PART 1. TEXAS DEPARTMENT OF AGRICULTURE
CHAPTER 29. ECONOMIC DEVELOPMENT
SUBCHAPTER B. RURAL ECONOMIC DEVELOPMENT CAPITAL FOR TEXAS PROGRAM
4 TAC §§29.20 - 29.32
The Texas Department of Agriculture (Department) proposes the addition of new Title 4, Part 1, Chapter 29, Subchapter B, §§29.20 - 29.32, to the Texas Administrative Code, providing rules for the continued administration and eventual conclusion of the Department's Jobs for Texas and Capital for Texas Programs, and establishing the Department's successor program, the Rural Economic Development Capital for Texas (RED C4T) Program.
Proposed new §29.20 sets out the purpose and background for the new rules, while proposed new §29.21 lays out the Department's authority to implement and administer the program.
Proposed new §29.22 includes general definitions applicable to Subchapter B.
Proposed new §29.23 provides for the continued administration and eventual conclusion of the Department's existing Jobs for Texas (J4T) Program and proposed new §29.24 provides for the continued administration and eventual conclusion of the existing Capital for Texas Program, which utilized the initial State Small Business Credit Initiative (SSBCI) Funds allocated to the Department from the U.S. Department of the Treasury to support financing of rural small and agricultural businesses in the state.
Proposed new §29.25 establishes the Rural Economic Development Capital for Texas (RED C4T) Program which replaces the former Jobs for Texas and Capital for Texas programs. The proposed rules are related to the RED C4T Program application process, eligibility requirements, and other program policies and procedures.
Proposed new §29.26 defines the eligibility requirements for a RED C4T Recipient; proposed new §29.27 outlines the filing requirements and considerations of an Application; proposed new §29.28 includes the selection criteria for a RED C4T investment; and proposed new §29.29 outlines the general terms and conditions of the Department's investment.
Proposed new §29.30 defines the criteria for administering RED C4T Funds.
Proposed new §29.31 and §29.32 describe investments that are prohibited under the RED C4T Program and those persons that are ineligible for funding under the program.
Ms. Karen Reichek, Administrator for Trade and Business Development, has determined that for the first five-year period the proposed new rules are in effect, there will be no fiscal implications for the state or local governments as a result of enforcing or administering the rules.
Ms. Reichek has also determined that for each year of the first five years the proposed new rules are in effect, the public benefit anticipated as a result of the proposed RED C4T Program will be to promote and support economic development in rural areas of this State and agricultural businesses.
The costs to a RED C4T Recipient include an investment return to be determined by the Department commencing on the Funding Date. Repayment of the initial Investment and Investment Return does not commence until after the agreement term ends.
Ms. Reichek has provided the following information related to the government growth impact statement, as required pursuant to Texas Government Code, §2001.0221. During the first five years the proposed rules are in effect:
(1) new government programs will be created;
(2) no employee positions will be created or eliminated, as the Department already has staff dedicated to administering the programs;
(3) there will be no increase or decrease in future legislative appropriations to the Department;
(4) there will be no increase or decrease in fees paid to the Department;
(5) new regulations will be created by the proposal;
(6) there will be no expansion, limitation, or repeal of existing regulation;
(7) there may be an increase in the number of individuals subject to the rules, depending on the number of applicants who seek to participate in the program; and
(8) the proposed rules are expected to have a positive economic impact on rural areas of the state, and are not anticipated to have an adverse effect on the state's economy.
The Department has determined the proposed rules will not affect a local economy within the meaning of Government Code §2001.022 and will not have an adverse economic effect on small businesses, micro-businesses, or rural communities.
Written comments on the proposal may be submitted to Ms. Karen Reichek, Administrator for Trade and Business Development, Texas Department of Agriculture, P.O. Box 12847, Austin, Texas 78711, or by email to: Karen.Reichek@TexasAgriculture.gov. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.
The new rules are proposed pursuant to Section 12.016 of the Texas Agriculture Code, which authorizes the Department to adopt rules as necessary for the administration of its powers and duties under the Agriculture Code, and Section 12.0272 of the Texas Agriculture Code, which establishes the Texas Economic Development Fund which is appropriated to the Department for the purpose of administering, establishing, implementing, or maintaining economic development programs.
