SENATE BILL REPORT

ESB 5204

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

Permitting the establishment of business and industrial development corporations.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):February 3, 1989; February 9, 1989

Majority Report:  Do pass and be referred to Committee on Ways & Means.

      Signed by Senators Lee, Chairman; Anderson, Vice Chairman; McDonald, McMullen, Murray, Saling, Smitherman, West, Williams.

Senate Staff:Jack Brummel (786-7428)

                  February 10, 1989

Senate Committee on Ways & Means

Senate Hearing Date(s):February 22, 1989; March 2, 1989

Majority Report:  Do pass as amended.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bluechel, Cantu, Fleming, Gaspard, Hayner, Johnson, Lee, Newhouse, Owen, Saling, Smith, Talmadge, Warnke, Williams, Wojahn.

Senate Staff:William Bafus (786-7437)

                  March 13, 1989

AS PASSED SENATE, MARCH 10, 1989

BACKGROUND:

Meeting commercial bank or venture capital criteria for financing can be difficult for viable businesses.  The 1963 Industrial Development Corporation Act was intended to increase the availability of capital in order to stimulate the Washington economy via equity investments and loans.  The 1963 act had a number of provisions which made the formation of such corporations difficult.  BIDCOs are similar to Industrial Development Corporations in intent but do not require as many participants and offer more flexible means of financing businesses.  Several states have adopted BIDCO statutes to improve the efficiency of their capital markets.

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 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 a 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.  BIDCOs contracting with the department will enter first-source hiring agreements and one half of their firms will be in distressed areas.

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.  The cumulative total of B&O tax credits available to private investors in BIDCOs is capped at $4 million.

Investment in BIDCOs by insurance companies, banks, savings and loan associations and public utilities is subject to control by the appropriate regulatory bodies.

The Legislative Budget Committee will evaluate the BIDCO program by January 1, 1992 and January 1, 1994 and assess its accomplishments and its benefits and costs to the state.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Senate Committee - Testified: ECONOMIC DEVELOPMENT & LABOR:  FOR:  David Dougherty, DTED; Kent Hull, Hulpak; Collin Sprague, ABW; Rob Bristol, Sudden Printing

Senate Committee - Testified: WAYS & MEANS:  John Woodhall, Office of the Insurance Commissioner