. Notably, in order for NVCCs and APICs to qualify

for the exclusion from regulation under the Investment Company

Act provided by Section 3(c)(7) of the Act, they must make only a

private offering of their securities and each of their investors must

meet the definition of ‘‘qualified purchaser’’ in Section 2(a)(51) of

the Investment Company Act of 1940, 15 U.S.C. 80a–2(a) (51). The

Committee expects that private offerings of NVCC and APIC securities (including those relying on the exclusion from regulation

under the Act provided by Section 3(c)(1)) generally will entail an

evaluation of whether the NVCC or APIC securities are suitable investments for the proposed investors.

Ensuring HUD’s capacity to administer the APIC program

The Committee was concerned with HUD’s current capacity to

administer the proposed APIC program. While the Committee

notes that the Secretary has made great efforts to improve the

management of HUD’s programs, there are still many areas which

require attention. Adding another program to those already administered by HUD, and especially one as complex in terms of the reVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00030 Fmt 6659 Sfmt 6602 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
31

quired financial expertise as the program envisioned by this legislation, called for careful, bipartisan consideration. An alternative

approach, which was indeed debated during the Committee’s markup of the legislation, was for the program to be administered by the

Department of the Treasury rather than HUD. A crucial reason for

having HUD administer the program, however, was the Department’s experience in dealing with distressed areas and with complex, large-scale community development investments, in particular. In order to address the Committee’s concerns regarding capacity and taxpayer safeguards, key changes to the original legislation were made by the Managers’ Amendment regarding program

administration.

The Committee’s goal was to ensure that HUD had the expertise

and the time available to structure and administer this program

properly, and that the program not be too complex to administer

in the beginning stages so that HUD would be able to develop capacity. Therefore, the legislation as revised by the Committeee,

now imposes a first year limit on the number of APICs of 15, with

no one APIC receiving more than 20% of the available credit subsidy. This accomplishes two things—it keeps the number of APICs

at a manageable level in the first year, to give HUD experience in

working with this program, and it diversifies the government’s risk

by ensuring that no one APIC is too large. In addition, the Committee included a provision setting the effective date of the legislation at six months after enactment, so that HUD would have the

time to develop adequate procedures in a deliberative fashion,

working with the private sector as well as nonprofit and government entities important to community economic development.

The Committee also strengthened financial soundness provisions

by setting forth the HUD Secretary’s duty to cooperate with Treasury in determining what procedures to follow to ensure competent

management of APICs. Because the Committee wishes to approach

conservatively those matters involving the federal government’s financial exposure, particularly at the program’s inception, the program feature allowing an increase in leverage for a class of APICs

from 200% to 300% was also deleted.

In order to ensure close oversight of the program, the Committee

added a requirement for an Annual Report from the Secretary to

Congress on the achievements of APICs, which would provide information on all APIC investments, the level of financial exposure,

and other such matters. In addition, the legislation now requires

a report by the General Accounting Office on the APIC program

two years after enactment of the program. Finally, language granting the HUD Inspector General the authority to work with the

Small Business Administration Inspector General in monitoring

the APIC program at HUD was added in order to ensure that monitoring experience of these types of programs was available. The

many changes made by the Committee to address the concerns

with HUD’s management of the program should give some assurance that this program will be structured and administered in a

proper fashion, with the interests and protection of the taxpayer as

priorities.

32

COMMITTEE CONSIDERATION AND VOTES (RULE XI, CLAUSE 2(L)(2)(B)

The Committee met in open session to mark up H.R. 2848, ‘‘New

Markets Initiative Act of 1999’’ on April 12, 2000. The Committee

considered H.R. 2848, as introduced, as the text for purposes of

amendments.

During the markup, the Committee approved one amendment, by

unanimous consent, which inserted in lieu thereof the provisions of

H.R. 2764 as amended and ordered reported by the Committee on

April 12, 2000. With a quorum present, a motion to adopt H.R.

2848 and favorably report the bill, as amended, to the House was

approved by voice vote.

COMMITTEE OVERSIGHT FINDINGS

In compliance with clause 2(l)(3)(A) of rule XI of the Rules of the

House of Representatives, the Committee reports that the findings

and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT FINDINGS

No findings and recommendations of the Committee on Government Reform and Oversight were received as referred to in clause

2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of the Rules of the

House of Representatives.

CONSTITUTIONAL AUTHORITY

In compliance with clause 2(l)(4) of rule XI of the Rules of the

House of Representatives, the constitutional authority for Congress

to enact this legislation is derived from the general welfare clause

(Article I, Sec. 8).

NEW BUDGET AUTHORITY AND TAX EXPENDITURES

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

CONGRESSIONAL BUDGET OFFICE COSTS ESTIMATE AND UNFUNDED

MANDATE ANALYSIS

The cost estimate pursuant to clause 3(c)(3) of rule XIII of the

Rules of the House of Representatives and section 402 of the Congressional Budget Act of 1974 is attached herewith:

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, June 26, 2000.

Hon. JAMES A. LEACH,

Chairman, Committee on Banking and Financial Services,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2848, the New Markets

Initiative Act of 1999.

33

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contacts are Mark Hadley and

Lanette Keith (for federal costs), and Victoria Heid Hall (for the

state and local impact).

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

H.R. 2848—New Markets Initiative Act of 1999

Summary: H.R. 2848 would provide credit assistance and tax

credits in exchange for private investments in certain communities.

The bill would authorize appropriations for two federal loan guarantee programs: the America’s Private Investment Companies

(APIC) program within the Department of Housing and Urban Development (HUD) and a New Markets Venture Capital (NMVC)

program within the Small Business Administration (SBA). In both

cases, the federal government would guarantee loans made to venture-capital corporations that agree to operate in low-income or

moderate-income communities. The NMVC investments would be

targeted to small businesses and start-up companies. Other provisions would modify SBA’s general business program by reducing

fees for certain loan guarantees and increasing the limit on the

portion of a loan that can be guaranteed by the government. Finally, the bill would establish a new tax credit for taxpayers who

invest in qualified community development entities.

Assuming appropriation of the necessary amounts, CBO estimates that implementing H.R. 2848 would cost $1.4 billion over the

2000–2005 period, including revenue losses from the new tax credits. The Joint Committee on Taxation (JCT) estimates that the revenue loss associated with this legislation would be $1,061 million

over the 2000–2005 period and $1.781 million over the 2000–2010

period. CBO estimates that costs to be paid from appropriated

funds would total $338 million from 2000 through 2005. We also

estimate that provisions modifying the terms of existing loans

would increase direct spending by $45 million in 2000. Because

H.R. 2848 would affect direct spending and receipts, pay-as-you-go

procedures would apply.

H.R. 2848 contains intergovernmental mandates as defined in

the Unfunded Mandates Reform Act (UMRA), but CBO estimates

that the cost of the mandates would not be significant. The legislation does not contain any new private-sector mandates.

Estiamted cost to the Federal Government: The estimated budgetary impact of H.R. 2848 is shown in the following table. The costs

of this legislation fall within budget functions 370 (commerce and

housing credit) and 450 (community development).

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005

CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Authorization Level ....................................................................... 17 86 85 78 79 43

Estimated Outlays ........................................................................ 1 42 68 75 78 74

CHANGES IN DIRECT SPENDING

Estiamted Budget Authority ......................................................... 45 0 0 0 0 0

Estimated Outlays ........................................................................ 45 0 0 0 0 0

34

By fiscal year, in millions of dollars—

2000 2001 2002 2003 2004 2005

CHANGES IN REVENUES

Estimated Revenues ..................................................................... ¥5 ¥30 ¥119 ¥234 ¥322 ¥351

Basis of estimate: For this estimate, CBO assumes H.R. 2848

will be enacted in fiscal year 2000 and that the amounts authorized

will be appropriated for each year. CBO expects outlays to follow

trends for similar programs.

