May 23, 2018, Introduced by Reps. Wentworth, Hughes, Sheppard, VanSingel, LaFave, Cole, Frederick, Bellino, Maturen, Webber, McCready, Rendon, Kelly, Howell, Calley, Lower, VanderWall, LaSata, Griffin, Canfield, Leutheuser, Elder, Sabo, Lilly, Guerra, Bizon, Inman and Vaupel and referred to the Committee on Michigan Competitiveness.
A bill to amend 1984 PA 270, entitled
"Michigan strategic fund act,"
(MCL 125.2001 to 125.2094) by adding chapter 8E.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
CHAPTER 8E
Sec. 90l. As used in this chapter:
(a) "Affiliate" means an entity that, directly or indirectly,
through 1 or more intermediaries, controls, is controlled by, or is
under common control with another entity. For the purposes of this
subdivision, an entity is controlled by another entity if the
controlling entity holds, directly or indirectly, the majority
voting or ownership interest in the controlled entity or has
control over the day-to-day operations of the controlled entity by
contract or law.
(b) "Closing date" means the date on which a rural development
fund has received a repayable grant.
(c) "Earned job factor" means an amount equal to $25,000.00.
(d) "Full-time equivalent employees" means the number of
salaried employment positions plus the quotient obtained by
dividing the total number of hours for which employees with an
hourly wage rate of at least 150% of the federal minimum wage were
compensated for employment over the preceding 12-month period by
2,080 with respect to hourly employees.
(e) "Growth investment" means any capital or equity investment
in a qualified business or any loan to a qualified business with a
stated maturity at least 1 year after the date of issuance. A
secured loan or the provision of a revolving line of credit to a
qualified business is a growth investment only if the rural
development fund obtains an affidavit from the president or chief
executive officer of the qualified business attesting that the
qualified business sought and was denied similar financing from a
commercial bank.
(f) "Investment authority" means the amount stated on the
certificate under section 90m certifying the rural development
fund. A rural development fund's investment authority shall be
composed of equal amounts of repayable grants by the fund and
private contributions.
(g) "New full-time equivalent employees" means the number of
new full-time equivalent employees based on a computation made
annually by subtracting the number of full-time equivalent
employees at the qualified business on the date of the rural
development fund's initial growth investment in the qualified
business from the monthly average of full-time equivalent employees
at the qualified business for the applicable preceding calendar
year. If the computation results in a number less than zero, the
number of new full-time equivalent employees produced by the rural
development fund's growth investment for that calendar year period
shall be zero.
(h) "Principal business operations" means for a qualified
business, the place or places where at least 80% of its employees
work or where employees that are paid at least 80% of its payroll
work. An out-of-state business that has agreed to relocate
employees using the proceeds of a growth investment to establish
its principal business operations in this state shall be considered
to have its principal business operations in this new location
provided it satisfies this definition within 180 days after
receiving the growth investment or a later date, if agreed to by
the fund.
(i) "Private contributions" means an investment of cash in a
rural development fund to match dollar-for-dollar the repayable
grant amount up to the investment authority of the rural
development fund. A rural development fund's private contributions
shall be composed of not less than 10% of equity investments.
(j) "Qualified business" means an operating business that, at
the time of the initial investment in the business by a rural
development fund, has fewer than 150 employees and is engaged in
industries assigned a North American Industry Classification System
code within sectors 11, 21, 23, 31 through 33, 42, 48, 49, 54,
except 541110 through 541219, 56, 62, and 81 or, if not engaged in
any of these industries, the department determines that the
investment will be beneficial to the rural area and the economic
growth of this state.
(k) "Qualified rural county" means a county in this state with
a population of 200,000 or less.
(l) "Repayable grant" means a grant of cash by the fund into a
rural development fund that will be matched dollar-for-dollar with
private contributions up to the investment authority of the rural
development fund.
(m) "Repayment amount" means an amount equal to 50% of a rural
development fund's investment authority, minus the sum of the
product of new full-time equivalent employees reported to the fund
in each of the rural development fund's annual reports submitted
pursuant to section 90p and the earned job factor and the product
of full-time equivalent employees at the time of the initial growth
investments in qualified businesses, provided the rural growth fund
receives an affidavit from the president or chief executive officer
of the qualified business attesting that the full-time equivalent
employee positions would have been eliminated without receipt of
the initial growth investment and 50% of the earned job factor.
(n) "Rural development fund" means an entity approved by the
fund under section 90m that meets all of the following:
(i) The entity or its affiliate is a rural business investment
company under 7 USC 2009cc or a small business investment company
under 15 USC 68.
