HOUSE BILL REPORT

ESB 5204

BYSenators Anderson, McMullen, Lee, Smitherman, West and Saling

Permitting the establishment of business and industrial development corporations.

House Committe on Trade & Economic Development

Majority Report:  Do pass with amendments.  (11)

      Signed by Representatives Cantwell, Chair; Doty, Ranking Republican Member; Kremen, Moyer, Rasmussen, Raiter, Rector, Schoon, Tate, Walk and Youngsman.

House Staff:Charlie Gavigan (786-7340)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

MARCH 31, 1989

BACKGROUND:

Businesses need money (capital) to start up or expand.  This money can be obtained by borrowing it (debt) or by selling ownership interests in the business (equity).  Financial institutions normally provide the former; venture capitalists and investors normally provide the latter.  Access to capital is important for the success and growth of businesses.

In 1963, the legislature authorized Industrial Development Corporations. These corporations can be created by 15 or more persons, a majority of whom must be residents of Washington State.  The purpose of the corporation must be to promote, develop, and advance the prosperity and economic welfare of Washington by providing financing to new and existing businesses. The Industrial Development Corporation must have at least 10 financial institutions as members of the corporation.  These "members" agree to lend money to the corporation.

SUMMARY:

BILL AS AMENDED:  Washington Business and Industrial Development Corporations (BIDCOs) are authorized.  A BIDCO can be formed by seven or more people, a majority of whom are residents of the state.  The purpose of a BIDCO is to provide financing and management assistance to businesses operating primarily in Washington State.  A BIDCO takes money invested in the BIDCO and invests that money in businesses by providing loans (debt) to the business or by purchasing part of the business (equity).

A BIDCO Certification Committee must verify that a proposed BIDCO meets all the statutory requirements before the BIDCO can be incorporated and begin operations.  This certification committee is comprised of the Supervisor of Banking, a representative of the Department of Trade and Economic Development, a representative of the Department of Community Development, and two persons appointed by the governor with expertise in this area.

Tax deductions are available to businesses that invest in BIDCOs. These deductions are available on the Business and Occupation Tax, the Public Utility Tax, and the Insurance Premium Tax.  The deductions are a percentage of the amount invested in a BIDCO in a particular year.  The tax deduction in 1990 is 25 percent of the amount invested in that year; in 1991, the deduction is 20 percent of the amount invested in that year; and in 1992, the deduction is 15 percent of the amount invested in that year.  In order to qualify for the tax deduction, a BIDCO must provide at least half its loans or investments to businesses in distressed areas.

Public funds eligible for investment are authorized to be invested in BIDCOs.  Technical assistance on the formation of BIDCOs can be provided by the Department of Trade and Economic Development or the Department of Community Development.

AMENDED BILL COMPARED TO ENGROSSED BILL:  The amendment authorizes Business and Industrial Development Corporations (BIDCOs) without eliminating Industrial Development Corporations.  The amendment removes provisions providing tax credits for investing in a BIDCO and replaces the credits with tax deductions; these deductions are limited to investments made by the BIDCO in businesses in distressed areas.  The amendment provides an appropriation.

Appropriation:    $90,000 from the General Fund to the Supervisor of Banking; $110,000 from the General Fund to the Department of Trade and Economic Development.

Revenue:    The bill has a revenue impact.

Effective Date:The bill contains an emergency clause and takes effect July 1, 1989.

House Committee ‑ Testified For:    None Presented.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    None Presented.

House Committee - Testimony Against:      None Presented.