The majority of the discretionary costs associated with this bill

would result from implementing the APIC and NMVC programs.

For each year over the 2000–2004 period, the bill would authorize

the appropriation of $36 million to cover the subsidy costs of the

APIC program and $1 million annually for related administrative

expenses. The NMVC program would be authorized for six years

(fiscal years 2000 through 2005), with appropriations limited to $30

million for technical assistance and such sums as necessary to subsidize and administer up to $100 million in NMVC loan guarantees. H.R. 2848 also would increase the cost of guaranteeing new

business loans by an average of $35 million a year, assuming the

program is extended beyond 2000. The estimated increase in direct

spending reflects the cost of modifying the fees paid on outstanding

general business loan guarantees made by SBA. Finally, JCT estimates that the new tax credit for qualified community development

entities would reduce revenues by $1,061 million over the 2000–

2005 period and $1.781 million over the 2000–2010 period.

Spending subject to appropriation

The majority of the discretionary costs associated with H.R. 2848

would be for credit subsidies. The Federal Credit Reform Act of

1990 requires appropriation of the subsidy costs and administrative

costs for operating credit programs. The subsidy cost is the estimated long-term cost to the government of a direct loan or loan

guarantee, calculated on a net present value basis, excluding administrative costs. In fiscal year 2000, the Congress appropriated

a total of $35 million for subsidy and other costs related to the proposed APIC and NMVC programs.

America’s Private Investment Companies. CBO estimates that H.R. 2848 would authorize an additional $17 million for APIC activities in fiscal year 2000 and $38 million a year over the 2001–

2004 period. (The current appropriation for 2000 is $20 million.)

This annual sum includes the $36 million specified in the bill for

subsidy costs and an estimated $2 million for administrative expenses. While the bill would authorize the appropriation of $1 million annually over the 2000–2004 period for administrative costs,

CBO estimates this amount would not be sufficient to administer

these loan guarantees after fiscal year 2000. Based on the operation of similar SBA programs, we estimate that about $2 million

annually would be needed to administer the APIC loan guarantees

over the 10-year term of the guarantees.

New Markets Venture Capital program. CBO estimates that H.R. 2848 would authorize the appropriation of an additional $40 million over the 2001–2005 period for the NMVC program. This cost

reflects the difference between the total amounts authorized in the

bill and the $15 million appropriated for the current year. SpecifiVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00034 Fmt 6659 Sfmt 6602 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
35

cally, H.R. 2848 would authorize the appropriation of up to $30

million over the 2000–2005 period for technical assistance, which

is $21 million more than has been appropriated for fiscal year

2000. Likewise, CBO estimates that it would cost about $20 million

to subsidize $100 million in NMVC loan guarantees, which is $14

million more than was appropriated for NMVC subsidies in fiscal

year 2000. Finally, experience with other SBA programs suggests

that it would cost an average of about $1 million a year to administer the program, net of any examination fees paid by borrowers.

CBO estimates, that the subsidy cost of the NMVC program

would be about 20 percent of the amount guaranteed. We based

this estimate on defaults and recoveries for similar SBA programs

and on information regarding the likely terms and conditions of the

guarantees. Experience with other programs suggests that NMVC

borrowers would default on about 45 percent of guaranteed loans.

In the event of a default, CBO expects that the agency would liquidate the NMVC investments and that recoveries would average

about 50 percent of the loan balance three years after default. Information from the Office of Management and Budget (OMB) suggests that SBA would allow borrowers a grace period of five years

during which they would not pay interest; instead, such interest

would be added to the outstanding debt. Because H.R. 2848 would

authorize SBA to guarantee up to $100 million of loans, we estimate that this program would require the appropriation of about

$20 million for credit subsidies.

SBA’s general business loan guarantee program. CBO estimates

that provisions modifying certain aspects of SBA’s existing general

business program would increase the subsidy rate for those guaranteed loans by between 0.25 percent and 0.5 percent. Under H.R.

2848, certain borrowers would pay a smaller up-front fee for guaranteed loans (reduced from 3 percent to 2 percent); some would pay

lower annual fees on guaranteed loans (reduced from 0.5 percent

to 0.3 percent); and some would be eligible to have the federal government guarantee a higher portion of the loan (up to 80 percent

from the current limit of 75 percent).

Assuming that the general business program is extended beyond

2000 at the $10 billion loan level specified in the fiscal year 2000

appropriation act, CBO estimates that those modifications would

require the appropriation of an additional $35 million a year. The

modifications also would affect the subsidy cost of any loans guaranteed in the months remaining in fiscal year 2000 after enactment of the bill, but we assume that any increase in the subsidy

cost of new commitments in fiscal year 2000 would lead to a reduction in the volume of loan obligations rather than additional appropriations.

Direct spending

In addition to its effects on future discretionary spending, CBO

estimates that reducing the annual fee on loans guaranteed under

SBA’s general business program would increase direct spending by

a total of $45 million in 2000. H.R. 2848 would reduce the annual

fee on guaranteed loans from 0.5 percent to 0.3 percent of the outstanding balance on loans that were originally for $150,000 or less.

This change would modify the expected cost of the guarantees SBA

has provided for existing loans under the general business proVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00035 Fmt 6659 Sfmt 6602 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
36

gram. According to OMB’s Circular A–11, Preparation and Submission of Budget Estimates, ‘‘If the modification is mandated in legislation, the legislation itself provides the budget authority to incur

the subsidy cost obligation (whether explicitly stated or not).’’ CBO

estimates that this provision would increase the subsidy rate by an

average of about 1 percent on $4.5 billion of outstanding loans at

the end of 2000.

Revenues

H.R. 2848 would establish a new tax credit for up to 6 percent

of the amount taxpayers invest in a qualified community development entity. The Joint Committee on Taxation expects that these

provisions would result in an increase in tax-exempt financing and

a subsequent loss of federal revenue. JCT estimates that the revenue loss would be $1,061 million over the 2000–2005 period and

$1,781 million over the 2000–2010 period.

This bill also would provide for civil penalties against APICs that

fail to comply with regulations that would be established under

H.R. 2848. Payments of these civil penalties would be recorded as

governmental receipts to the Treasury. CBO expects that any increase in penalty collections as a result of this provision would not

be significant.

Pay-as-you-go considerations: The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures for legislation affecting direct spending or receipts. The net changes in

outlays and governmental receipts that are subject to pay-as-yougo procedures are shown in the following table. For the purposes

of enforcing pay-as-you-go procedures, only the effects in the current year, the budget year, and the succeeding four years are

counted.

By fiscal year in millions of dollars—

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Changes in outlays ................... 45 0 0 0 0 0 0 0 0 0 0

Changes in receipts ................. ¥5 ¥30 ¥119 ¥234 ¥322 ¥351 ¥331 ¥240 ¥122 ¥31 4

Estimated impact on state, local, and tribal governments: Title I

would preempt state laws by prohibiting states from limiting SBA’s

ability to exercise its ownership rights in certain debentures issued

by a New Markets Venture Capital company. Title III would preempt state laws with regard to the seniority of debt issued by

APICs. Such preemptions of state law are intergovernmental mandates as defined in UMRA, but CBO estimates that these mandates

would impose no significant costs on state, local, or tribal governments.

Title III also provides that state and local governments may

choose to assume responsibility for environmental reviews needed

for certain projects and activities financed by an APIC. Any costs

to carry out such environmental reviews would be incurred voluntarily.

Estimated impact on the private sector: H.R. 2848 contains no

new private-sector mandates as defined in UMRA.

