Senate Bill No. 225
(By Senators McCabe, Browning, Unger, Foster, Jenkins, Stollings, Wells, Minard and Klempa)
[Introduced January 20, 2011; referred to the Committee on Economic Development; then to the Committee on Finance.]
A BILL to amend the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §5E-3-1, §5E-3-2, §5E-3-3, §5E-3-4, §5E-3-5, §5E-3-6, §5E-3-7, §5E-3-8, §5E-3-9, §5E-3-10 and §5E-3-11; and to amend and reenact §31-15-6 of said code, all relating to the creation of an innovation and development program; providing a short title; declaration of policy; setting forth purposes; providing definitions; authorizing and directing the Economic Development Authority to propose rules to implement its provisions and provide for the effective and efficient administration of the program; authorizing the authority to provide technical and professional assistance to entrepreneurs in the state; authorizing the authority to make qualified investments and loans; authorizing recoverable revenue credits to private investors for investments in qualified investment companies pursuant to rules to be promulgated by the authority; authorizing tax credits to investors in qualified community development entities; creating a revolving fund to deposit all profits collected by the Economic Development Authority; and specifying disclosure, conflict of interest and confidentiality standards for the operation of the innovation and development program.
Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated §5E-3-1, §5E-3-2, §5E-3-3, §5E-3-4, §5E-3-5, §5E-3-6, §5E-3-7, §5E-3-8, §5E-3-9, §5E-3-10 and §5E-3-11; and that §31-15-6 of said code be amended and reenacted, all to read as follows:
CHAPTER 5E. VENTURE CAPITAL COMPANY.
ARTICLE 3. INNOVATION AND DEVELOPMENT ACT.
§5E-3-1. Short title.
This article may be cited as the "West Virginia Innovation and Development Act."
§5E-3-2. Declaration of policy.
(a) The Legislature finds and declares that the West Virginia economy can be strengthened by the establishment of a technology based economic development program that is tailored to West Virginia's specific markets, opportunities and challenges in establishing innovation driven enterprises.
(b) The Legislature further finds that West Virginia's specific markets, opportunities and challenges in establishing innovation driven enterprises can best be addressed by the establishment and operation of a technology based economic development program as set forth in this article.
(a) The purpose of this article is to promote the development of the human resources and the diversification of the economy of West Virginia by strengthening the foundations of West Virginia's distinctive market environment, by building on West Virginia's established industrial and economic base and establishing a long term program that will result in a strong, viable and high-growth economy in West Virginia.
(b) This article establishes an economic development program that is designed to:
(1) Help build and nurture entrepreneurial support structures and attract executives to lead West Virginia-based companies;
(2) Support the formation and deployment of private equity at all stages of the business development life cycle including seed capital, venture capital and other equity and normal bank debt that can help emerging as well as mature businesses remain, adapt and grow in West Virginia;
(3) Be flexible in terms of who may access program resources; how it is accessed;
(4) Operate according to clearly expressed standards designed to grow, build and keep businesses in West Virginia;
(5) Provide measurable results and hold participants accountable;
(6) Leverage existing programs and resources in all regions of West Virginia;
(7) Operate as a "fund of funds" by investing in qualified investment companies and receiving a return on such investments from distributions from participating companies;
(8) Support angel networks and the funding of seed and venture capital funds, specifically including community development venture capital companies; and
(9) Provide for a return on the state's investment by sharing the return of capital and profits with private limited partners.
As used in this article, the following terms have the meanings ascribed to them in this article unless the context in which the term is used clearly requires another meaning or a specific different definition is provided:
(1) "Applicable percentage" means seven percent for the first credit allowance date and eight percent for the next four credit allowance dates.
(2) "Authority" means the West Virginia Economic Development Authority established under article fifteen, chapter thirty-one of this code or any successor to all or any substantial part of its powers and duties.
(3) "Credit allowance date" means, with respect to any investment in a qualified community development entity:
(a) The date on which such investment is initially made; and
(b) Each of the next four anniversary dates of such date.
