AN ACT Relating to community 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. Unless the context clearly requires to the contrary, the definitions in this sections apply throughout this chapter.

(1) "Capital participation investments" means purchase of stock, both common and preferred, convertible securities, warrants, subscriptions, options to acquire, capital loans, and working capital or inventory loans, royalties, and any other lawful derivations of the foregoing.

(2) "Community development corporation" means a nonprofit corporation organized under RCW 35.21.660 or 35.21.730 to carry out certain public purposes and with bylaws providing that:

(a) It is organized to operate within a specified geographic area coincident with existing political boundaries;

(b) That at least a majority of its board of directors shall be elected by the full membership with each member having an equal vote;

(c) That the bylaws of the community development corporation shall provide that any other directors by either appointees of elected state or local government officials or appointees of other nonprofit organizations having as a purpose the promotion of development in the designated geographic area;

(d) That the elections shall be held annually for at least one-third of the members of the board of directors so that each elected director shall serve for a term of at least three years;

(e) That the designated geographic area shall be consistent with some existing, or combination of existing, political district, provided that the aggregate population of such geographic area shall not exceed one hundred fifteen thousand people based on the most recent appropriate census.

(3) "Corporation" means the community development finance corporation.

(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. The 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 corporation to be necessary to the purposes of this chapter.

(5) "Paid in capital" means all moneys received in return for capital stock of the community development finance corporation.

(6) "Primary employment" means work which pays at least one and one-half times the minimum wage, offers adequate fringe benefits including health insurance, and is not seasonal or part time.

(7) "Project" means any commercial, industrial, or real estate business or other economic development activity undertaken in a target area, designed to reduce conditions of blight, economic depression, or widespread reliance on public assistance.

(8) "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.

(9) "Small business investment corporation" means a corporation organized to provide capital to small businesses located in the state and licensed according to the provisions of the federal small business investment act of 1958 (Public Law 85-699) as of November 1, 1984.

(10) "Target area" means any contiguous geographic area which is (a) a "blighted area" as defined in RCW 35.81.010, or (b) any other contiguous geographic area in which the board of directors of the particular community development corporation finds and publishes in accordance with statistical criteria previously established by the community development finance corporation that substantial conditions of blight, economic depression, and widespread reliance on public assistance exist in the area.

NEW SECTION. Sec. 2. (1) There is created the community development finance corporation. The community development finance corporation is a public instrumentality and the exercise by the community development finance corporation of the powers conferred by this chapter shall be deemed to be the performance of an essential governmental function.

(2) The corporation shall consist of nine directors, one of whom shall be the director of the department of community development, one of whom shall be the director of the department of employment security, and one of whom shall be the director of general administration, or his or her designee. The governor shall appoint the remaining six members, two of whom shall be experienced in investment finance, three of whom shall be residents of target areas and members of community development corporations, 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, one member to serve for a term of two years, one member for a term of three years, two members for a term of four years, and one member for a term of five years.

(3) Any 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. Any member shall be eligible for reappointment. Any member may be removed from his or her appointment by the governor only for good cause. The governor shall appoint the chairman of the board of directors of the corporation who shall be a member of the board. The directors shall annually elect one of their members as vice-chairman and designate a secretary-treasurer who need not be a member of the board. The secretary-treasurer shall keep a record of the proceedings of the corporation and shall be the custodian of all books, documents, and papers filed with the corporation, the minute books of the corporation and of its official seal.

(4) Five of the directors of the corporation shall constitute a quorum and five affirmative votes shall be necessary for the transaction of business or the exercise of any power or function of the corporation. Each director shall be entitled to reimbursement for actual and necessary expenses incurred in the performance of official duties.

(5) The corporation, its directors, officers, and employees shall be subject to chapter 42.18 RCW except that the corporation may purchase from, sell to, borrow from, loan to, contract with or otherwise deal with any public nonprofit community development corporation organized to carry out the purposes of this chapter of which any director of the corporation is also a member or officer provided that such interest is disclosed in advance to members of the board and recorded in the minutes of the corporation and, provided further, that no director having such a financial interest may participate in any decision affecting the transaction.