Estimate prepared by: Federal Costs: Mark Hadley and Lanette

Keith; Impact on State, Local, and Tribal Governments: Victoria

Heid Hall; Impact on the Private Sector: Patrice Gordon.

37

Estimate approved by: Robert A. Sunshine, Assistant Director for

Budget Analysis.

CONGRESSIONAL BUDGET OFFICE COSTS ESTIMATE

The cost estimate pursuant to Clause 2(l)(3)(C) of rule XI, of the

Rules of the House of Representatives and Section 403 of the Congressional Budget Act of 1974 has been requested, but had not

been prepared as of the filing of Part I of this report. The estimate

will be included in Part II of this report to be filed at a future date.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of Section 5(b) of the

Federal Advisory Committee Act were created by this legislation.

CONGRESSIONAL ACCOUNTABILITY ACT

The reporting requirement under Section 102(b)(3) of the Congressional Accountability Act (P.L. 104–1) is inapplicable because

this legislation does not relate to terms and conditions of employment or access to public services or accommodations.

SECTION-BY-SECTION OF COMMITTEE AMENDMENT

Section 301. Short title

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

Section 302. Findings and purpose

Section 302 finds that: (1) people living in distressed areas, both

urban and rural, characterized by high levels of joblessness, poverty, and low incomes, have not adequately benefited from economic expansion experienced by the Nation as a whole; (2) the

costs of joblessness and poverty to our Nation are very high; and

(3) there are significant untapped markets in our Nation, and

many of these are in areas that are underserved by institutions

that can make equity and credit investments.

Purposes of this title are to: (1) license private for-profit community development entities that will focus on making equity and

credit investments for large-scale business developments that benefit low-income communities; (2) provide credit enhancement for

those entities for use in low-income communities; and (3) provide

a vehicle under which the economic and social returns on financial

investments made pursuant to this Act may be available both to

the investors in these entities and to the residents of the low-income communities.

Section 303. Definitions

Defines terms used in legislation, including ‘‘Administrator’’,

‘‘agency’’, ‘‘APIC’’, ‘‘community development entity’’, ‘‘HUD’’, ‘‘license’’, ‘‘low-income community’’, ‘‘low-income person’’, ‘‘private equity capital’’, ‘‘qualified active business’’, ‘‘qualified debenture’’,

‘‘qualified low-income community investment’’, and ‘‘Secretary’’.

Section 304. Authorization

Authorizes the Secretary of HUD to license and regulate America’s Private Investment Companies (‘‘APICs’’). The number of

38

APICs licensed at any one time would depend upon the amount of

budget authority available to support the total credit subsidy provided to the APICs, subject to a first year limitation of 15 APICs.

After the initial appropriation, the Secretary is authorized to license and allocate credit subsidy to additional APICs, or, as provided, increase the credit subsidy allocated to an APIC as reward

for high performance. Any such credit subsidy increase shall be

provided only to an APIC that has been licensed for not less than

two years, and pursuant to a competition among eligible APICs.

The Secretary shall establish criteria for selecting among APICs eligible for a credit subsidy increase, which criteria shall include

such factors as the financial soundness and performance of the

APICs as measured by achievement of the public performance goals

required under the Act.

Requires that the HUD Secretary consult with the Administrator

of the Small Business Administration and the Secretary of the

Treasury in establishing regulations, requirements or procedures

regarding the financial soundness and management of APICs. Authorizes budget authority of $36 million in credit subsidy for Fiscal

Year 2000 to guarantee an estimated $1 billion in debt. An additional $36 million would be authorized to be appropriated for each

of Fiscal Years 2001–2003, with an additional $1 million authorized for the administrative expenses incurred in carrying out the

Act for FY 2000–FY 2003. Requires APICs to be regulated by HUD

in cooperation with SBA and the Department of the Treasury. The

Secretary is authorized to impose fees and charges for the operation of APICs.

Section 305. Selection of APICs

Establishes procedures for selection of APICs, sets forth minimum eligibility requirements, and sets forth selection criteria to be

used by the Secretary in selecting among applicants for licensing

as APICs. An entity applying for an APIC license must: (1) be a

private, for-profit entity that qualifies as a ‘‘community development entity’’ as defined in the legislation; (2) have a minimum private equity capital of $25 million; (3) have qualified financial management, with experience in direct equity investment and portfolio

management and expertise in community development settings, as

determined by the Secretary; (4) be structured to preclude financial

conflict of interests between the APIC and its managers or investors; (5) submit an investment strategy with evaluation benchmarks; (6) submit a statement of public purpose goals, examples of

which are delineated in the statute; (7) agree to comply with other

federal requirements imposed from time to time (i.e., Executive Orders or OMB circulars); and (8) satisfy any other application criteria that the Secretary may impose by regulation or notice.

The Secretary shall select eligible entities for licensing based on

a competition. Selections shall be made on the basis of the extent

to which the entity is expected to meet or exceed the selection criteria set forth in the legislation. Selection criteria include factors

such as the APICs capacity, investment strategy, public purpose

goals, and other criteria the Secretary may establish to carry out

the purposes of this Act. To the extent practicable, in selecting

APICs the Secretary shall strive for geographic diversity and a diversity of the types of APICs chosen so that both rural and urban

39

communities are served by the program. Of those APICs selected

in the first year, at least one must be devoted primarily to making

investments on Native American lands.

Section 306. Operations of APICs

Sets forth requirements for the operation of APICs. Requires that

substantially all APIC investments that use government-guaranteed proceeds be in qualified low- to moderate-income (LMI) areas,

and prohibits an APIC from having an investment in any one business that would amount to more than 35% of the APIC’s equity

capital plus the limit of outstanding debt allowable (the leverage

limit) under Section 306(c)(2) of this title.

Provides that an APIC may issue debentures guaranteed by the

Secretary pursuant to the provisions of the Act. The total amount

of debentures that an APIC may have outstanding at any one time

shall not exceed 200% of the equity capital of the APIC. An APIC

may not have more than $300 million in face value of debentures

issued at any one time. Sets forth requirements for repayment by

APIC of debt.

Includes an ‘‘anti-pirating’’ provision prohibiting APICs from

using funds to make an investment that would assist directly in

the relocation of any industrial or commercial plant, facility or operation from one area to another if such relocation would result in

a significant loss of employment in the labor area from which the

relocation occurs. Also provides for reuse of debenture proceeds of

sale of Treasury securities and excludes APIC from the definition

of debtor under bankruptcy provisions.

Section 307. Credit enhancement by the Federal Government

Authorizes HUD to make commitments to guarantee the timely

payment of all principal and interest on qualified debentures issued

by the APICs. The qualified debentures guaranteed by HUD would

be senior to any other debt or equity. The qualified debentures

could be issued by APICs for up to 21 years and could be pooled

and sold.

Section 308. APIC requests for guarantee actions

Sets forth procedures for APICs to request loan guarantees from

HUD, which shall include a description of the manner in which the

APIC intends to use the proceeds from such debentures and a certification from the APIC that it is in substantial compliance with:

(1) the terms of this Act and applicable laws; (2) the terms and conditions of its license; (3) requirements relating to the allocation and

use of New Market Tax Credits. The APIC must also provide any

other requirements established by the Secretary. Sets forth procedures for compliance with provisions of the National Environmental Policy Act of 1969 regarding environmental reviews.

Section 309. Examination and monitoring of APICs

Requires that the Secretary examine and monitor the activities

of APICs for compliance with sound financial management practices and for satisfaction of program goals. Requires the Secretary

to establish annual or more frequent reporting requirements for

APICs. Requires that each APIC have an independent annual audit

conducted annually. The Secretary, in consultation with the AdVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00039 Fmt 6659 Sfmt 6602 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
40

ministrator of the SBA and the Secretary of the Treasury, shall establish requirements and standards for such audits. Not less than

every two years, the Secretary shall examine the operations and

portfolio of each APIC to assure compliance with sound financial

management practices.

