AN ACT Relating to local development; amending RCW 43.63A.078; adding new sections to chapter 42.17 RCW; adding new sections to chapter 43.63A RCW; adding a new section to chapter 43.170 RCW; and adding a new chapter to Title 43 RCW.

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

Sec. 1. Section 7, chapter 125, Laws of 1984 and RCW 43.63A.078 are each amended to read as follows:

(1) The department shall develop and administer a local development matching fund program. To be eligible to receive funds under this program, an organization must be a local government or a nonprofit local development entity. Any local government or entity requesting funds must demonstrate the participation of a cross-section of the local community in the economic development project, including business, labor, education and training, and the public sector. Under this program, the department shall provide matching funds which shall be used for the formulation of local economic development strategies, including the technical analysis necessary to designate and carry out the strategies. A technical analysis can include, but is not limited to, the development and dissemination of data on local markets, demographics, comparative business costs, site availability, labor force characteristics, and local incentives. Funds are to be used primarily to foster new developments and expansions which result in the trading of goods and services outside of the state's borders. Funds may be made available for assisting local businesses in utilizing state and federal programs in exporting, training, and financing. Funds may also be used to provide technical assistance to businesses in the areas of land use, transportation, site location, and manpower training. Matching funds cannot be used for entertainment, capital expenses, hosting, or marketing. Funds granted for economic development projects must be matched by local resources on a dollar-for-dollar basis. Not more than fifty thousand dollars of state matching funds as provided by this section may be used for any one project.

(2) The department shall set aside, within its general fund appropriation, a sum of two hundred thousand dollars per biennium for small business incubator projects. The funds for such projects may be used for feasibility studies, planning, and program development. The funds for such projects may also be used for coordinating the delivery of management, technical, and financial assistance to small businesses both within and outside the incubator facility.

(3) The department shall report annually on December 31 to the governor and the legislature on funds expended and projects developed using matching funds.

NEW SECTION. Sec. 2. The legislature finds that the growth of small and young businesses will have a favorable impact on the Washington economy by creating jobs, increasing competition in the market place, and expanding tax revenues. Access to financial markets by entrepreneurs is vital to this process. Without reasonable access to financing, talented and aggressive entrepreneurs are cut out of the economic system and the state's economy suffers. It is the purpose of sections 2 through 6 of this act to guarantee that entrepreneurs and investors have an institutionalized means of meeting their respective needs for access to capital resources and information about promising business investments in Washington state.

NEW SECTION. Sec. 3. As used in sections 2 through 6 of this act, the term:

(1) "Entrepreneur" means an individual, proprietorship, joint venture, partnership, trust, business trust, syndicate, association, joint stock company, cooperative, corporation, or any other organization operating in this state, engaged in manufacturing or traded services, with fewer than two hundred fifty employees and paying more than fifty percent of its contributions or payments for the purposes of unemployment insurance to this state.

(2) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(3) "Traded services" means those commercial and professional services that are developed for sale outside the state.

NEW SECTION. Sec. 4. There is created in the department of community development the Washington investment opportunities office. An exempt position is hereby created within the department for the managing director of the Washington investment opportunities office. The managing director of the office shall be appointed by the governor and shall serve at the governor's pleasure.

NEW SECTION. Sec. 5. The Washington investment opportunities office shall:

(1) Maintain a list of all entrepreneurs engaged in manufacturing or traded services throughout the state seeking capital resources and interested in the services of the investment opportunities office.

(2) Maintain a file on each entrepreneur which shall include the entrepreneur's business plan and any other information which the entrepreneur offers for review by potential investors.

(3) Assist entrepreneurs in procuring the managerial and technical assistance necessary to attract potential investors. Such assistance shall include the automatic referral to the small business innovators opportunity program of any entrepreneur with a new product meriting the services of the program.

(4) Provide entrepreneurs with information about potential investors and provide investors with information about those entrepreneurs which meet the investment criteria of the investor.

(5) Remain informed about investment trends in capital markets and preferences of individual investors or investment firms throughout the nation through literature surveys, conferences, and private meetings.

(6) Publicize the services of the investment opportunities office through public meetings throughout the state, appropriately targeted media, and private meetings. Whenever practical, the office shall use the existing services of local associate development organizations in outreach and identification of entrepreneurs and investors.

