House Report 106-638 - AMERICA'S PRIVATE INVESTMENT COMPANIES ACT

[House Report 106-638]
[From the U.S. Government Publishing Office]

106th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 106-638

======================================================================

AMERICA'S PRIVATE INVESTMENT COMPANIES ACT

_______

May 23, 2000.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following

R E P O R T

together with

ADDITIONAL AND DISSENTING VIEWS

[To accompany H.R. 2764]

[Including cost estimate of the Congressional Budget Office]

The Committee on Banking and Financial Services, to whom
was referred the bill (H.R. 2764) to license America's Private
Investment Companies and provide enhanced credit to stimulate
private investment in low-income communities, and for other
purposes, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:

SECTION. 1. SHORT TITLE.

This Act may be cited as the ``America's Private Investment Companies
Act''.

SEC. 2. FINDINGS AND PURPOSES.

(a) Findings.--The Congress finds that--
(1) people living in distressed areas, both urban and rural,
that are characterized by high levels of joblessness, poverty,
and low incomes have not benefited adequately from the economic
expansion experienced by the Nation as a whole;
(2) unequal access to economic opportunities continues to
make the social costs of joblessness and poverty to our Nation
very high; and
(3) there are significant untapped markets in our Nation, and
many of these are in areas that are underserved by institutions
that can make equity and credit investments.
(b) Purposes.--The purposes of this Act are to--
(1) license private for profit community development entities
that will focus on making equity and credit investments for
large-scale business developments that benefit low-income
communities;
(2) provide credit enhancement for those entities for use in
low-income communities; and
(3) provide a vehicle under which the economic and social
returns on financial investments made pursuant to this Act may
be available both to the investors in these entities and to the
residents of the low-income communities.

SEC. 3. DEFINITIONS.

As used in this Act:
(1) Administrator.--The term ``Administrator'' means the
Administrator of the Small Business Administration.
(2) Agency.--The term ``agency'' has the meaning given such
term in section 551(1) of title 5, United States Code.
(3) APIC.--The term ``APIC'' means a business entity that has
been licensed under the terms of this Act as an America's
Private Investment Company, and the license of which has not
been revoked.
(4) Community development entity.--The term ``community
development entity'' means an entity the primary mission of
which is serving or providing investment capital for low-income
communities or low-income persons and which maintains
accountability to residents of low-income communities.
(5) HUD.--The term ``HUD'' means the Secretary of Housing and
Urban Development or the Department of Housing and Urban
Development, as the context requires.
(6) License.--The term ``license'' means a license issued by
HUD as provided in section 4.
(7) Low-income community.--The term ``low-income community''
means--
(A) a census tract or tracts that have--
(i) a poverty rate of 20 percent or greater,
based on the most recent census data; or
(ii) a median family income that does not
exceed 80 percent of the greater of (I) the
median family income for the metropolitan area
in which such census tract or tracts are
located, or (II) the median family income for
the State in which such census tract or tracts
are located; or
(B) a property that was located on a military
installation that was closed or realigned pursuant to
title II of the Defense Authorization Amendments and
Base Closure and Realignment Act (Public Law 100-526;
10 U.S.C. 2687 note), the Defense Base Closure and
Realignment Act of 1990 (part A of title XXIX of Public
Law 101-510; 10 U.S.C. 2687 note), section 2687 of
title 10, United States Code, or any other similar law
enacted after the date of the enactment of this Act
that provides for closure or realignment of military
installations.
(8) Low-income person.--The term ``low-income person'' means
a person who is a member of a low-income family, as such term
is defined in section 104 of the Cranston-Gonzalez National
Affordable Housing Act (42 U.S.C. 12704).
(9) Private equity capital.--
(A) In general.--The term ``private equity
capital''--
(i) in the case of a corporate entity, the
paid-in capital and paid-in surplus of the
corporate entity;
(ii) in the case of a partnership entity, the
contributed capital of the partners of the
partnership entity;
(iii) in the case of a limited liability
company entity, the equity investment of the
members of the limited liability company
entity; and
(iv) earnings from investments of the entity
that are not distributed to investors and are
available for reinvestment by the entity.
(B) Exclusions.--Such term does not include any--
(i) funds borrowed by an entity from any
source or obtained through the issuance of
leverage; except that this clause may not be
construed to exclude amounts evidenced by a
legally binding and irrevocable investment
commitment in the entity, or the use by an
entity of a pledge of such investment
commitment to obtain bridge financing from a
private lender to fund the entity's activities
on an interim basis; or
(ii) funds obtained directly or indirectly
from any Federal, State, or local government or
any government agency, except for--
(I) funds invested by an employee
welfare benefit plan or pension plan;
and
(II) credits against any Federal,
State, or local taxes.
(10) Qualified active business.--The term ``qualified active
business'' means a business or trade--
(A) that, at the time that an investment is made in
the business or trade, is deriving at least 50 percent
of its gross income from the conduct of trade or
business activities in low-income communities;
(B) a substantial portion of the use of the tangible
property of which is used within low-income
communities;
(C) a substantial portion of the services that the
employees of which perform are performed in low-income
communities; and
(D) less than 5 percent of the aggregate unadjusted
bases of the property of which is attributable to
certain financial property, as the Secretary shall set
forth in regulations, or in collectibles, other than
collectibles held primarily for sale to customers.
(11) Qualified debenture.--The term ``qualified debenture''
means a debt instrument having terms that meet the requirements
established pursuant to section 6(c)(1).
(12) Qualified low-income community investment.--The term
``qualified low-income community investment'' mean an equity
investment in, or a loan to, a qualified active business.
(13) Secretary.--The term ``Secretary'' means the Secretary
of Housing and Urban Development, unless otherwise specified in
this Act.

SEC. 4. AUTHORIZATION.

(a) Licenses.--The Secretary is authorized to license community
development entities as America's Private Investment Companies, in
accordance with the terms of this Act.
(b) Regulations.--The Secretary shall regulate APICs for compliance
with sound financial management practices, and the program and
procedural goals of this and other related Acts, and other purposes as
required or authorized by this Act, or determined by the Secretary. The
Secretary shall issue such regulations as are necessary to carry out
the licensing and regulatory and other duties under this Act, and may
issue notices and other guidance or directives as the Secretary
determines are appropriate to carry out such duties.
(c) Use of Credit Subsidy for Licenses.--
(1) Number of licenses.--The number of APICs licensed at any
one time may not exceed--
(A) the number that may be supported by the amount of
budget authority appropriated in accordance with
section 504(b) of the Federal Credit Reform Act of 1990
(2 U.S.C. 661c) for the cost (as such term is defined
in section 502 of such Act) of the subsidy and the
investment strategies of such APICs; or
(B) to the extent the limitation under section
5(e)(1) applies, the number authorized under such
section.
(2) Use of additional credit subsidy.--Subject to the
limitation under paragraph (1), the Secretary may use any
budget authority available after credit subsidy has been
allocated for the APICs initially licensed pursuant to section
5 as follows:
(A) Additional licenses.--To license additional
APICs.
(B) Credit subsidy increases.--To increase the credit
subsidy allocated to an APIC as an award for high
performance under this Act, except that such increases
may be made only in accordance with the following
requirements and limitations:
(i) Timing.--An increase may only be provided
for an APIC that has been licensed for a period
of not less than 2 years.
(ii) Competition.--An increase may only be
provided for a fiscal year pursuant to a
competition for such fiscal year among APICs
eligible for, and requesting, such an increase.
The competition shall be based upon criteria
that the Secretary shall establish, which shall
include the financial soundness and performance
of the APICs, as measured by achievement of the
public performance goals included in the APICs
statements required under section 5(a)(6) and
audits conducted under section 9(b)(2). Among
the criteria established by the Secretary to
determine priority for selection under this
section, the Secretary shall include making
investments in and loans to qualified active
businesses in urban or rural areas that have
been designated under subchapter U of Chapter 1
of the Internal Revenue Code of 1986 as
empowerment zones or enterprise communities.
(d) Cooperation and Coordination.--
(1) Program policies.--The Secretary is authorized to
coordinate and cooperate, through memoranda of understanding,
an APIC liaison committee, or otherwise, with the
Administrator, the Secretary of the Treasury, and other
agencies in the discretion of the Secretary, on implementation
of this Act, including regulation, examination, and monitoring
of APICs under this Act.
(2) Financial soundness requirements.--The Secretary shall
consult with the Administrator and the Secretary of the
Treasury, and may consult with such other heads of agencies as
the Secretary may consider appropriate, in establishing any
regulations, requirements, guidelines, or standards for
financial soundness or management practices of APICs or
entities applying for licensing as APICs. In implementing and
monitoring compliance with any such regulations, requirements,
guidelines, and standards, the Secretary shall enter into such
agreements and memoranda of understanding with the
Administrator and the Secretary of the Treasury as may be
appropriate to provide for such officials to provide any
assistance that may be agreed to.
(3) Operations.--The Secretary may carry out this Act--
(A) directly, through agreements with other Federal
entities under section 1535 of title 31, United States
Code, or otherwise, or
(B) indirectly, under contracts or agreements, as the
Secretary shall determine.
(e) Fees and Charges for Administrative Costs.--To the extent
provided in appropriations Acts, the Secretary is authorized to impose
fees and charges for application, review, licensing, and regulation, or
other actions under this Act, and to pay for the costs of such
activities from the fees and charges collected.
(f) Guarantee Fees.--The Secretary is authorized to set and collect
fees for loan guarantee commitments and loan guarantees that the
Secretary makes under this Act.
(g) Funding.--
(1) Authorization of appropriations for loan guarantee
commitments.--For each of fiscal years 2000, 2001, 2002, 2003,
and 2004, there is authorized to be appropriated up to
$36,000,000 for the cost (as such term is defined in section
502(5) of the Federal Credit Reform Act of 1990) of annual loan
guarantee commitments under this Act. Amounts appropriated
under this paragraph shall remain available until expended.
(2) Aggregate loan guarantee commitment limitation.--The
Secretary may make commitments to guarantee loans only to the
extent that the total loan principal, any part of which is
guaranteed, will not exceed $1,000,000,000, unless another such
amount is specified in appropriation Acts for any fiscal year.
(3) Authorization of appropriations for administrative
expenses.--For each of the fiscal years 2000, 2001, 2002, 2003,
and 2004, there is authorized to be appropriated $1,000,000 for
administrative expenses for carrying out this Act. The
Secretary may transfer amounts appropriated under this
paragraph to any appropriation account of HUD or another
agency, to carry out the program under this Act. Any agency to
which the Secretary may transfer amounts under this Act is
authorized to accept such transferred amounts in any
appropriation account of such agency.

SEC. 5. SELECTION OF APICS.