Provides that in carrying out its monitoring of HUD’s responsibilities under this Act, the Inspector General of HUD shall consult, as appropriate, with the Inspectors General of the Department

of the Treasury or the Small Business Administration, and may

enter into memoranda of understanding as may be necessary to

carry out this function. Requires the Secretary to report to Congress annually regarding the operations, activities, financial health

and achievements of APICs, listing each investment made by each

APIC. Requires the General Accounting Office, not later than two

years after the date of enactment of the Act, to submit a report to

Congress regarding the operation of the APIC program.

Section 310. Penalties

Authorizes the Secretary to impose penalties on any APIC that

commits an act of fraud, mismanagement or noncompliance with

regulations. Penalties include civil monetary penalties not to exceed $10,000, cease-and-desist orders, suspension or revocation of

an APIC’s license for very serious infractions, or other penalties

that the Secretary determines to be less burdensome than the

aforementioned penalties.

Section 311. Effective date

Provides that the Act shall take effect six months after the date

of enactment. Authority of the Secretary to issue regulations,

standards, guidelines or licensing requirements, and the authority

of any official to enter into agreements or memoranda of understanding regarding such issuances, shall take effect upon enactment of the legislation.

Section 312. Sunset

Provides that the Secretary may not license any APIC, nor provide credit subsidy for any APIC, after the expiration of the fiveyear period beginning upon the date the Secretary awards the first

APIC license. The section does not affect any license or credit subsidy provided for an APIC before the expiration of such period.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic,

existing law in which no change is proposed is shown in roman):

SMALL BUSINESS INVESTMENT ACT OF 1958

TITLE I—SHORT TITLE, STATEMENT OF POLICY, AND

DEFINITIONS

* * * * * * *

41

TITLE III—øSMALL BUSINESS INVESTMENT COMPANIES¿

INVESTMENT DIVISION PROGRAMS

PART A—SMALL BUSINESS INVESTMENT COMPANIES

ORGANIZATION OF SMALL BUSINESS INVESTMENT COMPANIES

SEC. 301. * * *

* * * * * * *

PART B—NEW MARKETS VENTURE CAPITAL PROGRAM

SEC. 350. DEFINITIONS.

In this part—

(1) the term ‘‘New Markets Venture Capital company’’ means

a company that—

(A) has been approved by the Administration under section 353(e) to operate under the New Markets Venture Capital Program; and

(B) has entered into a participation agreement with the

Administration; and

(2) the term ‘‘low- or moderate-income geographic area’’

means—

(A) a census tract, or the equivalent county division as

defined by the Bureau of the Census for purposes of defining poverty areas, in which—

(i) the poverty rate is not less than 20 percent; or

(ii) in the case of a census tract or division located

within a metropolitan area, the median family income

for such tract or division does not exceed the greater of

80 percent of the statewide median family income or 80

percent of the metropolitan-area median family income:

or

(iii) in the case of a census tract or division not located within a metropolitan area, the median family

income for such tract or division does not exceed 80

percent of the statewide median family income; and

(B) any area located within—

(i) a HUBZone (as defined in section 126.103 of title

13, Code of Federal Regulations);

(ii) an Urban Empowerment Zone or an Urban Enterprise Community, as designated by the Secretary of

the Department of Housing and Urban Development; or

(iii) a rural Empowerment Zone or a Rural Enterprise Community, as designated by the Secretary of the

Department of Agriculture; and

(3) the term ‘‘participation agreement’’ means an agreement

between the Administration and a New Markets Venture Capital company—

(A) detailing the company’s operating plan and investment criteria; and

(B) requiring that investments be made in smaller enterprises at least 60 percent of which are located in low- or

moderate-income geographic areas.

SEC. 351. PURPOSES.

The purposes of the New Markets Venture Capital Program are—

42

(1) to encourage venture capital investment in smaller enterprises located in urban and rural areas; and

(2) to establish a venture capital program to be administered

by the Small Business Administration—

(A) to enter into a participation agreement with New

Markets Venture Capital companies;

(B) to guarantee debentures of New Markets Venture

Capital companies to enable each such company to make

venture capital investments in smaller enterprises in urban

and rural areas; and

(C) to make grants to New Markets Venture Capital companies for the purpose of providing marketing, management, and technical assistance to smaller enterprises financed, or expected to be financed, by such company.

SEC. 352. ESTABLISHMENT OF PROGRAM.

The Administration shall establish a New Markets Venture Capital Program, under which the Administration may—

(1) enter into a participation agreement with each New Markets Venture Capital company for the purposes set forth in section 351;

(2) guarantee debentures issued by each New Markets Venture Capital company as provided in section 354; and

(3) make grants to each New Markets Venture Capital company as provided in section 355.

SEC. 353. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.

(a) ELIGIBILITY.—A company shall be eligible for participation in

the New Markets Venture Capital Program if—

(1) it is a newly formed for-profit entity or a newly formed

for-profit subsidiary of an existing entity; and

(2) it has a management team with experience in community

development financing or venture capital financing.

(b) APPLICATION.—To participate in the New Markets Venture

Capital Program, an eligible company shall submit an application

to the Administration that includes—

(1) a business plan describing how the company intends to

make successful venture capital investments in low- or moderate-income geographic areas;

(2) information regarding the qualifications of the company’s

management;

(3) a description of how the company intends to work with

community organizations;

(4) a description of how the company will use the grant funds

provided under this part to provide marketing, management,

and technical assistance to smaller enterprises;

(5) a description of the criteria the company will use to evaluate whether and to what extent it meets the objectives of the program established under this part;

(6) information regarding the management and financial

strength of any parent firm, affiliated firm, or any other firm

essential to the success of the company’s business plan; and

(7) such other information as the Administration may require.

(c) CONDITIONAL APPROVAL.—

43

(1) IN GENERAL.—From among companies submitting applications under subsection (b), the Administration shall in accordance with this subsection conditionally approve companies

to participate in the New Markets Venture Capital Program.

(2) SELECTION CRITERIA.—In selecting companies under paragraph (1), the Administration shall consider the following:

(A) The likelihood that the applicant will meet the goals

of its business plan.

(B) The experience and background of the company’s

management team.

(C) The need for equity investments in the areas in which

the company intends to invest.

(D) The extent to which the company will concentrate its

activities on serving the areas in which it intends to invest.

(E) The likelihood that the company will be able to satisfy the conditions under subsection (d).

(F) The extent to which the activities proposed by the

company will expand economic opportunities in the areas

in which the company intends to invest.

(G) Any other factors deemed appropriate by the Administration.

(3) NATIONWIDE DISTRIBUTION.—In selecting companies under

paragraph (1), the Administration shall ensure that companies

are chosen in such a way that investments under the New Markets Venture Capital Program will be made nationwide.