The code affected by the proposal is Texas Agriculture Code, Chapter 12.
(a) The Capital for Texas Program was established effective January 20, 2016, using part of the funds allocated to the Department through the U.S. Department of the Treasury's (Treasury) State Small Business Credit Initiative (SSBCI) program, to provide funding to Community Development Financial Institutions (CDFIs) in support of small business lending in rural communities of this State.
(b) The Department's Allocation Agreement with the Treasury expired on March 31, 2017, while the authority and duty of the Treasury to administer the SSBCI program terminated on September 27, 2017. However, the SSBCI Act, Policy Guidelines, Compliance Standards and Allocation Agreement continue to apply to the first use of funds from the allocation made to the Department.
(c) The SSBCI Act, Policy Guidelines, Compliance Standards and Allocation Agreement do not apply to the recycling of SSBCI funds by the Department, or by a participating venture capital firm on behalf of the Department, after March 31, 2017.
(d) The purpose of these rules is to establish regulations for the Rural Economic Development Capital for Texas (RED C4T) Program to continue the Department's small business lending and investment programs using recycled SSBCI funds generated from SSBCI loan repayments and returns on SSBCI investments received or realized by the Department as a result of loans and investments made under the Capital for Texas and Jobs for Texas (J4T) programs, as well as other state funding from the Texas Economic Development Fund.
The Department's authority to establish, implement, and administer the RED C4T Program derives from Section 12.0272 of the Texas Agriculture Code, which establishes the Texas Economic Development Fund which is appropriated to the Department for the purpose of administering, establishing, implementing, or maintaining one or more of the Department's economic development programs. Per Section 12.0273 of the Texas Agriculture Code, the Department may use money in the Texas Economic Development Fund only to make loans and grants.
The following definitions shall apply to this subchapter:
(1) Act--The State Small Business Credit Initiative Act of 2010, Public Law 111-240, as amended.
(2) Agreement--A Performance Agreement entered into between the Department and an eligible recipient selected to participate in the C4T Programs, including all amendments to the Agreement.
(3) Agricultural Business--A business that is or proposes to be engaged in producing, processing, marketing, or exporting of an agricultural product, or that is or proposes to be engaged in an agricultural-related business in rural areas of Texas, including a business that provides recreational activities associated with the enjoyment of nature or the outdoors on agricultural land.
(4) Allocation Agreement--The Department's August 15, 2011 Allocation Agreement with the Treasury, as amended effective April 18, 2012 and January 20, 2016.
(5) Capital for Texas Program--The program established through the Allocation Agreement to provide funding to Community Development Financial Institutions (CDFIs) in support of small business lending in rural communities of this State.
(6) Department--The Texas Department of Agriculture.
(7) Family Relationship--Defined by Title 5, Chapter 573, Subchapter A, §573.002 of the Texas Government Code as a relationship within the third degree of consanguinity or second degree of affinity.
(8) Fund Manager--A venture capital firm selected by the Department to administer all or a portion of the J4T Program.
(9) Jobs for Texas Program--The venture capital program established by the Department pursuant to the Allocation Agreement, also referred to as the "J4T Program".
(10) Investment--An allocation of funds, either in the form of a grant or a loan, by the Department to an eligible Recipient of the RED C4T Program. The Recipient administers and manages the funds on behalf of the Department ensuring all funds administered meet the objectives and requirements of the RED C4T Program as defined in this subchapter and the Agreement between the Department and Recipient.
(11) Other Funds--Gifts, loans, donations, aid, appropriations, guaranties, allocations, subsidies, grants, or contributions received by the Department under Section 12.027(g) of the Texas Agriculture Code, and which have been deposited in the Texas Economic Development Fund; interest and income earned on the investment of money in the Texas economic development fund not resulting from an SSBCI investment or loan; and other money required by law to be deposited in the Texas Economic Development Fund.
(12) Recipient--An organization selected by the Department to administer all or a portion of the RED C4T Program.