(a) Eligible Applicants.--An entity shall be eligible to be selected
for licensing under section 4 as an APIC only if the entity submits an
application in compliance with the requirements established pursuant to
subsection (b) and the entity meets or complies with the following
requirements:
(1) Organization.--The entity shall be a private, for-profit
entity that qualifies as a community development entity for the
purposes of the New Markets Tax Credits, to the extent such
credits are established under Federal law.
(2) Minimum private equity capital.--The amount of private
equity capital reasonably available to the entity, as
determined by the Secretary, at the time that a license is
approved may not be less than $25,000,000.
(3) Qualified management.--The management of the entity
shall, in the determination of the Secretary, meet such
standards as the Secretary shall establish to ensure that the
management of the APIC is qualified, and has the financial
expertise, knowledge, experience, and capability necessary,
to make investments for community and economic development
in low-income communities.
(4) Conflict of interest.--The entity shall demonstrate that,
in accordance with sound financial management practices, the
entity is structured to preclude financial conflict of interest
between the APIC and a manager or investor.
(5) Investment strategy.--The entity shall prepare and submit
to the Secretary an investment strategy that includes
benchmarks for evaluation of its progress, that includes an
analysis of existing locally owned businesses in the
communities in which the investments under the strategy will be
made, that prioritizes such businesses for investment
opportunities, and that fulfills the specific public purpose
goals of the entity.
(6) Statement of public purpose goals.--The entity shall
prepare and submit to the Secretary a statement of the public
purpose goals of the entity, which shall--
(A) set forth goals that shall promote community and
economic development, which shall include--
(i) making investments in low-income
communities that further economic development
objectives by targeting such investments in
businesses or trades that comply with the
requirements under subparagraphs (A) through
(C) of section 3(10) relating to low-income
communities in a manner that benefits low-
income persons;
(ii) creating jobs in low-income communities
for residents of such communities;
(iii) involving community-based organizations
and residents in community development
activities;
(iv) such other goals as the Secretary shall
specify; and
(v) such elements as the entity may set forth
to achieve specific public purpose goals;
(B) include such other elements as the Secretary
shall specify; and
(C) include proposed measurements and strategies for
meeting the goals.
(7) Compliance with laws.--The entity shall agree to comply
with applicable laws, including Federal executive orders,
Office of Management and Budget circulars, and requirements of
the Department of the Treasury, and such operating and
regulatory requirements as the Secretary may impose from time
to time.
(8) Other.--The entity shall satisfy any other application
requirements that the Secretary may impose by regulation or
Federal Register notice.
(b) Competitions.--The Secretary shall select eligible entities under
subsection (a) to be licensed under section 4 as APICs on the basis of
competitions. The Secretary shall announce each such competition by
causing a notice to be published in the Federal Register that invites
applications for licenses and sets forth the requirements for
application and such other terms of the competition not otherwise
provided for, as determined by the Secretary.
(c) Selection.--In competitions under subsection (b), the Secretary
shall select eligible entities under subsection (a) for licensing as
APICs on the basis of--
(1) the extent to which the entity is expected to achieve the
goals of this Act by meeting or exceeding criteria established
under subsection (d); and
(2) to the extent practicable and subject to the existence of
approvable applications, ensuring geographical diversity among
the applicants selected and diversity of APICs investment
strategies, so that urban and rural communities are both
served, in the determination of the Secretary, by the program
under this Act.
(d) Selection Criteria.--The Secretary shall establish selection
criteria for competitions under subsection (b), which shall include the
following criteria:
(1) Capacity.--
(A) Management.--The extent to which the entity's
management has the quality, experience, and expertise
to make and manage successful investments for community
and economic development in low-income communities.
(B) State and local cooperation.--The extent to which
the entity demonstrates a capacity to cooperate with
States or units of general local government and with
community-based organizations and residents of low-
income communities.
(2) Investment strategy.--The quality of the entity's
investment strategy submitted in accordance with subsection
(a)(5) and the extent to which the investment strategy furthers
the goals of this Act pursuant to paragraph (3) of this
subsection.
(3) Public purpose goals.--With respect to the statement of
public purpose goals of the entity submitted in accordance with
subsection (a)(6), and the strategy and measurements included
therein--
(A) the extent to which such goals promote community
and economic development;
(B) the extent to which such goals provide for making
qualified investments in low-income communities that
further economic development objectives, such as--
(i) creating, within 2 years of the
completion of the initial such investment, job
opportunities, opportunities for ownership, and
other economic opportunities within a low-
income community, both short-term and of a
longer duration;
(ii) improving the economic vitality of a
low-income community, including stimulating
other business development;
(iii) bringing new income into a low-income
community and assisting in the revitalization
of such community;
(iv) converting real property for the purpose
of creating a site for business incubation and
location, or business district revitalization;
(v) enhancing economic competition, including
the advancement of technology;
(vi) rural development;
(vii) mitigating, rehabilitating, and reusing
real property considered subject to the Solid
Waste Disposal Act (42 U.S.C. 6901 et seq.;
commonly referred to as the Resource
Conservation and Recovery Act) or restoring
coal mine-scarred land;
(viii) creation of local wealth through
investments in employee stock ownership
companies or resident-owned ventures; and
(ix) any other objective that the Secretary
may establish to further the purposes of this
Act;
(C) the quality of jobs to be created for residents
of low-income communities, taking into consideration
such factors as the payment of higher wages, job
security, employment benefits, opportunity for
advancement, and personal asset building;
(D) the extent to which achievement of such goals
will involve community-based organizations and
residents in community development activities; and
(E) the extent to which the investments referred to
in subparagraph (B) are likely to benefit existing
small business in low-income communities or will
encourage the growth of small business in such
communities.
(4) Other.--Any other criteria that the Secretary may
establish to carry out the purposes of this Act.
(e) First Year Requirements.--
(1) Numerical limitation.--The number of APICs may not, at
any time during the 1-year period that begins upon the
Secretary awarding the first license for an APIC under this
Act, exceed 15.
(2) Limitation on allocation of available credit subsidy.--Of
the amount of budget authority initially made available for
allocation under this Act for APICs, the amount allocated for
any single APIC may not exceed 20 percent.
(3) Native american private investment company.--Subject only
to the absence of an approvable application from an entity,
during the 1-year period referred to in paragraph (1), of the
entities selected and licensed by the Secretary as APICs, at
least one shall be an entity that has as its primary purpose
the making of qualified low-income community investments in
areas that are within Indian country (as such term is defined
in section 1151 of title 18, United States Code) or within
lands that have status as Hawaiian home land under section 204
of the Hawaiian Homes Commission Act, 1920 (42 Stat. 108) or
are acquired pursuant to such Act. The Secretary may establish
specific selection criteria for applicants under this
paragraph.
(f) Communications Between HUD and Applicants.--
(1) In general.--The Secretary shall set forth in regulations
the procedures under which HUD and applicants for APIC
licenses, and others, may communicate. Such regulations shall--
(A) specify by position the HUD officers and
employees who may communicate with such applicants and
others;
(B) permit HUD officers and employees to request and
discuss with the applicant and others (such as banks or
other credit or business references, or potential
investors, that the applicant specifies in writing) any
more detailed information that may be desirable to
facilitate HUD's review of the applicant's application;
(C) restrict HUD officers and employees from
revealing to any applicant--
(i) the fact or chances of award of a license
to such applicant, unless there has been a
public announcement of the results of the
competition; and
(ii) any information with respect to any
other applicant; and
(D) set forth requirements for making and keeping
records of any communications conducted under this
subsection, including requirements for making such
records available to the public after the award of
licenses under an initial or subsequent notice, as
appropriate, under subsection (a).
(2) Timing.--Regulations under this subsection may be issued
as interim rules for effect on or before the date of
publication of the first notice under subsection (a), and shall
apply only with respect to applications under such notice.
Regulations to implement this subsection with respect to any
notice after the first such notice shall be subject to notice
and comment rulemaking.
(3) Inapplicability of department of hud act provision.--
Section 12(e)(2) of the Department of Housing and Urban
Development Act (42 U.S.C. 3537a(e)(2)) is amended by inserting
before the period at the end the following: ``or any license
provided under the America's Private Investment Companies
Act''.

SEC. 6. OPERATIONS OF APICS.

(a) Powers and Authorities.--
(1) In general.--An APIC shall have any powers or authorities
that--
(A) the APIC derives from the jurisdiction in which
it is organized, or that the APIC otherwise has;
(B) may be conferred by a license under this Act; and
(C) the Secretary may prescribe by regulation.
(2) New market assistance.--Nothing in this Act shall
preclude an APIC or its investors from receiving an allocation
of New Market Tax Credits (to the extent such credits are
established under Federal law) if the APIC satisfies any
applicable terms and conditions under the Internal Revenue Code
of 1986.
(b) Investment Limitations.--
(1) Qualified low-income community investments.--
Substantially all investments that an APIC makes shall be
qualified low-income community investments if the investments
are financed with--
(A) amounts available from the proceeds of the
issuance of an APIC's qualified debenture guaranteed
under this Act;
(B) proceeds of the sale of obligations described
under subsection (c)(3)(C)(iii); or
(C) the use of private equity capital, as determined
by the Secretary, in an amount specified in the APIC's
license.
(2) Single business investments.--An APIC shall not, as a
matter of sound financial practice, invest in any one business
an amount that exceeds an amount equal to 35 percent of the sum
of--
(A) the APIC's private equity capital; plus
(B) an amount equal to the percentage limit that the
Secretary determines that an APIC may have outstanding
at any one time, under subsection (c)(2)(A).
(c) Borrowing Powers; Qualified Debentures.--
(1) Issuance.--An APIC may issue qualified debentures. The
Secretary shall, by regulation, specify the terms and
requirements for debentures to be considered qualified
debentures for purposes of this Act, except that the term to
maturity of any qualified debenture may not exceed 21 years and
each qualified debenture shall bear interest during all or any
part of that time period at a rate or rates approved by the
Secretary.
(2) Leverage limits.--In general, as a matter of sound
financial management practices--
(A) the total amount of qualified debentures that an
APIC issues under this Act that an APIC may have
outstanding at any one time shall not exceed an amount
equal to 200 percent of the private equity capital of
the APIC, as determined by the Secretary; and
(B) an APIC shall not have more than $300,000,000 in
face value of qualified debentures issued under this
Act outstanding at any one time.
(3) Repayment.--
(A) Condition of business wind-up.--An APIC shall
have repaid, or have otherwise been relieved of
indebtedness, with respect to any interest or principal
amounts of borrowings under this subsection no less
than 2 years before the APIC may dissolve or otherwise
complete the wind-up of its business.
(B) Timing.--An APIC may repay any interest or
principal amounts of borrowings under this subsection
at any time: Provided, That the repayment of such
amounts shall not relieve an APIC of any duty otherwise
applicable to the APIC under this Act, unless the
Secretary orders such relief.
(C) Use of investment proceeds before repayment.--
Until an APIC has repaid all interest and principal
amounts on APIC borrowings under this subsection, an
APIC may use the proceeds of investments, in accordance
with regulations issued by the Secretary, only to--
(i) pay for proper costs and expenses the
APIC incurs in connection with such
investments;
(ii) pay for the reasonable administrative
expenses of the APIC;
(iii) purchase Treasury securities;
(iv) repay interest and principal amounts on
APIC borrowings under this subsection;
(v) make interest, dividend, or other
distributions to or on behalf of an investor;
or
(vi) undertake such other purposes as the
Secretary may approve.
(D) Use of investment proceeds after repayment.--
After an APIC has repaid all interest and principal
amounts on APIC borrowings under this subsection, and
subject to continuing compliance with subsection (a),
the APIC may use the proceeds from investments to make
interest, dividend, or other distributions to or on
behalf of investors in the nature of returns on
capital, or the withdrawal of private equity capital,
without regard to subparagraph (C) but in conformity
with the APIC's investment strategy and statement of
public purpose goals.
(d) Reuse of Qualified Debenture Proceeds.--An APIC may use the
proceeds of sale of Treasury securities purchased under subsection
(c)(3)(C)(iii) to make qualified low-income community investments,
subject to the Secretary's approval. In making the request for the
Secretary's approval, the APIC shall follow the procedures applicable
to an APIC's request for HUD guarantee action, as the Secretary may
modify such procedures for implementation of this subsection. Such
procedures shall include the description and certifications that an
APIC must include in all requests for guarantee action, and the
environmental certification applicable to initial expenditures for a
project or activity.
(e) Antipirating.--Notwithstanding any other provision of law, an
APIC may not use any private equity capital required to be contributed
under this Act, or the proceeds from the sale of any qualified
debenture under this Act, to make an investment, as determined by the
Secretary, to assist directly in the relocation of any industrial or
commercial plant, facility, or operation, from 1 area to another area,
if the relocation is likely to result in a significant loss of
employment in the labor market area from which the relocation occurs.
(f) Exclusion of APIC From Definition of Debtor Under Bankruptcy
Provisions.--Section 109(b)(2) of title 11, United States Code, is
amended by inserting before ``credit union'' the following: ``America's
Private Investment Company licensed under the America's Private
Investment Companies Act,''.

SEC. 7. CREDIT ENHANCEMENT BY THE FEDERAL GOVERNMENT.

