2023 -- S 0550 AS AMENDED

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LC002006

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2023

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A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SMALL

BUSINESS DEVELOPMENT FUND

     Introduced By: Senators LaMountain, Britto, F. Lombardi, Burke, and Lauria

     Date Introduced: March 07, 2023

     Referred To: Senate Finance

     It is enacted by the General Assembly as follows:

     SECTION 1. Sections 42-64.33-2 and 42-64.33-4 of the General Laws in Chapter 42-64.33

entitled "The Rhode Island Small Business Development Fund" are hereby amended to read as

follows:

     42-64.33-2. Definitions.

     (a) As used in this chapter:

     (1) “Affiliate” means an entity that directly, or indirectly, through one or more

intermediaries, controls, or is controlled by, or is under common control with another entity. For

the purposes of this chapter, an entity is “controlled by” another entity if the controlling entity

holds, directly or indirectly, the majority voting or ownership interest in the controlled entity or has

control over the day-to-day operations of the controlled entity by contract or by law.

     (2) “Applicable percentage” means zero percent (0%) for the first three (3) credit allowance

dates, and twenty-one and one-half percent (21.5%) for the fourth, fifth, and sixth credit allowance

dates.

     (3) “Capital investment” means any equity or debt investment in a small business

development fund by a small business fund investor that:

     (i) Is acquired after July 5, 2019, at its original issuance solely in exchange for cash;

     (ii) Has one hundred percent (100%) of its cash purchase price used by the small business

development fund to make qualified investments in eligible businesses located in this state within

three (3) years of the initial credit allowance date; and

     (iii) Is designated by the small business development fund as a capital investment under

this chapter and is certified by the corporation pursuant to § 42-64.33-4. This term shall include

any capital investment that does not meet the provisions of § 42-64.33-4(a) if the investment was

a capital investment in the hands of a prior holder.

     (4) “Corporation” means the Rhode Island commerce corporation.

     (5) “Credit allowance date” means the date on which a capital investment is made and each

of the five (5) anniversary dates of the date thereafter.

     (6) “Eligible business” means a business that, at the time of the initial qualified investment

in the company:

     (i) Has less than two hundred fifty (250) employees;

     (ii) Has not more than fifteen million dollars ($15,000,000) in net income from the

preceding tax year;

     (iii) Has its principal business operations in this state; and

     (iv) Is engaged in industries related to clean energy, biomedical innovation, life sciences,

information technology, software, cyber physical systems, cybersecurity, data analytics, defense,

shipbuilding, maritime, composites, advanced business services, design, food, manufacturing,

transportation, distribution, logistics, arts, education, hospitality, tourism, or, if not engaged in the

industries, the corporation makes a determination that the investment will be beneficial to the

economic growth of the state.

     (7) “Eligible distribution” means:

     (i) A distribution of cash to one or more equity owners of a small business fund investor to

fully or partially offset a projected increase in the owner’s federal or state tax liability, including

any penalties and interest, related to the owner’s ownership, management, or operation of the small

business fund investor;

     (ii) A distribution of cash as payment of interest and principal on the debt of the small

business fund investor or small business development fund; or

     (iii) A distribution of cash related to the reasonable costs and expenses of forming,

syndicating, managing, and operating the small business fund investor or the small business

development fund, or a return of equity or debt to affiliates of a small business fund investor or

small business development fund. The distributions may include reasonable and necessary fees paid

for professional services, including legal and accounting services, related to the formation and

operation of the small business development fund.

     (8) “Jobs created” means a newly created position of employment that was not previously

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located in the state at the time of the qualified investment in the eligible business and requiring a

minimum of thirty five (35) hours worked each week, measured each year by subtracting the

number of full-time, thirty-five hours-per-week (35) employment positions at the time of the initial

qualified investment in the eligible business from the monthly average of full-time, thirty-five

hours-per-week (35) employment positions for the applicable year. The number shall not be less

than zero.

     (9) “Jobs retained” means a position requiring a minimum of thirty five (35) hours worked

each week that existed prior to the initial qualified investment. Retained jobs shall be counted each

year based on the monthly average of full-time, thirty-five hours-per-week (35) employment

positions for the applicable year. The number shall not exceed the initial amount of retained jobs

reported and shall be reduced each year if employment at the eligible business concern drops below

that number.