(4) "Qualified community development entity" has the same meaning given such term in Section 45D of the Internal Revenue Code of 1986, as amended, so long as such entity has entered into, or is controlled by an entity that has entered into, an allocation agreement with the Community Development Financial Institutions Fund of the United State’s Treasury Department regarding credits authorized by Section 45D of the Internal Revenue Code of 1986, as amended.
(5) "Qualified Investment Company" means an angel network, seed capital, venture capital or other private equity fund that has been qualified by the authority.
(6) "Recoverable revenue credits" means credits awarded by the authority pursuant to section seven of this article and entitles the state to receive not less than forty percent of the profits allocable to the tax-advantage portions of the investment.
(7) "State" means the State of West Virginia.
§5E-3-5. Rules - Report of findings to Joint Committee on Government and Finance.
The authority shall propose rules for legislative approval in accordance with article three, chapter twenty-nine-a of this code to carry out the policy and purposes of this article, to provide any necessary clarification of the provisions of this article and to efficiently provide for the general administration of this article. The authority may propose additional rules for legislative approval in accordance with article three, chapter twenty-nine-a of this code that it considers necessary to provide for the efficient administration of the recoverable revenue credits awarded to qualified investment companies under this article. The authority shall propose rules in conjunction with the Department of Commerce to require persons receiving any money or recoverable tax credits pursuant to this article to submit information that is necessary to determine the effectiveness of this act and whether the act shall be continued. Beginning July 1, 2012, and on July 1 of each succeeding year, the authority shall report its findings obtained from such information to the Joint Committee on Government and Finance.
§5E-3-6. Investments and technical assistance.
(a) From moneys appropriated for such purposes to the authority, the authority is authorized to provide or pay for technical and professional assistance to entrepreneurs in the state under rules proposed by the authority pursuant to provisions of section five of this article and the policies and procedures adopted by the authority to effectuate the purposes of this article.
(b) From moneys appropriated for such purposes, the authority is authorized to make seed capital, venture capital and other equity investments in qualified investment companies operating in the state under rules proposed by the authority pursuant to provisions of section five of this article and the policies and procedures adopted by the authority to effectuate the purposes of this article.
(c) The authority is authorized to award a total of $1 million in each fiscal year to fulfill the purposes of this section. Funds disbursed or awarded under this section shall be awarded by a competitive selection and award process designed to further the purposes of this article under rules proposed by the authority pursuant to provisions of section five of this article and the policies and procedures adopted by the authority to effectuate the purposes of this article.
§5E-3-7. Recoverable revenue credits.
(a) To encourage private investors to invest in qualified investment companies, including seed capital, venture capital and other private equity funds to build and support innovative businesses across the state, the authority is authorized to award a total of $5 million each fiscal year in recoverable revenue credits. The total amount of recoverable revenue credits authorized for a single qualified investment company may not exceed $2 million in any single round of credits allocated by the authority.
(b) Recoverable revenue credits authorized by this section are intended to provide the state with the opportunity to benefit from the success of all qualified investment companies authorized under this article and consists of: (1) A tax credit for private investors in qualified investment companies equal to fifty percent of the investor's investment to be calculated and applied as set forth in this article, coupled with; (2) the right in the state to receive not less than forty percent of the profits allocable to the tax-advantaged portion of investments in a qualified investment company authorized under this article, all pursuant to rules proposed by the authority under section five of this article and pursuant to policies and procedures adopted by the authority to effectuate the purposes of this article.
(c) Recoverable revenue credits authorized by this section shall be allocated pursuant to rules proposed by the authority under the provisions of section five of this article and pursuant to policies and procedures adopted by the authority to effectuate the purposes of this article.
(d) Any investor, including an individual, partnership, limited liability company, corporation or other entity, who makes an investment in a qualified investment company authorized by the authority under this article, which is independently operated by qualified managers and is not directly or indirectly operated or managed by the investors, is entitled to a recoverable revenue credit equal to no more than fifty percent of the investor's investment in the qualified investment company. No investor may receive the recoverable revenue credit without the approval of the authority. The other terms and conditions of the credit shall be established by the authority pursuant to rules proposed by the authority under section five of this article and pursuant to policies and procedures adopted by the authority to effectuate the purposes of this article.
