II

106TH CONGRESS

2D SESSION S. 3242

To amend the Consolidated Farm and Rural Development Act to encourage

equity investment in rural cooperatives and other rural businesses, and

for other purposes.

IN THE SENATE OF THE UNITED STATES

OCTOBER 25 (legislative day, SEPTEMBER 22), 2000

Mr. HARKIN (for himself, Mr. CRAIG, Mr. DASCHLE, Mr. JEFFORDS, and Mr.

JOHNSON) introduced the following bill; which was read twice and referred to the Committee on Agriculture, Nutrition, and Forestry

A BILL

To amend the Consolidated Farm and Rural Development

Act to encourage equity investment in rural cooperatives

and other rural businesses, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. NATIONAL RURAL COOPERATIVE AND BUSI4 NESS EQUITY FUND.

5 The Consolidated Farm and Rural Development Act

6 (7 U.S.C. 1921 et seq.) is amended by adding at the end

7 the following:
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1 ‘‘Subtitle F—National Rural Coop2 erative and Business Equity

3 Fund

4 ‘‘SEC. 391A. SHORT TITLE.

5 ‘‘This subtitle may be cited as the ‘National Rural

6 Cooperative and Business Equity Fund Act’.

7 ‘‘SEC. 391B. PURPOSE.

8 ‘‘The purpose of this subtitle is to revitalize rural

9 communities and enhance farm income through sustain10 able rural business development by providing Federal

11 funds and credit enhancements to a private equity fund

12 in order to encourage investments by institutional and

13 noninstitutional investors for the benefit of rural America.

14 ‘‘SEC. 391C. DEFINITIONS.

15 ‘‘In this subtitle:

16 ‘‘(1) AUTHORIZED PRIVATE INVESTOR.—The

17 term ‘authorized private investor’ means an indi18 vidual, legal entity, or affiliate or subsidiary of an

19 individual or legal entity that—

20 ‘‘(A) is eligible to receive a loan guarantee

21 under this title;

22 ‘‘(B) is eligible to receive a loan guarantee

23 under the Rural Electrification Act of 1936 (7

24 U.S.C. 901 et seq.);
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1 ‘‘(C) is created under the National Con2 sumer Cooperative Bank Act (12 U.S.C. 3011

3 et seq.);

4 ‘‘(D) is an insured depository institution;

5 or

6 ‘‘(E) is determined by the Fund to be an

7 appropriate investor in the Fund.

8 ‘‘(2) BOARD.—The term ‘Board’ means the

9 board of directors of the Fund established under

10 section 391G.

11 ‘‘(3) FUND.—The term ‘Fund’ means the Na12 tional Rural Cooperative and Business Equity Fund

13 established under section 391D.

14 ‘‘(4) GROUP OF SIMILAR INVESTORS.—The

15 term ‘group of similar investors’ means any 1 of the

16 following:

17 ‘‘(A) Insured depository institutions with

18 total assets of more than $250,000,000.

19 ‘‘(B) Insured depository institutions with

20 total assets equal to or less than $250,000,000.

21 ‘‘(C) Farm Credit System institutions

22 under the Farm Credit Act of 1971 (12 U.S.C.

23 2001 et seq.).

24 ‘‘(D) Cooperative financial institutions

25 (other than Farm Credit System institutions).
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1 ‘‘(E) Authorized private investors, other

2 than those described in subparagraphs (A)

3 through (D).

4 ‘‘(F) Other nonprofit organizations, includ5 ing credit unions.

6 ‘‘(5) INSURED DEPOSITORY INSTITUTION.—The

7 term ‘insured depository institution’ means any bank

8 or savings association the deposits of which are in9 sured under the Federal Deposit Insurance Act (12

10 U.S.C. 1811 et seq.).

11 ‘‘(6) RURAL AREA.—The term ‘rural area’

12 means an area that is located—

13 ‘‘(A) outside a standard metropolitan sta14 tistical area; or

15 ‘‘(B) within a community that has a popu16 lation of 50,000 individuals or fewer.

