HB-5477, As Passed House, June 12, 2012

SENATE SUBSTITUTE FOR

HOUSE BILL NO. 5477

A bill to amend 1984 PA 270, entitled

"Michigan strategic fund act,"

by amending sections 88d, 88f, and 88q (MCL 125.2088d, 125.2088f,

and 125.2088q), section 88d as amended by 2008 PA 571, section 88f

as added by 2005 PA 225, and section 88q as amended by 2009 PA 144.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 88d. (1) The fund shall create and operate a loan

enhancement program.

(2) As a separate and distinct part of the loan enhancement

program, the fund may create a loan guarantee program that does all

of the following:

(a) Provide a loan guarantee mechanism to financial

institutions located in this state that provide commercial loans to

qualified businesses, public authorities, and local units of

government.

(b) Ensures that participating financial institutions do not

refinance prior debt.

loan guarantee under this section if it has a documented growth

opportunity. As used in this subdivision, "documented growth

opportunity" means a plant expansion, capital equipment investment,

acquisition of intellectual property or technology, or the hiring

of new employees to meet or satisfy a new business opportunity.

(d) Provide that a qualified business that engages primarily

in retail sales is not eligible for a loan guarantee under this

chapter unless the fund board makes a specific finding that the

loan guarantee supports a new concept that has significant growth

potential.

(e) Provide repayment provisions for a loan or a guarantee

given to a qualified business that leaves Michigan within 3 years

of the provision of the loan or guarantee or otherwise breaches the

terms of an agreement with the fund.

(3) As a separate and distinct part of the loan enhancement

program, the fund shall reestablish the small business capital

access program that was previously operated by the fund for small

businesses in a manner similar to how that program was operated

before January 1, 2002. The small business capital access program

shall operate on a market-driven basis and provide for premium

payments by borrowers into a special reserve fund. The small

business capital access program established by the board shall

prohibit an officer, director, principal shareholder of a

participating financial institution, or his or her immediate family

members from receiving a small business capital access program loan

from the financial institution. A loan under the small business

capital access program may be issued to an eligible production

company or film and digital media private equity fund even if the

eligible production company or film and digital media private

equity fund is not a small business. A loan under the small

business capital access program shall provide that the proceeds of

a loan may only be used for a business purpose within this state

and may not be used for any of the following:

(a) The construction or purchase of residential housing.

(b) To finance passive real estate ownership.

institution that is not part of the small business capital access

program.

(4) As a separate and distinct part of the loan enhancement

program, the fund shall establish a Michigan film and digital media

investment loan program to invest in loans from the investment fund

to eligible production companies or film and digital media private

equity funds. The fund board shall make investments under this

subsection only upon approval of the chief compliance officer and

the Michigan film office after a review by the investment advisory

committee. If an investment is made under this section, not more

than $15,000,000.00 may be loaned to any 1 eligible production

company or film and digital media private equity fund for any 1

qualified production. The fund board may make an investment in a

qualified production if all of the following are satisfied:

(a) The production is filmed wholly or substantially in this

state.

(b) The eligible production company or the film and digital

media private equity fund has shown to the satisfaction of the

Michigan film office that a distribution contract or plan is in

place with a reputable distribution company.

private equity fund agrees that, while filming in this state, a

majority of the below the line crew for the qualified production

will be residents of this state.

(d) The eligible production company or film and digital media

private equity fund posts a completion bond approved by the

Michigan film office and has obtained no less than 1/3 of the

estimated total production costs from other sources as approved by

the chief compliance officer and the Michigan film office or has

obtained a full, unconditional, and irrevocable guarantee of the

repayment of the amount invested by the fund in favor of the

investment fund that satisfies 1 or more of the following:

(i) The guarantee is from an entity that has a credit rating of

not less than BAA or BBB from a national rating agency.

(ii) The guarantee is from a substantial subsidiary of an

entity that has a credit rating of not less than BAA or BBB from a

national rating agency.

(iii) The eligible production company or the film and digital

media private equity fund provides a full, unconditional letter of

credit from a bank with a credit rating of not less than A from a

national rating agency.

(iv) The guarantee is from a substantial and solvent entity as

determined by the investment advisory committee.

(e) The fund board may make a loan under this subsection at a

market rate of interest for a qualified production of up to 80% of

expected and estimated tax credits available to the eligible

production company or film and digital media private equity fund

under sections 455 to 459 of the Michigan business tax act, 2007 PA

36, MCL 208.1455 to 208.1459, if the eligible production company or

the film and digital media private equity fund agrees to name the

fund as its agent for the purpose of filing for the tax credits

should the eligible production company not apply for the tax

credits. The Michigan film office and the state treasurer shall

determine the estimated amount of tax credits for purposes of this

subsection. The fund board shall approve guidelines for the

initiation of a loan and the terms of the loan under this

subsection.