(d) CONDITIONS TO BE MET FOR FINAL APPROVAL.—The Administration shall give each conditionally approved company a period of

time, not to exceed 24 months, to satisfy the following conditions:

(1) CAPITAL REQUIREMENT.—Each conditionally approved

company must raise not less than $5,000,000 of contributed

capital or binding capital commitments from 1 or more investors (other than an agency of the Federal Government) who

meet criteria established by the Administration; and

(2) NON-ADMINISTRATION RESOURCES FOR TECHNICAL ASSISTANCE.—

(A) IN GENERAL.—In order to provide marketing, management, and technical assistance, each conditionally approved company must—

(i) have binding commitments (in cash or in-kind)—

(I) from any sources other than the Administration that meet criteria established by the Administration:

(II) payable or available over a multiyear period

acceptable to the Administration (not to exceed 10

years): and

(III) in an amount equal to 30 percent of the

capital and commitments raised under subsection

(d)(1); or

(ii) must have purchased an annuity—

(I) from an insurance company acceptable to the

Administration;

(II) using funds (other than the funds raised to

satisfy subsection (d)(1)) from any source other

than the Administration; and

44

(III) that yields cash payments over a multiyear

period acceptable to the Administration (not to exceed 10 years) in an amount equal to 30 percent of

the capital and commitments raised under subsection (d)(1); or

(iii) must have binding commitments (in cash or inkind) of the type described in subsection (d)(2)(A)(i)

and must have purchased an annuity of the type described in subsection (d)(2)(A)(ii), which in the aggregate make available, over a multiyear period acceptable

to the Administration (not to exceed 10 years), an

amount equal to 30 percent of the capital and commitments raised under subsection (d)(1).

(B) SPECIAL RULE.—On a showing of special circumstances and good cause, the Administrator may with

respect to a particular company waive the requirements of

subsection (d)(2) if the Administrator considers the company to have a viable business plan that reasonably

projects the company’s capacity to raise the amount (in

cash or in-kind) required under subsection (d)(2)(A).

(e) FINAL APPROVAL.—The Administration shall grant to a conditionally approved company final approval to participate in the New

Markets Venture Capital Program as a New Markets Venture Capital company after the company—

(1) has satisfied the conditions under subsection (d); and

(2) has entered into a participation agreement with the Administration.

SEC. 354. DEBENTURES.

(a) IN GENERAL.—The Administration may, to the extent authorized in advance in appropriations Acts, guarantee the timely payment of principal and interest as scheduled on debentures issued by

New Markets Venture Capital companies.

(b) TERMS AND CONDITIONS.—The Administration may make

guarantees under this section on such terms and conditions as it

deems appropriate, except that the term of any debenture guaranteed under this section shall not exceed 15 years.

(c) FULL FAITH AND CREDIT OF THE UNITED STATES.—The full

faith and credit of the United States shall be pledged to the payment of all amounts which may be required to be paid under any

guarantee under this part.

(d) MAXIMUM GUARANTEE.—The Administration may provide

guarantees under this section for the debentures issued by any New

Markets Venture Capital company only to the extent that such guarantees do not exceed 150 percent of the contributed capital of the

company, as determined by the Administration. Contributed capital

shall include capital that is deemed to be Federal funds contributed

by an investor other than an agency of the Federal Government.

SEC. 355. TECHNICAL ASSISTANCE GRANTS.

(a) IN GENERAL.—

(1) AUTHORITY.—In accordance with this section, the Administration may make grants to each New Markets Venture Capital company to provide marketing, management, and technical

assistance for the benefit of smaller enterprises financed, or expected to be financed, by the company.

45

(2) TERMS.—Grants made under this subsection shall be

made over a multiyear period not to exceed 10 years, under

such other terms as the Administration may require.

(2) GRANT AMOUNT.— (A) IN GENERAL.—The amount of a grant made under

this subsection to each New Markets Venture Capital company shall be equal to the amount resources raised by the

company (in cash or in-kind) under section 353(d)(2).

(B) SPECIAL RULE.—Notwithstanding subparagraph (A),

the Administration may make a grant under this section in

an amount other than that set forth in subparagraph (A),

if the Administration considers the grant to be in the best

interests of the New Markets Venture Capital Program.

(3) PRO RATA REDUCTIONS.—If the amount made available to

carry out this section is insufficient for the Administration to

provide grants in the amounts provided for in subsection (a)(2),

the Administration shall make pro rata reductions in the

amounts otherwise payable to each New Markets Venture Capital company under such subsection.

(b) SUPPLEMENTAL GRANTS.— (1) IN GENERAL.—The Administration may make supplemental grants to any New Markets Venture Capital company,

containing such terms as the Administration may require, to

provide additional marketing, management, and technical assistance for the benefit of smaller enterprises financed, or expected to be financed, by the New Markets Venture Capital company.

(2) MATCHING REQUIREMENT.—The Administration may require, as a condition of any supplemental grant made under

this subsection, that the New Markets Venture Capital company

provide from resources (in cash or in-kind) other than those

provided by the Administration an amount equal to the amount

of the supplemental grant.

SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

(a) ISSUANCE.—The Administration may issue trust certificates

representing ownership of all or a fractional part of debentures

issued by New Markets Venture Capital companies and guaranteed

by the Administration under this Act, if such certificates are based

on and backed by a trust or pool approved by the Administration

and composed solely of guaranteed debentures.

(b) GUARANTEE.—

(1) IN GENERAL.—The Administration may, under such terms

and conditions as the Administration deems appropriate, guarantee the timely payment of the principal of and interest on

trust certificates issued by the Administration or its agent for

purposes of this section.

(2) LIMITATION.—Guarantees under this subsection shall be

limited to the extent of principal and interest on the guaranteed

debentures which compose the trust or pool.

(3) PREPAYMENT OR DEFAULT.—In the event that a debenture

in a trust or pool is prepaid, or in the event of default of such

a debenture, the guarantee of timely payment of principal and

interest on the trust certificates shall be reduced in proportion

to the amount of principal and interest such prepaid debenture

represents in the trust or pool. Interest on prepaid or defaulted

46

debentures shall accrue and be guaranteed by the Administration only through the date of payment of the guarantee. At any

time during its term, a trust certificate may be called for redemption due to prepayment or default of all debentures.

(c) FULL FAITH AND CREDIT OF THE UNITED STATES.—The full

faith and credit of the United States shall be pledged to the payment of all amounts which may be required to be paid under any

guarantee of such trust certificates issued by the Administration or

its agent under this section.

(d) FEES.—The Administration shall not collect a fee for any

guarantee under this section, but any agent of the Administration

may collect a fee approved by the Administration for the functions

described in subsection (f)(2) of this section.

(e) SUBROGATION AND OWNERSHIP RIGHTS.—

(1) SUBROGATION.—In the event the Administration pays a

claim under a guarantee issued under this section, it shall be

subrogated fully to the rights satisfied by such payment.

(2) OWNERSHIP RIGHTS.—No Federal, State, or local law shall

preclude or limit the exercise by the Administration of its ownership rights in the debentures residing in a trust or pool

against which trust certificates are issued under this section.

(f) MANAGEMENT AND ADMINISTRATION.—

(1) REGISTRATION.—

(A) IN GENERAL.—The Administration may provide for a

central registration of all trust certificates issued under this

section.

(B) FORMS OF REGISTRATION.—Nothing in this subsection

shall prohibit the use of a book entry or other electronic

form of registration for trust certificates.

(2) CONTRACTING OF FUNCTIONS.—

(A) IN GENERAL.—The Administrator may contract with

an agent or agents to carry out on behalf of the Administration the pooling and the central registration functions provided for in this section including, notwithstanding any

other provision of law—

(i) maintenance on behalf of and under the direction

of the Administration, such commercial bank accounts

or investments in obligations of the United States as

may be necessary to facilitate the creation of trusts or

pools backed by debentures guaranteed under this Act;

and

(ii) the issuance of trust certificates to facilitate the

creation of such trusts or pools.

(B) PROTECTION OF THE INTERESTS OF THE UNITED

STATES.—Any agent performing functions on behalf of the

Administration under this paragraph shall provide a fidelity bond or insurance in such amounts as the Administration determines to be necessary to fully protect the interests

of the United States.