(a) Issuance and Guarantee of Qualified Debentures.--
(1) Authority.--To the extent consistent with the Federal
Credit Reform Act of 1990, the Secretary is authorized to make
commitments to guarantee and guarantee the timely payment of
all principal and interest as scheduled on qualified debentures
issued by APICs. Such commitments and guarantees may only be
made in accordance with the terms and conditions established
under paragraph (2).
(2) Terms and conditions.--The Secretary shall establish such
terms and conditions as the Secretary determines to be
appropriate for commitments and guarantees under this
subsection, including terms and conditions relating to amounts,
expiration, number, priorities of repayment, security,
collateral, amortization, payment of interest (including the
timing thereof), and fees and charges. The terms and conditions
applicable to any particular commitment orguarantee may be
established in documents that the Secretary approves for such
commitment or guarantee.
(3) Seniority.--Notwithstanding any other provision of
Federal law or any law or the constitution of any State,
qualified debentures guaranteed under this subsection by the
Secretary shall be senior to any other debt obligation, equity
contribution or earnings, or the distribution of dividends,
interest, or other amounts, of an APIC.
(b) Issuance of Trust Certificates.--The Secretary, or an agent or
entity selected by the Secretary, is authorized to issue trust
certificates representing ownership of all or a fractional part of
guaranteed qualified debentures issued by APICs and held in trust.
(c) Guarantee of Trust Certificates.--
(1) In general.--The Secretary is authorized, upon such terms
and conditions as the Secretary determines to be appropriate,
to guarantee the timely payment of the principal of and
interest on trust certificates issued by the Secretary, or an
agent or other entity, for purposes of this section. Such
guarantee shall be limited to the extent of principal and
interest on the guaranteed qualified debentures which compose
the trust.
(2) Substitution option.--The Secretary shall have the option
to replace in the corpus of the trust any prepaid or defaulted
qualified debenture with a debenture, another full faith and
credit instrument, or any obligations of the United States,
that may reasonably substitute for such prepaid or defaulted
qualified debenture.
(3) Proportionate reduction option.--In the event that the
Secretary elects not to exercise the option under paragraph
(2), and a qualified debenture in such trust is prepaid, or in
the event of default of a qualified debenture, the guarantee of
timely payment of principal and interest on the trust
certificate shall be reduced in proportion to the amount of
principal and interest that such prepaid qualified debenture
represents in the trust. Interest on prepaid or defaulted
qualified debentures shall accrue and be guaranteed by the
Secretary only through the date of payment of the guarantee.
During the term of a trust certificate, it may be called for
redemption due to prepayment or default of all qualified
debentures that are in the corpus of the trust.
(d) Full Faith and Credit Backing of Guarantees.--The full faith and
credit of the United States is pledged to the timely payment of all
amounts which may be required to be paid under any guarantee by the
Secretary pursuant to this section.
(e) Subrogation and Liens.--
(1) Subrogation.--In the event the Secretary pays a claim
under a guarantee issued under this section, the Secretary
shall be subrogated fully to the rights satisfied by such
payment.
(2) Priority of liens.--No State or local law, and no Federal
law, shall preclude or limit the exercise by the Secretary of
its ownership rights in the debentures in the corpus of a trust
under this section.
(f) Registration.--
(1) In general.--The Secretary shall provide for a central
registration of all trust certificates issued pursuant to this
section.
(2) Agents.--The Secretary may contract with an agent or
agents to carry out on behalf of the Secretary the pooling and
the central registration functions of this section
notwithstanding any other provision of law, including
maintenance on behalf of and under the direction of the
Secretary, such commercial bank accounts or investments in
obligations of the United States as may be necessary to
facilitate trusts backed by qualified debentures guaranteed
under this Act and the issuance of trust certificates to
facilitate formation of the corpus of the trusts. The Secretary
may require such agent or agents to provide a fidelity bond or
insurance in such amounts as the Secretary determines to be
necessary to protect the interests of the Government.
(3) Form.--Book-entry or other electronic forms of
registration for trust certificates under this Act are
authorized.
(g) Timing of Issuance of Guarantees of Qualified Debentures and
Trust Certificates.--The Secretary may, from time to time in the
Secretary's discretion, exercise the authority to issue guarantees of
qualified debentures under this Act or trust certificates under this
Act.

SEC. 8. APIC REQUESTS FOR GUARANTEE ACTIONS.

(a) In General.--The Secretary may issue a guarantee under this Act
for a qualified debenture that an APIC intends to issue only pursuant
to a request to the Secretary by the APIC for such guarantee that is
made in accordance with regulations governing the content and
procedures for such requests, that the Secretary shall prescribe. Such
regulations shall provide that each such request shall include--
(1) a description of the manner in which the APIC intends to
use the proceeds from the qualified debenture;
(2) a certification by the APIC that the APIC is in
substantial compliance with--
(A) this Act and other applicable laws, including any
requirements established under this Act by the
Secretary;
(B) all terms and conditions of its license, any
cease-and-desist order issued under section 10, and of
any penalty or condition that may have arisen from
examination or monitoring by the Secretary or
otherwise, including the satisfaction of any financial
audit exception that may have been outstanding; and
(C) all requirements relating to the allocation and
use of New Markets Tax Credits, to the extent such
credits are established under Federal law; and
(3) any other information or certification that the Secretary
considers appropriate.
(b) Requests for Guarantee of Qualified Debentures That Include
Funding for Initial Expenditure for a Project or Activity.--In addition
to the description and certification that an APIC is required to supply
in all requests for guarantee action under subsection (a), in the case
of an APIC's request for a guarantee that includes a qualified
debenture, the proceeds of which the APIC expects to be used as its
initial expenditure for a project or activity in which the APIC intends
to invest, and the expenditure for which would require an environmental
assessment under the National Environmental Policy Act of 1969 and
other related laws that further the purposes of such Act, such request
for guarantee action shall include evidence satisfactory to the
Secretary of the certification of the completion of environmental
review of the project or activity required of the cognizant State or
local government under subsection (c). If the environmental review
responsibility for the project or activity has not been assumed by a
State or local government under subsection (c), then the Secretary
shall be responsible for carrying out the applicable responsibilities
under the National Environmental Policy Act of 1969 and other
provisions of law that further the purposes of such Act that relate to
the project or activity, and the Secretary shall execute such
responsibilities before acting on the APIC's request for the guarantee
that is covered by this subsection.
(c) Responsibility for Environmental Reviews.--
(1) Execution of responsibility by the secretary.--This
subsection shall apply to guarantees by the Secretary of
qualified debentures under this Act, the proceeds of which
would be used in connection with qualified low-income community
investments of APICs under this Act.
(2) Assumption of responsibility by cognizant unit of general
government.--
(A) Guarantee of qualified debentures.--In order to
assure that the policies of the National Environmental
Policy Act of 1969 and other provisions of law that
further the purposes of such Act (as specified in
regulations issued by the Secretary) are most
effectively implemented in connection with the
expenditure of funds under this Act, and to assure to
the public undiminished protection of the environment,
the Secretary may, under such regulations, in lieu of
the environmental protection procedures otherwise
applicable, provide for the guarantee of qualified
debentures, any part of the proceeds of which are to
fund particular qualified low-income community
investments of APICs under this Act, if a State or unit
of general local government, as designated by the
Secretary in accordance with regulations issued by the
Secretary, assumes all of the responsibilities for
environmental review, decisionmaking, and action
pursuant to the National Environmental Policy Act of
1969 and such other provisions of law that further such
Act as the regulations of the Secretary specify, that
would otherwise apply to the Secretary were the
Secretary to undertake the funding of such investments
as a Federal action.
(B) Implementation.--The Secretary shall issue
regulations to carry out this subsection only after
consultation with the Council on Environmental Quality.
Such regulations shall--
(i) specify any other provisions of law which
further the purposes of the National
Environmental Policy Act of 1969 and to which
the assumption of responsibility as provided in
this subsection applies;
(ii) provide eligibility criteria and
procedures for the designation of a State or
unit of general local government to assume all
of the responsibilities in this subsection;
(iii) specify the purposes for which funds
may be committed without regard to the
procedure established under paragraph (3);
(iv) provide for monitoring of the
performance of environmental reviews under this
subsection;
(v) in the discretion of the Secretary,
provide for the provision or facilitation of
training for such performance; and
(vi) subject to the discretion of the
Secretary, provide for suspension or
termination by the Secretary of the assumption
under subparagraph (A).
(C) Responsibilities of states and units of general
local government.--The Secretary's duty under
subparagraph (B) shall not be construed to limit any
responsibility assumed by a State or unit of general
local government with respect to any particular request
for guarantee under subparagraph (A), or the use of
funds for a qualified investment.
(3) Procedure.--Subject to compliance by the APIC with the
requirements of this title, the Secretary shall approve the
request for guarantee of a qualified debenture, any part of the
proceeds of which is to fund particular qualified low-income
community investments of an APIC under this Act, that is
subject to the procedures authorized by this subsection only
if, not less than 15 days prior to such approval and prior to
any commitment of funds to such investment (except for such
purposes specified in the regulations issued under paragraph
(2)(B)), the APIC submits to the Secretary a request for
guarantee of a qualified debenture that is accompanied by
evidence of a certification of the State or unit of general
local government which meets the requirements of paragraph (4).
The approval by the Secretary of any such certification shall
be deemed to satisfy the Secretary's responsibilities pursuant
to paragraph (1) under the National Environmental Policy Act of
1969 and such other provisions of law as the regulations of the
Secretary specify insofar as those responsibilities relate to
the guarantees of qualified debentures, any parts of the
proceeds of which are to fund such investments, which are
covered by such certification.
(4) Certification.--A certification under the procedures
authorized by this subsection shall--
(A) be in a form acceptable to the Secretary;
(B) be executed by the chief executive officer or
other officer of the State or unit of general local
government who qualifies under regulations of the
Secretary;
(C) specify that the State or unit of general local
government under this subsection has fully carried out
its responsibilities as described under paragraph (2);
and
(D) specify that the certifying officer--
(i) consents to assume the status of a
responsible Federal official under the National
Environmental Policy Act of 1969 and each
provision of law specified in regulations
issued by the Secretary insofar as the
provisions of such Act or other such provision
of law apply pursuant to paragraph (2); and
(ii) is authorized and consents on behalf of
the State or unit of general local government
and himself or herself to accept the
jurisdiction of the Federal courts for the
purpose of enforcement of the responsibilities
as such an official.

SEC. 9. EXAMINATION AND MONITORING OF APICS.

(a) In General.--The Secretary shall, under regulations, through
audits, performance agreements, license conditions, or otherwise,
examine and monitor the operations and activities of APICs for
compliance with sound financial management practices, and for
satisfaction of the program and procedural goals of this Act and other
related Acts. The Secretary may undertake any responsibility under this
section in cooperation with an APIC liaison committee, or any agency
that is a member of such a committee, or other agency.
(b) Monitoring, Updating, and Program Review.--
(1) Reporting and updating.--The Secretary shall establish
such annual or more frequent reporting requirements for APICs,
and such requirements for the updating of the statement of
public purpose goals, investment strategy (including the
benchmarks in such strategy), and other documents that may have
been used in the license application process under this Act, as
the Secretary determines necessary to assist the Secretary in
monitoring the compliance and performance of APICs.
(2) Annual audits.--The Secretary shall require each APIC to
have an independent audit conducted annually of the operations
of the APIC. The Secretary, in consultation with the
Administrator and the Secretary of the Treasury, shall
establish requirements and standards for such audits, including
requirements that such audits be conducted in accordance with
generally accepted accounting principles, that the APIC submit
the results of the audit to Secretary, and that specify the
information to be submitted.
(3) Examinations.--The Secretary shall, no less often than
once every 2 years, examine the operations and portfolio of
each APIC licensed under this Act for compliance with sound
financial management practices, and for compliance with this
Act.
(4) Examination standards.--
(A) Sound financial management practices.--The
Secretary shall examine each APIC to ensure, as a
matter of sound financial management practices,
substantial compliance with this and other applicable
laws, including Federal executive orders, Department of
Treasury and Office of Management and Budget guidance,
circulars, and application and licensing requirements
on a continuing basis. The Secretary may, by
regulation, establish any additional standards for
sound financial management practices, including
standards that address solvency and financial exposure.
(B) Performance and other examinations.--The
Secretary shall monitor each APIC's progress in meeting
the goals in the APIC's statement of public purpose
goals, executing the APIC's investment strategy, and
other matters.
(c) Inspector General Responsibility.--In carrying out monitoring of
HUD's responsibilities under this Act and for purposes of ensuring that
the program under this Act is operated in accordance with sound
financial management practices, the Inspector General of the Department
of Housing and Urban Development shall consult with the Inspector
General of the Department of the Treasury and the Inspector General of
the Small Business Administration, as appropriate, and may enter into
such agreements and memoranda of understanding as may be necessary to
obtain the cooperation of the Inspectors General of the Department of
the Treasury and the Small Business Administration in carrying out such
function.
(d) Annual Report By Secretary.--The Secretary shall submit a report
to the Congress annually regarding the operations, activities,
financial health, and achievements of the APIC program under this Act.
The report shall list each investment made by an APIC and include a
summary of the examinations conducted under subsection (b)(3), the
guarantee actions of HUD, and any regulatory or policy actions taken by
HUD. The report shall distinguish recently licensed APICs from APICs
that have held licenses for a longer period for purposes of indicating
program activities and performance.
(e) GAO Report.--
(1) Requirement.--Not later than 2 years after the date of
the enactment of this Act, the Comptroller General of the
United States shall submit a report to the Congress regarding
the operation of the program under this Act for licensing and
guarantees for APICs.
(2) Contents.--The report shall include--
(A) an analysis of the operations and monitoring by
HUD of the APIC program under this Act;
(B) the administrative and capacity needs of HUD
required to ensure the integrity of the program;
(C) the extent and adequacy of any credit subsidy
appropriated for the program; and
(D) the management of financial risk and liability of
the Federal Government under the program.