(f) A loan under this subsection may be converted to an equity

investment by the fund board with the approval of the chief

compliance officer and the Michigan film office.

(g) An eligible production company or film and digital media

production company that receives a loan under this subsection is

not also eligible for a loan for the same qualified production

under subsection (5).

(h) Fifty percent of any earnings on a loan or investment

under this subsection shall be deposited in the investment fund and

the remainder of the earnings shall be deposited in the Michigan

film promotion fund created under chapter 2A. One hundred percent

of principal repaid under this subsection shall be deposited in the

investment fund upon repayment.

(5) As a separate and distinct part of the loan enhancement

program, the fund shall establish and operate the choose Michigan

film and digital media loan fund to invest in loans from the

investment fund to eligible production companies or film and

digital media private equity funds eligible for a tax credit under

the Michigan economic growth authority act, 1995 PA 24, MCL 207.801

to 207.810, or sections 455 to 459 of the Michigan business tax

act, 2007 PA 36, MCL 208.1455 to 208.1459. The fund board shall

make investments under this subsection only upon approval of the

chief compliance officer and the Michigan film office. A loan

issued under this subsection is subject to all of the following

requirements:

(a) A loan shall be provided at an interest rate of not less

than 1%.

(b) The minimum amount of a loan under this subsection is

$500,000.00.

years, including up to 3 years of deferred principal payments to

align principal payments with receipt of primary incentives, as

determined by the fund board.

(d) The value of the loan may not exceed the value of the

primary incentive that the eligible production company or film and

digital media private equity fund is eligible to receive over 7

years, as discounted by the fund board. A loan authorized by the

fund board may provide for a loan amount equal to a portion or all

of the discounted value of the primary incentives, as discounted by

the fund board.

(e) The eligible production company or film and digital media

private equity fund is responsible for repayment of the loan

regardless of actual primary incentive amounts received.

(f) The eligible production company or film and digital media

private equity fund is responsible for loan preparation and closing

costs.

(g) An eligible production company or film and digital media

private equity fund that receives a loan under this subsection is

not also eligible for a loan for the same qualified production

under subsection (4).

(h) The eligible production company or film and digital media

private equity fund also obtains an additional loan from an

accredited financial institution or other approved lending market.

(i) The loan shall be issued consistent with guidelines for

the initiation of a loan and the terms of the loan under this

subsection approved by the fund board.

(j) Fifty percent of any earnings on a loan under this

subsection shall be deposited in the investment fund and the

remainder of the earnings shall be deposited in the Michigan film

promotion fund created under chapter 2A. One hundred percent of

principal repaid under this subsection shall be deposited in the

investment fund upon repayment.

(6) As a separate and distinct part of the loan enhancement

program, the fund shall operate the choose Michigan fund program to

invest in loans from the investment fund to a qualified business.

The choose Michigan fund program shall operate on an incentive

basis and shall provide loans to qualified businesses to promote

and enhance significant job creation or retention within this

state. The choose Michigan fund shall not make a loan under this

subsection after September 30, 2009. Notwithstanding any

requirement imposed by the fund before April 1, 2008, to receive a

loan under this subsection, the fund board may or may not require a

qualified business to obtain an additional loan from an accredited

financial institution or other approved lending market to obtain a

loan under this subsection. At the discretion of the fund board,

not more than 3 loans provided through the choose Michigan fund may

be forgivable. A loan issued under this subsection is subject to

all of the following requirements:

(a) A loan shall be provided at an interest rate of not less

than 1%.

(b) The minimum amount of a loan under this subsection is

$500,000.00.

years, including up to 3 years of deferred principal payments to

align principal payments with receipt of any primary incentives, as

determined by the fund board.

(d) Except as provided in subdivision (g), the qualified

business is responsible for repayment of the loan regardless of any

primary incentives received.

(e) The qualified business is responsible for loan preparation

and closing costs.

(f) The loan shall be issued consistent with guidelines for

the initiation of a loan and the terms of the loan under this

subsection approved by the fund board.

(g) A loan under this subsection may be converted to an equity

investment by the fund board.

(h) The loan shall be subject to repayment provisions. If the

loan is with a qualified business that closes down or relocates

outside of Michigan anytime within 3 years after the term of the

loan, then the provisions of the loan shall also include, at a

minimum, immediate repayment of any outstanding principal, payment

of a default interest rate, and repayment of any amounts forgiven.

