AN ACT Relating to economic development; and adding a new chapter to Title 43 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that:

(1) The economic health and well-being of the state, particularly in areas of high unemployment, economic stagnation, and poverty, is of substantial public concern.

(2) The consequences of minimal economic activity and persistent unemployment and underemployment are serious threats to the safety, health, morals, and welfare of residents of these areas, decreasing the value of private investments and jeopardizing the sources of public revenue.

(3) The economic and social interdependence of communities and the vitality of industrial and economic activity necessitates and is in part dependent on preventing substantial dislocation of residents and rebuilding the diversification of the areas' economy.

(4) There are many other states which have taken as their moral obligation and governmental responsibility the provision of capital and technical assistance to promote economic development and primary employment in areas of high unemployment and economic stagnation.

(5) The ability to remedy problems in stagnant areas of the state is beyond the power and control of the regulatory process and influence of the state, and the ordinary operations of private enterprise without additional governmental assistance are insufficient to adequately remedy the problems of poverty and unemployment.

(6) The revitalization of communities requires the stimulation of private investment, the development of new business ventures, the provision of capital to ventures sponsored by local organizations and capable of growth in the business markets, and assistance to viable, but under-financed, small businesses in order to create and preserve jobs that are sustainable in the local economy.

Therefore, the legislature declares there to be a substantial and critical public purpose in providing capital to promote economic development and job creation in areas of economic stagnation, unemployment, and poverty and to distribute these funds on a geographical basis as widely as possible including both rural and urban areas. To accomplish this purpose, the legislature hereby creates the Washington state development finance authority.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Authority" means the Washington state development finance authority.

(2) "Board" means the board of directors of the authority.

(3) "Capital participation investments" means purchase of stock, common or preferred, convertible securities, warrants, notes, evidences of indebtedness, certificates of interest or participation in a patent or application, subscriptions, options to acquire, capital loans, and working capital or inventory loans, royalties, and any other lawful derivations of the foregoing.

(4) "Costs of a project" means any and all costs associated with the design, planning, and implementation of a project undertaken in a target area which can reasonably be recovered in the financing of the project. Such costs may include but are not limited to the costs of planning and design, options to buy land, feasibility or other studies, seed money, construction, working capital, and any other costs determined by the directors of the authority to be necessary to the purposes of this chapter.

(5) "Eligible organization" means a local development organization or any other nonprofit organization, public agency, or public authority which the board determines to be engaged in activities intended to contribute to the redevelopment and economic well-being of a target area, and to increase and retain primary employment and capital in a target area.

(6) "Joint venture" means an investment by the authority in a small business or a guarantee by the authority of its obligations if there is also a reasonable capital participation investment in the small business by a professional investor or by the owners. An investment made by the authority which is a direct investment may later be classified as a joint venture.

(7) "Local development organization" means a nonprofit authority organized under Title 24 RCW or a public authority organized under Title 23A RCW to carry out the purposes of economic development and job creation if:

(a) It is organized to operate within a specified distressed area;

(b) Membership in the authority is open to all residents of such area who are eighteen years of age or older and should represent a broad sector of the community;

(c) The organization demonstrates a commitment to a long-standing effort for the development of a community economic development program; and

(d) The organization makes a demonstrable effort to assist in the employment of unemployed or under employed residents of the target area.

(8) "Primary employment" means work which pays at least one and one-half times the minimum wage and offers adequate fringe benefits including health insurance.

(9) "Professional investor" means any bank, bank holding company, savings institution, trust company, insurance company, investment company registered under the federal investment company act of 1940 (15 U.S.C. Sec. 80a), pension or profit-sharing trust or other financial institution or institutional buyer, licensee under the federal small business investment act of 1958 (15 U.S.C. Sec. 661 et seq.), or any person, partnership, or other entity of whose resources a substantial amount is dedicated to investing in securities or debt instruments and whose net worth exceeds two hundred fifty thousand dollars.

(10) "Project" means any capital participation investment in a distressed area which would result in specific private developments or expansions (a) in manufacturing, production, or assembly, or (b) which substantially supports the trading of goods or services outside of the state's borders. In no instance may the board make a grant or loan for a project where the primary purpose is to facilitate or promote a retail shopping development or expansion unless it can reasonably be estimated that at least twenty percent of the retail trade would be to persons residing outside the state's borders.

(11) "Small business" means any business that has either an average gross sales of less than seven million five hundred thousand dollars per year for the most recent two fiscal years, or has less than two hundred fifty full-time employees, except that businesses primarily engaged in wholesaling shall be considered eligible if their average gross annual sales for the most recent two fiscal years do not exceed fifteen million dollars per year.

(12) "Distressed area" means a county which has an unemployment rate which is twenty percent above the state average for the previous three years or is a smaller contiguous area identified by the board which has experienced distress as a result of the loss of business activity and has a per capita income twenty percent below the state median.

NEW SECTION. Sec. 3. There is created a body politic and corporate to be known as the Washington state development finance authority. The authority is constituted a public instrumentality and the exercise by the authority of the powers conferred by this chapter shall be deemed to be the performance of an essential governmental function.