SEC. 10. PENALTIES.

(a) Violations Subject to Penalty.--The Secretary may impose a
penalty under this subsection on any APIC or manager of an APIC that,
by any act, practice, or failure to act, engages in fraud,
mismanagement, or noncompliance with this Act, the regulations under
this Act, or a condition of the APIC's license under this Act. The
Secretary shall, by regulation, identify, by generic description of a
role or responsibilities, any manager of an APIC that is subject to a
penalty under this section.
(b) Penalties Requiring Notice and an Opportunity to Respond.--If,
after notice in writing to an APIC or the manager of an APIC that the
APIC or managerhas engaged in any action, practice, or failure to act
that, under subsection (a), is subject to a penalty, and after an
opportunity for the APIC or manager to respond to the notice, the
Secretary determines that the APIC or manager engaged in such action or
failure to act, the Secretary may, in addition to other penalties
imposed--
(1) assess a civil money penalty, except that any civil money
penalty under this subsection shall be in an amount not
exceeding $10,000;
(2) issue an order to cease and desist with respect to such
action, practice, or failure to act of the APIC or manager;
(3) suspend, or condition the use of, the APIC's license,
including deferring, for the period of the suspension, any
commitment to guarantee any new qualified debenture of the
APIC, except that any suspension or condition under this
paragraph may not exceed 90 days; and
(4) impose any other penalty that the Secretary determines to
be less burdensome to the APIC than a penalty under subsection
(c).
(c) Penalties Requiring Notice and Hearing.--If, after notice in
writing to an APIC or the manager of an APIC that an APIC or manager
has engaged in any action, practice, or failure to act that, under
subsection (a), is subject to a penalty, and after an opportunity for
administrative hearing, the Secretary determines that the APIC or
manager engaged in such action or failure to act, the Secretary may--
(1) assess a civil money penalty against the APIC or a
manager in any amount;
(2) require the APIC to divest any interest in an investment,
on such terms and conditions as the Secretary may impose; or
(3) revoke the APIC's license.
(d) Effective Date of Penalties.--
(1) Prior notice requirement.--Except as provided in
paragraph (2) of this subsection, a penalty under subsection
(b) or (c) shall not be due and payable and shall not otherwise
take effect or be subject to enforcement by an order of a
court, before notice of the penalty is published in the Federal
Register.
(2) Cease-and-desist orders and suspension or conditioning of
license.--In the case of a cease-and-desist order under
subsection (b)(2) or the suspension or conditioning of an
APIC's license under subsection (b)(3), the following
procedures shall apply:
(A) Action without published notice.--The Secretary
may order an APIC or manager to cease and desist from
an action, practice, or failure to act or may suspend
or condition an APIC's license, for not more than 45
days without prior publication of notice in the Federal
Register, but such cease-and-desist order or suspension
or conditioning shall take effect only after the
Secretary has issued a written notice (which may
include a writing in electronic form) of such action to
the APIC. Notwithstanding subsection (b), such written
notice shall be effective without regard to whether the
APIC has been accorded an opportunity to respond. Upon
such notice, such cease-and-desist order or suspension
or conditioning shall be subject to enforcement by an
order of a court.
(B) Publication of notice of suspension or
conditioning of license.--Upon a suspension or
conditioning of a license taking effect pursuant to
subparagraph (A), the Secretary shall promptly cause a
notice of suspension or conditioning of such license
for a period of not more than 90 days to be published
in the Federal Register. The Secretary shall provide
the APIC an opportunity to respond to such notice. For
purposes of the determining the duration of the period
of any suspension or conditioning under this
subparagraph, the first day of such period shall be the
day of issuance of the written notice under this
paragraph of the suspension or conditioning.
(C) Revocation of license.--During the period of the
suspension or conditioning of an APIC's license, the
Secretary may take action under subsection (c)(3) to
revoke the license of the APIC, in accordance with the
procedures applicable to such subsection.
Notwithstanding any other provision of this section, if
the Secretary takes such action, the Secretary may
extend the suspension or conditioning of the APIC's
license, for one or more periods of not more than 90
days each, by causing notice of such action to be
published in the Federal Register--
(i) for the first such extension, before the
expiration of the period under subparagraph
(B); and
(ii) for any subsequent extension, before the
expiration of the preceding extension period
under this subparagraph.
(D) Term of effectiveness.--A cease-and-desist order
or the suspension or conditioning of an APIC's license
by the Secretary under this paragraph shall remain in
effect in accordance with the terms of the order,
suspension, or conditioning until final adjudication in
any action undertaken to challenge the order, or the
suspension or conditioning, or the revocation, of an
APIC's license.

SEC. 11. EFFECTIVE DATE.

(a) In General.--Except as provided in subsection (b), this Act shall
take effect upon the expiration of the 6-month period beginning on the
date of the enactment of this Act.
(b) Issuance of Regulations and Guidelines.--Any authority under this
Act of the Secretary, the Administrator, and the Secretary of the
Treasury to issue regulations, standards, guidelines, or licensing
requirements, and any authority of such officials to consult or enter
into agreements or memoranda of understanding regarding such issuance,
shall take effect on the date of the enactment of this Act.

SEC. 12. SUNSET.

After the expiration of the 5-year period beginning upon the date
that the Secretary awards the first license for an APIC under this
Act--
(1) the Secretary may not license any APIC; and
(2) no amount may be appropriated for the costs (as such term
is defined in section 502 of the Federal Credit Reform Act of
1990 (2 U.S.C. 661c)) of any guarantee under this Act for any
debenture issued by an APIC.
This section may not be construed to prohibit, limit, or affect the
award, allocation, or use of any budget authority for the costs of such
guarantees that is appropriated before the expiration of such period.

Explanation of the Legislation

H.R. 2764, ``America's Private Investment Companies Act''
authorizes the Secretary of Housing and Urban Development (HUD)
to license a number of privately managed, for-profit investment
companies for purposes of making large-scale, equity and debt
investments in distressed urban and rural areas. Each America's
Private Investment Company (``APIC'') must have a minimum of
$25 million in private equity capital contributed by investors
in order to be licensed by HUD. An APIC would be eligible to
issue debentures, guaranteed by the government, for twice
(200%) the amount of its total equity capital. The contributed
equity and amounts raised through issuance of debentures are to
be invested in businesses operating in low and moderate-income
areas. The return from those business investments would go
first to repay the government-guaranteed debt.
The legislation provides that APIC licensees are to be
chosen by HUD pursuant to a competition. The number of APICs
licensed at any one time would depend upon the amount of budget
authority available to support the total credit subsidy
provided to the program, but would be limited in the first year
to no more than fifteen APICs. Of those APICs chosen in the
first year, subject to the existence of an approvable
application, at least one APIC shall have as its primary
mission objective business investment in Native American lands.
HUD shall monitor each APIC as to its progress in meeting
its stated public purpose goals. The Secretary may reward well-
performing APICs which exceed their public purpose investment
goals by increasing the credit subsidy allocated to those
APICs, to the extent there is credit subsidy still available.
Such APICs must have been licensed for a minimum of two years
and any such increases are to be provided based on a
competition of eligible APICs.
The proposed credit subsidy for the program is $36 million
each fiscal year for FY 2000 through FY 2004. HUD estimates
this level will support $1 billion in investments. In addition,
$1 million is authorized for each of these fiscal years (2000-
2004), for administrative expenses in connection with carrying
out the provisions of the legislation.
In addition to monitoring APICs' progress on their public
purpose goals, the Secretary of HUD shall, for purposes of
managing the financial risk of the federal government, regulate
APICs for financial soundness and ensure that each APIC is
structured so as to operate based on sound management
practices. The HUD Secretary shall consult with the Secretary
of the Treasury for purposes of accomplishing these functions.
The legislation requires each APIC to submit an annual
independent audit to the Secretary detailing its investments.
The legislation also requires the HUD Secretary to report
annually to Congress on the status of the APIC program. In
addition, the General Accounting Office is required to report
on the APIC program two years after the date of enactment of
the legislation.
The effective date of the legislation, for licensing and
other operations, is six months after the date of enactment.
Authority to grant licenses shall sunset five years after the
date that the Secretary awards the first license for an APIC
under this Act.

Legislative History

H.R. 2764 was introduced by Ranking Member LaFalce on
August 5, 1999 and contains the APIC portion of the
Administration's legislative proposals. H.R. 2848, the ``New
Markets Initiative Act of 1999'', was introduced by
Representatives Watts, Talent, Leach and Baker at the request
of the Administration on September 13, 1999, and contains the
Administration's complete New Markets Initiative legislative
program. H.R. 2764 is substantively the same as Title III of
H.R. 2848, both of which fall under the jurisdiction of the
Committee.
On November 10, 1999, the Subcommittee on Capital Markets,
Securities, and GSEs held a hearing on capital formation in
underserved areas. The hearing focused on the APIC proposal
embodied in H.R 2764 and on other ideas for promoting economic
growth in these areas. The Committee held a markup of H.R. 2764
and Title III of H.R 2848 on April 12, 2000.

Background and Need for Legislation

In an era of unprecedented economic growth and prosperity,
there remain many economically distressed communities, both
rural and urban, which have not benefited to any great degree
from the most recent economic expansion enjoyed by our Nation.
In these communities, levels of unemployment, poverty, and
other indicia of social distress, remain stubbornly high--yet
untapped market opportunities exist, in many of these areas, to
establish and expand businesses and to develop jobs and
community assets.
There is bipartisan consensus in Congress that the federal
government can and should play a role in encouraging
investments in these communities. For several years both
Republicans and Democrats have proposed and supported granting
tax and regulatory relief, including capital gains tax relief
to businesses operating within distressed areas. Many of these
proposals were part of H.R. 815, the ``American Community
Renewal Act,'' introduced by Representatives Jim Talent and
J.C. Watts, which would have designated a number of these
distressed areas as ``renewal communities'' eligible for such
benefits. The House has already passed the tax provisions of
H.R. 815, and this Committee has passed provisions relating to
HUD property disposition within these communities as part of
H.R. 1776, the ``American Homeownership and Economic
Opportunity Act of 2000.''
The Administration has also proposed a series of programs,
collectively known as the ``New Markets Initiative,'' also
intended to foster economic development in distressed
communities. These proposals include tax credits for businesses
in these areas (``New Markets Tax Credits''), a small business
component (establishing a ``New Markets Venture Capital
Program''), and the formation of a number of companies intended
to make relatively large scale equity and credit investments in
distressed areas--APICs. The FY 2000 VA/HUD Appropriations Act
providedthat $20 million in credit subsidy would be available
for use by APICs for Fiscal Year 2000 if the program was authorized by
June 30, 2000. If the program is not authorized by that date, the
funding reverts to the Community Development Financial Institutions
program administered by the Department of the Treasury.
The APIC portion of the New Markets Initiative falls under
the jurisdiction of this Committee. The concept is closely
related in concept to the Small Business Investment Companies
(``SBIC'') program currently administered by the Small Business
Administration (SBA), except that the SBIC program is limited
in the size of projects it can serve and that SBICs invest in
ventures only (not real estate). Community development
organizations maintain that the infusion of additional amounts
of equity capital are especially vital for enabling large-scale
investments to occur in distressed areas. Importantly, these
investments would be economically viable as freestanding
business entities, providing a profitable return to investors.
However, because the costs of establishing these businesses in
some of these distressed areas are higher relative to other
areas due to a variety of factors (such as remediation of
environmental contamination, for example), the return on
investors equity is not as high as demanded by these investors.
APICs are intended to lessen the cost of capital so that these
large-scale investments would then be made.
APICs are not intended to fund or subsidize the operations
of businesses, which are not economically viable. On the
contrary, these entities exist to encourage the establishment
of fundamentally sound businesses in certain locations.
Possible uses for APICs' funds include the establishment of a
new facility, such as a call center, data processing ``back
office,'' or factory, by a large company (or a small company
joint venturing with a large one). In addition, a mid-size
manufacturing company seeking to increase production could use
APIC investments for expansion of an existing facility, the
upgrading of equipment or the expansion of staff. Other uses
could include expansion of the service area of a mid-size
service company, such as a trucking company, building
contractor, or home health care firm, development of a multi-
tenant shopping center, or opening or expanding a large retail
company in a new geographic area. Buyout of a company to be
revitalized in its existing facility, acquisition of the
property of a departing large company and development of an
incubator or industrial park, or investment in another fund
that invests in businesses locating or expanding in targeted
low-to-moderate income areas are all methods whereby an APIC
can fulfill its public purpose investment role.
By passing this APIC legislation, the hope and expectation
of this Committee is that a bipartisan, comprehensive package
of measures to help revitalize America's distressed urban and
rural communities, which would include the best elements of the
American Community Renewal Act and the New Markets Initiative,
be enacted this year.

