FINAL BILL REPORT
SHB 1553
C 279 L 89
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
SYNOPSIS AS ENACTED
BACKGROUND:
Businesses need money to start up or expand. This money (capital) can be obtained by borrowing or by selling ownership interests in the business. Financial institutions normally provide capital through loans; venture capitalists and investors normally provide capital by purchasing an interest in the business. Access to capital is important for the success and growth of businesses.
Lending of credit prohibitions in the state constitution preclude state and local governments from providing direct support to businesses. These prohibitions do not allow the public to make gifts or loans to private persons or businesses, to invest in businesses, or to otherwise provide public backing of businesses. An exception is allowed to provide aid to the poor or infirm.
State lending of credit prohibitions also do not apply when the state uses federal funds to provide loans and grants to private businesses. Examples include the Community Development Block Grant program, the Development Loan Fund, and the Coastal Community Revolving Fund.
Capital may also be obtained through the use of bonds. Bonds are loan contracts issued by governments or private corporations. The bondholder purchases the bond from the issuer. In return, the bondholder receives interest and the bond is redeemed (the issuer repays the money) at a specified maturity date. Most bonds are negotiable (easily transferable), and normally run from 10 to 30 years from the date of issuance to the date of maturity.
Private bonds may be backed by assets of the business issuing the bonds (i.e., real estate or equipment) or may be unsecured. Government bonds may be backed by the taxing power of the government (recourse) or may be backed only by income from the project or purpose the bonds are used for (nonrecourse). Government bonds may be taxable or non-taxable.
Public corporations may issue bonds if legislative authority is given. However, if the bonds are used to provide financing for facilities not owned by the public, lending of credit prohibitions may apply.
The Washington Supreme Court held, until 1985, that issuing nonrecourse bonds for facilities not owned by the public violated lending of public credit prohibitions (although the court generally allowed this bond financing based on the "poor or infirm" exception, or based on low risk and public policy). In 1985, the court held that issuing public nonrecourse bonds was not lending of public credit because no debt or liability was incurred by the public. The court has approved the issuance of public nonrecourse bonds to provide financing for facilities not owned by the public in the following instances: (1) the Washington Health Care Facilities Authority; (2) the Housing Finance Commission; and (3) the Washington Higher Education Facilities Authority.
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, including one member each from the Department of Trade and Economic Development, the Department of Community Development, the state treasurer, four legislators, and eight members from the general public appointed by the Governor. Three of the public members must be from Eastern Washington. The Department of Trade and Economic Development will provide the staff for the WEDFA, although the staff cannot issue nonrecourse bonds or make credit decisions.
The WEDFA is authorized: (1) to develop programs to fund export transactions for small businesses that cannot get commercial loans from private lenders at competitive rates and terms; (2) to provide advance or up-front financing for economic development to farmers based on their subsidy from the federal government for not growing crops; (3) to pool loans guaranteed by the federal Small Business Administration or the Farm Home Administration; (4) to access federal development finance programs; and (5) to provide advice and technical assistance to Industrial Development Corporations. The WEDFA is also authorized to engage in broad activity to assist businesses as long as the activity is within policy guidelines specified in statute.
The WEDFA is required to develop a plan outlining economic development goals and defining strategies to accomplish the goals. The authority is required to hold at least one public hearing regarding its plan, and update the plan at least every two years. The authority is also required to implement operating procedures for itself and its programs.
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 dollars in outstanding debt at any time. The authority must report annually to the Legislature. The Legislative Budget Committee is required 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 is exempt from public disclosure.
VOTES ON FINAL PASSAGE:
House 89 5
Senate 45 0 (Senate amended)
House 93 4 (House concurred)
EFFECTIVE:July 23, 1989