(7) Report to the ways and means committees and commerce and labor committees of the senate and the house of representatives by December 1, 1988, and each year thereafter, on the accomplishments of the office. Such reports shall include:

(a) The number of entrepreneurs on the list referred to in subsection (1) of this section, segregated by standard industrial classification codes;

(b) The number of investments made in entrepreneurs, segregated as required by (a) of this subsection, as a result of contact with the investment opportunities office, the dollar amount of each such investment, the source, by state or nation, of each investment, and the number of jobs created as a result of each investment;

(c) The number of entrepreneurs on the list referred to in subsection (1) of this section segregated by counties, the number of investments, the dollar amount of investments, and the number of jobs created through investments in each county as a result of contact with the investment opportunities office;

(d) A categorization of jobs created through investments made as a result of contact with the investment opportunities office, the number of jobs created in each such category, and the average pay scale for jobs created in each such category;

(e) The results of client satisfaction surveys distributed to entrepreneurs and investors using the services of the investment opportunities office; and

(f) Such other information as the managing director finds appropriate.

NEW SECTION. Sec. 6. The managing director, after consultation with the directors of the department of trade and economic development and the department of community development, schools of business administration, chambers of commerce, local associate development organizations, and local investment firms, shall form an advisory panel to assist in directing the services of the investment opportunities office toward meeting the finance and investment needs of entrepreneurs and investors. Advisory panel members shall serve without pay but shall be entitled to reimbursement for travel expenses incurred in serving on the advisory panel in accordance with RCW 43.03.050 and 43.03.060.

NEW SECTION. Sec. 7. The director may, after consultation with the managing director, enter into contracts with nongovernmental agencies to provide any of the services under section 5 of this act.

NEW SECTION. Sec. 8. A new section is added to chapter 42.17 RCW to read as follows:

Notwithstanding the provisions of RCW 42.17.260 through 42.17.340, no financial or proprietary information supplied by investors or entrepreneurs under chapter 43.63A RCW shall be made available to the public.

NEW SECTION. Sec. 9. Sections 2 through 7 of this act are each added to chapter 43.63A RCW.

NEW SECTION. Sec. 10. A new section is added to chapter 43.170 RCW to read as follows:

Any innovation or inventor receiving assistance under this program shall be referred to the investment opportunities office operated by the department of community development.

NEW SECTION. Sec. 11. The legislature finds and declares that:

(1) Expansion of small businesses will have a favorable impact on the Washington economy by creating jobs, increasing competition in the marketplace, and expanding tax revenues; and

(2) There is an unmet need to provide long-term capital to rapidly growing small businesses whose growth exceeds their ability to generate internal earnings to finance that growth; and

(3) Under traditional standards used by banks many well-operated small businesses cannot provide security adequate to qualify for normal bank loans; and

(4) It is desirable to address this problem by creating an efficient, nonbureaucratic form of state assistance to encourage banks to make many such loans which are not now made; and

(5) Assistance and encouragement of small business development to provide, maintain, and expand employment and tax revenues is an important function of the state; and

(6) The modest state expenditure to encourage such loans will be returned to the people of the state of Washington in the form of increased tax revenues based on business expansion and reduction in the number of unemployed persons.

In order to accomplish these goals, the legislature creates the Washington small business loan program.

NEW SECTION. Sec. 12. As used in this chapter, the term:

(1) "Lender participant" means such financial institutions and credit unions as are approved by the executive director to make loans under this chapter.

(2) "Eligible loan" means a loan to a person under the conditions set forth in this chapter.

(3) "Amount of loss" means an amount equal to the unpaid balance of the principal amount, less any amounts realized by perfecting rights under a security agreement, together with such interest as the executive director shall allow, to a maximum of such interest as may be allowed by rule. The amount of loss is subject to the limitations contained in section 19(2)(c) of this act.

(4) "Default" includes only such defaults as have existed for at least ninety days.

(5) "Premium charge" means the percent of the loan which shall be deposited in the small business loan reserve fund by the lender and the borrower on loans made pursuant to this chapter.

(6) "Executive director" means the executive director of the small business loan program.

(7) "Fund" means the small business loan reserve fund.

(8) "State match" means the percent of the loan which shall be deposited in the small business loan reserve fund by the state on loans made pursuant to this chapter.

(9) "Manufacturing" means all activities of a commercial or industrial nature wherein labor or skill is applied, by hand or machinery, to materials so that as a result thereof a new, different, or useful substance or article of tangible personal property is produced for sale or commercial or industrial use and shall include the production or fabrication of specially made or custom made articles. "Manufacturing" also includes computer programming, the production of computer software, and other computer-related services, and the activities performed by research and development laboratories and commercial testing laboratories.