(13) Recycled Funds--Money in the Texas Economic Development Fund resulting from an exit from an investment or repayment of a loan, including all money, deposits, distributions, dividends, earnings, gain, income, interest, proceeds, profits, program income, rents, returns of capital, returns on investments, royalties, revenue, or yields received or realized by the Department as a result of an investment or loan made under the J4T, Capital for Texas or RED C4T Programs.
(14) Recycling--The use of Recycled Funds in the Texas Economic Development Fund by the Department, or by a Recipient selected by the Department.
(15) Rural area--An area which is predominately rural in character and which is not adjacent to a Metropolitan Statistical Area (MSA); an unincorporated area or a city with a population under 50,000; or an area in a county with an unincorporated population of less than 200,000.
(16) Rural Economic Development Capital for Texas Program--The Department's rural economic development program established by this subchapter, also referred to as "RED C4T Program".
(17) Small Business--A business with 99 or fewer employees.
(18) Solicitation Document--A document used to request potential vendors to offer a quote, bid, or proposal to acquire goods, supplies, grants, and services. Solicitation document may also be referred to a notice of funding availability, request for application, request for proposal, request for quotation, or invitation to bid.
(19) SSBCI Funds--Money received by the Department pursuant to the Allocation Agreement.
(20) State--The State of Texas.
§29.23.Jobs for Texas Program for Initial Investments Using SSBCI Funds.
(a) The J4T program is continued by the Department for all initial investments of SSBCI Funds.
(b) The Act, Compliance Standards and Policy Guidelines apply to all initial investments of SSBCI Funds.
(c) All terms and conditions of Agreements entered into between the Department and Fund Managers in the administration of the J4T Program continue to apply to the Department and Fund Managers until those Agreements expire or are terminated according to their terms.
(d) The purpose of these rules is to ensure the continued administration and orderly conclusion of the J4T Program, and to establish regulations for the recycling of SSBCI funds generated from returns on investments made under this program.
§29.24.Capital for Texas Program for Initial Loans Using SSBCI Funds.
(a) The Capital for Texas program is continued by the Department for all initial loans made with SSBCI Funds.
(b) The Act, Compliance Standards and Policy Guidelines for all initial loans made with SSBCI Funds.
(c) All terms and conditions of Agreements entered into between the Department and CDFIs in the administration of the Capital for Texas Program continue to apply to the Department and CDFIs until those Agreements expire or are terminated according to their terms.
(d) The purpose of these rules is to ensure the continued administration and orderly conclusion of the Capital for Texas Program, and to establish regulations for the recycling of SSBCI funds generated from loan repayments under this program.
§29.25.Rural Economic Development Capital for Texas (RED C4T) Program.
(a) The RED C4T Program shall promote rural economic development and agricultural development in this State.
(b) The Department may utilize Other Funds or Recycled Funds to make allocations to Recipients selected by the Department to administer the RED C4T Program.
(c) The Department may authorize grants or loans under the RED C4T Program to eligible entities that will in turn administer the funds on behalf of the Department.
(d) RED C4T funds must be administered according to the original application filed and approved by the Department and must meet the requirements and the objectives of the RED C4T Program.
(e) The initial investment, whether a grant or loan, must be made to an entity directly supporting rural economic development, or a rural small business or small agricultural business of this State.
(f) An eligible Recipient of a RED C4T investment may be political subdivisions, economic development organizations, non-profits, utility companies, public-private partnerships or for-profit entities that are directly supporting a small rural business or small agricultural business of this State.
(g) Specific legal terms and obligations applicable to the Department and any Recipient shall be defined in an Agreement.
§29.26.RED C4T Recipient Eligibility Requirements.
(a) An applicant is eligible for an investment from the Department if, at minimum, it:
(1) Demonstrates its ability to administer and mobilize RED C4T funds to meet program objectives;
(2) Demonstrates it has sufficient funds to adequately leverage a RED C4T investment according to the Agreement and the program's Policy and Procedures;
(3) Is a legal entity formed, existing and in good standing under the laws of the United States of America and the State;
(4) Meets eligibility requirements defined in this subchapter and the solicitation document issued by the Department; and
(5) Is legally authorized to do business in this State and has a principal place of business in the state.