(e) The recoverable revenue credits allowed by this article shall be taken after all other credits allowed by chapter eleven of this code have been taken. The credits shall be taken against the same taxes and in the same order as set forth in subsections (c) through (i), inclusive, section five, article thirteen-c, chapter eleven of this code. The credit for investments by a partnership, a limited liability company, a corporation electing to be treated as a subchapter S corporation or other entity which is treated as a pass through entity under federal and state income tax laws may be divided pursuant to election of the partners, members, shareholders or owners.
(f) The recoverable revenue credits allowed under this section are to be credited against the taxpayer's tax liability for the taxable year in which the investment is made. If the amount of the recoverable revenue credit exceeds the taxpayer's tax liability for the taxable year, the amount of the credit which exceeds the tax liability for the taxable year may be carried to succeeding taxable years until used in full or until forfeited. Recoverable revenue credits may not be carried forward more than fifteen years. Recoverable revenue credits may not be carried back to prior taxable years. Any recoverable revenue credit remaining after the fifteenth taxable year is forfeited.
(g) Recoverable revenue credits allowed under this section may not be used against any liability the taxpayer may have for interest, penalties or additions to tax.
(h) Notwithstanding any provision in this code to the contrary, the Tax Commissioner shall publish in the State Register the name and address of every taxpayer and the amount, by category, of any recoverable revenue credit awarded under this article. The categories by dollar amount of credit received are as follows:
(1) More than one-dollar but not more than $50,000;
(2) More than $50,000 but not more than $100,000;
(3) More than $100,000 but not more than $250,000;
(4) More than $250,000 but not more than $500,000;
(5) More than $500,000 but not more than $1 million; and
(6) More than $1 million.
§5E-3-8. Credit for investors in a qualified community development entity.
(a) Any investor, including an individual, partnership, limited liability company, corporation or other entity, who makes an investment in a qualified community development entity is entitled to a revenue credit equal to no more than thirty-nine percent of the purchase price of the investor's investment in the qualified investment community development entity. No investor receives the revenue credit without the approval of the authority. The tax credit may be utilized as follows:
(1) The holder of the investment in the qualified community development entity on a particular credit allowance date of such investment, whether it be the original purchaser or subsequent holder, may utilize a portion of the tax credit against its tax liability for the taxable year that includes such credit allowance date equal to the applicable percentage for such credit allowance date multiplied by the purchase price paid for such investment; and
(2) Any tax credit that a taxpayer may not utilize during a particular year may be carried forward for use in any subsequent tax year.
(b) No tax credit claimed under this section may be sold or transferred. Tax credits that a partnership, limited liability company, S corporation or other “pass-through” entity claim may be allocated to the partners, members, or shareholders of such entity for their direct use in accordance with the provisions of any agreement among such partners members or shareholders.
(c) The credits allowed under this section shall be taken after all other credits allowed by chapter eleven of this code have been taken. The credits must be taken against the same taxes and in the same order as set forth in subsections (c) through (i), inclusive, section five, article thirteen-c, chapter eleven of this code.
(d) Credits allowed under this section may not be used against any liability the taxpayer may have for interest, penalties or additions to tax.
(e) The total amount of tax credits that may be awarded by the authority pursuant to this section is limited to $2 million in each fiscal year.
(f) Credits authorized by this section shall be allocated pursuant to rules proposed by the authority under the provisions of section five of this article and pursuant to policies and procedures adopted by the authority to effectuate the purposes of this article.
§5E-3-9. Creation of revolving fund.
(a) The authority shall deposit all profits collected from investors receiving recoverable revenue credits, pursuant to section seven of this article, into a special State Treasury Fund to be known as “The Innovation and Development Revolving Fund.” The revolving fund is a permanent and perpetual fund administered by the economic development authority on behalf of the development office. Expenditures from the fund shall be for the purposes set forth in this section and made in accordance with appropriations from the Legislature and pursuant to the provisions of article three, chapter twelve of this code and after the fulfillment of the provisions of article two, chapter eleven-b of this code: Provided, That for the fiscal year ending June 30, 2012, expenditures are authorized from collections and not Legislative appropriations.