(3) REGULATION OF BROKERS AND DEALERS.—The Administrator may regulate brokers and dealers in trust certificates sold

under this section.

47

SEC. 357. FEES.

Except as provided in section 356(d), the Administration may

charge such fees as it deems appropriate with respect to any guarantee or grant issued under this part.

SEC. 358. BANK PARTICIPATION.

(a) IN GENERAL.—To the extent provided for in subsection (b), any

national bank, any member bank of the Federal Reserve System,

and any bank that is not a member of such system but which is insured to the extent permitted under applicable State law, may invest

in any New Markets Venture Capital company, or in any entity established to invest solely in New Markets Venture Capital companies.

(b) LIMITATION.—No bank described in subsection (a) may make

investments described in such subsection that are greater than 5

percent of the capital and surplus of the bank.

SEC. 359. FEDERAL FINANCING BANK.

Section 318 shall not apply to any debenture issued by a New

Markets Venture Capital company under this part.

SEC. 360. REPORTING REQUIREMENTS.

Each New Markets Venture Capital company shall provide to the

Administration such information as the Administration may require, including information on the measurement criteria that the

New Markets Venture Capital company proposed in its program application.

SEC. 361. EXAMINATIONS.

(a) IN GENERAL.—Each New Markets Venture Capital company

shall be subject to examinations made at the direction of the Investment Division of the Administration in accordance with this section.

(b) ASSISTANCE OF PRIVATE SECTOR ENTITIES.—Examinations

under this section may be conducted with the assistance of a private

sector entity that has both the qualifications to conduct and expertise in conducting such examinations.

(c) COSTS.—

(A) IN GENERAL.—The Administrator may assess the cost

of examinations under this section, including compensation

of the examiners, against the company examined.

(B) DEPOSIT OF FUNDS.—Funds collected under this section shall be deposited in the account for salaries and expenses of the Administration.

(C) AUTHORIZATION OF APPROPRIATIONS.—Funds deposited under subparagraph (B) are authorized to be appropriated solely to cover the costs of examinations and other

program oversight activities.

SEC. 362. INJUNCTIONS AND OTHER ORDERS.

(a) IN GENERAL.—Whenever, if the Administrator considers that

a New Markets Venture Capital company, or any other person, has

engaged or is about to engage in any acts or practices which constitute, or will constitute, a violation of any provision of this Act, of

any rule or regulation under this Act, or of any order issued under

this Act, the Administration may make application to the proper

district court of the United States or to a United States court of any

place subject to the jurisdiction of the United States for an order enjoining such acts or practices, or for an order enforcing compliance

48

with such provision, rule, regulation, or order, and such courts

shall have jurisdiction of such actions and, upon a showing by the

Administration that such New Markets Venture Capital company or

other person has engaged or is about to engage in any such acts or

practices, a permanent or temporary injunction, restraining order,

or other order, shall be granted without bond.

(b) SEIZING OF ASSETS.—In any such proceeding the court, as a

court of equity may, to the extent it deems necessary, take exclusive

jurisdiction of the New Markets Venture Capital company and the

assets thereof, wherever located. The court shall have jurisdiction in

any such proceeding to appoint a trustee or receiver to hold or administer under the direction of the court the assets so possessed.

(c) ADMINISTRATION AS TRUSTEE OR RECEIVER.— (1) IN GENERAL.—The Administration may act as trustee or

receiver under subsection (b) of a New Markets Venture Capital

company.

(2) APPOINTMENT.—At the request by the Administration, the

court may appoint the Administration to act as a trustee or receiver of a New Markets Venture Capital company unless the

court deems such appointment inequitable or otherwise inappropriate.

SEC. 363. UNLAWFUL ACTS AND OMISSIONS BY OFFICERS, DIRECTORS,

EMPLOYEES, OR AGENTS; BREACH OF FIDUCIARY DUTY.

(a) PARTIES DEEMED TO COMMIT A VIOLATION.—Whenever an

New Markets Venture Capital company violates any provision of

this Act, or any regulation issued thereunder, by reason of its failure

to comply with its terms or by reason of its engaging in any act or

practice which constitutes or will constitute a violation thereof, such

violation shall also be deemed to be a violation and an unlawful act

committed by any person who, directly or indirectly, authorizes, orders, participates in, causes, brings about, counsels, aids, or abets

in the commission of any acts, practices, or transactions which constitute or will constitute, in whole or in part, such violation.

(b) FIDUCIARY DUTIES.—It shall be unlawful for any officer, director, employee, agent, or other participant in the management or conduct or the affairs of an New Markets Venture Capital company to

engage in any act or practice, or to omit any act, in breach of his

fiduciary duty as such officer, director, employee, agent, or participant if, as a result thereof, the New Markets Venture Capital company has suffered or is in imminent danger of suffering financial

loss or other damage.

(c) UNLAWFUL ACTS.—Except with the written consent of the Administration, it shall be unlawful—

(1) for any person to take office as an officer, director, or employee of an New Markets Venture Capital company, or to become an agent or participant in the conduct of the affairs or

management of an New Markets Venture Capital company, if

the person—

(A) has been convicted of a felony, or any other criminal

offense involving dishonesty or breach of trust, or

(B) the person has been found civilly liable in damages,

or has been permanently or temporarily enjoined by order,

judgment, or decree of a court of competent jurisdiction, by

reason of any act or practice involving fraud, or breach of

trust; and

49

(2) for any person continue to serve in any of the capacities

described in paragraph (1), if—

(A) the person is convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or

(B) the person found civilly liable in damages, or is permanently or temporarily enjoined by an order, judgment, or

decree of a court of competent jurisdiction, by reason of any

act or practice involving fraud or breach of trust.

(d) REMOVAL OR SUSPENSION.—

(1) IN GENERAL.—As provided in section 313, the Administration may remove or suspend any person upon whom the Administration has served a notice under this subsection.

(2) NOTICE.—The Administration may serve upon any person

who is an officer, director, or employee of a New Markets Venture Capital company, or an agent or participant in the conduct

of the affairs or management of the company, a written notice

of the Administration’s intention to remove or suspend such person from the person’s office or position, if in the opinion of the

Administration, such person—

(A) has willfully and knowingly committed any substantial violation of—

(i) this Act,

(ii) any regulation issued under this Act, or

(iii) a cease-and-desist order which has become final,

or

(B) has willfully and knowingly committed or engaged in

any act, omission, or practice which constitutes a substantial breach of his fiduciary duty, and that such violation or

such breach of fiduciary duty is one involving personal dishonesty on the part of such person.

SEC. 364. REGULATIONS.

The Administration is authorized to issue such regulations as it

deems necessary to carry out the provisions of this part in accordance with its purposes.

SEC. 365. AUTHORIZATION OF APPROPRIATIONS.

For fiscal years 2000 through 2005, the Administration is authorized to be appointed such subsidy budget authority as may be necessary to guarantee up to $100,000,000 of debentures, and up to

$30,000,000 to make technical assistance grants, for the purposes of

this part, to remain available until expended. This authority shall

be in effect for the period commencing with fiscal year 2000 through

fiscal year 2005.