17 ‘‘(7) RURAL BUSINESS.—The term ‘rural busi18 ness’ means a rural cooperative, a value-added agri19 cultural enterprise, or any other business located or

20 locating in a rural area.

21 ‘‘SEC. 391D. ESTABLISHMENT OF THE FUND.

22 ‘‘(a) IN GENERAL.—

23 ‘‘(1) AUTHORITY TO ESTABLISH.—A group of

24 authorized private investors may establish, as a non25 Federal entity under State law, and manage a fund
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1 to be known as the ‘National Rural Cooperative and

2 Business Equity Fund’, to raise and provide equity

3 capital to rural businesses.

4 ‘‘(2) COMPOSITION OF GROUP.—The group of

5 authorized private investors referred to in paragraph

6 (1) shall be composed, to the maximum extent prac7 ticable, of representatives of a majority of groups of

8 similar investors.

9 ‘‘(b) PURPOSES.—The purposes of the Fund shall

10 be—

11 ‘‘(1) to strengthen the economy of rural areas;

12 ‘‘(2) to further sustainable rural business devel13 opment;

14 ‘‘(3) to encourage start-up rural businesses, in15 creased opportunities for small and minority-owned

16 rural businesses, and the formation of new rural

17 businesses;

18 ‘‘(4) to enhance rural employment opportuni19 ties;

20 ‘‘(5) to provide equity capital to rural busi21 nesses that have been unable to obtain equity cap22 ital; and

23 ‘‘(6) to leverage non-Federal funds for rural

24 businesses.
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1 ‘‘(c) ARTICLES OF INCORPORATION AND BY-LAWS.—

2 The articles of incorporation and by-laws of the Fund shall

3 set forth purposes of the Fund that are consistent with

4 subsection (b).

5 ‘‘SEC. 391E. INVESTMENT IN THE FUND.

6 ‘‘(a) IN GENERAL.—The Secretary, using funds of

7 the Commodity Credit Corporation, shall—

8 ‘‘(1) subject to subsection (b)(1), make avail9 able to the Fund $50,000,000 for each of fiscal

10 years 2001 through 2003;

11 ‘‘(2) subject to subsection (c), guarantee 50

12 percent of each investment made by an authorized

13 private investor in the Fund; and

14 ‘‘(3) subject to subsection (d), guarantee the re15 payment of principal to authorized private investors

16 in debentures issued by the Fund.

17 ‘‘(b) PRIVATE INVESTMENT.—

18 ‘‘(1) MATCHING REQUIREMENT.—Under sub19 section (a)(1), the Secretary shall make an amount

20 available to the Fund only after an equal amount

21 has been invested in the Fund by authorized private

22 investors in accordance with this subtitle and the

23 terms and conditions set forth in the by-laws of the

24 Fund.
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1 ‘‘(2) INVESTMENTS BY INSURED DEPOSITORY

2 INSTITUTIONS.—Investments in the Fund by an in3 sured depository institution shall be considered part

4 of the record of the insured depository institution for

5 meeting the credit needs of its entire community for

6 the purposes of Federal law.

7 ‘‘(c) GUARANTEE OF PRIVATE INVESTMENTS.—

8 ‘‘(1) IN GENERAL.—The Secretary shall guar9 antee, under terms and conditions determined by the

10 Secretary, 50 percent of any loss of the principal of

11 an investment made in the Fund by an authorized

12 private investor.

13 ‘‘(2) MAXIMUM TOTAL GUARANTEE.—The ag14 gregate liability of the Secretary with respect to all

15 guarantees under paragraph (1) shall not apply to

16 more than $300,000,000 in private investments.