(6) The president of the corporation shall be appointed and his or her salary established by the board of directors. The president shall be the chief administrative and operational officer of the corporation and shall direct and supervise administrative affairs and the general management of the corporation. The president may employ such other employees as shall be designated by the board of directors, shall attend meetings of the board of directors, shall cause copies to be made of all minutes and other records and documents of the corporation and shall certify that the copies are true copies, and all persons dealing with the corporation may rely upon such certification.

NEW SECTION. Sec. 3. The community development finance corporation has the power to:

(1) Adopt bylaws for the regulation of its affairs and the conduct of its business.

(2) Adopt an official seal.

(3) Sue and be sued in its own name.

(4) Make and execute contracts and all other instruments necessary or convenient for the exercise of its power and functions.

(5) Acquire, hold, and dispose of personal property for its corporate purposes.

(6) Enter into agreements or other transactions with any federal or state 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 agency has an interest; to sell, transfer, and convey any such property to a buyer and in the event 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 in accordance with the standards for fiduciaries under the laws of this state.

(9) Borrow money by the making of notes and the issuance of bonds, including tax-exempt revenue bonds, and secure such bonds by the pledge of revenues, mortgages and notes of others, provided that in no case shall the total indebtedness of the community development finance corporation exceed thirty million dollars.

(10) Employ a president, who shall be the chief executive officer of the corporation, and such other agents, employees, and professional and business advisers as may from time to time be necessary in the judgment of the board of directors and to fix their compensation. The president, professional advisers, and business advisers shall not be deemed to be public employees for the purposes of Title 41 RCW.

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

(12) Procure insurance against any loss 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 deems 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 mortgage, mortgage loan, mortgage loan commitment, contract or agreement of any kind to which the community development finance corporation is a party.

(14) Do any and all things necessary or convenient to carry out its purposes and exercise the powers expressly given and granted in this chapter.

(15) Receive and accept from any federal or state agency grants, loans, or advances for or in aid of the purposes of this chapter and to receive and accept contributions from any source of either money, property, labor, or other things of value, to be held, used, and applied for said purposes.

(16) Create, issue, buy, and sell stock and other capital participation instruments; to hold such stock and capital participation instruments and to underwrite the creation of a capital market for these securities in a manner which provides first offer of resale to the community development corporation, business or residents of the target area and which is designed to enhance development of capital ownership in the target area.

(17) Provide and pay for such advisory services and technical assistance as may be necessary or desirable to carry out the purposes of this chapter.

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

NEW SECTION. Sec. 4. (1) The state treasurer, subject to appropriation or the authorization of the issuance of bonds for this purpose, may purchase shares of the corporation in the amount of ten million dollars.

In return for the investment, the state shall receive one million shares of common stock in the corporation. These shares shall constitute the entire issues of common stock.

Upon the commencement of the eighth year after the sale of the general obligation bonds and upon the request of the treasurer, the board of directors of the community development finance corporation shall assist the treasurer in implementing a plan for the sale of the shares of common stock held by the state.

The corporation shall hold the proceeds of the investment in an account or accounts separate from other funds. The corporation shall use the proceeds for only two purposes: (a) To purchase capital participation instruments from community development corporations in return for an investment in a specific project only when the board of the community development finance corporation finds that community development corporation will use the funds in support of a project consistent with the purposes of this chapter; and (b) to invest in accordance with chapters 39.58 and 39.60 RCW. Proceeds of these investments may be used to pay for the normal business expenses of the community development finance corporation.

(2) Upon application of a community development corporation for a specific project, the community development finance corporation may, subject to the restrictions set forth in this section agree to purchase capital participation instruments from the community development corporation, provided that the community development finance corporation finds and incorporates in its minutes that:

(a) The project is within the scope of this chapter and may reasonably be expected to contribute to the redevelopment of target areas and the economic development of the state or will increase or maintain threatened primary 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 employment and improved standard of living, shall primarily accrue to residents of the area served by the community development corporation.

(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 primary employment opportunities in the project's area.

