House of Representatives

HB 2578

technical correction; public finances

Sponsors: Representatives Huffman, O'Halleran

 

DPA

S/E

Committee on CED

X

Committee on Appropriations

 

Caucus and COW

This bill as introduced contains an Appropriation clause.

 

As Passed the House

 

The Commerce and Economic Development Committee adopted a strike-everything amendment.  The strike-everything amendment establishes the Arizona Venture Capital Program and provides for the following:

 

The purpose stated in the strike-everything amendment is the creation of an Arizona Venture Capital Investment Board in order to guarantee equity capital for investment that will result in significant potential to create employment that will diversify and stabilize Arizona's economy.

 

Arizona Venture Capital Program

 

·                      Establishes the Arizona Venture Capital Program for a 10-year period.

·                      Defines venture capital as that which is invested in common or preferred stock, royalty rights, limited partnership interests and any other securities that provide evidence of ownership in private business. [41-1555]

·                      Specifies that a qualified venture capital group must have a permanent in-state office with at least one employee.  [41-1555]

·                      Establishes that an early start-up business is an Arizona business with annual gross revenues of $1 million or less.  A seed venture is an Arizona business in the process of developing a product or service that is not yet offered for sale, or that has annual gross revenues of $100,000 or less. [41-1555]

·                      Makes the Board exempt from the State procurement provisions of law.  [41-2501]

·                      Terminates the Arizona Venture Capital Program on July 1, 2011.

 

 

 

Arizona Venture Capital Investment Board

·                      Creates the Arizona Venture Capital Investment Board consisting of five members appointed by the Governor to serve five-year terms.  The appointees must have knowledge and experience in managing investments.  The Board and its proceedings are classified as a public body with open public records, except with respect to such things as submitted marketing plans, financial statements and trade secrets. [41-1555.01]

·                      Outlines the powers and duties of the Board as follows: adopt rules/policies; contract; execute documents; enter into financial agreements and other transactions to meet its responsibilities; charge service fees; hire a qualified investment officer and necessary employees; manage the assets.  [41-1555.02]

·                      Requires the Board to develop and submit an annual business plan to the Arizona Department of Commerce using the same economic development policies as the Department  [41-1555.03]

·                      The Board must submit a separate annual report reviewing its mission and programs.  Additionally, each qualified venture capital group shall submit an annual report, which shall be compiled into the Board's annual report. [41-1555.03]

·                      Requires copies of the business plan and annual report to be distributed to the Governor, the Legislature, the director of the Department of Library and Archives, the Secretary of State and any other person who requests a copy.  [41-1555.03]

 

Qualified Venture Capital Group Criteria  [41-1555.05]

·                      Allows the Board to extend a 100% guarantee for the principal on venture capital investment in businesses or projects in Arizona.  The investment plus the guarantee must be at least a dollar-for-dollar match.  Additionally, the guarantee shall not be paid unless profits are insufficient for the investor to realize a return of its principal.

·                      Mandates that all gains/profits on investments shall be distributed by paying an initial rate of return of 6% to the investors [after payment of management fees and expenses to the investors].  Any remaining gains/profits shall be distributed at the rate of 25% to the venture capital group and 75% shall be equally divided between the State and the investors.

 

 

 

·                      Requires the Board to solicit proposals from qualified venture capital groups for investment and prescribes applicant criteria as follows: 

1.      Level of experience.

2.      Quality of management.

3.      Investment philosophy and process.

4.      Historical performance.

5.      Probability of success in fund-raising.

6.      Amount and timing of fees to be paid.

7.      Whether the group has committed at least $5 million in other venture capital investments.

8.      Other criteria the Board deems appropriate.

·                      Clarifies that guarantees extended by the Board are not State obligations and may be restricted to the stated funds and assets of the Board.  The Board may contract freely to protect the interests of the State. 

 

 Arizona Venture Capital Fund and Appropriations

·                      Establishes the Arizona Venture Capital Fund consisting of all monies received by the Board.  The Board administers Fund, which is exempt from the provisions relating to lapsing of appropriations.  [41-1555.06]

·                      Appropriates $6 million dollars in FY 2001-02 and $8 million in each of the fiscal years beginning FY 2002-03 through FY 2010-11 from the transaction privilege tax revenues of the State General Fund to the Arizona Venture Capital Fund.  Limits the administrative costs to $250,000 for FY 2001-02 and $400,000 each fiscal year thereafter.  Stipulates the monies are not subject to the legislative appropriations process.  [41-1555.06]

·                      Requires an annual audit of the Fund, which shall be filed with the Office of the Auditor General.  Authorizes the Auditor General to conduct any subsequent audits deemed necessary and to take appropriate action as needed.  [41-1555.07]

 

 

Guarantees on Venture Capital Loans

·                      Authorizes the Board to issue a guarantee to qualified venture capital groups for investment in Arizona businesses.   [41-1555.04]

·                      Limits the maximum total amount to $100 million.  No more than $10 million of the monies in the fund may be allocated to any single qualified group.  Limits the amount of monies that may be used for early start-up businesses or seed ventures to 30%.  At least 10% of the monies shall be allocated to rural Arizona businesses.   [41-1555.04]

 

The strike-everything amendment was further amended in the CED committee as follows:

·                      Increases the required investment for the early start-up business to $2 million or less in annual gross revenues. 

·                      Requires at least one board member to be from the business community and have experience raising money from venture capitalists.

·                      Prescribes that each venture capital group must submit an annual audit conducted by a certified public accountant.

·                      Clarifies that a maximum 30% of the guarantee program may be reserved for early start-up businesses or seed venture businesses, and at least 10% may be reserved for rural Arizona businesses.

·                      Specifies that for every dollar of venture capital investment that is guaranteed, an additional matching investment must be made by the venture capital group.  The matching portion will not be guaranteed.

·                      Appropriates $10 million each fiscal year from FY 2001-02 through FY 2010-11.

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·                      45th Legislature                                                                                                                       

·                      First Regular Session                           3                                                          March 12, 2001

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