An Act To Stimulate Capital Investment for Innovative Businesses in Maine
Maine Legislature, Session 124, LD 0001
Committee: Business, Research and Economic Development
Sponsors: MILLS
Amends: 10 MRSA §385, 36 MRSA §5219-D

MAINE STATE LEGISLATURE 
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124th MAl E LEGISLATURE 
Legislative Document 
No.1 
S.P.10 
January 7, 2009 
An Act To Stimulate Capital Investment for Innovative Businesses 
in Maine 
Reference to the Committee on Business, Research and Economic Development suggested 
and ordered printed. 
Presented by Senator MILLS of Somerset. 
Printed on recycled paper 
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JOY 1. O'BRIEN 
Secretary of the Senate 
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Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 10 MRSA §385, sub-§2, as enacted by PL 1995, c. 699, §3, is amended to 
read: 
2. Administer program. The board fflH5t shall administer the Small Enterprise 
Growth Program and, if the Maine Fund of Funds is created under chapter 15, shall 
administer the Maine Fund of Funds and may contract with the Finance Authority of 
Maine, financial institutions, educational institutions, business enterprises, nonprofit 
institutions and organizations or individuals for such assistance in administering the 
program and the fund as the board may require. 
Sec. 2. 10 MRSA c. 15 is enacted to read: 
CHAPTER 15 
MAINE FUND OF FUNDS 
§396. Definitions 
As used in this chapter, unless the context otherwise indicates, the following terms 
have the following meanings. 
1. Board. "Board" means the Small Enterprise Growth Board established under 
chapter 13. 
2. Certificate. "Certificate" means a document executed by the board extending the 
State's guarantee to a lender by means of a refundable tax credit. 
3. Director. "Director" means the entity chosen by the board to invest fund assets in 
a series of venture capital funds in accordance with criteria set by law and the board. 
4. Fund. "Fund" means the Maine Fund of Funds established under section 397. 
5. Lender. "Lender" means an entity that lends capital to the fund in exchange for a 
return on the lender's investment that conforms to the conditions of celiificates issued as 
security for the debt. 
6. Refundable tax credit. "Refundable tax credit" means the credit authorized by 
Title 36, section 5219-DD that the State shall redeem for cash if the holder has no tax 
liability against which to apply the credit. A refundable tax credit may be owned and 
redeemed by the system. 
7. System. "System" means the Maine Public Employees Retirement System. 
§397. Maine Fund of Funds; creation authorized 
The board may create and oversee a fund, to be known as the Maine Fund of Funds, 
for the purpose of increasing the availability of venture capital to the economy of the 
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State. The fund is managed by the director, who is selected by the board. The board may 
raise capital for the fund by offering as security certificates issued by the board. 
§398. Fund structure and management 
1. Selection criteria. The board shall select a director empowered to manage the 
fund and to invest the fund's resources in venture capital funds. By a process of 
competitive selection, the board shall choose a director whose plan best provides 
experienced and qualified management at reasonable cost and achieves the investment 
goals of subsection 6. 
2. Raising capital. The board may borrow capital on notes secured by assets of the 
fund and by refundable tax credits. The board shall raise capital for the fund by offering 
as security refundable tax credits issued by the board. The board may raise capital from 
one or more lenders upon terms that: 
A. Minimize cost to the fund; 
B. Provide flexibility in the use and investment of proceeds; and 
C. Minimize the risk of tax credit redemption. 
3. Preference to the system. The board shall give preference to the system to serve 
as a lender. If the system elects not to participate as a lender, then the board shall obtain 
the approval of the Governor prior to executing its first borrowing agreement with 
another lender. 
The board may contract to provide the system a return on profits from 
the fund to supplement the return guaranteed by the underlying debt instrument. 
4. Ownel' of the fund. The board or the director, with board approval, may create a 
nonprofit corporation, a limited liability palinership or other legal entity to serve as owner 
of the fund. The entity created to serve as the owner of the fund is subject to the board's 
right to change ownership and control of the entity if the director is replaced or if the fund 
is terminated. 
5. Recourse. All obligations created under the authority of this section must be paid 
exclusively from investments in the fund and by redemption of refundable tax credits 
authorized by section 399. No other public assets and no other assets of the board may be 
placed at risk. Except for those rights that relate to refundable tax credits, nothing in this 
chapter may be construed to create an obligation of the State or of any political 
subdivision of the State. 
6. Investment goals; guidelines. The purpose of the fund is to invest in a series of 
high-quality venture capital funds managed to produce a favorable aggregate return 
among diversified investments, to secure repayment of the amounts borrowed and to 
minimize the risk of tax credit redemption. Consistent with these investment goals, the 
board shall give preference to fund managers whose strategies include: 
A. Maintaining at least a periodic presence in the State; 
B. Actively prospecting for investments in the State; 
C. Creating or retaining jobs in the State; and 
D. Bringing to fruition the ideas, technologies and intellectual property produced by 
citizens and institutions of the State. 
7. 
Investment restrictions. 
The fund may not invest directly in individual 
businesses but only in venture capital funds that are managed to best achieve the 
guidelines described under subsection 6. No more than $20,000,000 of the fund may be 
placed in a single venture capital fund. No more than $10,000,000 of the fund may be 
invested in a single venture. 
8. Maine Patent Fund. Beginning in July 2010 and each July thereafter, the fund 
shall contribute $30,000 to the Maine Patent Fund established by section 1921. 
9. Audits and reports. RepOlts on the status of the fund are required as follows. 
A. The director shall provide to the board a repOlt on the status of the fund at the end 
of each month, identifying the amounts committed to each fund in the portfolio, 
amounts drawn and distributed, the fund's current and long-term liabilities and the 
most recent valuation of total assets. 