(b) Eligible expenditures. The proceeds of the RED C4T investment provided by the Department may be used only to finance loans and/or grants that meet the requirements set forth in this subchapter, the program's Policy and Procedures, and the Agreement signed by the Department and Recipient. All RED C4T loans and grants shall be approved by the Department in the Agreement.
(c) Ineligible expenditures. Any expenditure that is not identified in the approved budget filed with the application, or is otherwise prevented by regulation or statute, is not eligible for financing. RED C4T funds may not finance any loan and/or grant that is listed as a prohibited investment in §29.31 of this subchapter.
§29.27.Filing Requirements and Consideration for RED C4T Investment Applications.
(a) Application forms. An applicant seeking a commitment from the Department shall use the application forms provided by the Department.
(b) Submission of an application. Applicants are required to submit the complete application and all required material to the Department in accordance with the request for applications or other solicitation. Staff will be available prior to submission of the qualified application to discuss project eligibility.
(c) Staff Review. Staff will review the application for completeness and will notify the applicant of any additional information required. When all required information has been received within the time set by the Department, staff will evaluate the technical and feasibility of the project and examine the benefits of the project for economic growth in the state.
(d) Notification of approval. Upon approval of the qualified application by the Department, staff will notify the applicant and execute an Agreement between the applicant and the Department.
(e) Denial of an application. If an application is denied by the Department, the Department will notify the applicant in writing identifying the reasons for denial. Applicants who have been denied may re-apply for participation in the program.
(f) Providing false information. An applicant who knowingly provides false information in an application is liable to the Department for any expense incurred by the Department that results from the provision of false information to the Department. Any financial assistance, commitment or loan by the Department made as a result of a misrepresentation or providing false information in an application will be subject to termination with a requirement for full repayment of any and all proceeds disbursed to the applicant or Recipient by the Department. In addition, the Department may pursue any other remedies provided by law.
§29.28.Criteria for a RED C4T Investment.
In evaluating and selecting applications for an investment under this program, the Department shall consider:
(1) The anticipated benefits arising from the investment to the applicant, including both the potential impact on agricultural development and rural economic development;
(2) The qualifications of the applicant;
(3) The ability of the applicant to leverage its own funds with RED C4T funds to ensure RED C4T funds are mobilized;
(4) The applicant's ability to administer RED C4T funds;
(5) The extent and level of other funding sources for the applicant;
(6) The applicant's ability to meet the program's objectives including current and previous success in supporting agricultural development and/or rural economic development; and
(7) The applicant's present involvement with related local organizations.
§29.29.General Terms and Conditions of a RED C4T Investment.
(a) Permissible use of investment. The Department's investment is to be used to finance individual loans and/or grants that meet the RED C4T Program's objectives and terms defined by the Agreement.
(b) Minimum amount of investment. The Department shall not provide an investment to an applicant where the amount of the investment is less than $100,000.
(c) Maximum amount of investment. The cumulative amount of investment(s) to an applicant may not exceed $1,000,000.
(d) Investment Return. The investment return shall be the rate approved by the Department and/or lender, if applicable.
(e) Investment term. The term of the initial investment shall be defined in the Agreement between the Recipient and the Department. Any extension to the initial term must be approved in writing by the Department.
(f) Reporting requirements for an investment provided by the Department, at minimum, include:
(1) Annual reporting. The Recipient shall provide to the Department a copy of its annual audit report.
(2) Quarterly reports. The Recipient shall provide to the Department quarterly reports, in a format approved by the Department, summarizing its activities or accomplishments for the previous three-month period. Quarterly reports are due thirty days after the end of each quarter or as specified in the Agreement.
(3) If necessary, the Department may request other reports or documentation reasonably necessary for an assessment of the applicant's compliance with the program.
(g) Repayment of the initial investment. The Recipient shall repay the initial investment plus the investment return as defined in the Agreement.
§29.30.Criteria for Administering RED C4T Funds.