The authority shall be governed by an eleven-member board of directors, one of whom shall be the director of commerce and economic development, one of whom shall be the director of employment security, one of whom shall be a representative of the state investment board, and one of whom shall be the director of community development. The governor shall appoint the remaining seven members, three of whom shall be experienced in investment finance, having skills and experience in providing capital participation investment to new, innovative businesses, in starting and operating such businesses, in providing professional services to or otherwise working business with such businesses, and in obtaining and administering grants and contracts from governmental and philanthropic sources, three of whom shall be residents of target areas, and one of whom shall be a representative of organized labor. Each member appointed by the governor shall serve a term of five years, except that in making the initial appointments the governor shall appoint one member to serve for a term of one year, two members to serve for a term of two years, two members for a term of three years, two members for a term of four years, and one member for a term of five years.

A person appointed to fill a vacancy in the office of a member shall be appointed in a like manner and shall serve for only the unexpired term. A member is eligible for reappointment. A member may be removed by the governor only for good cause. The governor shall designate a member of the board as its chairman.

Six directors of the authority constitute a quorum and six affirmative votes are necessary for the transaction of business or the exercise of any power or function of the authority. The members of the board shall serve without compensation, but are entitled to reimbursement for actual and necessary expenses incurred in the performance of official duties in accordance with RCW 43.03.050 and 43.03.060.

Chapter 42.18 RCW applies to all directors, officers, and employees of the authority, except that the authority may invest in, purchase from, sell to, borrow from, loan to, contract with, or otherwise deal with any person or entity in which any director of the authority is in any way interested or involved if interest or involvement is disclosed in advance to the members of the board and recorded in the minutes of the board and no director having such an interest or involvement participates in any decision of the board relating to such person or entity.

The board of directors shall appoint and establish the salary of the president of the authority who shall serve at the pleasure of the board. The president shall be the chief executive, administrative, and operational officer of the authority and shall direct and supervise administrative affairs and the general management of the authority. The president may, subject to the general supervision of the board, employ other employees, consultants, agents, and advisors, and shall attend meetings of the board of directors.

Neither the authority nor any of its officers, agents, employees, consultants or advisors shall be subject to chapter 42.17 RCW.

The board annually may elect one of its members as vice-chairman, shall elect a secretary, and may elect or appoint other officers as it may deem necessary, none of whom, other than the vice-chairman, need be members of the board. The secretary shall keep a record of the proceedings of the board and shall cause copies to be made of all minutes and other records and documents of the authority and shall certify that such copies are true copies, and all persons dealing with the authority may rely upon such certification. The state treasurer, or the state treasurer's designee, shall be the chief financial and accounting officer of the authority and shall be in charge of its funds, books of account, and accounting records.

All officers and employees of the authority having access to its cash or negotiable securities shall give bond to the authority, at its expense, in such amounts and with such surety as the board may prescribe. The persons required to give bond may be included in one or more blanket or scheduled bonds.

Board members and officers who are not regular, compensated employees of the authority shall not be liable to the state, to the authority or to any other person as a result of their activities, whether ministerial or discretionary, as board members or officers except for wilful dishonesty or intentional violations of law. The board of the authority may purchase liability insurance for board members, officers, and employees and may indemnify these persons against the claims of others.

NEW SECTION. Sec. 4. Subject to the restrictions contained in this chapter, the authority may:

(1) Make, amend, and repeal bylaws, and rules for the management of its affairs;

(2) Adopt an official seal;

(3) Sue and be sued, in its own name;

(4) Make contracts and execute all instruments necessary or convenient for the carrying on of its business;

(5) Acquire, own, hold, dispose of, and encumber personal property of any nature, or any interest therein;

(6) Enter into agreements or other transactions with any federal, state, or municipal agency;

(7) Acquire real property, or an interest therein, by purchase or foreclosure, if the acquisition is necessary or appropriate to protect or secure any investment or loan in which the authority has an interest; to sell, transfer, and convey any such property to a buyer and if the sale, transfer, or conveyance cannot be effected with reasonable promptness or at a reasonable price, to lease such property to a tenant;

(8) Invest any funds held in reserves or sinking funds, or any funds not required for immediate disbursement, in such investments as may be lawfully made with moneys in the state general fund;

(9) Borrow money and give guarantees, provided that the indebtedness and other obligations of the authority shall be payable solely out of its own resources and shall not be an indebtedness of the state;

(10) Appoint officers, employees, consultants, agents, and advisors and prescribe their duties and fix compensation within the limitations provided by law;

(11) Appear in its own behalf before boards, commissions, departments, or other agencies of municipal, state, or federal government;

(12) Procure insurance against any losses in connection with its property in such amounts, and from such insurers, as may be necessary or desirable;

(13) Consent, subject to the provisions of any contract with noteholders or bondholders, whenever it considers it necessary or desirable in the fulfillment of the purposes of this chapter, to the modification, with respect to rate of interest, time of payment of any installment of principal or interest, or any other terms, of any contract or agreement of any kind to which the authority is a party;