B. The director shall value assets and liabilities of the fund and repOlt to the board at 
least qualterly in a repOlt that summarizes the business activities and financial status 
of the fund for the quarter. 
C. The director shall provide the monthly report under paragraph A and the quarterly 
report under paragraph B to the board within 15 days of the close of the period for 
which the report is given. 
D. The State Auditor or an independent auditor chosen by the State Auditor shall 
audit the fund annually. 
E. The director shall provide an audited financial report annually to the board as 
soon as reasonably possible after the close of each fiscal year. 
10. Authority over the fund. The board may at any time and without a showing of 
cause remove and replace the director and reassign the fund together with all assets, 
liabilities, guarantees and contracts associated with the fund to another director. As may 
be necessary to protect the interests of the State, the board may limit or control the fund 
or may terminate the fund and wind up its affairs. Any net assets of the fund after 
payment of obligations must be remitted to the General Fund. 
11. Administrative expenses. Costs and expenses of maintaining, administering 
and servicing the fund may be paid out of amounts in the fund. 
§399. Refundable tax credits 
The board may issue to one or more lenders celtificates for up to $80,000,000 in 
refundable tax credits as provided by Title 36, section 5219-DD. 
1. Redemption. Refundable tax credits may be redeemed only as necessary to offset 
a shortfall in scheduled payments on debt incurred to capitalize the fund. The rate of 
return, whether fixed or variable, must be determined by a formula stipulated in the 
certificate used as security. Refundable tax credits may not be redeemed for any default 
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occurring after December 31, 2031. No more than $10,000,000 of refundable tax credits 
may be redeemed per calendar year. 
2. Binding effect. A certificate of tax credits issued by the board under this section 
is binding on the State and constitutes a solemn contractual commitment of the State 
protected under the contract clauses of the Constitution of Maine, Aliicle 1, Section 11 
and the United States Constitution, Aliicle I, Section 10. 
Once funds secured by a 
certificate are borrowed, the celiificate may not be modified, terminated or rescinded 
until the underlying debt is paid. 
3. Registration. The board shall maintain a public registry that records the current 
ownership and status of all certificates issued pursuant to this section. Any transfer of a 
celiificate or creation of a security interest in a celiificate is effective only when recorded 
in the public registty. The Depaliment of Administrative and Financial Services, Bureau 
of Revenue Services may rely on the registry to detel111ine an entitlement to any credits 
authorized under this section. 
4. Not securities. The refundable tax credits allowed or transferred pursuant to this 
section are not securities under Title 32, chapter 135. 
5. 
Procedure for redemption. 
The director shall repOli any lending default 
immediately to the board. The board shall verify the amount of the default and publish in 
the publ ic registry under subsection 3 the total amount of the default and the sum of all 
refundable tax credits that the lender is entitled to redeem for the calendar year in which 
the default occurs. 
Sec. 3. 36 MRSA §5219-DD is enacted to read: 
§5219-DD. Maine Fund of Funds refundable tax credit 
1. Credit allowed. A lender to the Maine Fund of Funds as defined in Title 10, 
section 396, subsection 5 is allowed a refundable credit against the taxes imposed by this 
Pali in an amount certified by the Small Enterprise Growth Board as established under 
Title 10, section 384 as equal to the shortfall in scheduled payments on debt incurred to 
provide capital to the Maine Fund of Funds. 
2. Limitations. A credit under this section may not be redeemed for any default 
occurring after December 31, 203l. 
No more than $10,000,000 of credits may be 
redeemed per calendar year. Pursuant to Title 10, section 399, total credits redeemed 
may not exceed $80,000,000. 
3. Carry-over. Any unused portion of a credit provided by this section may be 
carried over to the following year or years for up to 3 years, but not beyond December 31, 
2034. 
4. Audit. The State Tax Assessor may audit any transactions necessary to verify the 
amount of credits claimed or redeemed under this section. If the assessor determines that 
a credit larger than that authorized by this section has been received by any person, the 
assessor may enforce repayment of the overpayment by assessment pursuant to the 
provisions of chapter 7 or may apply the overpayment against subsequent redemptions 
made pursuant to this section. 
5. Repeal. This section is repealed April 15,2035. 
SUMMARY 
This bill is modeled on statutes in Arkansas, Iowa, Michigan, Montana and Utah. It 
authorizes the establishment of the Maine Fund of Funds within the Small Enterprise 
Growth Board for the purpose of increasing the availability of venture capital to the 
Maine economy. The fund is managed by a director chosen by the Small Enterprise 
Growth Board by means of a competitive selection. The Small Enterprise Growth Board 
has authority to close the fund if necessary to protect the State's interests. The board 
raises capital for the fund by offering as security refundable tax credits issued by the 
board, with the goal of attracting venture capital investment in the State's economy. The 
board maintains regulatory control over the fund. The bill requires annual audits and 
reports on the fund. 
The goal of the fund is to create investments in the Maine economy, which is broadly 
described as including the development of intellectual capital as well as job creation. The 
director may investoutside of the State as necessary to maximize returns and reduce the 
likelihood that tax credits will be redeemed. The bill provides that net profits from the 
fund after payment of obligations must be remitted to the General Fund. It also provides 
the Maine Public Employees Retirement System a preference in becoming a lender of 
capital and a special provision that the Maine Public Employees Retirement System may 
be granted a piece of the profits as an additional inducement to becoming a capital lender. 
Tax credits may not be redeemed for defaults occurring later than 2031, and the bill 
restricts tax credit redemption to $10,000,000 per year. 
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