(10) "Traded services" means those commercial and professional services that are developed for sale outside the state.

(11) "Supervisor" means the state supervisor of banking.

NEW SECTION. Sec. 13. In addition to the powers and duties prescribed under this chapter, the state supervisor of banking may exercise all the powers necessary or convenient for the administration and enforcement of this chapter. The supervisor may adopt such rules as he or she finds necessary or appropriate in carrying out this chapter after consultation with representatives of small businesses and lender participants. The supervisor may examine the loans made under this chapter at any participating bank to ascertain compliance with this chapter and any rules adopted under this chapter, and to ascertain whether a bank is exercising reasonable care and diligence in the making and collection of loans made under this chapter.

An exempt position is hereby created within the banking and consumer finance division of the department of general administration for the executive director of the small business loan program. The executive director shall be appointed by the governor and shall serve at the governor's pleasure. The supervisor shall delegate to the executive director such duties as the supervisor deems appropriate. The supervisor may employ such other employees as may be needed to carry out the powers and duties imposed under this chapter.

The supervisor shall report to the governor and the house and senate ways and means and commerce and labor committees by December 1 of each year and shall include in the report the following:

(1) The names of all financial institutions certified to participate in the small business loan program;

(2) The names and locations by county of all borrowers under the program;

(3) The number of employees by county of all borrowers under the program;

(4) The total amount of funds lent under the program by county;

(5) The total amount of funds lent under the program reported separately by categories of uses made by borrowers of the proceeds;

(6) The amount paid out of the fund for loans in default, by lender, and by county;

(7) The financial condition of the fund;

(8) An evaluation of the extent to which the results of the program meet the objectives of the program;

(9) The expenditure of funds under section 15 of this act; and

(10) Such other information as in the supervisor's judgment may be desirable.

NEW SECTION. Sec. 14. (1) The small business loan reserve fund is hereby established in the custody of the state treasurer. The fund shall consist of appropriations made to the fund and any other public or private money received under this chapter. Moneys in the fund may be used only to secure loans made under this chapter. Disbursements from the fund shall be on authorization of the executive director of the small business loan program, or the director's designee. The fund is subject to the allotment procedure provided under chapter 43.88 RCW, but no appropriation is required for disbursements.

(2) The state shall not be liable or obligated for any amount exceeding its appropriations to the small business loan reserve fund.

(3) Funds held in the small business loan reserve fund which are attributable to the lender participant's portion of the premium charge shall be accounted for on a lender-by-lender basis and shall include the matching premium charge paid by the borrowers and the state match paid by the state.

(4) Upon authorization by the executive director, disbursements from the small business loan reserve fund shall be made to financial institutions by the state treasurer in warrants drawn by the controller pursuant to this chapter.

(5) Funds in the small business loan reserve fund shall be invested in time certificates of deposit with lender participants in proportion to each lender participant's participation in the small business loan reserve program. Such funds shall be offered on a right of first refusal to lender participants. Should a lender participant refuse to receive such funds for investment, the funds shall then be offered other lender participants in proportion to their participation in the small business loan reserve program.

NEW SECTION. Sec. 15. (1) All income from funds invested pursuant to section 14 of this act shall be deposited in the small business loan reserve fund, and shall be used exclusively for the support of the small business loan reserve program.

(2) Whenever the executive director determines that the income from funds invested pursuant to section 14 of this act exceeds amounts necessary to support the small business loan reserve program pursuant to subsection (1) of this section, the executive director may order any excess funds transferred into the general fund, but not to exceed the amount appropriated to the small business loan reserve fund.

NEW SECTION. Sec. 16. (1) The executive director shall certify those financial institutions whose experience, financial capability, and such other criteria as the supervisor may establish under rules adopted under this chapter, qualify them to participate in the small business loan reserve program.

(2) Any financial institution may be disqualified from further participation in the small business loan reserve program on a finding, by the supervisor, as specified by rule, that such institution has violated any provision of this chapter, or any rule adopted under this chapter, or that such institution is insolvent.

(3) A loan made by a lender participant shall be recorded under this section if made to a corporation, partnership, sole proprietorship, cooperative, or other association doing business primarily in Washington, whether nonprofit or organized for profit.