(ii) As of the date of the application, the entity or its
affiliates have invested at least $75,000,000.00 in nonpublic
companies located in counties throughout the United States with a
population less than 50,000.
(iii) As of the date of the application, the entity or its
affiliates have received equity investments from investors who are
not affiliates of the applicant in an amount equal to least
$100,000,000.00.
Sec. 90m. (1) Beginning October 1, 2018, the fund shall accept
applications for approval as a rural development fund. The
application shall include all of the following:
(a) The total investment authority sought by the applicant.
(b) A copy of the applicant's license showing that the entity
or its affiliate is a rural business investment company under 7 USC
2009cc or a small business investment company under 15 USC 68.
(c) Evidence that as of the date of the application, the
entity or its affiliates have invested at least $75,000,000.00 in
nonpublic companies located in counties throughout the United
States with a population less than 50,000.
(d) Evidence that as of the date of the application, the
entity or its affiliates have received equity investments from
investors who are not affiliates of the applicant in an amount
equal to least $100,000,000.00.
(2) The fund shall make application determinations by November
30, 2018, in the order in which the applications are received. The
fund shall consider applications received on the same day to have
been received simultaneously. The fund shall not approve more than
$100,000,000.00 in investment authority and $50,000,000.00 in
repayable grants. If requests for investment authority received
simultaneously would result in the limitation provided in this
subsection being exceeded, the fund shall proportionally allot the
investment authority and repayable grants among the approved
applications. Upon approval of an application, the fund shall
provide a grant certificate to the applicant designating the
applicant as a rural development fund and specifying the amount of
the rural development fund's investment authority and the amount of
the repayable grant to be received.
(3) The fund may deny an application submitted under this
section only for the following reasons:
(a) The applicant does not satisfy all the criteria described
in this section.
(b) The fund has already approved the maximum amount of
investment authority allowed under this section.
(4) If the fund denies an application, the applicant may
provide additional information to the fund within 5 days of the
notice of denial. The fund shall review and reconsider the
application and additional information within 10 days but not
beyond December 15, 2018. A reconsidered application shall retain
the original date of receipt provided under this section for
purposes of priority.
(5) A rural development fund shall do all of the following:
(a) Within 60 days after receiving the approval issued under
this section, collect private contributions equal to 50% of the
rural development fund's investment authority.
(b) Within 65 days after receiving the approval issued under
this section, send to the fund documentation sufficient to prove
that the amounts described in subdivision (a) have been collected.
(6) If the rural development fund fails to fully comply with
subsection (5), the rural development fund's approval is forfeited,
and the fund shall first award the corresponding investment
authority to existing applicants who received investment authority
lower than the amount requested under this section and then to new
applicants.
(7) The fund shall transfer the repayable grant to the rural
development fund upon receipt of the documentation described in
subsection (5)(b) within 1 business day.
Sec. 90n. (1) The rural development job creation fund is
created within the state treasury.
(2) The state treasurer may receive money or other assets from
any source for deposit into the rural development job creation
fund. The state treasurer shall direct the investment of the rural
development job creation fund. The state treasurer shall credit to
the rural development job creation fund interest and earnings from
rural development job creation fund investments.
(3) Money in the rural development job creation fund at the
close of the fiscal year shall remain in the rural development job
creation fund and shall not lapse to the general fund.
(4) The department of talent and economic development shall be
the administrator of the rural development job creation fund for
auditing purposes.
(5) The fund shall expend money from the rural development job
creation fund, upon appropriation, only to make refundable grants
to rural development funds in this state.
Sec. 90o. (1) The fund shall demand immediate repayment of the
repayable grant issued under this chapter if any of the following
occurs with respect to the rural development fund before it is
certified to exit the program as provided in this chapter:
(a) The rural development fund does not invest all its
investment authority in growth investments in this state within 3
years of the closing date with 100% of its investment authority
invested in growth investments in qualified businesses with
principal business operations located in qualified rural counties.
(b) The rural development fund, after satisfying subdivision
(a), fails to maintain growth investments at the levels required by
subdivision (a) until the sixth anniversary of the closing date.
For the purposes of this subdivision, an investment is maintained
even if the investment is sold or repaid so long as the rural
development fund reinvests an amount equal to the capital returned
or recovered by the rural development fund from the original
investment, exclusive of any profits realized, in other growth
investments in this state within 12 months of the receipt of that
capital. Amounts received by a rural development fund pursuant to
periodic repayments shall be treated as continually invested in
growth investments if the amounts are reinvested in 1 or more
growth investments by the end of the following calendar year. A
rural development fund is not required to reinvest capital returned
from growth investments after the fifth anniversary of the closing
date, and those growth investments shall be considered held
continuously by the rural development fund through the sixth
anniversary of the closing date.
