I
106TH CONGRESS
1ST SESSION
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 Inter-
nal Revenue Code of 1986 to establish a New Markets Tax Credit,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 13, 1999
Mr. WATTS of Oklahoma (for himself, Mr. TALENT, Mr. LEACH, and Mr.
BAKER) (all by request) introduced the following bill; which was referred
to the Committee on Banking and Financial Services, and in addition to
the Committees on Ways and Means, and Small Business, for a period
to be subsequently determined by the Speaker, in each case for consider-
ation of such provisions as fall within the jurisdiciton of the committee
concerned
A BILL
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 Pri-
vate Investment Company Program, to amend the Inter-
nal Revenue Code of 1986 to establish a New Markets
Tax Credit, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘New Markets Initiative
Act of 1999’’.
SEC. 2. TABLE OF CONTENTS.
The table of contents for this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I—NEW MARKETS VENTURE CAPITAL PROGRAM
Sec. 101. New Markets Venture Capital Program.
Sec. 102. Conforming amendments.
Sec. 103. Bankruptcy exemption for New Markets Venture Capital companies.
Sec. 104. Federal Savings Associations.
TITLE II—SMALL BUSINESS LOANS
Sec. 201. Participation rate.
Sec. 202. Guarantee fee.
Sec. 203. Guarantee reduction.
TITLE III—AMERICA’S PRIVATE INVESTMENT COMPANIES
Sec. 301. Congressional findings and purposes.
Sec. 302. Definitions.
Sec. 303. Authorization.
Sec. 304. Selection of APICs.
Sec. 305. Operations of APICs.
Sec. 306. Credit enhancement by the Federal Government.
Sec. 307. APIC requests for guarantee actions.
Sec. 308. Examination and monitoring of APICs.
Sec. 309. Incentives and penalties.
TITLE IV—NEW MARKETS CREDIT
Sec. 401. New markets tax credit.
TITLE I—NEW MARKETS
VENTURE CAPITAL PROGRAM
SEC. 101. NEW MARKETS VENTURE CAPITAL PROGRAM.
Title III of the Small Business Investment Act of
1958 is amended—
(1) in the heading, by striking ‘‘SMALL BUSI-
NESS INVESTMENT COMPANIES’’ and insert-
ing ‘‘INVESTMENT DIVISION PROGRAMS’’;
(2) by inserting before the heading for section
301 the following:
‘‘PART A—SMALL BUSINESS INVESTMENT COMPANIES’’;
and
(3) by adding at the end the following:
‘‘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 Administra-
tion 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 geo-
graphic 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 in-
come 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 per-
cent of the statewide median family in-
come; and
‘‘(B) any area located within—
‘‘(i) a HUBZone (as defined in sec-
tion 126.103 of title 13, Code of Federal
Regulations);
‘‘(ii) an Urban Empowerment Zone or
an Urban Enterprise Community, as des-
ignated by the Secretary of the Depart-
ment of Housing and Urban Development;
or
‘‘(iii) a rural Empowerment Zone or a
Rural Enterprise Community, as des-
ignated by the Secretary of the Depart-
ment 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—
‘‘(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 agree-
ment with New Markets Venture Capital com-
panies;
‘‘(B) to guarantee debentures of New Mar-
kets Venture Capital companies to enable each
such company to make venture capital invest-
ments in smaller enterprises in urban and rural
areas; and
‘‘(C) to make grants to New Markets Ven-
ture Capital companies for the purpose of pro-
viding 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 CAP-
ITAL COMPANIES.
‘‘(a) ELIGIBILITY.—A company shall be eligible for
participation in the New Markets Venture Capital Pro-
gram if—
‘‘(1) it is a newly formed for-profit entity or a
newly formed for-profit subsidiary of an existing en-
tity; and
‘‘(2) it has a management team with experience
in community development financing or venture cap-
ital financing.
‘‘(b) APPLICATION.—To participate in the New Mar-
kets Venture Capital Program, an eligible company shall
submit an application to the Administration that
includes—
‘‘(1) a business plan describing how the com-
pany intends to make successful venture capital in-
vestments 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 Administra-
tion may require.
‘‘(c) CONDITIONAL APPROVAL.—
‘‘(1) IN
GENERAL.—From among companies
submitting applications under subsection (b), the
Administration shall in accordance with this sub-
section conditionally approve companies to partici-
pate in the New Markets Venture Capital Program.