(f) The community development finance corporation 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 applicant community development corporation meets the standards of a community development corporation as defined in section 1 of this act and appears able to manage its proposed project responsibilities.

(h) The proceeds of the purchase or contract will be used solely in connection with the costs of the project.

(i) Provision has been made in contract for adequate reporting of financial data from the community development corporation to the community development finance corporation. The provisions may include a requirement for an annual or other periodic audit of the project books.

(j) The community development finance corporation, or in combination with its subsidiary, shall not own more than forty-nine percent of the voting stock in any enterprise.

(k) The community development corporation will maintain sufficient control over the project to ensure that public benefit and public purposes are maintained. This determination shall be satisfactorily complied with if any one of the following is satisfied:

(i) The project is conducted by a wholly-owned subsidiary of the community development corporation;

(ii) The community development corporation owns a majority of the capital stock of the corporation or other organization conducting the project;

(iii) The community development corporation owns a majority of the voting stock of the corporation or other organization conducting the project;

(iv) The project is conducted by a limited-dividend corporation or other association organized under the laws of the state to provide public benefit and which exists for a public purpose;

(v) The project is conducted by a nonprofit corporation including local development corporations organized under the federal small business act, or by a fishing cooperative; or

(vi) In all other cases, adequate provision is made for reporting to the community development corporation, and that the community development corporation must approve all major transactions including but not limited to any sale, merger, dissolution, the sale or issue of substantial amounts of stock, and corporate reorganization.

(l) Provision has been made that if the community development finance corporation desires to sell or otherwise dispose of stock received pursuant to such a contract, that the community development corporation or its nominee shall have within one hundred twenty days the right of first refusal upon the sale and the right to meet any subsequent bona fide offer by a third party.

(m) The community development finance corporation has not invested or loaned more than twenty percent of its lendable or investable resources in any one community development corporation, including this investment.

Such findings when adopted by the community development corporation shall be conclusive.

NEW SECTION. Sec. 5. (1) The community development finance corporation is specifically authorized to establish a limited small business investment corporation. The board of directors of the community development finance corporation shall sit as the board of directors of the small business investment corporation. This subsidiary limited small business investment corporation shall invest equity capital and make loans to start up, acquire, or expand small businesses which carry out the purposes of this chapter.

The community development finance corporation is authorized to expend such sums as may be appropriated by the legislature for initial investment in the subsidiary small business investment corporation. None of the proceeds derived from the investment for the common stock investment provided for in section 4 of this act shall be used to support the establishment or operation of this subsidiary limited small business investment corporation.

(2) Upon application of a small business for a specific project, the subsidiary small business investment corporation may provide equity capital or loans subject to the restrictions of this chapter. Before any such transaction is executed, the subsidiary small business investment corporation shall determine and incorporate in its minutes that:

(a) The project is within the scope of this chapter and may reasonably be expected to contribute to the redevelopment and economic well-being of target areas or will increase or maintain threatened primary employment.

(b) In cases where a community development corporation is participating in a project, the community development corporation meets the standards of a community development corporation, as defined in section 1 of this act and appears able to manage its proposed project responsibilities.

(c) The community development finance corporation determines that its participation is necessary to the successful completion of the proposed project.

(d) The proceeds of the purchase or contract will be used solely in connection with the costs of the project.

(e) Provision is made in the contract for adequate reporting of financial data from the small business to the community development finance corporation. The provisions may include a requirement for an annual or other periodic audit of the project books.

(g) The proceeds of the transaction shall be used solely for the costs of the project.

(h) In no case shall the community development finance corporation, or the community development finance corporation in combination with its subsidiary small business investment corporation, own more than forty-nine percent of the voting stock in any small business.

(i) Provision has been made that if the community development finance corporation desires to sell or otherwise dispose of stock received pursuant to such a contract, that the small business or its nominee shall within one hundred twenty days have the right of first refusal upon the sale and the right to meet any subsequent bona fide offer by a third party.

NEW SECTION. Sec. 6. 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.

NEW SECTION. Sec. 7. Sections 1 through 5 of this act shall constitute a new chapter in Title 43 RCW.