(14) Accept any and all donations, grants, bequests, and devises, conditional or otherwise, of money, property, service or other things of value which may be received from the United States or any agency thereof, any governmental agency, or any institution, person, firm, or corporation, public or private, to be held, used or applied for any or all of the purposes specified in this chapter, in accordance with the terms and conditions of any such grant. Receipt of each such donation or grant shall be detailed in the annual report of the authority. Such report shall include the identity of the donor or lender, the nature of the transaction, and any conditions attaching thereto;

(15) Subject to available funds or funds made available from any other public or private source and pursuant to rules adopted by it, provide technical assistance to particular eligible organizations or intended to contribute to the public purposes of this chapter generally if:

(a) Alternative sources (including other agencies and political subdivisions of the state and of the federal government) for technical assistance have been sought and are either insufficient or unavailable to meet the needs of the project; and

(b) Adequate provisions have been made for reporting by the eligible organizations and the project concerning the manner in which the technical assistance is used and the extent to which it achieves its intended results;

(16) Solicit, study, and assist in the preparation of business plans and proposals of new or established small businesses engaged in business and industrial endeavors suitable for support by the authority;

(17) Prepare, publish, and distribute, with or without charge as the authority may determine, such technical studies, reports, bulletins, and other materials concerning the stimulation and formation of small businesses engaged in business and industrial endeavors as the authority considers appropriate, subject only to the maintenance and respect for confidentiality of client proprietary information;

(18) Organize, conduct, sponsor, or cooperate in and assist the conduct of special institutes, conferences, demonstrations, and studies relating to the stimulation and formation of small businesses engaged in technologically oriented business and industrial endeavors;

(19) Exercise any other powers or rights or responsibilities of a authority organized under Title 23A RCW.

NEW SECTION. Sec. 5. (1) A tax credit is allowed against any taxes imposed upon the taxpayer under chapters 48.14, 82.04, and 82.16 RCW equal to forty percent of all amounts that are invested by the taxpayer in small businesses eligible under subsection (2) of this section.

Tax credits approved under this section may be used by the taxpayer against any taxes imposed upon the taxpayer under chapters 48.14, 82.04, and 82.16 RCW after the date of the investment upon which the credit is based. All of the credit shall be used within three years of the date of the investment, provided that the investment made under this section is still invested in the authority. The authority shall use its funds for only two purposes: (a) To make capital participation investments as provided in subsection (2) of this section if such investments are sponsored by a local development organization for a specific project only when the board of the authority finds that these funds will support a project consistent with the purposes of this chapter; and (b) to invest the funds in such securities as may be lawful investments for state and federal funds of the state. Proceeds of these investments may be used to pay for the normal business expenses of the authority.

(2) The authority may make capital participation investments in projects located in a distressed area if:

(a) The project is within the scope of this chapter and may reasonably be expected to increase or maintain threatened employment;

(b) The project plans conform to all applicable environmental, zoning, building, planning, or sanitation laws;

(c) The project will be of public benefit and for a public purpose, and that the benefits, including increased primary employment, improved standard of living, and the employment of disadvantaged workers, shall primarily accrue to residents of the distressed area served by the local development organization;

(d) There is a reasonable expectation that the project will be successful;

(e) Private industry has not provided sufficient capital required for the project or sufficient employment opportunities in the project's area;

(f) The authority determines that its participation is necessary to the successful completion of the proposed project because funding for the project is unavailable in the traditional capital markets, or that credit has been offered on terms that would preclude the success of the project;

(g) The proceeds of the investment will be used solely in connection with the costs of the project;

(h) Provision has been made in contract for adequate reporting of financial data to the authority. The provisions may include a requirement for an annual or other periodic audit of the project books.

(3) The local development organization shall maintain sufficient oversight over the project to ensure that public benefit and public purposes are maintained. Adequate provision shall be made for reporting to the local development organization and the authority.

(4) In project investments, the authority may negotiate a management fee for payment to the local development organization.

(5) The authority shall not make capital participation investments in excess of five hundred thousand dollars in any small business.

(6) The board shall not make an investment unless the board finds that a reasonable effort has been made to find a professional investor to make the investment in the small business as a joint venture. Such findings when made by the board shall be conclusive.

NEW SECTION. Sec. 6. The authority is hereby specifically authorized to operate as a licensed small business investment authority under the provisions of the Small Business Investment Act of 1958, Public Law 85-699, as amended from time to time, if it can qualify thereunder and if the board shall determine that such operation would reasonably serve to carry out the purposes of the authority. In the alternative, the board may establish a subsidiary public authority to operate as a licensed small business investment authority under that act, and to make investments in qualified securities of enterprises through such subsidiary, provided that all such investments could be made by the authority directly and all of the requirements of section 5 of this act shall be complied with.

NEW SECTION. Sec. 7. The authority shall annually submit a complete and detailed report of the authority's activities within ninety days after the end of the fiscal year to the clerk of the house of representatives and to the secretary of the senate.

NEW SECTION. Sec. 8. The books and records of the authority shall be subject to an annual audit by the state auditor and an annual audit by an independent auditor.

NEW SECTION. Sec. 9. Sections 1 through 8 of this act shall constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 10. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.