* * * * * * *

SECTION 109 OF TITLE 11, UNITED STATES CODE

§ 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;

50

(2) a domestic insurance company, bank, savings bank, cooperative bank, savings and loan association, building and loan

association, homestead association, a New Markets Venture

Capital company as defined in section 350 of the Small Business Investment Act of 1958, a small business investment company licensed by the Small Business Administration under

subsection (c) or (d) of section 301 of the Small Business Investment Act of 1958, America’s Private Investment Company

licensed under the America’s Private Investment Companies

Act, credit union, or industrial bank or similar institution

which is an insured bank as defined in section 3(h) of the Federal Deposit Insurance Act; or

(3) * * *

* * * * * * *

SECTION 5 OF THE HOME OWNERS’ LOAN ACT

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

(a) * * *

* * * * * * *

(c) LOANS AND INVESTMENTS.—To the extent specified in regulations of the Director, a Federal savings association may invest in,

sell, or otherwise deal in the following loans and other investments:

(1) * * *

* * * * * * *

(4) OTHER LOANS AND INVESTMENTS.—The following additional loans and other investments to the extent authorized

below:

(A) * * *

* * * * * * *

(F) NEW MARKETS VENTURE CAPITAL COMPANIES.—A Federal savings association may invest in stock, obligations, or

other securities of any New Markets Venture Capital company as defined in section 350 of the Small Business investment Act of 1958, except that a Federal savings association may not make any investment under this subparagraph if its aggregate outstanding investment under this

subparagraph would exceed 5 percent of the capital and

surplus of such savings association.

* * * * * * *

SECTION 7 OF THE SMALL BUSINESS ACT

SEC. 7. (a) LOANS TO SMALL BUSINESS CONCERNS; ALLOWABLE

PURPOSES; QUALIFIED BUSINESS; RESTRICTIONS AND LIMITATIONS.— The Administration is empowered to the extent and in such

amounts as provided in advance in appropriation Acts to make

loans for plant acquisition, construction, conversion, or expansion,

including the acquisition of land, material, supplies, equipment,

and working capital, and to make loans to any qualified small business concern, including those owned by qualified Indian tribes, for

purposes of this Act. Such financings may be made either directly

51

or in cooperation with banks or other financial institutions through

agreements to participate on an immediate or deferred (guaranteed) basis. These powers shall be subject, however, to the following restrictions, limitations, and provisions:

(1) * * *

(2) LEVEL OF PARTICIPATION IN GUARANTEED LOANS.— (A) IN GENERAL.—Except as provided in subparagraph

(B), in an agreement to participate in a loan on a deferred

basis under this subsection (including a loan made under

the Preferred Lenders Program), such participation by the

Administration shall be equal to—

(i) 75 percent of the balance of the financing outstanding at the time of disbursement of the loan, if

such balance exceeds ø$100,000¿ $150,000; or

(ii) 80 percent of the balance of the financing outstanding at the time of disbursement of the loan, if

such balance is less than or equal to ø$100,000¿

$150,000.

* * * * * * *

(18) GUARANTEE FEES.— (A) * * *

(B) EXCEPTION FOR CERTAIN LOANS.—Notwithstanding

subparagraph (A), if the total deferred participation share

of a loan guaranteed under this subsection is less than or

equal to ø$80,000¿ $120,000, the guarantee fee collected

under subparagraph (A) shall be in an amount equal to 2

percent of the total deferred participation share of the

loan.

* * * * * * *

(23) ANNUAL FEE.— (A) IN GENERAL.—With respect to each loan guaranteed

under this subsection, the Administration shall, in accordance with such terms and procedures as the Administration shall establish by regulation, assess and collect an annual fee in an amount equal to 0.5 percent of the outstanding balance of the deferred participation share of the

loanø.¿, except that with respect to each loan of less than $150,000 guaranteed under this subsection, the Administration shall assess and collect an annual fee in an amount

equal to 0.3 percent of the outstanding balance of the deferred participation share of the loan.

* * * * * * *

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 statVerDate 11-MAY-2000 21:33 Jul 05, 2000 Jkt 079006 PO 00000 Frm 00051 Fmt 6659 Sfmt 6601 E:\HR\OC\HR706P1.XXX pfrm01 PsN: HR706P1
52

ute, regulation, or otherwise for the competitive distribution of

such assistance. The term does not include any mortgage insurance provided under a program administered by the Secretary or any license provided under the America’s Private Investment Companies Act.

* * * * * * *

INTERNAL REVENUE CODE OF 1986

Subtitle A—Income Taxes

* * * * * * *

CHAPTER 1—NORMAL TAXES AND SURTAXES

* * * * * * *

Subchapter A—Determination of tax liability

* * * * * * *

PART IV—CREDITS AGAINST TAX

* * * * * * *

Subpart D—Business Related Credits

Sec. 38. General business credit.

* * * * * * *

Sec. 45D. New markets tax credit.

* * * * * * *

SEC. 38. GENERAL BUSINESS CREDIT.

(a) * * *

(b) CURRENT YEAR BUSINESS CREDIT.—For purposes of this subpart, the amount of the current year business credit is the sum of

the following credits determined for the taxable year:

(1) * * *

* * * * * * *

(11) the employer social security credit determined under

section 45B(a), øplus¿

(12) the orphan drug credit determined under section

45C(a)ø.¿, plus

(13) the new markets tax credit determined under section

45D(a).

* * * * * * *

SEC. 39. CARRYBACK AND CARRYFORWARD OF UNUSED CREDITS.

(a) * * *

* * * * * * *

(d) TRANSITIONAL RULES.—

(1) * * *

* * * * * * *

53

(9) NO CARRYBACK OF NEW MARKETS TAX CREDIT BEFORE JANUARY 1, 2000.—No portion of the unused business credit for any

taxable year which is attributable to the credit under section

45D may be carried back to a taxable year ending before January 1, 2000.

* * * * * * *

SEC. 45D. NEW MARKETS TAX CREDIT.

(a) ALLOWANCE OF CREDIT.—

(1) IN GENERAL.—For purposes of section 38, in the case of a

taxpayer who holds a qualified equity investment on a credit allowance date of such investment which occurs during the taxable year, the new markets tax credit determined under this section for such taxable year is an amount equal to 6 percent of

the amount paid to the qualified community development entity

for such investment at its original issue.

(2) CREDIT ALLOWANCE DATE.—The term ‘‘credit allowance

date’’ means, with respect to any qualified equity investment—

(A) the date on which such investment is initially made,

and

(B) each of the 4 anniversary dates of such date thereafter.

(b) QUALIFIED EQUITY INVESTMENT.—For purposes of this

section—

(1) IN GENERAL.—The term ‘‘qualified equity investment’’

means any equity investment in a qualified community development entity if—

(A) such investment is acquired by the taxpayer at its

original issue (directly or through an underwriter) solely in

exchange for cash,

(B) substantially all of such cash is used by the qualified

community development entity to make qualified low-income community investments, and

(C) such investment is designated for purposes of this section by the qualified community development entity.

Such term shall not include any equity investment issued by a

qualified community development entity more than 5 years after

the date that such entity receives an allocation under subsection

(f). Any allocation not used within such 5-year period may be

reallocated by the Secretary under subsection (f).

(2) LIMITATION.—The maximum amount of equity investments issued by a qualified community development entity

which may be designated under paragraph (1)(C) by such entity

shall not exceed the portion of the limitation amount allocated

under subsection (f) to such entity.

(3) SAFE HARBOR FOR DETERMINING USE OF CASH.—The requirement of paragraph (1)(B) shall be treated as met if at least

85 percent of the aggregate gross assets of the qualified community development entity are invested in qualified low-income

community investments.

(4) TREATMENT OF SUBSEQUENT PURCHASERS.—The term

‘‘qualified equity investment’’ includes any equity investment

which would (but for paragraph (1)(A)) be a qualified equity investment in the hands of the taxpayer if such investment was

a qualified equity investment in the hands of a prior holder.

54

(5) REDEMPTIONS.—A rule similar to the rule of section

1202(c)(3) shall apply for purposes of this subsection.

(6) EQUITY INVESTMENT.—The term ‘‘equity investment’’

means—

(A) any stock in a qualified community development entity which is a corporation, and

(B) any capital interest in a qualified community development entity which is a partnership.