(i) In determining whether to forgive all or a portion of a

loan to a qualified business, the fund shall consider the net

economic impact of the project on the state's economy. The loan

agreement between the fund and the qualified business shall clearly

enumerate the terms, conditions and requirements under which all or

a portion of the loan may be forgiven, including, but not limited

to, job creation and investment in this state.

(7) As a separate and distinct part of the loan enhancement

program, the fund shall operate the Michigan micro loan program to

invest in, make loans to, or provide other economic assistance to

support loans made by qualified micro loan lenders. The fund shall

establish guidelines for the Michigan micro loan program that

include, but are not limited to, all of the following:

(a) A provision that requires consideration of a guarantee by

a person as determined by the fund to act as a guarantor, or that

provides a surety agreement for the qualified micro loan lender's

loan.

(b) A provision that the amount of a loan may not exceed the

greater of $50,000.00 or small business administration micro loan

amount limitations.

benefit of the qualified micro loan lender, which may include

security on assets of the borrower that are financed through the

support of the Michigan micro loan program.

(d) A provision that requires consideration of the default

rate of credit facilities extended by the qualified micro loan

lender before approving support under the Michigan micro loan

program.

(e) A provision that provides that the qualified micro loan

lender agrees to maintain a loan loss reserve in an amount as

determined by the fund.

(8) ~~(7)~~ As used in this section:

(a) "Below the line crew" means that term as defined under

section 459 of the Michigan business tax act, 2007 PA 36, MCL

208.1459.

(b) "Eligible production company" means that term as defined

under section 455 of the Michigan business tax act, 2007 PA 36, MCL

208.1455.

limited partnership, limited liability company, or corporation

organized and operating in the United States that satisfies all of

the following:

(i) Has as its primary business activity the investment of

funds in return for equity in qualified productions.

(ii) Holds out the prospect for capital appreciation from the

investments.

(iii) Accepts investments only from accredited investors as that

term is defined in section 2 of the federal securities act of 1963

and rules promulgated under that act.

(d) "Investment advisory committee" means the committee

created within the department under section 91 of the executive

organization act of 1965, 1965 PA 380, MCL 16.191.

(e) "Michigan film office" means the office created under

chapter 2A.

(f) "Primary incentive" means a tax credit an eligible

production company is eligible to receive under the Michigan

economic growth authority act, 1995 PA 24, MCL 207.801 to 207.810,

or under sections 455 to 459 of the Michigan business tax act, 2007

PA 36, MCL 208.1455 to 208.1459.

(g) "Qualified micro loan lender" means a nonprofit entity,

community development financial institution, regional revolving

loan fund, or other organization making micro loans to qualified

micro businesses as determined by the fund.

(h) ~~(g)~~ "Qualified production" means that term as defined

under section 455 of the Michigan business tax act, 2007 PA 36, MCL

208.1455.

Sec. 88f. (1) When creating programs for 21st century

investments under this chapter, the fund shall create and operate

the venture capital investment program. The fund board shall

authorize investments that shall invest only in or alongside a

qualified venture capital fund that invests primarily in early

stage businesses. The venture capital investment program shall do

all of the following:

(a) Provide that the return on investment that is sought is

greater than the return on investment under the commercial loan

portion of the loan enhancement program to reflect the greater risk

and track actual return on investment performance comparison

between venture capital investment and commercial loan enhancement

investments on an ongoing basis in the annual report.

(b) Provide that the qualified venture capital fund will have

an amount at risk greater than the fund's investment.

eligible to participate in a venture capital investment program

unless it operates a business development office in this state

staffed with at least 1 full-time equivalent employee who is

actively seeking opportunities for venture capital investments in

businesses located in this state unless the investment opportunity

requested by the qualified venture capital fund is targeted to a

specific transaction involving a competitive edge technology that

will not occur without the fund's investment as determined by the

fund board.

(d) Provide that a qualified venture capital fund is not

eligible to participate in a venture capital investment program

unless it agrees to make venture capital investments in this state

at a percentage rate that is not less than the percentage rate that

the fund's investment in the qualified venture capital fund bears

to the total amount in the qualified venture capital fund.

(e) Provide that a qualified venture capital fund is not

eligible to participate in a venture capital investment program if

its investment strategy provides for the breakup and liquidation of

businesses. The fund board shall make sure that the agreements with

a venture capital fund have the appropriate provisions to prohibit

the actions described in this subdivision.

(f) Coordinate with the Michigan early stage venture

investment fund as defined in section 3 of the Michigan early stage

venture investment act of 2003, 2003 PA 296, MCL 125.2233, to

ensure that a continuum of venture capital is available in this

state.