(b)(1) The revolving fund shall be governed, administered and accounted for by the directors, officers and managerial staff of the Economic Development Authority as a special revenue account, separate and distinct from any other moneys, funds or funds owned and managed by the Economic Development Authority. The revolving fund shall consist of sub-accounts, as deemed necessary by the Economic Development Authority, for the deposit of:
(A) All profits collected from investors receiving recoverable revenue credits pursuant to section seven of this article; and
(B) All income earned on moneys held in the revolving fund.
(2) Revolving fund amounts not expended at the close of the fiscal year do not lapse or revert to the General Fund but are carried forward to the next fiscal year. Interest earnings on the revolving fund becomes a part of the revolving fund and do not lapse or revert to the General Fund.
(c) Revolving fund moneys shall be used by the Economic Development Authority to award moneys for the purposes of section six of this article in an amount not to exceed $2 million annually and then to reimburse the state for any recoverable tax credits awarded pursuant to section seven of this article.
§5E-3-10. Conflict of interest.
No officer, member or employee of the authority may be financially interested, directly or indirectly, in any company or business receiving technical assistance, investments or recoverable revenue credits pursuant to the provisions of this article.
(a) The authority shall, by rule, determine which records, reports or information obtained from any person or entity under this article are to be treated by the agency as confidential and not subject to disclosure, except as hereinafter provided in subsection (c) of this section. Notwithstanding any other provision of law to the contrary, the authority shall make available to the public the identity of all qualified investment companies receiving technical assistance or investments under this article.
(b) Any other records, reports or information obtained from a person or entity under this article shall be made available to the public except that upon a showing at the time of submission, satisfactory to the authority, by a person or entity, that records, reports or information, or a particular part thereof, to which the authority or any officer, employee or representative thereof has or will have access under this section, if made public, would divulge information entitled to protection under 18 U.S.C. §1905 as that section read on December 20, 1999, such information or particular portion is confidential in accordance with the purposes of this section. In submitting data under this article, a person required to provide such data may designate the data which he or she believes is entitled to protection under this subsection and submit such designated data separately from other data submitted under this article. A designation under this subsection shall be made in writing and in such manner as the authority prescribes.
(c) Notwithstanding the foregoing provisions of this section, any record, report, document, or information may be disclosed to other officers, employees, or authorized representatives of this state charged with administering the provisions of this article. Notwithstanding the previous sentence, and notwithstanding any provision of this article, the provisions of this code regarding confidentiality and the disclosure of tax returns and tax information, including specifically section five-d, article ten, chapter eleven of this code, apply to the authority, its agents and employees and to information submitted to the authority under this article.
CHAPTER 31. CORPORATIONS.
ARTICLE 15. WEST VIRGINIA ECONOMIC DEVELOPMENT AUTHORITY.
§31-15-6. General powers of authority.
The authority, as a public corporation and governmental instrumentality exercising public powers of the state, shall have and may exercise all powers necessary or appropriate to carry out the purposes of this article, including the power:
(a) To cooperate with industrial development agencies in efforts to promote the expansion of industrial, commercial, manufacturing and tourist activity in this state.
(b) To determine, upon the proper application of an industrial development agency or an enterprise, whether the declared public purposes of this article have been or will be accomplished by the establishment by such agency or enterprise of a project in this state.
(c) To conduct examinations and investigations and to hear testimony and take proof, under oath or affirmation, at public or private hearings, on any matter relevant to this article and necessary for information on the establishment of any project.
(d) To issue subpoenas requiring the attendance of witnesses and the production of books and papers relevant to any hearing before such authority or one or more members appointed by it to conduct any hearing.
(e) To apply to the circuit court having venue of such offense to have punished for contempt any witness who refuses to obey a subpoena, to be sworn or affirmed, or to testify or who commits any contempt after being summoned to appear.