17 ‘‘(3) REDEMPTION OF GUARANTEE.—

18 ‘‘(A) DATE.—An authorized private inves19 tor in the Fund may redeem a guarantee under

20 paragraph (1), with respect to the total invest21 ments in the Fund and the total losses of the

22 authorized private investor as of the date of

23 redemption—

24 ‘‘(i) on the date that is 5 years after

25 the date of incorporation of the Fund; or
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1 ‘‘(ii) annually thereafter.

2 ‘‘(B) EFFECT OF REDEMPTION.—On re3 demption of a guarantee under subparagraph

4 (A)—

5 ‘‘(i) the shares in the Fund of the au6 thorized private investor shall be redeemed;

7 and

8 ‘‘(ii) the authorized private investor

9 shall be prohibited from making any future

10 investment in the Fund.

11 ‘‘(d) DEBT.—

12 ‘‘(1) IN GENERAL.—The Fund may, at the dis13 cretion of the Board, raise additional capital through

14 the issuance of debentures and through other means

15 determined to be appropriate by the Board.

16 ‘‘(2) GUARANTEE OF DEBT BY SECRETARY.—

17 ‘‘(A) IN GENERAL.—The Secretary may

18 guarantee 100 percent of the principal of, and

19 accrued interest on, debentures issued by the

20 Fund that are approved by the Secretary.

21 ‘‘(B) MAXIMUM DEBT GUARANTEED BY

22 SECRETARY.—The outstanding value of deben23 tures issued by the Fund and guaranteed by

24 the Secretary shall not exceed the lesser of—
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1 ‘‘(i) the amount equal to twice the

2 value of the assets held by the Fund; or

3 ‘‘(ii) $500,000,000.

4 ‘‘(C) RECAPTURE OF GUARANTEE PAY5 MENTS.—If the Secretary makes a payment on

6 a debenture issued by the Fund as a result of

7 a guarantee of the Secretary under this para8 graph, the Secretary shall have priority over

9 other creditors for repayment of the debenture.

10 ‘‘(3) AUTHORIZED PRIVATE INVESTORS.—An

11 authorized private investor may purchase debentures

12 and other securities issued by the Fund.

13 ‘‘SEC. 391F. INVESTMENTS AND OTHER ACTIVITIES OF THE

14 FUND.

15 ‘‘(a) INVESTMENTS.—

16 ‘‘(1) IN GENERAL.—

17 ‘‘(A) TYPES.—Subject to subparagraphs

18 (B) and (C), the Fund may—

19 ‘‘(i) make equity investments in an

20 entity that meets the requirements of para21 graph (6) and such other requirements as

22 the Board may establish; and

23 ‘‘(ii) extend credit to such an entity

24 in—
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1 ‘‘(I) the form of mezzanine debt

2 or subordinated debt; or

3 ‘‘(II) any other form of quasi-eq4 uity.

5 ‘‘(B) LIMITATION ON EQUITY INVEST6 MENTS.—After the initial equity investment in

7 an entity described in subparagraph (A)(i), the

8 Fund may not make additional equity invest9 ments in the entity if the additional equity in10 vestments would result in the Fund owning

11 more than 30 percent of the equity of the enti12 ty.

13 ‘‘(C) LIMITATION ON NONEQUITY INVEST14 MENTS.—Except in the case of a project to as15 sist a rural cooperative, the total amount of

16 nonequity investments described in subpara17 graph (A)(ii) that may be provided by the Fund

18 shall not exceed 20 percent of the total invest19 ments of the Fund in the project.

20 ‘‘(2) PROCEDURES.—The Fund shall implement

21 procedures to ensure that—

22 ‘‘(A) the financing arrangements of the

23 Fund meet the Fund’s primary focus of pro24 viding equity capital; and
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1 ‘‘(B) the Fund does not compete with con2 ventional sources of credit.