(c) QUALIFIED COMMUNITY DEVELOPMENT ENTITY.—For purposes

of this section—

(1) IN GENERAL.—The term ‘‘qualified community development entity’’ means any domestic corporation or partnership

if—

(A) the primary mission of the entity is serving, or providing investment capital for, low-income communities or

low-income persons,

(B) the entity maintains accountability to residents of

low-income communities through representation on governing or advisory boards or otherwise, and

(C) the entity is certified by the Secretary for purposes of

this section as being a qualified community development

entity.

(2) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—The requirements of paragraph (1) shall be treated as met by—

(A) any specialized small business investment company

(as defined in section 1044(c)(3)), and

(B) any community development financial institution (as

defined in section 103 of the Community Development

Banking and Financial Institutions Act of 1994 (12 U.S.C.

4702)).

(d) QUALIFIED LOW-INCOME COMMUNITY INVESTMENTS.—For purposes of this section—

(1) IN GENERAL.—The term ‘‘qualified low-income community

investment’’ means—

(A) any equity investment in, or loan to, any qualified active low-income community business,

(B) the purchase from another community development

entity of any loan made by such entity which is a qualified

low-income community investment if the amount received

by such other entity from such purchase is used by such

other entity to make qualified low-income community investments,

(C) financial counseling and other services specified in

regulations prescribed by the Secretary to businesses located in, and residents of, low-income communities, and

(D) any equity investment in, or loan to, any qualified

community development entity if substantially all of the investment or loan is used by such entity to make qualified

low-income community investments described in subparagraphs (A), (B), and (C).

(2) QUALIFIED ACTIVE LOW-INCOME COMMUNITY BUSINESS.—

(A) IN GENERAL.—For purposes of paragraph (1), the

term ‘‘qualified active low-income community business’’

means, with respect to any taxable year, any corporation or

partnership if for such year—

55

(i) at least 50 percent of the total gross income of

such entity is derived from the active conduct of a

qualified business within any low-income community,

(ii) a substantial portion of the use of the tangible

property of such entity (whether owned or leased) is

within any low-income community,

(iii) a substantial portion of the services performed

for such entity by its employees are performed in any

low-income community,

(iv) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is

attributable to collectibles (as defined in section

408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of

such business, and

(v) less than 5 percent of the average of the aggregate

unadjusted bases of the property of such entity is attributable to nonqualified financial property (as defined in section 1397B(e)).

(B) PROPRIETORSHIP.—Such term shall include any business carried on by an individual as a proprietor if such

business would meet the requirements of subparagraph (A)

were it incorporated.

(C) PORTIONS OF BUSINESS MAY BE QUALIFIED ACTIVE

LOW-INCOME COMMUNITY BUSINESS.—The term ‘‘qualified

active low-income community business’’ includes any trades

or businesses which would qualify as a qualified active

low-income community business if such trades or businesses were separately incorporated.

(3) QUALIFIED BUSINESS.—For purposes of this subsection, the

term ‘‘qualified business’’ has the meaning given to such term

by section 1397B(d); except that—

(A) in lieu of applying paragraph (2)(B) thereof, the rental to others of real property located in any low-income community shall be treated as a qualified business if there are

substantial improvements located on such property,

(B) paragraph (3) thereof shall not apply, and

(C) such term shall not include any business if a significant portion of the equity interests in such business are

held by any person who holds a significant portion of the

equity investments in the community development entity.

(e) LOW-INCOME COMMUNITY.—For purposes of this section—

(1) IN GENERAL.—The term ‘‘low-income community’’ means

any population census tract if—

(A) the poverty rate for such tract is at least 20 percent,

or

(B)(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does

not exceed 80 percent of statewide median family income,

or

(ii) in the case of a tract located within a metropolitan

area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family

income or the metropolitan area median family income.

56

(2) AREAS NOT WITHIN CENSUS TRACTS.—In the case of an

area which is not tracted for population census tracts, the

equivalent county divisions (as defined by the Bureau of the

Census for purposes of defining poverty areas) shall be used for

purposes of determining poverty rates and median family income.

(f) NATIONAL LIMITATION ON AMOUNT OF INVESTMENTS DESIGNATED.—

(1) IN GENERAL.—There is a new markets tax credit limitation of $1,200,000,000 for each of calendar years 2000 through

2004.

(2) ALLOCATION OF LIMITATION.—The limitation under paragraph (1) shall be allocated by the Secretary among qualified

community development entities selected by the Secretary. In

making allocations under the preceding sentence, the Secretary

shall give priority to entities with records of having successfully

provided capital or technical assistance to disadvantaged businesses or communities.

(3) CARRYOVER OF UNUSED LIMITATION.—If the new markets

tax credit limitation for any calendar year exceeds the aggregate

amount allocated under paragraph (2) for such year, such limitation for the succeeding calendar year shall be increased by the

amount of such excess.

(g) RECAPTURE OF CREDIT IN CERTAIN CASES.—

(1) IN GENERAL.—If, at any time during the 5-year period beginning on the date of the original issue of a qualified equity

investment in a qualified community development entity, there

is a recapture event with respect to such investment, then the

tax imposed by this chapter for the taxable year in which such

event occurs shall be increased by the credit recapture amount.

(2) CREDIT RECAPTURE AMOUNT.—For purposes of paragraph

(1), the credit recapture amount is an amount equal to the sum

of—

(A) the aggregate decrease in the credits allowed to the

taxpayer under section 38 for all prior taxable years which

would have resulted if no credit had been determined under

this section with respect to such investment, plus

(B) interest at the overpayment rate established under

section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.

No deduction shall be allowed under this chapter for interest

described in subparagraph (B).

(3) RECAPTURE EVENT.—For purposes of paragraph (1), there

is a recapture event with respect to an equity investment in a

qualified community development entity if—

(A) such entity ceases to be a qualified community development entity,

(B) the proceeds of the investment cease to be used as required of subsection (b)(1)(B), or

(C) such investment is redeemed by such entity.

(4) SPECIAL RULES.—

(A) TAX BENEFIT RULE.—The tax for the taxable year

shall be increased under paragraph (1) only with respect to

57

credits allowed by reason of this section which were used

to reduce tax liability. In the case of credits not so used to

reduce tax liability, the carryforwards and carrybacks

under section 39 shall be appropriately adjusted.

(B) NO CREDITS AGAINST TAX.—Any increase in tax under

this subsection shall not be treated as a tax imposed by this

chapter for purposes of determining the amount of any

credit under this chapter or for purposes of section 55.

(h) BASIS REDUCTION.—The basis of any qualified equity investment shall be reduced by the amount of any credit determined

under this section with respect to such investment.

(i) REGULATIONS.—The Secretary shall prescribe such regulations

as may be appropriate to carry out this section, including

regulations—

(1) which limit the credit for investments which are directly

or indirectly subsidized by other Federal benefits (including the

credit under section 42 and the exclusion from gross income

under section 103),

(2) which prevent the abuse of the provisions of this section

through the use of related parties,

(3) which impose appropriate reporting requirements, and

(4) which apply the provisions of this section to newly formed

entities.

* * * * * * *

Subchapter B—Computation of Taxable Income

* * * * * * *

PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS

AND CORPORATIONS

* * * * * * *

SEC. 196. DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.

(a) * * *

* * * * * * *

(c) QUALIFIED BUSINESS CREDITS.—For purposes of this section,

the term ‘‘qualified business credits’’ means—

(1) * * *

* * * * * * *

(7) the Indian employment credit determined under section

45A(a), øand¿

(8) the employer Social Security credit determined under section 45B(a)ø.¿, and

(9) the new markets tax credit determined under section

45D(a).

* * * * * * *

Æ