(f) To authorize any member of the authority to conduct hearings, administer oaths, take affidavits and issue subpoenas.
(g) To financially assist projects by insuring obligations in the manner provided in this article through the use of the insurance fund.
(h) To finance any projects by making loans to industrial development agencies or enterprises upon such terms as the authority shall deem deems appropriate: Provided, That nothing contained in this subsection (h) or under any other provision in this article shall be construed as permitting the authority to make loans for working capital: Provided, however, That nothing contained in this article shall be construed as prohibiting the authority from insuring loans for working capital made to industrial development agencies or to enterprises by financial institutions: Provided further, That nothing contained in this subsection or any other provision of this article shall be construed as permitting the authority to refinance existing debt except when such refinancing will result in the expansion of the enterprise whose debt is to be refinanced or in the creation of new jobs.
(i) To issue revenue bonds or notes to fulfill the purposes of this article and to secure the payment of such bonds or notes, all as hereinafter provided.
(j) To issue and deliver revenue bonds or notes in exchange for a project.
(k) To borrow money for its purposes and issue bonds or notes for the money and provide for the rights of the holders of the bonds or notes or other negotiable instruments, to secure the bonds or notes by a deed of trust on, or an assignment or pledge of, any or all of its property and property of the project, including any part of the security for loans. and The authority may issue and sell its bonds and notes, by public or private sale, in such principal amounts as it shall deem deems necessary to provide funds for any purposes under this article including the making of loans. for the purposes set forth in this article.
(l) To maintain such sinking funds and reserves as the board shall determine determines appropriate for the purposes of meeting future monetary obligations and needs of the authority.
(m) To sue and be sued, implead and be impleaded and complain and defend in any court.
(n) To adopt, use and alter, at will, a corporate seal.
(o) To make, amend, repeal and adopt both bylaws and rules and regulations for the management and regulation of its affairs.
(p) To appoint officers, agents and employees and to contract for and engage the services of consultants.
(q) To make contracts of every kind and nature to execute all instruments necessary or convenient for carrying on its business.
(r) To accept grants and loans from and enter into contracts and other transactions with any federal agency.
(s) To take title by conveyance or foreclosure to any project where acquisition is necessary to protect any loan previously made by the authority and to sell, by public or private sale, transfer, lease or convey such project to any enterprise.
(t) To participate in any reorganization proceeding pending pursuant to the United States Code (being the act of Congress establishing a uniform system of bankruptcy throughout the United States, as amended) or in any receivership proceeding in a state or federal court for the reorganization or liquidation of an enterprise. The authority may file its claim against any such enterprise in any of the foregoing proceedings, vote upon any questions pending therein which requires the approval of the creditors participating in any a reorganization proceeding or receivership, exchange any evidence of such indebtedness for any property, security or evidence of indebtedness offered as a part of the reorganization of such enterprise or of any other entity formed to acquire the assets thereof and may compromise or reduce the amount of any indebtedness owing to it as a part of any such reorganization.
(u) To acquire, construct, maintain, improve, repair, replace and operate projects within this state, as well as streets, roads, alleys, sidewalks, crosswalks and other means of ingress and egress to and from projects located within this state.
(v) To acquire, construct, maintain, improve, repair and replace and operate pipelines, electric transmission lines, waterlines, sewer lines, electric power substations, waterworks systems, sewage treatment and disposal facilities and any combinations thereof for the use and benefit of any enterprise located within this state.
(w) To acquire watersheds, water and riparian rights, rights-of-way, easements, licenses and any and all other property, property rights and appurtenances for the use and benefit of any enterprise located within this state.
(x) To acquire, by purchase, lease, donation or eminent domain, any real or personal property, or any a right or interest therein, as may be necessary or convenient to carry out the purposes of the authority. Title to all property, property rights and interests acquired by the authority shall be taken in the name of the authority.