(c) The rural development fund, before exiting the program in
accordance with this chapter, makes a distribution or payment that
results in the rural development fund having less than 100% of its
investment authority invested in growth investments in this state
or available for investment in growth investments and held in cash
and other marketable securities.
(d) The rural development fund makes a growth investment in a
qualified business that directly or indirectly through an affiliate
owns, has the right to acquire an ownership interest, makes a loan
to, or makes an investment in the rural development fund, an
affiliate of the rural development fund, or an investor in the
rural development fund. This section does not apply to investments
in public-traded securities. For purposes of this subdivision, a
rural development fund will not be considered an affiliate of a
business solely because of its growth investment.
(2) No more than $5,000,000.00 in growth investments in a
qualified business, including growth investments in affiliates of
the qualified business, shall count toward the requirements of
subsection (1)(a) and (b).
(3) Before demanding repayment under this section, the fund
shall notify the rural development fund of the reasons for the
pending repayment. The rural development fund shall have 90 days
from the date the notice was dispatched to correct any violation
outlined in the notice to the satisfaction of the fund and avoid
repayment of the refundable grant.
(4) A rural development fund, before making a growth
investment, may request from the fund a written opinion as to
whether the business in which it proposes to invest is a qualified
business as defined in this chapter. The fund, not later than the
fifteenth business day after the date of receipt of the request,
shall notify the rural development fund of its determination. If
the fund fails to notify the rural development fund by the
fifteenth business day of its determination, the qualified business
in which the rural development fund proposes to invest is a
qualified business.
Sec. 90p. (1) A rural development fund shall submit an annual
report to the fund on or before the last day of February of each
year until the rural development fund has exited the program in
accordance with this chapter. The annual report shall provide
documentation as to the rural development fund's growth investments
and include all of the following:
(a) A bank statement evidencing each growth investment.
(b) The name, location, and industry of each qualified
business receiving a growth investment, including either the
determination letter set forth in section 90o or evidence that the
business was a qualified business at the time the growth investment
was made.
(c) The number of new full-time equivalent employees at the
qualified business in this state.
(d) The number of full-time equivalent employees at the
qualified business on the date of receipt of the initial growth
investment in this state.
(e) Any other information required by the fund.
(2) Within 60 days of receipt of an annual report, the fund
shall provide written confirmation to the rural development fund of
the new full-time equivalent employees the rural development fund
has been credited for that year.
(3) By the fifth business day after the third anniversary of
the closing date, a rural development fund shall submit a report to
the fund evidencing its compliance with the investment requirements
of this chapter.
(4) The fund may adopt rules necessary to implement this
chapter.
(5) The fund shall submit an annual report to each house of
the legislature on or before April 1, 2020. The annual report shall
include all of the following:
(a) The name and number of all the rural development funds
approved to participate in the program.
(b) The amount of investment authority awarded to each rural
development fund.
(c) Any investments made by the rural development funds,
including the location of the investments.
(d) Whether the rural development funds are in compliance with
this chapter.
(e) Any other information required by the fund.
Sec. 90q. (1) The fund shall calculate an annual fee to be
paid by each rural development fund approved pursuant to this
chapter by dividing $25,000.00 by the number of applications
approved under this chapter and notify each rural development fund
of the amount of the annual fee.
(2) The initial annual fee is due and payable to the fund
within 1 business day of receipt of a repayable grant. After the
initial annual fee, an annual fee is due and payable to the fund on
or before that last day of February of each year.
(3) An annual fee is not required once a rural development
fund has exited the program in accordance with this chapter.
(4) To maintain an aggregate annual fee of $25,000.00 for all
rural development funds, the fund shall recalculate the annual fee
as needed upon the lapse of any certification under this chapter,
the demand of repayment under this chapter, or a rural development
fund's exit from the program.
Sec. 90r. (1) On or after the sixth anniversary of the closing
date, a rural development fund may exit the program and no longer
be subject to the provisions of this chapter. The fund shall
respond to the application within 30 days of receipt and include a
calculation of any repayment amount due.
(2) No distributions other than those permitted by section
90o(1)(b) may be made with respect to the equity interests of the
rural development fund more than the sum of the amount of equity
capital invested into the rural development fund with respect to
the equity interests and an amount equal to any projected increase
in the federal or state tax liability of holders of those interests
related to the ownership of the rural development fund until the
rural development fund has made payments to the fund equal to the
repayment amount.