Committee Actions Regarding Introduced Legislation

The Committee adopted a Managers' Amendment sponsored by
Chairman Leach, Mr. Lazio, Ranking Member LaFalce, and Mr.
Kanjorski, which made substantial changes to the original bill.
In broad terms, the changes in the Managers' Amendment were
meant to accomplish three major goals. The first of these goals
was to minimize the potential for fraud and abuse and protect
the American taxpayer from unnecessary exposure. Second, the
Committee wanted to ensure that the statutory language clearly
reflected Congressional intent, and provided adequate direction
for the program so that it gives rise to types of investments
in low-income communities that will truly improve the lives of
our citizens. Finally, the Managers' Amendment contained
provisions designed to address concerns with HUD's current
capacity to administer the program, and to ensure HUD's sound
management of the program established by the legislation.

Minimizing the Potential for Fraud and Abuse

The Managers' Amendment adopted by the Committee added
certain defined terms to the legislation in Section 3,
``Definitions,'' and further defined some existing terms of the
bill. These additions and revisions make more specific and
strengthen the language of the bill. The most important of
these is a new definition for ``private equity capital''. A
central feature of the APIC program is its reliance on market
discipline. APIC investors and managers make investment
decisions based on the ability of a business ultimately to
succeed because the investor's equity is at-risk first if the
business fails. The interests of the investor coincide
therefore, with the interest of the taxpayer. The legislation
as introduced, however, provided that ``equity'' was to be
defined through guidelines issued by the HUD Secretary. The
Committee felt that, at a minimum and as a matter of prudence,
the legislation should include a statutory definition of equity
that would prevent an overly expansive definition from allowing
APIC investors to comply with the letter of the law without
truly risking any of their own capital. In accomplishing this
goal, the Committee looked to existing statutes, such as those
governing SBA programs similar in concept to the APIC program,
and worked through the specifics of the definition with HUD to
ensure that it was not overly restrictive or that it conflicts
with guidelines issued by the Department of the Treasury which
would govern tax credits under the New Markets program.
Additional changes were included in the Managers' Amendment
to enhance the integrity of the program. For example, the
Committee believed it was important to set forth more clearly
in Section 7 of the bill the seniority of the federal
government's position in relation to any other obligation the
APIC may have. A change to require the HUD Secretary to make a
determination, prior to the licensing of any APIC, that the
management of the entity is clearly qualified was also made.
Section 9, ``Examination and Monitoring of APICs'' has been
revised to require that each APIC submit an annual independent
audit detailing its investments to the Secretary. Changes were
also made to Section 9 to require the HUD Secretary to report
annually to Congress on APICs and their investments. Finally,
in Section 10, ``Penalties'', the Committee strengthened the
power and sanctions available to HUD so that the Department can
more effectively avert any undue taxpayer losses.

Clearly Stating Congressional Intent Regarding APIC Investments

This Committee intends that an APIC licensed under the
provisions of this legislation shall be in the business of
making investments that benefit low-income people and
communities, and that such an entity does not become an example
of ``corporate welfare'' by making investments thatwould bring
profits to its investors without the requisite social benefits accruing
to distressed areas from these investments. The Committee is aware of
well-intended programs once administered by HUD, such as the Urban
Development Action Grants (UDAG) program, that spent government funds
on projects that could easily have been financed through private
sources, which resulted in little or no benefit to distressed areas.
The intent of the Committee is that APIC investments be made in
communities where they are truly needed, and not in areas which
technically may be within a low-income community but where incomes may
in reality be much higher. Affluent sections can coexist within very
distressed areas in census tracts that would meet the definitions for
low- and moderate-income areas eligible for APIC investments. However,
a statutory requirement that HUD define all of these areas nationwide
would have been overly burdensome and impractical in the Committee's
view.
For this reason, language added by the Managers' Amendment
and appearing in Section 5(a)(6), ``Statement of Public Purpose
Goals,'' refers to investments ``that further economic
development objectives by targeting such investments in
businesses that comply with the requirements [of this Act] . .
. in a manner that benefits low-income persons.'' The Committee
intends by addition of this language that APICs channel their
activities toward truly meritorious investments without
precisely delineating within individual census tracts where the
businesses these APICs invest in must be located. The Committee
does not intend that APICs meet compliance requirements under
this legislation by primarily making investments in subareas of
an otherwise qualifying low-income community that have resident
incomes disproportionately higher, or that show patterns of
displacement and more rapidly increasing property values, than
those of the larger qualifying area. By the same token, in
determining compliance with the ``qualified active business''
test for APIC investments, the term ``low-income community''
may be interpreted to include specific locations in an area
with a very high population density that are located
immediately adjacent to, but not within, a low-income
community. Investments that qualify under this interpretation
must primarily benefit low-income persons within the qualifying
adjacent low-income community.
The Committee notes that under Section (6)(b),
``Substantially all investments that an APIC makes shall be
qualified low-income investments . . .'' Rather than
establishing a specific percentage in the statute, the intent
of the Committee is that the term ``substantially all'' in this
context be read in accordance with and reflect existing
Treasury guidelines and Internal Revenue Service regulations
governing investments in low- and moderate-income areas, such
as those existing for investments made in empowerment zones,
for example. Similarly, under Section 142 of the IRS Code, 95%
of proceeds raised under the provision must be used for the
purposes specified. The intent of the committee is that
``substantially all'' in the context of APIC investments be
read to mean this approximately 95% level that currently
permeates the world of tax-exempt financing.
In addition to providing additional guidance and
Congressional direction as to where APIC investments should be
made, the Committee was concerned with the legislative language
governing selection of APICs. In the Committee's view, the
selection process for licensing APICs as set forth in the
original legislation did not provide enough direction to the
Secretary, either as to the types of entities that should be
chosen or the criteria that should be used in making these
determinations.
Regarding the types of entities that should be chosen as
APICs, the Committee believed further specificity was required
in the legislation to set forth examples of the underlying
public purpose goals and nature of each APIC. Specifically, in
Section 5, ``Selection of APICs'', the Committee believed a
further delineation of the types of goals that licensed APICs
can be expected to pursue was appropriate. Therefore, Section
5(A)(6) now includes references to the following: creating jobs
within 2 years of making an investment; enhancing economic
competition, including the advancement of technology; promoting
rural development; achieving certain environmental goals; and
benefiting small business. By setting forth more clearly in
statute the types of goals to be pursued and the activities in
which these APICs are to be engaged, the Committee intends to
provide additional guidance to the Secretary as to the types of
APICs which should be considered favorably in the selection
process.
In terms of specific selection criteria, the Committee
believes that the criteria as set forth in the original
legislation served as minimum eligibility requirements rather
than as true measures for selecting among various applicants.
For example, the Secretary under the original legislation could
determine whether an applicant had qualified management prior
to licensing the applicant as an APIC. The Committee, however,
intends that the statute reflect the Secretary's ability to
make qualitative distinctions regarding management, allowing
licensing of one APIC over another based on the existence of an
exceptional management record and proven expertise in making
investments benefiting low-income communities. In other words,
the Committee believes the Secretary should choose among the
applicants those APICs that meet not just the minimum statutory
requirements, but whose investments are more likely to result
in the most benefit to low- and moderate-income communities.
With that in mind, the Managers' Amendment added language in
Section 5(d) establishing selection criteria the Secretary
shall use to determine which APICs are to be licensed. An APIC
applicant will be chosen for licensing based on the extent such
applicant is expected to achieve the goals of the legislation
by meeting or exceeding the selection criteria established
under this subsection, which may include additional criteria
established by the Secretary.
The Committee intends that rural and small communities not
be unfairly or arbitrarily disadvantaged in the selection
process. For this reason, Section 5(c)(2) was added by the
Managers' Amendment to provide that when selecting APICs for
licensing, the HUD Secretary to the extent practicable ensure
geographical diversity and a mix of APICs so that both rural
and urban communities may be served by this program. The
Committee notes that in addition to large cities, there are
also economically distressed areas in mid-sized and smaller
metropolitan areas and non-metropolitan areas. Consideration of
the needs of these communities should not be absent from APIC
selection process. The intent of the Committee is that the
Secretary strive for balance, fairness and diversity in the
selection process.
In adding legislative language regarding the selection
process, the Committee attempted to avoid imposing requirements
as to exactly how many of each type of APIC should be chosen in
the selection process. In the Committee's view, imposing
numerical requirements would not be the proper approach because
neither Congress nor the Administration can know in advance
exactly what entities will apply to be licensed. The Committee
made one important exception to this approach regarding the
selection process for Native Americans. By definition, most of
the landson reservations would qualify for investments by
APICs, as would rural and other low-income communities. However, the
Committee was concerned that the added complexity of investing on
Native American lands, including dealing with the Bureau of Indian
Affairs, unfamiliarity with the varied tribal laws, and what in too
many cases amounts to a cultural discomfort on the part of much of the
finance community in doing business on Indian lands, were factors
making business investment in Native Americans lands qualitatively
different, and much more difficult, than investments in other low-
income rural or urban communities. The Committee was concerned that the
available applicants would not include entities with the capacity, or
which viewed as their mission, to invest specifically on Native
American lands. For this reason, the Managers' Amendment included a
requirement that of those APICs selected in the first year, one would
be a Native American Private Investment Company. The Committee believes
that this would encourage application by would-be APICs that would
serve Native Americans. Any such applicant would still need to meet all
of the requirements for licensing contained in this bill. Native
Americans should not be unintentionally excluded from benefiting under
this program.
The Committee notes that under Section 5(b)(1) of the
legislation, an APIC applicant must be a for-profit entity in
order to be licensed as an APIC. The Committee notes that this
is not intended to exclude for-profit entities controlled by
non-profit organizations, such as through a subsidiary,
partnership, or limited liability structure.
Regarding the application of federal securities laws to
APICs, and for that matter to New Market Venture Capital
companies (``NVCCs'') created under other provisions of the
Administration's New Markets Initiative, the Committee notes
that nothing in this legislation alters or affects any Federal
securities laws or regulations promulgated under the Federal
securities laws. Further, federal securities laws continue to
apply to NVCCs and APICs created under this legislation, to any
securities issued by or on behalf of NVCCs or APICs, and to
their distribution. NVCCs and APICs may seek to qualify for
certain exclusions contained in the Investment Company Act.
Notably, in order for NVCCs and APICs to qualify for the
exclusion from regulation under the Investment Company Act
provided by Section 3(c)(7) of the Act, they must make only a
private offering of their securities and each of their
investors must meet the definition of ``qualified purchaser''
in Section 2(a)(51) of the Investment Company Act of 1940, 15
U.S.C. 80a-2(a)(51). The Committee expects that private
offerings of NVCC and APIC securities (including those relying
on the exclusion from regulation under the Act provided by
Section 3(c)(1)) generally will entail an evaluation of whether
the NVCC or APIC securities are suitable investments for the
proposed investors.