(g) Provide that 80% of the funds allocated to a venture

capital investment program shall focus on competitive edge

technologies.

(h) Provide that a qualified venture capital fund may make

follow-up investments that were eligible for investment at the time

of initial investment but that subsequently may not be

characterized as an investment in an early stage business.

(2) The fund board may limit overhead rates for recipients of

awards to reflect actual overhead, administrative fees, and

management fees, to an amount as determined by the fund board,

which overhead rates shall not exceed 25% of the award. Start-up

costs may be reimbursed as determined by the fund board.

Sec. 88q. (1) The fund may create and operate a ~~centers~~ center

of ~~energy excellence~~ innovation program to promote the development,

acceleration, and sustainability of ~~energy excellence~~ competitive

edge technology sectors in this state. The fund may enter into

agreements with 1 or more qualified entities for the designation

and operation of a center of ~~energy excellence~~ innovation as

provided in subsection (5). Prior to entering into an agreement

under this section, 1 or more qualified entities may apply to the

fund for an agreement for designation and operation of a center of

~~energy excellence~~ innovation. The application shall be in a form

determined by the fund and shall include information the fund

determines necessary and appropriate.

(2) ~~The fund board shall not expend more than $45,000,000.00~~

~~through fiscal year 2008-2009 and not more than $30,000,000.00 for~~

~~fiscal year 2009-2010 through fiscal year 2010-2011 of the money~~

~~appropriated for programs authorized under this chapter from the~~

~~21st century jobs trust fund created in the Michigan trust fund~~

~~act, 2000 PA 489, MCL 12.251 to 12.260, for the centers of energy~~

~~excellence program.~~ Grants, loans, or other economic assistance

given for the centers of ~~energy excellence~~ innovation program ~~shall~~

~~only~~ may be awarded to for-profit companies, benefit companies,

nonprofit companies, universities, and national laboratories for

all of the following purposes:

(a) Providing up to a 1-for-1 match for federal, collaborative

partners, or third party funding of up to 50% of the total project

costs.

(b) Supplementing in-kind contributions provided by a person

or entity other than this state.

technology or process that will be ready to market within 3 5 years

of the effective date of the agreement.

(d) Activities of the center, including, but not limited to,

workforce development and technology demonstration.

(3) All of the funds allocated to the centers for ~~energy~~

~~excellence~~ innovation program shall be used to match federal,

collaborative partners, or third party funding. The fund board may

authorize investment terms in qualified entities as part of any

agreement as provided in subsection (5). Not more than ~~15%~~ 25% of

any grant, loan, or other economic assistance awarded, as

determined by the fund board, can be used for administrative costs

or overhead by the ~~grantee~~ awardee or any subcontractor hired to

implement any portion of the centers for ~~energy excellence~~

innovation agreement. Grants, loans, or other economic assistance

authorized by this section shall be disbursed pursuant to a

timeline and progress disbursement schedule included as part of an

agreement under this section.

(4) The fund board shall establish a standard process to

evaluate applications for an agreement under this section and shall

appoint a committee ~~of members of the fund board~~ to assist in the

review of applications. The fund or the fund board shall not

appoint or designate any person paid or unpaid to a committee to

review applications if that person has a conflict of interest with

any potential applicants as determined by the office of the chief

compliance officer established in section 88i. When determining

whether to enter into an agreement under this section, the fund

board shall consider all of the following:

(a) The potential that in the absence of an agreement the

development, acceleration, and sustainability of ~~energy excellence~~

competitive edge technology sectors addressed by the proposed

center of ~~energy excellence~~ innovation will occur in a location

other than this state.

(b) The extent to which the proposed center of ~~energy~~

~~excellence~~ innovation will promote the development of ~~energy~~

~~excellence~~ competitive edge technology sectors in this state.

~~excellence~~ innovation will promote economic development or job

creation in this state.

(d) The extent to which the proposed center of ~~energy~~

~~excellence~~ innovation could attract private investment or encourage

commercialization in ~~energy excellence~~ competitive edge technology

sectors in this state.

(e) The extent to which the proposed center of ~~energy~~

~~excellence~~ innovation may leverage skills or resources in which

this state possesses a competitive advantage, including, but not

limited to, skills of workers, intellectual property, and natural

resources.

(f) The extent to which the proposed center of ~~energy~~

~~excellence~~ innovation may encourage collaboration on

commercialization and technology transfer among qualified entities

in this state.

(g) The extent to which the proposed center of ~~energy~~

~~excellence~~ innovation may attract additional federal funding to

this state or persons or entities within this state.