‘‘(2) SELECTION CRITERIA.—In selecting com-
panies 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 in-
vest.
‘‘(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 sub-
section (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 Ven-
ture Capital Program will be made nationwide.
‘‘(d) CONDITIONS TO BE MET
FOR FINAL AP-
PROVAL.—The Administration shall give each condi-
tionally approved company a period of time, not to exceed
24 months, to satisfy the following conditions:
‘‘(1) CAPITAL
REQUIREMENT.—Each condi-
tionally 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 cri-
teria established by the Administration; and
‘‘(2) NON-ADMINISTRATION
RESOURCES
FOR
TECHNICAL ASSISTANCE.—
‘‘(A) IN
GENERAL.—In order to provide
marketing, management, and technical assist-
ance, 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 Ad-
ministration (not to exceed 10 years):
and
‘‘(III) in an amount equal to 30
percent of the capital and commit-
ments 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
‘‘(III) that yields cash payments
over a multiyear period acceptable to
the Administration (not to exceed 10
years) in an amount equal to 30 per-
cent of the capital and commitments
raised under subsection (d)(1); or
‘‘(iii) must have binding commitments
(in cash or in-kind) 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 commit-
ments raised under subsection (d)(1).
‘‘(B) SPECIAL RULE.— On a showing of
special circumstances and good cause, the Ad-
ministrator may with respect to a particular
company waive the requirements of subsection
(d)(2) if the Administrator considers the com-
pany to have a viable business plan that reason-
ably 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 Pro-
gram as a New Markets Venture Capital company after
the company—
‘‘(1) has satisfied the conditions under sub-
section (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, guar-
antee 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 deben-
tures issued by any New Markets Venture Capital com-
pany 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 sec-
tion, 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 ex-
pected to be financed, by the company.
‘‘(2) TERMS.—Grants made under this sub-
section shall be made over a multiyear period not to
exceed 10 years, under such other terms as the Ad-
ministration 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 Ven-
ture Capital Program.
‘‘(3) PRO RATA REDUCTIONS.—If the amount
made available to carry out this section is insuffi-
cient for the Administration to provide grants in the
amounts provided for in subsection (a)(2), the Ad-
ministration shall make pro rata reductions in the
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 Administra-
tion deems appropriate, guarantee the timely pay-
ment of the principal of and interest on trust certifi-
cates issued by the Administration or its agent for
purposes of this section.
‘‘(2) LIMITATION.—Guarantees under this sub-
section shall be limited to the extent of principal and
interest on the guaranteed debentures which com-
pose 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 guar-
antee of timely payment of principal and interest on
the trust certificates shall be reduced in proportion
to the amount of principal and interest such prepaid
debenture represents in the trust or pool. Interest on
prepaid or defaulted debentures shall accrue and be
guaranteed by the Administration only through the
date of payment of the guarantee. At any time dur-
ing its term, a trust certificate may be called for re-
demption due to prepayment or default of all deben-
tures.
‘‘(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 Adminis-
tration 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 de-
bentures 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 registra-
tion 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 invest-
ments in obligations of the United States
as may be necessary to facilitate the cre-
ation of trusts or pools backed by deben-
tures 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 Administra-
tion determines to be necessary to fully protect
the interests of the United States.
‘‘(3) REGULATION
OF
BROKERS
AND
DEAL-
ERS.—The Administrator may regulate brokers and
dealers in trust certificates sold under this section.
‘‘SEC. 357. FEES.
‘‘Except as provided in section 356(d), the Adminis-
tration 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 Cap-
ital 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 Ad-
ministration may require, including information on the
measurement criteria that the New Markets Venture Cap-
ital 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 Adminis-
tration 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
cant specifies in writing) any more detailed in-
formation that may be desirable to facilitate
HUD’s review of the applicant’s application;
(C) restrict such 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 con-
ducted under this subsection, including require-
ments for making such records available to the
public after the award of licenses under an ini-
tial or subsequent notice, as appropriate, under
subsection (a).
(2) Regulations under this subsection may be
issued as interim rules for effect on or before the
date of publication of the first notice under sub-
section (a), and shall apply only with respect to ap-
plications under such notice. Regulations to imple-
ment this subsection with respect to any notice after