Ensuring HUD's Capacity to Administer the APIC Program

The Committee was concerned with HUD's current capacity to
administer the proposed APIC program. While the Committee notes
that the Secretary has made great efforts to improve the
management of HUD's programs, there are still many areas which
require attention. Adding another program to those already
administered by HUD, and especially one as complex in terms of
the required financial expertise as the program envisioned by
this legislation, called for careful, bipartisan consideration.
An alternative approach, which was indeed debated during the
Committee's markup of the legislation, was for the program to
be administered by the Department of the Treasury rather than
HUD. A crucial reason for having HUD administer the program,
however, was the Department's experience in dealing with
distressed areas and with complex, large-scale community
development investments, in particular. In order to address the
Committee's concerns regarding capacity and taxpayer
safeguards, key changes to the original legislation were made
by the Managers' Amendment regarding program administration.
The Committee's goal was to ensure that HUD had the
expertise and the time available to it to structure and
administer this program properly, and that the program not be
so complex to administer in the beginning stages so that HUD
would be able to develop capacity. Therefore, the legislation
as revised by the Committee now imposes a first year limit on
the number of APICs of 15, with no one APIC receiving more than
20% of the available credit subsidy. This accomplishes two
things--it keeps the number of APICs at a manageable level in
the first year, to give HUD experience in working with this
program, and it diversifies the government's risk by ensuring
that no one APIC is too large. In addition, the Committee
included a provision setting the effective date of the
legislation at six months after enactment, so that HUD would
have the time to develop adequate procedures in a deliberative
fashion, working with the private sector as well as nonprofit
and government entities important to community economic
development.
The Committee also strengthened financial soundness
provisions by setting forth the HUD Secretary's duty to
cooperate with Treasury in determining what procedures to
follow to ensure competent management of APICs. Further changes
include deleting the program feature to increase leverage for a
class of APICs from 200% to 300%. The Committee wishes to
approach conservatively on matters involving the federal
government's financial exposure, particularly at the program's
inception.
In order to ensure close oversight of the program, the
Committee added a requirement for an Annual Report from the
Secretary to Congress on the achievements of APICs, which would
provide information on all APIC investments, the level of
financial exposure, and other such matters. In addition, the
legislation now requires a report by the General Accounting
Office on the APIC program two years after enactment of the
program. Finally, language granting the HUD Inspector General
the authority to work with the Small Business Administration
Inspector General in monitoring the APIC program at HUD was
added in order to ensure that monitoring experience of these
types of programs was available. The many changes made by the
Committee to address the concerns with HUD's management of the
program should give some assurance that this program will be
structured and administered in a proper fashion, with the
interests and protection of the taxpayer as priorities.

Committee Consideration and Votes (Rule XI, Clause 2(l)(2)(B)

The Committee met in open session to mark up H.R. 2764,
``America's Private Investment Companies Act'' on April 12,
2000. The Committee considered H.R. 2764, as introduced, as the
text for purposes of amendments.
During the markup, the Committee approved a total of 8
amendments, as follows: 3 amendments, including a managers
amendment by voice vote, 3 amendments by unanimous consent,
and, 2 amendments by recorded vote. The Committee also defeated
a total of 3 amendments, as follows: 1 amendment by voice vote,
and, 2 amendments by recorded vote. Two amendments were ruled
non-germane on a point of order. Pursuant to the provisions of
clause 2(1)(2)(B) of rule XI of the House of Representatives,
the results of each roll call vote and the motion to report,
together with the names of those voting for and those against
are printed below:

ROLLCALL NO. 1

Date: April 12, 2000.
Measure: America's Private Investment Companies Act.
Motion by: Mr. LaFalce.
Description of Motion: Allows an APIC to be eligible for
additional credit subsidy if in existence for at least two
years, is a high performer and is selected through a
competition created by the HUD Secretary.
Results: Adopted: Ayes 24, Nays 20.
YEAS NAYS
Mr. LaFalce Mr. Leach
Mr. Frank Mr. McCollum
Mr. Kanjorski Mr. Baker
Ms. Waters Mr. Lazio
Mr. Sanders Mr. Castle
Mrs. Maloney Mr. King
Mr. Gutierrez Mr. Royce
Ms. Velazquez Mr. Lucas
Mr. Watt Mr. Metcalf
Mr. Ackerman Mr. Ney
Mr. Bentsen Mrs. Kelly
Mr. Maloney Mr. Ryun of Kansas
Ms. Hooley Mr. Hill
Mr. Weygand Mr. LaTourette
Mr. Sherman Mr. Ryan of Wisconsin
Mr. Meeks, G. Mr. Ose
Ms. Lee Mrs. Biggert
Mr. Mascara Mr. Terry
Mr. Inslee Mr. Green
Ms. Schakowsky Mr. Toomey
Mr. Moore
Mrs. Jones
Mr. Capuano
Mr. Forbes

ROLLCALL NO. 2

Date: April 12, 2000.
Measure: America's Private Investment Companies Act.
Motion by: Mr. Sanders.
Description of Motion: Allows non-profits to be eligible
APICs.
Results: Defeated: Ayes 20, Nays 22, Pass 1.
YEAS NAYS
Mr. Hill Mr. McCollum
Mr. LaFalce Mrs. Roukema
Mr. Frank Mr. Baker
Mr. Kanjorski Mr. Lazio
Mr. Sanders Mr. Castle
Mrs. Maloney Mr. King
Ms. Velazquez Mr. Royce
Mr. Watt Mr. Lucas
Mr. Bentsen Mr. Metcalf
Mr. Maloney Mr. Ney
Ms. Hooley Mr. Barr
Mr. Weygand Mrs. Kelly
Mr. Sherman Dr. Paul
Ms. Lee Dr. Weldon
Mr. Inslee Mr. Ryun of Kansas
Ms. Schakowsky Mr. Riley
Mr. Moore Mr. Ryan of Wisconsin
Mrs. Jones Mr. Ose
Mr. Capuano Mrs. Biggert
Mr. Forbes Mr. Terry
Mr. Green
Mr. Toomey

PASS: Mr. Leach.

ROLLCALL NO. 3

Date: April 12, 2000.
Measure: America's Private Investment Companies Act.
Motion by: Mr. Baker.
Description of Motion: Adds sunset of APIC program after 5-
year period.
Results: Adopted: Ayes 24, Nays 23.
YEAS NAYS
Mr. Leach Mr. LaFalce
Mrs. Roukema Mr. Vento
Mr. Bereuter Mr. Frank
Mr. Baker Mr. Sanders
Mr. Lazio Mrs. Maloney
Mr. Castle Mr. Gutierrez
Mr. King Ms. Velazquez
Mr. Lucas Mr. Watt
Mr. Ney Mr. Bentsen
Mr. Barr Mr. Maloney
Mrs. Kelly Ms. Hooley
Dr. Paul Mr. Weygand
Dr. Weldon Mr. Sherman
Mr. Ryun of Kansas Mr. Meeks, G.
Mr. Riley Ms. Lee
Mr. Hill Mr. Mascara
Mr. LaTourette Mr. Inslee
Mr. Ryan of Wisconsin Ms. Schakowsky
Mr. Ose Mr. Moore
Mrs. Biggert Mr. Gonzalez
Mr. Terry Mrs. Jones
Mr. Green Mr. Capuano
Mr. Toomey Mr. Forbes
Mr. Kanjorski

ROLLCALL NO. 4

Date: April 12, 2000.
Measure: America's Private Investment Companies Act.
Motion by: Mr. Ryan of Wisconsin.
Description of Motion: Amendment in the nature of a
substitute to require a GAO study.
Results: Defeated: Ayes 15, Nays 31.
YEAS NAYS
Mr. McCollum Mr. Leach
Mr. Bereuter Mrs. Roukema
Mr. Royce Mr. Lazio
Mr. Barr Mr. King
Mrs. Kelly Mr. LaFalce
Dr. Paul Mr. Vento
Dr. Weldon Mr. Frank
Mr. Ryun of Kansas Mr. Kanjorski
Mr. Riley Ms. Waters
Mr. Ryan of Wisconsin Mr. Sanders
Mr. Sweeney Mrs. Maloney
Mrs. Biggert Mr. Gutierrez
Mr. Terry Ms. Velazquez
Mr. Green Mr. Watt
Mr. Toomey Mr. Ackerman
Mr. Bentsen
Mr. Maloney
Ms. Hooley
Ms. Carson
Mr. Weygand
Mr. Sherman
Mr. Meeks, G.
Ms. Lee
Mr. Mascara
Mr. Inslee
Ms. Schakowsky
Mr. Moore
Mr. Gonzalez
Mrs. Jones
Mr. Capuano
Mr. Forbes
A motion to adopt H.R. 2764 and favorably report the bill,
as amended, to the House was approved by a recorded vote of 33
Ayes and 14 Nays on April 12, 2000.
YEAS NAYS
Mr. Leach Mr. McCollum
Mr. Baker Mrs. Roukema
Mr. Lazio Mr. Bereuter
Mr. King Mr. Royce
Mrs. Kelly Mr. Barr
Mr. Riley Dr. Paul
Mr. LaFalce Dr. Weldon
Mr. Vento Mr. Ryun of Kansas
Mr. Frank Mr. Ryan of Wisconsin
Mr. Kanjorski Mr. Sweeney
Ms. Waters Mrs. Biggert
Mr. Sanders Mr. Terry
Mrs. Maloney Mr. Green
Mr. Gutierrez Mr. Toomey
Ms. Velazquez
Mr. Watt
Mr. Ackerman
Mr. Bentsen
Mr. Maloney
Ms. Hooley
Ms. Carson
Mr. Weygand
Mr. Sherman
Mr. Meeks, G.
Ms. Lee
Mr. Mascara
Mr. Inslee
Ms. Schakowsky
Mr. Moore
Mr. Gonzalez
Mrs. Jones
Mr. Capuano
Mr. Forbes

Committee Oversight Findings

In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.

Committee on Government Reform and Oversight Findings

No findings and recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of
the Rules of the House of Representatives.

Constitutional Authority

In compliance with clause 2(l)(4) of rule XI of the Rules
of the House of Representatives, the constitutional authority
for Congress to enact this legislation is derived from the
general welfare clause (Article I, Sec. 8).

New Budget Authority and Tax Expenditures

Clause 2(l)(3)(B) of rule XI of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority for increased tax
expenditures.

Congressional Budget Office Costs Estimate and Unfunded Mandate
Analysis

The cost estimate pursuant to clause 3(c)(3) of rule XIII
of the Rules of the House of Representatives and section 402 of
the Congressional Budget Act of 1974 is attached herewith:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 5, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2764, the
America's Private Investment Companies Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Lanette
Keith.
Sincerely,
Barry B. Anderson
(For Dan L. Crippin, Director).
Enclosure.

Congressional Budget Office Cost Estimate

H.R. 2764--America's Private Investment Companies Act

Summary: H.R. 2764 would establish the America's Private
Investment Companies (APIC) program within the Department of
Housing and Urban Development (HUD) to provide federal loan
guarantees to qualified venture capital corporations that
invest in low-income communities. The bill would authorize
appropriations of $36 million a year over the 2000-2004 period
to cover the subsidy costs of such loan guarantees. For each
fiscal year. HUD could make commitments to guarantee loans only
to the extent that the total loan principal, any part of which
is guaranteed, would not exceed $1 billion or the amount
specified in appropriation acts. The bill would also authorize
the appropriation of $1 million annually over the five-year
period for administrative expenses.
CBO estimates that implementing H.R. 2764 would cost about
$145 million for loan subsidy and administrative costs over the
2000-2005 period, assuming appropriation of the necessary
amounts. Because H.R. 2764 could affect offsetting receipts (a
form of direct spending), pay-as-you-go procedures would apply.
CBO estimates, however, that any impact on direct spending
would not be significant. H.R. 2764 contains an
intergovernmental mandate as defined in the Unfunded Mandates
Reform Act (UMRA), but CBO estimates that the cost of the
mandate would not be significant. The bill does not contain any
new private-sector mandate as defined by UMRA.
Estimated cost to the Federal Government: For the purpose
of this estimate, CBO assumes that H.R. 2764 will be enacted in
fiscal year 2000 and that funds will be provided for its
implementation each year. The estimated budgetary impact of
H.R. 2764 is shown in the following table. The costs of this
legislation fall within budget function 450 (community and
regional development).