(y) To issue renewal notes or security interests, to issue bonds to pay notes or security interests and, whenever it deems refunding expedient, to refund any bonds or notes by the issuance of new bonds or notes whether the bonds or notes to be refunded have or have not matured and whether or not the authority originally issued the bonds or notes to be refunded.
(z) To apply the proceeds from the sale of renewal notes, security interests or refunding bonds or notes to the purchase, redemption or payment of the notes, security interests or bonds or notes to be refunded.
(aa) To accept gifts or grants of property, funds, security interests, money, materials, labor, supplies or services from the United States of America or from any governmental unit or any person, firm or corporation, and to carry out the terms or provisions of, or make agreements with respect to, or pledge, any gifts or grants, and to do any and all things necessary, useful, desirable or convenient in connection with the procuring, acceptance or disposition of gifts or grants.
(bb) To the extent permitted under its contracts with the holders of bonds, security interests or notes of the authority, to consent to any modification of the rate of interest, time of payment of any installment of principal or interest, security or any other term of any bond, security interests, note or contract or agreement of any kind to which the authority is a party.
(cc) To sell loans, security interests or other obligations in the loan portfolio of the authority. Such security interests shall be evidenced by instruments issued by the authority. Proceeds from the sale of loans, security interests or other obligations may be used in the same manner and for the same purposes as bond and note revenues.
(dd) To procure insurance against any losses in connection with its property, operations or assets in such amounts and from such insurers as the authority deems desirable.
(ee) To sell, license, lease, mortgage, assign, pledge or donate its property, both real and personal, or any a right or interest therein, to another or authorize the possession, occupancy or use of such property or any a right or interest therein, by another, in such manner and upon such terms as upon terms it deems appropriate.
(ff) To participate with the state and federal agencies in efforts to promote the expansion of commercial and industrial development in this state.
(gg) To finance, organize, conduct, sponsor, participate and assist in the conduct of special institutes, conferences, demonstrations and studies relating to the stimulation and formation of business, industry and trade endeavors.
(hh) To conduct, finance and participate in technological, business, financial and other studies related to business and economic development.
(ii) To conduct, sponsor, finance, participate and assist in the preparation of business plans, financing plans and other proposals of new or established businesses suitable for support by the authority.
(jj) To prepare, publish and distribute, with or without charge as the authority may determine, such determines, technical studies, reports, bulletins and other materials as it deems appropriate subject only to the maintenance and respect for confidentiality of client proprietary information.
(kk) To exercise such other and additional powers as may be necessary or appropriate for the exercise of the powers herein conferred.
(ll) To exercise all of the powers which a corporation may lawfully exercise under the laws of this state.
(mm) To contract for the provision of legal services by private counsel, and notwithstanding the provisions of article three, chapter five, such counsel may, but is not limited to, represent the authority in court, negotiate contracts and other agreements on behalf of the authority, render advice to the authority on any matter relating thereto, a related matter, prepare contracts and other agreements and provide such other legal services as may be requested by the authority.
(nn) To develop, maintain, operate and apply for the establishment of foreign trade zones pursuant to and in accordance with all applicable provisions of federal law.
(oo) To award funds, tax credits and recoverable revenue credits and to collect profits on behalf of the state in accordance with the recoverable revenue credits pursuant to article three, chapter five-e of this code.
NOTE: The purpose of this bill is to establish a West Virginia innovation and development program, to attract and support capital investment in innovation-driven enterprises in West Virginia through a combination of direct annual investment by the state in seed capital, venture capital and other equity and debt investments in West Virginia; technical support and assistance to entrepreneurs in the state; and recoverable revenue credits to private investors to encourage private investment in seed capital, venture capital and other private equity funds, such program to be run and such funding to be awarded through a competitive selection process to be managed by the West Virginia Economic Development Authority.
§5E-3-1, §5E-3-2, §5E-3-3, §5E-3-4, §5E-3-5, §5E-3-6, §5E-3-7, §5E-3-8, §5E-3-9, §5E-3-10 and §5E-3-11 are new; therefore, strike-throughs and underscoring have been omitted.
Strike-throughs indicate language that would be stricken from the present law and underscoring indicates new language that would be added.