(4) The supervisor shall adopt by rule eligibility criteria for loans made under this chapter. Such criteria shall be consistent with the intent of this chapter to assist small businesses with strong potential for growth and job creation and, to that end, such loans shall be primarily devoted to businesses engaging in manufacturing or traded services. Such criteria shall include, but shall not be limited to, the size and types of businesses which shall be eligible to receive loans, and may be based on the standard industrial classification code. Absence of a classification within the standard industrial classification code for a type of business shall not preclude it from being established as an eligible business.

(5) No more than twenty-five percent of the proceeds of any loans made under this chapter may be used by the borrowing business for the payment of existing loans to that business.

(6) Upon default by the borrower on any loan made under this chapter, the executive director may require from the lender a showing as to how the proceeds of the loan were disbursed.

NEW SECTION. Sec. 17. The lender and borrower shall negotiate the premium charge for each loan made pursuant to this chapter. Such charge shall be from three percent to seven percent of the loan. The lender and borrower shall contribute an equal amount to the premium charge. The state match made under this chapter shall be equal in amount to the premium charge. When a loan is participated in by two or more lender participants, the premium charge shall be a single rate, applicable to the entire loan. The lender's portion of the premium charge shall be apportioned among the lenders in proportion to each lender's participation in the loan.

NEW SECTION. Sec. 18. (1)(a) An application to record a loan made under this chapter shall be made by an eligible lender on such form as the executive director may require. The application shall set forth the amount of the loan, its maturity, interest rate, and amortization. In addition, the supervisor may require on a form provided by the supervisor other information relating to job creation.

(b) If, upon application by a lender participant, the executive director finds that the lender has made an eligible loan, the director shall cause the loan to be recorded.

(2)(a) The lender shall submit, together with the application under subsection (1) of this section, the following premium charges determined by the lender under section 17 of this act: (i) The percent premium charge payable by the lender; and (ii) the percent premium charge payable by the borrower.

(b) Premium charges collected under this section shall be deposited in the small business loan reserve fund.

(c) Upon recording a loan, the executive director shall allocate, from appropriated funds, the state match payable by the state in the small business loan reserve fund.

(3) All loans made under this chapter shall be recorded in a register to be maintained by the supervisor. The registration shall set forth the information contained in the application.

(4) At least annually, and more frequently at the direction of the supervisor, a summary of the information contained in the register maintained pursuant to subsection (3) of this section, shall be provided to each lender participant.

NEW SECTION. Sec. 19. (1) Upon default by the borrower on any loan made under this chapter, the lender, if a secured party, shall take steps, and avail itself of such rights and remedies as may be provided for in the security agreement and by virtue of chapter 62A.9 RCW except when, in the determination of the supervisor, special circumstances exist which do not warrant taking such action.

(2)(a) Upon default by the borrower on any loan made under this chapter, the lender shall promptly notify the executive director, and the executive director shall, if requested, either at that time, or after further collection efforts, pay to the lender the amount of the loss, subject to the limitation contained in (c) of this subsection, sustained by the lender.

(b) In addition to the amount of loss, the lender may claim five hundred dollars for collection expenses incurred in the attempted collection of the loan. Such collection expense shall be a charge against that portion of the small business loan reserve fund attributable to the lender who made the loan, and shall be subject to the limitation contained in (c) of this subsection.

(c) Payments made to a lender pursuant to this section shall not exceed the amount retained in the small business loan reserve fund attributable to the lender who made the loan.

(3) Amounts recovered by a lender's collection efforts subsequent to presenting a claim for loss pursuant to this section shall first be paid into the small business loan reserve fund to the credit of the lender to reimburse the fund for amounts paid to the lender pursuant to subsection (2)(a) of this section.

(4) Nothing in this section may be construed to excuse the lender from exercising reasonable care and diligence in the making and collection of loans under this chapter.

If the supervisor, after reasonable notice and opportunity for hearing to an eligible lender, finds that it has substantially failed to exercise such care and diligence required under this section, the supervisor shall disqualify that lender for further loans under this chapter until the supervisor is satisfied that its failure has ceased and finds that there is reasonable assurance that the lender will in the future exercise necessary care and diligence.

NEW SECTION. Sec. 20. A new section is added to chapter 42.17 RCW to read as follows:

Notwithstanding the provisions of RCW 42.17.260 through 42.17.340, no application to record a loan or the register of loans under chapter 43.--!sc ,1RCW (sections 11 through 19 of this act) may be made available to the public.

NEW SECTION. Sec. 21. Sections 11 through 19 of this act shall constitute a new chapter in Title 43 RCW.

NEW SECTION. Sec. 22. 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.