SPENDING SUBJECT TO APPROPRIATION
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars
-----------------------------------------------------------
2000 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
Spending for APIC Under Current Law:
Budget Authority ¹.............................. 20 0 0 0 0 0
Estimated Outlays............................... 2 6 8 4 0 0
Proposed Changes:
Estimated Authorization Level................... 17 38 38 38 39 3
Estimated Outlays............................... 1 12 24 34 39 35
Spending Under H.R. 2764:
Estimated Authorization Level ¹................. 37 38 38 38 39 3
Estimated Outlays............................... 3 18 32 38 39 35
----------------------------------------------------------------------------------------------------------------
¹ For 2000 $20 million has been appropriated for this program conongent upon authorization of the APIC program
before June 30, 2000.

Basis of estimate: Under procedures established by the
Federal Credit Reform Act of 1990, the subsidy cost of a loan
guarantee is the estimated long-term cost to the government,
calculated on a net present value basis. Based on the past
performance of similar Small Business Administration (SBA)
programs. CBO expects that APIC borrowers would default on
between 25 percent and 30 percent of guaranteed loans. In the
event of a default, CBO expects that the agency would liquidate
the APIC investments, but this process would take a number of
years. Consequently, CBO estimates that HUD would recover only
about 50 percent of the loan balance three years after default.
In addition, based on information from the Administration, we
assume that HUD would charge a 1 percent origination fee when
the loan is disbursed and a 0.77 percent annual fee. Under
these assumptions, the program would operate at a subsidy cost
equal to 5 percent of the amounts guaranteed.
H.R. 2764 would authorized the appropriation of $36 million
annually for the subsidy cost of APIC loan guarantees, and this
estimate assumes such appropriations. CBO estimates that this
amount would be sufficient to cover the subsidy costs of $720
million of loan guarantees under this program. (The estimated
subsidy cost to guarantee $1 billion in loans under the APIC
program would be about $50 million annually.) While the bill
would authorize the appropriation of $1 million annually over
the 2000-2004 period for administrative costs, CBO estimates
this amount would not be sufficient to administer these loan
guarantees.
Based on the operation of similar SBA programs, we estimate
that $2 million to $3 million would be needed each year to
administer these loan guarantees, and that these costs would
continue over the 10-year term of the guarantees.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending and receipts. Section
111 would provide for civil penalties against APICs that fail
to comply with regulations that would be established under H.R.
2764. Payments of these civil penalties would be recorded as
miscellaneous receipts to the Treasury. CBO expects that any
increase in penalty collections as a result of this provision
would not be significant.
Impact on State, local, and tribal governments: H.R. 2764
would preempt State laws with regard to the seniority of debt
issued by APICs. Such a preemption of State law is an
intergovernmental mandate as defined in UMRA, but CBO estimates
that this mandate would impose no significant costs on State,
local, or tribal governments.
The bill also provides that State and local governments may
choose to assume responsibility for environmental reviews
needed for certain projects and activities financed by an APIC.
Any costs to carry out such environmental reviews would be
incurred voluntarily.
Impact on the private sector: H.R. 2764 contains no new
private-sector mandates as defined in URMA.
Estimate prepared by: Federal costs: Lanette Keith and Mark
Hadley; impact on State, local, and tribal governments:
Victoria Heid Hall; and impact on the private sector: Patrice
Gordon.
Estimate approved by: Robert A. Sunshine, Assistant
Director for Budget Analysis.

Advisory Committee Statement

No advisory committees within the meaning of Section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.

Congressional Accountability Act

The reporting requirement under Section 102(b)(3) of the
Congressional Accountability Act (P.L. 104-1) is inapplicable
because this legislation does not relate to terms and
conditions of employment or access to public services or
accommodations.

Section-by-Section

Section 1. Short title

The act may be cited as the America's Private Investment
Companies Act.

Section 2. Findings and purpose

Section 2 finds that (1) people living in distressed areas,
both urban and rural, characterized by high levels of
joblessness, poverty, and low incomes, have not adequately
benefited from economic expansion experienced by the Nation as
a whole; (2) the costs of joblessness and poverty to our Nation
are very high; and (3) there are significant untapped markets
in our Nation, and many of these are in areas that are
underserved by institutions that can make equity and credit
investments.
Purposes of this title are to (1) license private for-
profit community development entities that will focus on making
equity and credit investments for large-scale business
developments that benefit low-income communities; (2) provide
credit enhancement for those entities for use in low-income
communities; and (3) provide a vehicle under which the economic
and social returns on financial investments made pursuant to
this Act may be available both to the investors in these
entities and to the residents of the low-income communities.

Section 3. Definitions

Defines terms used in legislation, including
``Administrator'', ``agency'', ``APIC'', ``community
development entity'', ``HUD'', ``license'', ``low-income
community'', ``low-income person'', ``private equity capital'',
``qualified active business'', ``qualified debenture'',
``qualified low-income community investment'', and
``Secretary''.

Section 4. Authorization

Authorizes the Secretary of HUD to license and regulate
America's Private Investment Companies (``APICs''). The number
of APICs licensed at any one time would depend upon the amount
of budget authority available to support the total credit
subsidy provided to the APICs, subject to a first year
limitation of 15 APICs. After the initial appropriation, the
Secretary is authorized to license and allocate credit subsidy
to additional APICs, or, as provided, increase the credit
subsidy allocated to an APIC as reward for high performance.
Any such credit subsidy increase shall be provided only to an
APIC that has been licensed for not less than two years, and
pursuant to a competition among eligible APICs. The Secretary
shall establish criteria for selecting among APICs eligible for
a credit subsidy increase, which criteria shall include such
factors as the financial soundness and performance of the APICs
as measured by achievement of the public performance goals
required under the Act.
Requires that the HUD Secretary consult with the
Administrator of the Small Business Administration and the
Secretary of the Treasury in establishing regulations,
requirements or procedures regarding the financial soundness
and management of APICs. Authorizes budget authority of $36
million in credit subsidy for Fiscal Year 2000 to guarantee an
estimated $1 billion in debt. An additional $36 million would
be authorized to be appropriated for each of Fiscal Years 2001-
2003, with an additional $1 million authorized for the
administrative expenses incurred in carrying out the Act for FY
2000-FY 2003. Requires APICs to be regulated by HUD in
cooperation with SBA and the Department of the Treasury. The
Secretary is authorized to impose fees and charges for the
operation of APICs.

Section 5. Selection of APICs

Establishes procedures for selection of APICs, sets forth
minimum eligibility requirements, and sets forth selection
criteria to be used by the Secretary in selecting among
applicants for licensing as APICs. An entity applying for an
APIC license must: (1) be a private, for-profit entity that
qualifies as a ``community development entity'' as defined in
the legislation; (2) have a minimum private equity capital of
$25 million; (3) have qualified financial management, with
experience in direct equity investment and portfolio management
and expertise in community development settings, as determined
by the Secretary; (4) be structured to preclude financial
conflict of interests between the APIC and its managers or
investors; (5) submit an investment strategy with evaluation
benchmarks; (6) submit a statement of public purpose goals,
examples of which are delineated in the statute; (7) agree to
comply with other federal requirements imposed from time to
time (i.e. Executive Orders or OMB circulars); and (8) satisfy
any other application criteria that the Secretary may impose by
regulation or notice.
The Secretary shall select eligible entities for licensing
based on a competition. Selections shall be made on the basis
of the extent to which the entity is expected to meet or exceed
the selection criteria set forth in the legislation. Selection
criteria include factors such as the APICs capacity, investment
strategy, public purpose goals, and other criteria the
Secretary may establish to carry out the purposes of this Act.
To the extent practicable, in selecting APICs the Secretary
shall strive for geographic diversity and a diversity of the
types of APICs chosen so that both rural and urban communities
are served by the program. Of those APICs selected in the first
year, at least one must be devoted primarily to making
investments on Native American lands.

Section 6. Operations of APICs

Sets forth requirements for the operation of APICs.
Requires that substantially all APICinvestments that use
government-guaranteed proceeds be in qualified low- to moderate-income
(LMI) areas, and prohibits an APIC from having an investment in any one
business that would amount to more than 35% of the APIC's equity
capital plus the limit of outstanding debt allowable (the leverage
limit) under Section 106(c)(2) of this title.
Provides that an APIC may issue debentures guaranteed by
the Secretary pursuant to the provisions of the Act. The total
amount of debentures that an APIC may have outstanding at any
one time shall not exceed 200% of the equity capital of the
APIC. An APIC may not have more than $300 million in face value
of debentures issued at any one time. Sets forth requirements
for repayment by APIC of debt.
Includes an ``anti-pirating'' provision prohibiting APICs
from using funds to make an investment that would assist
directly in the relocation of any industrial or commercial
plant, facility or operation from one area to another if such
relocation would result in a significant loss of employment in
the labor area from which the relocation occurs. Also provides
for reuse of debenture proceeds of sale of Treasury securities
and excludes APIC from the definition of debtor under
bankruptcy provisions.

Section 7. Credit enhancement by the Federal Government

Authorizes HUD to make commitments to guarantee the timely
payment of all principal and interest on qualified debentures
issued by the APICs. The qualified debentures guaranteed by HUD
would be senior to any other debt or equity. The qualified
debentures could be issued by APICs for up to 21 years and
could be pooled and sold.

Section 8. APIC requests for guarantee actions

Sets forth procedures for APICs to request loan guarantees
from HUD, which shall include a description of the manner in
which the APIC intends to use the proceeds from such debentures
and a certification from the APIC that it is in substantial
compliance with (1) the terms of this Act and applicable laws;
(2) the terms and conditions of its license; (3) requirements
relating to the allocation and use of New Market Tax Credits.
The APIC must also provide any other requirements established
by the Secretary. Sets forth procedures for compliance with
provisions of the National Environmental Policy Act of 1969
regarding environmental reviews.

Section 9. Examination and monitoring of APICs

Requires that the Secretary examine and monitor the
activities of APICs for compliance with sound financial
management practices and for satisfaction of program goals.
Requires the Secretary to establish annual or more frequent
reporting requirements for APICs. Requires that each APIC have
an independent annual audit conducted annually. The Secretary,
in consultation with the Administrator of the SBA and the
Secretary of the Treasury, shall establish requirements and
standards for such audits. Not less than every two years, the
Secretary shall examine the operations and portfolio of each
APIC to assure compliance with sound financial management
practices.
Provides that in carrying out its monitoring of HUD's
responsibilities under this Act, the Inspector General of HUD
shall consult, as appropriate, with the Inspectors General of
the Department of the Treasury or the Small Business
Administration, and may enter into memoranda of understanding
as may be necessary to carry out this function. Requires the
Secretary to report to Congress annually regarding the
operations, activities, financial health and achievements of
APICs, listing each investment made by each APIC. Requires the
General Accounting Office, not later than two years after the
date of enactment of the Act, to submit a report to Congress
regarding the operation of the APIC program.

Section 10. Penalties

Authorizes the Secretary to impose penalties on any APIC
that commits an act of fraud, mismanagement or noncompliance
with regulations. Penalties include civil monetary penalties
not to exceed $10,000, cease-and-desist orders, suspension or
revocation of an APIC's license for very serious infractions,
or other penalties that the Secretary determines to be less
burdensome than the aforementioned penalties.

Section 11. Effective date

Provides that the Act shall take effect six months after
the date of enactment. Authority of the Secretary to issue
regulations, standards, guidelines or licensing requirements,
and the authority of any official to enter into agreements or
memoranda of understanding regarding such issuances, shall take
effect upon enactment of the legislation.

