SENATE BILL REPORT

SB 6220

BYSenators Anderson, Halsan, Deccio, Owen, Saling, Smitherman, Stratton, DeJarnatt, Warnke, Lee, Cantu, West, McMullen, Fleming, Williams, Conner, Hayner and Garrett

Changing provisions relating to business industrial development corporations.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):January 12, 1988; January 18, 1988

Majority Report:  That Substitute Senate Bill No. 6220 be substituted therefor, and the substitute bill do pass and be referred to Committee on Ways & Means.

      Signed by Senators Lee, Chairman; Anderson, Vice Chairman; Cantu, Conner, Deccio, McMullen, Saling, Smitherman, Warnke, West, Williams.

Senate Staff:Jack Brummel (786-7428)

                  January 19, 1988

Senate Committee on Ways & Means

Senate Hearing Date(s):January 20, 1988; February 1, 1988; February 2, 1988

Majority Report:  That Second Substitute Senate Bill No. 6220 be substituted therefor, and the second substitute bill do pass.

      Signed by Senators McDonald, Chairman; Bauer, Bluechel, Cantu, Deccio, Fleming, Hayner, Johnson, Lee, Newhouse, Saling, Smith, Talmadge, Vognild, Warnke, Williams, Wojahn, Zimmerman.

Senate Staff:William Bafus (786-7437)

                  February 3, 1988

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 2, 1988

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 Washington firms experience in obtaining capital if they do not meet current commercial bank or venture capital criteria.

SUMMARY:

The Industrial Development Corporation Act of 1963 is amended.  The requirement that financial institutions be members and have voting control is eliminated.  Business and industrial development corporations' (BIDCO) investments are to be in firms with a majority of their workforce in Washington state.

A certification requirement prior to approval of corporate documents is added.  Such certification may be revoked if the BIDCO fails to act in a safe sound manner or fails to comply with the intent of the Act to make capital available to moderate risk firms.

Fewer people are required to form a corporation and they are given greater flexibility in operation.  The amount of capital necessary to start BIDCO is $1 million in equity and $1 million in lendable funds.  Detailed reporting requirements on BIDCO performance are required.  Reserve requirements for BIDCOs may be established by the Supervisor of Banking.

The Department of Trade and Economic Development provides technical assistance to BIDCOs in formation.  BIDCOs may contract with the Department to deliver management assistance to firms but one-half of a corporation's investments must be in firms that enter into first-source agreements to hire first from a list of unemployed individuals.

Investors are given credit against state B&O, utility, or insurance premium taxes for their investment in a BIDCO.  The tax credits available to investors start at 25 percent in fiscal year 1990 and decline by 5 percent per year to a 0 percent tax credit in 1995.

EFFECT OF PROPOSED SUBSTITUTE:

BIDCOs contracting with the Department of Trade and Economic Development will enter first-source hiring arrangements and one half of their firms will be in distressed areas.

EFFECT OF PROPOSED SECOND SUBSTITUTE:

The cumulative total of B&O tax credits available to private investors in BIDCOs is capped at $4 million.  The prohibition against lending of the state's credit is restated and protection for the state from any liability arising out of the failure of a BIDCO is provided explicitly.  Investment in BIDCOs by insurance companies, banks, savings and loan associations and public utilities is made subject to control by the appropriate regulatory bodies.

Language in current law related to the federal interest payment fund is amended to allow appropriations to state agencies for administration.  Sixty thousand dollars is appropriated to the Department of Trade and Economic Development and $15,000 is appropriated to the Department of General Administration from this fund for the biennium ending June 30, 1989 to pay for required programs and activities.

The title clause is amended to reflect these changes.  A severability clause added.

Appropriation:    $75,000 from the federal interest payment fund

Revenue:    yes

Fiscal Note:      available

Senate Committee - Testified: ECONOMIC DEVELOPMENT & LABOR:  Senator Halsan; John Anderson, DTED; David Dougherty, DTED; Collin Sprague, AWB; Bill Lotto, EDEW; Mary Jean Ryan, Evergreen CDA; Wayne Schwart, 4th Corner Development; Gary Smith, Independent Business Association

Senate Committee - Testified: WAYS & MEANS:  Senator Anderson; Bill Lotto, EDEW; David Daugherty, DTED; Roger Paulson, Office of the Insurance Commissioner