In administering the funds provided by the initial RED C4T investment, the Recipient:
(1) Shall administer the funds in accordance with the Agreement approved by the Department and the Recipient, applicable statutes, and program rules;
(2) Must mobilize the RED C4T funds in a timely manner to ensure the initial investment is meeting the objectives of the RED C4T Program;
(3) Shall submit all loan and grant applications for approval by the Department;
(4) Shall certify that all loans and grants funded with the RED C4T investment meet the eligibility requirements of this subchapter; and
(5) May make loans to new borrowers using funds generated from loan repayments received by the Recipient as a result of loans made by the Recipient under the Agreement; however, no new loans may be made after the Investment Period in the Agreement has expired or terminated.
Prohibited investments under the RED C4T Program include the following:
(1) Grants or loans for activities that relate to lobbying activities, as such activities are defined under state or federal law;
(2) Grants or loans to childcare facilities, including day cares and after-school programs;
(3) Grants or loans for the refinancing of existing debt;
(4) Grants or loans involving the acquisition or holding of passive investments, such as commercial real estate ownership;
(5) Grants or loans for the repayment of delinquent federal or state income taxes;
(6) Grants or loans for the repayment of payroll or sales taxes, or other taxes required to be held in trust or escrow;
(7) Grants or loans that are, or are made in a manner that is, prohibited by federal or state laws that pertain to the investment of public money; and
(8) Such other grants or loans that the Department may deem to be Prohibited Investments, as communicated by the Department to the Recipient from time to time.
The following persons or entities are ineligible to receive funding under the RED C4T Program:
(1) An employee of the Texas Department of Agriculture;
(2) A family relationship of an employee of the Texas Department of Agriculture;
(3) A principal, executive officer, director, shareholder, member, or partner of Recipient, or any subsidiary, parent, affiliate or related entity or person of Recipient;
(4) A member of the immediate family of a principal, executive officer, director, shareholder, member, or partner of Recipient;
(5) A related interest of a principal, executive officer, director, shareholder, member, or partner of Recipient;
(6) A business engaged in speculative activities that develop profits from fluctuations in price rather than through normal course of trade, such as stock investments, commodities futures and currency trading;
(7) A business that earns more than half of its annual net revenue from lending activities, unless the business is a Community Development Financial Institution (CDFI), Community Development Corporation or a Certified Development Company;
(8) A business engaged in pyramid sales, where a participant's primary incentive is based on the sales made by an ever-increasing number of participants, or a multi-level marketing organization or business;
(9) A business engaged in activities that are prohibited by federal or Texas law;
(10) A business engaged in gambling enterprises, with the sole exception of a retail grocery or convenience store business that earns less than 33% of its annual net revenue from lottery sales;
(11) A person if the investment would result in violation of Chapter 176 of the Texas Local Government Code;
(12) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of a felony;
(13) A person (or any principal, executive officer, director, shareholder, or member) who has demonstrated a pattern or practice of defalcation of accounts or funds;
(14) A person (or any principal executive officer, director, shareholder, or member) who has mis-certified his/her status as a minority and/or woman owned business enterprise;
(15) A person (or any principal executive officer, director, shareholder, or member) who has been debarred from participating in other federal or state programs;
(16) A person (or any principal executive officer, director, shareholder, or member) indebted to the United States of America, any agency or department of the United States of America, the state of Texas, any agency, department, instrumentality or political subdivision of the state of Texas or any other state;
(17) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of, or subjected to a civil judgment for, fraud;
(18) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of, or subjected to a civil judgment for, federal or state antitrust law violations;
(19) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of a criminal offense relating to embezzlement, theft, forgery, bribery, falsification or destruction of records, making false statements, receiving stolen property, making false claims, obstructing of justice, or conspiracy to do the same;
(20) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of a criminal offense indicating a breach of trust, dishonesty or lack of integrity, or conspiracy to do the same; and
(21) A person (or any principal executive officer, director, shareholder, or member) who has been convicted of, or subjected to a civil penalty or judgment for, violation of state or federal ethics laws.
The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.
Filed with the Office of the Secretary of State on September 14, 2020.
Assistant General Counsel
Texas Department of Agriculture
Earliest possible date of adoption: October 25, 2020
For further information, please call: (512) 936-9360