SENATE BILL REPORT

ESHB 1553

BYHouse Committee on Trade & Economic Development (originally sponsored by Representatives Raiter, Cantwell, Doty, Wineberry, Schoon, Wolfe, Wood, Horn, Ferguson, Rector, G. Fisher, Silver, Ebersole, Phillips, Vekich, Cooper, Inslee, Brumsickle, Youngsman, Walk, Bowman, Basich, Tate, Betrozoff, Belcher, Braddock, Morris, Beck, Jacobsen, Walker, Pruitt, Rayburn, Kremen, May, R. King, Todd, Winsley, Rasmussen, Spanel, P. King and Sprenkle; by request of Governor Gardner)

Creating the Washington economic development finance authority.

House Committe on Trade & Economic Development

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):March 27, 1989; March 28, 1989

Majority Report:  Do pass as amended.

      Signed by Senators Lee, Chairman; Anderson, Vice Chairman; McMullen, Matson, Murray, Saling, Smitherman, Warnke, West, Williams.

Senate Staff:Jack Brummel (786-7428)

                  March 28, 1989

AS REPORTED BY COMMITTEE ON ECONOMIC DEVELOPMENT & LABOR, MARCH 28, 1989

BACKGROUND:

Small businesses play an important role in job generation and innovation.  They are recognized as key in our efforts to both remain competitive in world markets, and to revitalize communities whose economics have undergone structural changes in the last decade.  Small business growth is viewed by many as the premier mechanism for strengthening and diversifying the state's economic base.  The availability of capital is key to the ability of firms to meet their full potential for economic growth.  Yet many small businesses complain that they cannot obtain the capital they need for success.

Article 8, Section 5 of the Washington State Constitution, often called the lending of credit clause, prohibits the use of state funds to directly aid businesses unless there is an obligation on the part of the business which corresponds to the benefit received.  The state Supreme Court held in 1985 that publicly issued nonrecourse bonds, those backed by income from the project funded with the bonds rather than by the taxing power of the state, did not violate the lending of credit clause even when the project is not publicly owned.  The state has several mechanisms currently for financing non-publicly owned projects through nonrecourse bonds.  These include the Washington Health Care Facilities Authority, the Housing Finance Commission, and the Washington Higher Education Facilities Authority.

The state's Economic Development Board, in its final report, recommended the creation of a Washington Development Finance Authority to facilitate access to capital markets by businesses and communities not otherwise served by the private sector.

SUMMARY:

The Washington Economic Development Finance Authority (WEDFA) is established as a public body to help small and medium sized businesses meet their capital needs.  The WEDFA is administered by a 15 member board, consisting of the Directors of the Department of Trade and Economic Development and the Department of Community Development, the State Treasurer, eight members from the general public appointed by the Governor and four members of the Legislature.  The Department of Trade and Economic Development will provide the staff for the WEDFA.

The WEDFA is authorized: (1) to develop programs to fund export transactions for small businesses that cannot get commercial loans from private lenders; (2) to provide financing to farmers relying on subsidies from the federal government as collateral; (3) to pool loans guaranteed by the federal Small Business Administration (SBA) or Farm Home Administration (FmHA); and (4) to access federal development finance programs.  The WEDFA is required to develop a plan outlining economic development objectives and defining strategies to accomplish them.  The Authority is required to hold at least one public hearing regarding its plan, report on its progress in meeting the objectives of the plan, and update the plan at least every two years.

The WEDFA may not lend state credit, issue bills of credit, take deposits, or finance housing, health care facilities, or educational facilities that are financed through other statutory commissions or authorities.  The WEDFA is authorized to issue nonrecourse bonds.  These bonds are not obligations of the state.

The Authority may not exceed $250 million in outstanding debt at any time.  The Authority is to report annually to the Legislature.  The Authority may not take any new applications after July 1, 1992, and the Legislative Budget Committee is to conduct a fiscal and program review of the Authority by December 1, 1992.

The statutory list of executive state officers includes members of the WEDFA.  Financial and commercial information provided to the WEDFA by businesses are exempt from public disclosure.

Support services performed for the Authority by other state agencies are reimbursable by the Authority unless separately provided for in the budget.

Appropriation:    none

Revenue:    none

Fiscal Note:      available

Appointments by Legislature Required:     Two members of the Senate, one from each caucus; two members of the House of Representatives, one from each caucus.

SUMMARY OF PROPOSED SENATE AMENDMENT:

Financial institutions regulated by the Supervisor of Savings and Loans are made eligible to invest in securities issued by the Finance Authority.

Senate Committee - Testified: PRO:  Representative Raiter; David Dougherty, Terry Sapp, Department of Trade and Economic Development; Allen Schmelzer, Greater Spokane Business Development Association; Collins Sprague, Association of Washington Business