SENATE BILL REPORT

SB 5398

BYSenators Halsan, Fleming, Sellar, Warnke, Lee, Cantu, Tanner, Smitherman, Anderson and Wojahn

Changing provisions relating to industrial development corporations.

Senate Committee on Commerce & Labor

Senate Hearing Date(s):February 23, 1987; March 2, 1987

Majority Report:  That Substitute Senate Bill No. 5398 be substituted therefor, and the substitute bill do pass and be referred to Committee on Ways & Means.

      Signed by Senators Warnke, Chairman; Smitherman, Vice Chairman; Anderson, Sellar, Vognild, West.

Senate Staff:Jack Brummel (786-7428)

                  March 3, 1987

Senate Committee on Ways & Means

Senate Hearing Date(s):March 5, 1987

Majority Report:  That Second Substitute Senate Bill No. 5398 be substituted therefor, and the second substitute bill do pass.

      Signed by Senators McDermott, Chairman; Gaspard, Vice Chairman; Bauer, Fleming, Kreidler, Owen, Rinehart, Talmadge, Vognild, Warnke, Williams, Wojahn.

Senate Staff:Stephen Rose (786-7443)

                  March 12, 1987

AS REPORTED BY COMMITTEE ON WAYS & MEANS, MARCH 5, 1987

BACKGROUND:

The 1963 Industrial Development Corporation Act was intended to stimulate the Washington economy via equity investments and loans made by industrial development corporations.  Only two such corporations have been formed, neither of which are currently operating.  The need for an effective program to increase investment in Washington businesses is underscored by the state's low rate of new business incorporations and the difficulty in obtaining capital experienced by Washington firms that don't meet current commercial bank or venture capital criteria.

SUMMARY:

The Industrial Development Corporation (IDC) Act of 1963 is amended.  The requirement that financial institutions be members and have voting control is eliminated.  IDC investments are to be in firms with a majority of their workforce in Washington state and fewer than 250 employees.  Fewer people are required to form an IDC and they are given greater flexibility in operation.  The amount of capital necessary to start an IDC is increased to $2 million.  Reporting requirements on IDC performance are increased.  IDCs may contract with the Department of Community Development to deliver management assistance to firms but one-half of the firms must enter first-source agreements to hire first from a list of unemployed individuals.  Investors are given a 10 percent credit against state B&O, utility, or insurance premium taxes for their investment in an IDC.

Appropriation:    $1,750,000 to Department of Community Development

EFFECT OF PROPOSED SUBSTITUTE:

The size restrictions on businesses financed by business and industrial development corporations (BIDCOs) has been removed.  A certification requirement prior to approval of corporate documents is added.  All usury provisions are eliminated.  BIDCOs are required to make quarterly reports but the Supervisor of Banking is not to consider riskiness in regulating the BIDCOs' activities unless it constitutes gross mismanagement.  The Department of Trade and Economic Development replaces the Department of Community Development as the agency contracting with BIDCOs.  The Department provides technical assistance to BIDCOs in formation.  The tax credits available to investors start at 25 percent in fiscal year 1988 and decline by 5 percent per year to a 0 percent tax credit in 1993.

EFFECT OF PROPOSED SECOND SUBSTITUTE:

The appropriation is stricken.

Fiscal Note:      available

Senate Committee - Testified: COMMERCE & LABOR: Senator Halsan; Senator Fleming; Derek "Pete" Hansen, American Capital Access; Stanton Barnes, Union Street Capital; Rune Carlson, Bear Creek Golf Course; Nona Brazier, N.W. Recovery System, Inc.

Senate Committee - Testified: WAYS & MEANS:  Bill Lotto, Economic Development Executives of Washington; Wayne Schwandt, Fourth Corner Development