(h) The financial viability of the proposed center of ~~energy~~

~~excellence~~ innovation and the proposed business plan for the center

of ~~energy excellence~~ innovation, including, but not limited to,

commitments of financial and other support for the proposed center

and the potential availability of federal funding for the proposed

center.

(i) The financial resources available to the fund board for

operation of the centers of ~~energy excellence~~ innovation program

under this section.

(j) Any recommendations from the centers manager selected

under subsection (6).

(5) If the fund board enters into an agreement with 1 or more

qualified entities for the operation of a center of ~~energy~~

~~excellence~~ innovation, the agreement shall include participation by

at least 1 qualified business and at least 1 institution of higher

education or a national laboratory. An agreement shall include, but

is not limited to, all of the following:

(a) The roles and responsibilities of the fund and the

qualified entities participating in the agreement.

(b) A governance structure for the center of ~~energy excellence~~

innovation. The agreement may provide for representation of the

fund in the governance of the center.

entities participating in the agreement, including, but not limited

to, financial resources, technology, real property, personal

property, or other resources contributed by the parties to the

agreement.

(d) A commitment by the qualified entities participating in

the agreement to collaborate on commercialization and technology

transfer opportunities in ~~energy excellence~~ competitive edge

technology sectors in this state.

(e) A commitment by qualified entities that are institutions

of higher education to provide incentives for faculty who

participate in technology transfer and commercialization activities

in ~~energy excellence~~ competitive edge technology sectors and

expansion of business formation efforts related to ~~energy~~

~~excellence~~ competitive edge technology sectors to increase the

number of institution of higher education related start-up

companies.

(f) A commitment to locate and retain commercialization

opportunities resulting from the agreement or center of ~~energy~~

~~excellence~~ innovation within this state.

(g) A business plan for the center of ~~energy excellence~~

innovation that identifies clear and measurable objectives,

timelines, and deliverables for the center.

(h) The duration of the agreement and a mechanism for the

dissolution of the center of ~~energy excellence~~ innovation and the

disposition of any assets. The fund board may revoke an agreement

for the designation and operation of a center of ~~energy excellence~~

innovation if a qualified entity that is a party to the agreement

does not comply with the agreement.

(i) ~~Provision for repayment of grants from the fund in the~~

~~event a qualified entity fails to comply with the~~

~~agreement.~~Negotiation of specific claw back and repayment

provisions if performance to contract related to job creation,

commercialization, or other metrics do not comply with the

agreement. This provision shall be part of the public record and is

subject to the freedom of information act, 1976 PA 442, MCL 15.231

to 15.246.

(6) The fund board may select a person or entity as a centers

manager to assist the fund in the administration of the centers of

~~energy excellence~~ innovation program authorized by this section.

Costs associated with the administration of the centers of ~~energy~~

~~excellence~~ innovation program are subject to section 88b(5). The

centers manager shall do all of the following as determined by the

fund board:

(a) Provide administrative services related to the centers of

~~energy excellence~~ innovation program.

(b) Act as contract manager on behalf of the fund for any

agreement establishing a center of ~~energy excellence~~ innovation

under this section.

centers of ~~energy excellence~~ innovation program and implement any

plan authorized by the fund board.

(d) Assist centers of ~~energy excellence~~ innovation in

developing a supply chain for ~~energy excellence~~ competitive edge

technology sectors.

(e) Evaluate and report to the fund board on the centers of

~~energy excellence~~ innovation program and progress made toward

commercialization of technology in ~~energy excellence~~ competitive

edge technology sectors in this state.

(f) Review applications submitted under subsection (1) and

make recommendations to the fund board on the applications for

approval of applications.

(g) Perform other functions related to the centers for ~~energy~~

~~excellence~~ innovation program authorized by this section as deemed

necessary and appropriate by the fund board.

(7) As used in this section:

(a) "Centers manager" means a centers manager selected under

subsection (6).

~~(b) "Energy excellence sectors" means new and developing~~

~~industry sectors in the energy field in this state where the fund~~

~~has determined the state has a competitive advantage and there are~~

~~barriers to the commercialization of technology within the new and~~

~~developing industry sector.~~

~~(c) "Energy field" means alternative energy technology, energy~~

~~efficiency technology, technologies that contribute to energy~~

~~security and independence, other advanced energy technologies, or~~

~~water technology related to the development of energy excellence~~

~~sectors.~~

(b) "Competitive edge technology sectors" means sectors

involving competitive edge technology.

institution of higher education, a Michigan nonprofit corporation,

a national laboratory, or a political subdivision of this state.