Section 12. Sunset

Provides that the Secretary may not license any APIC, nor
provide credit subsidy for any APIC, after the expiration of
the five-year period beginning upon the date the Secretary
awards the first APIC license. The section does not affect any
license or credit subsidy provided for an APIC before the
expiration of such period.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):

SECTION 12 OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ACT

Sec. 12. (a) * * *

* * * * * * *

(e) Definitions.--For purposes of this section:
(1) * * *
(2) Assistance.--The term ``assistance'' means any
grant, loan, subsidy, guarantee, or other financial
assistance under a program administered by the
Secretary that provides by statute, regulation, or
otherwise for the competitive distribution of such
assistance. The term does not include any mortgage
insurance provided under a program administered by the
Secretary or any license provided under the America's
Private Investment Companies Act.

* * * * * * *

----------

SECTION 109 OF TITLE 11, UNITED STATES CODE

Sec. 109. Who may be a debtor

(a) * * *

* * * * * * *

(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) a railroad;
(2) a domestic insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association, a
small business investment company licensed by the Small
Business Administration under subsection (c) or (d) of
section 301 of the Small Business Investment Act of
1958, America's Private Investment Company licensed
under the America's Private Investment Companies Act,
credit union, or industrial bank or similar institution
which is an insured bank as defined in section 3(h) of
the Federal Deposit Insurance Act; or
(3) * * *

* * * * * * *

ADDITIONAL VIEWS

The approval of the APIC legislation by the House Committee
on Banking and Financial Services represents a bold effort to
bring economic opportunities and quality jobs to individuals
and communities being left behind during our nation's strong
economic expansion. It also represents the first committee
approval of any portion of the Administration's New Markets
Initiative.
Despite strong income and wage growth for much of our
population, millions of Americans still do not have access to
jobs that pay decent wages and offer real opportunities for
advancement. And, many urban, suburban, and rural communities
and neighborhoods are not fully participating in our economic
prosperity. APIC is a private sector oriented approach to
leverage scarce federal resources to foster billions of dollars
of investments in a way that will bring hope and opportunity to
those persons and communities being left behind.
APIC is structured to ensure that federal resources are
targeted to create opportunities for lower-income families and
individuals. ``Substantially all'' investments made with APIC-
guaranteed loans or equity used to support such loans must be
made in ``low-income communities''--defined as census tracts
with poverty rate of excess of 20% or median family income
levels below the greater of 80% of either the local or state
median. And, successful APIC licensees must pursue public
purpose goals, which include creating good paying jobs, making
investments in low-income communities, and working with
community-based organizations and residents.
APIC is structured to avoid federal micromanagement of
individual investment decisions, and instead give APIC
investment companies the flexibility to make market-oriented
investments, with maximal local impact. Once an APIC meets the
rigorous financial and managerial criteria required for
licensee selection, the APIC uses its expertise to make
autonomous investment decisions, subject only to the market
discipline of having to repay debentures and meeting public
purpose goals.
APIC is structured to make maximum use of scarce federal
resources. Leverage and equity requirements ensure that federal
resources create substantial amounts of private sector equity
investments. Use of federal loan guarantees (as opposed to
outright federal grants) imposes market discipline and
dramatically limits the need for federal appropriations of
funds. The result is that a federal credit subsidy of only $36
million a year, as determined by OMB, will create at least $7.5
billion in targeted investments over the next five years.
Finally, APIC is structured to protect the federal
taxpayer. Successful APIC licensees are required to provide at
least $25 million in private equity capital, which is put at
risk of loss ahead of any federal liability under the guarantee
debentures. APICs must demonstrate that their management must
be qualified, and have the financial expertise, experience, and
capability to make investments in low-income communities and
use federal loan guarantees under the program.
As sponsors of the APIC legislation, we believe that H.R.
2764, as introduced, was soundly drafted, with substantial
management and financial controls on the APICs themselves, as
well as appropriate federal oversight. For example, H.R. 2764
as introduced included a number of provisions to ensure sound
federal oversight. Section 109, ``Examination and Monitoring of
APICs'' directs the HUD Secretary to examine and monitor the
operations and activities of APICs for compliance with sound
financial management practices and program goals--through
audits, performance agreements, and license agreements. HUD is
specifically authorized to establish annual or more frequent
audit and reporting requirements for APICs, including audits,
in meeting this obligation.
Furthermore, at least every two years, HUD is required to
examine the operations and portfolio of each APIC for
compliance with sound financial management practices and for
compliance with the act. And, under Section 110 of the original
bill, HUD is given authority to take appropriate action in
response to fraud, mismanagement, or non-compliance on the part
of any APIC, including the authority to assess civil money
penalties, require divestiture, and revoke a license.
Despite these safeguards, we were more than willing to work
with the majority to craft a managers' amendment to build on
the original bill's financial and managerial controls and
federal oversight. For example, the managers' amendment
specifically requires each APIC to conduct an annual
independent audit. It also requires the HUD Secretary to submit
an annual report to Congress regarding the operations,
activities, financial health, and achievements of the program.
The manager's amendment orders a GAO report on the program, and
requires the HUD IG, in its traditional oversight role, to
consult with the Treasury and SAB IG with respect to the APIC
program. Finally, the managers' amendment expands on the
Section 110 penalties dealing with potential fraud,
mismanagement, or noncompliance.
The other major focus of the managers' amendment was to
provide more detail about various provisions or definitions in
the bill. As sponsors of the original legislation, we believe
H.R. 2764 includes very clear provisions to target APIC
investments to low-income communities and persons, and to set
forth investment goals which are designed to foster good paying
jobs and involve community-based organizations and residents.
These targeting provisions are at the heart of the bill's goal
of helping those individuals and communities being left behind
our economic recovery.
However, we view the revisions included in the managers' as
constructive. Most notably, the criteria set our for the
selection of APICs are re-organized to more clearly delineate
minimum threshold requirements from those criteria that are
used to select those applicants best qualified to meet the
goals of the program. The managers' amendment also adds or
modifies certain definitions, including ``private equity
capital,'' ``low-income community,'' and ``low-income person.''
These changes are all consistent with the original intent of
the bill.
The resulting legislation, after adoption of the managers'
amendment, retains the core provisions of H.R. 2764, as
originally introduced. This bill holds great promise for
unleashing private sector investments for the benefit of low-
income persons and communities. Last year's VA-HUD
appropriations bill already provided the credit subsidy for the
first round of APIC licensing, subject only to program
authorization.
Therefore, we urge prompt Congressional action to enact
APIC into law.

John J. LaFalce.
Paul E. Kanjorski.

ADDITIONAL VIEW

There are some encouraging developments that this bill
illustrates such as the bipartisan approach and the shift of
attention to our own constituents. However, the best way to
help our constitutes would be to follow sound fiscal and credit
policies that create the best conditions for economic
development; low taxes, limited government and sound money.
This bill does not follow that approach.
The federal budget is an example of economic scarcity:
unlimited wants and limited resources. Ever dollar allocated
for one program comes at the expense of another. With this
understanding in mind, I introduced an amendment that would
have shifted our priorities from exporting U.S. jobs to one of
developing jobs at home. My amendment would have established a
trust fund for APIC and recommended transferring $2.5 billion
from the OPIC trust fund to the APIC fund.
When Congress created the Overseas Private Investment Crop
(OPIC), the U.S. Treasury established a ``trust fund'' for it
and gave the trust fund billions of non-marketable securities
(U.S. bonds). The trust fund retained the earnings from the
bonds in order to fund OPIC--despite claims that the program
was ``self-sustaining'' and ``not operating at taxpayer
expense.'' It was, of course, the taxpayers who pay the bonds
whose interest funds the program.
According to OPIC's last annul report, it had over $4
billion in assets (97% of them U.S. Treasury securities) in
1999, up from $3.7 billion in 1998. Revenues totaled almost
$400 million (up from $365 million the previous year) was
interested ``earned'' on U.S. Treasury securities contributing
about half of its revenues. According to the February Monthly
Statement of the Public Debt, the ``Overseas Private Investment
Corporation, Insurance and Equity Non Credit Account'' (the
OPIC trust fund) was issued $3.2 billion with about $3 billion
outstanding.
Now that OPIC has had a chance to establish itself, a
portion of the nest egg gifted to it by Treasury should be used
to fund an APIC trust fund (with a corresponding offset in
appropriations) and the remainder shifted to the Social
Security trust fund.

Ron Paul.

DISSENTING VIEWS

The American Private Investment Companies' (APIC) proposed
goal of bringing large-scale businesses to economically
distressed communities is a laudable ad important goal.
However, H.R. 2764, the American Private Investment Companies
Act, subsequently incorporated into H.R. 2848, the New Markets
Initiative as Title III, accepts the various impediments to
investing in the inner city and rural communities and simply
offers businesses a subsidy for risky investment. Further, the
legislation duplicates several existing programs. It has not
been adequately scored to take government loan guarantee risk
into consideration, and is to be administered by the Department
of Housing and Urban Development (HUD), which is inadequately
prepared for the responsibility.
A lack of capital is not keeping businesses from investing
in these areas, especially not the large-scale, established
businesses that the APIC program would target--the problem is
the high cost of doing business. Instead of attacking the
fundamental problems of these areas, a program such as APIC
reduces urban and rural areas' incentives to change what makes
investment in these communities difficult in the first place--
penalizing tax rates, burdensome regulatory policies, a lack of
public infrastructure, and high crime rates.
Further, a lack of venture capital is not an issue. The
companies the APIC proposal targets are not entrepreneurial
start-ups, nor are they small businesses. They are companies
like Safeway or Wal-Mart. Location of venture capital is also
not an issue. In today's information economy where technology
facilitates long-distance interpersonal communication, venture
capital flows to where it can earn a high rate of return,
whether the investment is in Chicago or the Appalachian
Mountains.
At least eight federal programs already exist that have
similar goals as the APIC program. We understand each program
is structured slightly differently and awards loans and grants
differently than APICs, but the outcome remains the same. These
include Community Development Block Grants (CDBG) Section 108
Loan Guarantees, Community Development Financial Institutions
(CDFIs), Small Business Investment Companies (SBICs), and the
Business and Industry Loan program administered by the USDA.
The APIC proposal creates quasi-GSEs, by relying on
government subsidies to back ``private'' loans. This is not a
private market initiative. HUD is granted authority to create a
secondary market in APIC debt, similar to how Ginnie Mae
guarantees mortgage debt. Creation of this secondary market
further lowers the cost of capital, but increases taxpayer
risk.
In fact, under H.R. 2764, APICs are expected to lose $36
million for every $1 billion invested. CBO believes that this
loss could be greater if the true value of risk is calculated.
In addition, CBO wrote that although the APIC legislation
``authorizes the appropriation of $36 million annually for the
subsidy cost of loan guarantees and $1 million annually for
administrative expenses . . . based on the experience of
similar loan guarantee programs administered by the SBA. CBO
estimates that the subsidy cost to guarantee $1 billion in
loans under the APIC program would cost about $50 million
annually.'' Based on SBA programs, ``CBO expects that APIC
borrowers would default on between 25% and 30% of the
guaranteed loans.''
To put this in perspective, CRS contrasts the expected 3.6%
subsidy rate with both CDFIs and SBICs. CDFIs have a FY 1999
subsidy rate of over 39% and SBICs have a subsidy rate of 25%
(as of 1996). Accordingly, CRS, as well as CBO, the proposed
3.6% subsidy rate far too low.
Finally, HUD is a highly political department and has
demonstrated a lack of success in handling new programs, such
as the community builders program. Unlike the Treasury
Department or the Small Business Administration (SBA), HUD has
no expertise in managing a large-scale business investment
program.
For the reasons outlined above, we believe that the APIC
program is not the preferred means of addressing poverty and
unemployment in economically distressed urban and rural areas.
Its band-aid approach as a government subsidized investment
program does not reduce the cost of business in these areas,
aside from reducing the cost of capital for large companies who
can easily find funds in the private market. The best way to
promote economic growth is to reduce federal, state and local
tax and regulatory burdens, which would encourage local
entrepreneurs--with their own capital at risk--to determine
what works best in their community.

Paul Ryan.
Ed Royce.
Jim Ryun.
Pat Toomey.
Mark Green.
Ron Paul.
Bob Barr.
Doug Ose.