3 ‘‘(3) DIVERSITY OF PROJECTS.—The Fund—

4 ‘‘(A) shall seek to make equity investments

5 in a variety of viable projects, with a significant

6 share of investments—

7 ‘‘(i) in smaller projects in rural com8 munities of diverse sizes; and

9 ‘‘(ii) in cooperative and noncoopera10 tive enterprises; and

11 ‘‘(B) shall be managed in such a way as to

12 diversify the risks to the Fund among a variety

13 of projects.

14 ‘‘(4) LIMITATION ON RURAL BUSINESSES AS15 SISTED.—The Fund shall not invest in any rural

16 business that is primarily retail in nature (as deter17 mined by the Board), other than a purchasing coop18 erative.

19 ‘‘(5) INTEREST RATE LIMITATIONS.—Returns

20 on investments in and by the Fund and returns on

21 the extension of credit by participants in projects as22 sisted by the Fund, shall not be subject to any State

23 or Federal law establishing a maximum allowable in24 terest rate.

25 ‘‘(6) REQUIREMENTS FOR RECIPIENTS.—
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1 ‘‘(A) OTHER INVESTMENTS.—Any recipi2 ent of amounts from the Fund shall make or

3 obtain a significant investment from a source of

4 capital other than the Fund.

5 ‘‘(B) SPONSORSHIP.—Rural business in6 vestment projects to be considered for an equity

7 investment from the Fund shall be sponsored

8 by a regional, State, or local sponsoring or en9 dorsing organization such as—

10 ‘‘(i) a financial institution;

11 ‘‘(ii) a development organization; or

12 ‘‘(iii) any other established entity en13 gaging or assisting in rural business devel14 opment, including a rural cooperative.

15 ‘‘(b) TECHNICAL ASSISTANCE.—The Board shall use

16 not less than 1 percent of the net earnings of the Fund

17 to provide technical assistance to rural businesses seeking

18 an equity investment from the Fund.

19 ‘‘(c) ANNUAL AUDIT.—

20 ‘‘(1) IN GENERAL.—The Board shall authorize

21 an annual audit of the financial statements of the

22 Fund by a nationally recognized auditing firm using

23 generally accepted auditing procedures.
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1 ‘‘(2) AVAILABILITY OF AUDIT RESULTS.—The

2 results of the audit required by paragraph (1) shall

3 be made available to investors in the Fund.

4 ‘‘(d) ANNUAL REPORT.—The Board shall prepare

5 and make available to the public an annual report that—

6 ‘‘(1) describes the projects funded with amounts

7 from the Fund;

8 ‘‘(2) specifies the recipients of amounts from

9 the Fund;

10 ‘‘(3) specifies the co-investors in all projects

11 that receive amounts from the Fund; and

12 ‘‘(4) meets the reporting requirements, if any,

13 of the State under the law of which the Fund is es14 tablished.

15 ‘‘(e) OTHER AUTHORITIES.—The Board may exercise

16 such other authorities as are necessary to carry out this

17 subtitle.

18 ‘‘SEC. 391G. GOVERNANCE OF THE FUND.

19 ‘‘(a) IN GENERAL.—The Fund shall be governed by

20 a board of directors that represents all of the authorized

21 private investors in the Fund and the Federal Government

22 and that consists of—

23 ‘‘(1) the Secretary or a designee;

24 ‘‘(2) 2 members who are appointed by the Sec25 retary and are not Federal employees, including—
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1 ‘‘(A) 1 member with expertise in venture

2 capital investment; and

3 ‘‘(B) 1 member with expertise in coopera4 tive development;

5 ‘‘(3) 8 members who are elected by the author6 ized private investors with investments in the Fund;

7 and

8 ‘‘(4) 1 member who is appointed by the Board

9 and who is a community banker from an insured de10 pository institution with total assets equal to or less

11 than $250,000,000.

12 ‘‘(b) LIMITATION ON VOTING CONTROL.—No indi13 vidual investor or group of similar investors may control

14 more than 25 percent of the votes on the Board.’’.

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