     (10) “Minority business enterprise” means an eligible business which is certified by the

Rhode Island office of diversity, equity and opportunity, or approved by the commerce corporation

for the purposes of this chapter, as being a minority or women business enterprise.

     (11) “Principal business operations” means the location where at least sixty percent (60%)

of a business’s employees work or where employees who are paid at least sixty percent (60%)

percent of the business’s payroll work. A business that has agreed to relocate employees using the

proceeds of a qualified investment to establish its principal business operations in a new location

shall be deemed to have its principal business operations in the new location if it satisfies these

requirements no later than one hundred eighty (180) days after receiving a qualified investment.

     (12) “Purchase price” means the amount paid to the small business development fund that

issues a capital investment that shall not exceed the amount of capital investment authority certified

pursuant to § 42-64.33-4.

     (13) “Qualified investment” means any investment in an eligible business or any loan to

an eligible business with a stated maturity date of at least one year after the date of issuance,

excluding revolving lines of credit and senior secured debt unless the eligible business has a credit

refusal letter or similar correspondence from a depository institution or a referral letter or similar

correspondence from a depository institution referring the business to a small business development

fund; provided that, with respect to any one eligible business, the maximum amount of investments

made in the business by one or more small business development funds, on a collective basis with

all of the businesses’ affiliates, with the proceeds of capital investments shall be twenty percent

(20%) of the small business development fund’s capital investment authority, exclusive of

investments made with repaid or redeemed investments or interest or profits realized thereon. An

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eligible business, on a collective basis with all of the businesses’ affiliates, is prohibited from

receiving more than four million dollars ($4,000,000) in investments from one or more small

business development funds with the proceeds of capital investments.

     (14) “Small business development fund” means an entity certified by the corporation under

§ 42-64.33-4.

     (15) “Small business fund investor” means an entity that makes a capital investment in a

small business development fund.

     (16) “State” means the state of Rhode Island.

     (17) “State tax liability” means any liability incurred by any entity under § 44-17-1 et seq.

     42-64.33-4. Application, approval and allocations.

     (a) A small business development fund that seeks to have an equity or debt investment

certified as a capital investment and eligible for credits under this chapter shall apply to the

corporation. The corporation shall begin accepting applications within ninety (90) days of July 5,

2019. The small business development fund shall include the following:

     (1) The amount of capital investment requested;

     (2) A copy of the applicant’s or an affiliate of the applicant’s license as a rural business

investment company under 7 U.S.C. § 2009cc, or as a small business investment company under

15 U.S.C. § 681, and a certificate executed by an executive officer of the applicant attesting that

the license remains in effect and has not been revoked;

     (3) Evidence that, as of the date the application is submitted, the applicant or affiliates of

the applicant have invested at least one hundred million dollars ($100,000,000) in nonpublic

companies;

     (4) An estimate of the number of jobs that will be created or retained in this state as a result

of the applicant’s qualified investments;

     (5) A business plan that includes a strategy for reaching out to and investing in minority

business enterprises and a revenue impact assessment projecting state and local tax revenue to be

generated by the applicant’s proposed qualified investment prepared by a nationally recognized,

third-party, independent economic forecasting firm using a dynamic economic forecasting model

that analyzes the applicant’s business plan over the ten (10) years following the date the application

is submitted to the corporation; and

     (6) A nonrefundable application fee of five thousand dollars ($5,000), payable to the

corporation.

     (b) Within thirty (30) days after receipt of a completed application, the corporation shall

grant or deny the application in full or in part. The corporation shall deny the application if:

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     (1) The applicant does not satisfy all of the criteria described in subsection (a) of this

section;

     (2) The revenue impact assessment submitted with the application does not demonstrate

that the applicant’s business plan will result in a positive economic impact on this state over a ten-

year (10) period that exceeds the cumulative amount of tax credits that would be issued to the

applicant if the application were approved; or

     (3) The corporation has already approved the maximum amount of capital investment

authority under subsection (g) of this section.

     (c) If the corporation denies any part of the application, it shall inform the applicant of the

grounds for the denial. If the applicant provides any additional information required by the

corporation or otherwise completes its application within fifteen (15) days of the notice of denial,

the application shall be considered completed as of the original date of submission. If the applicant

fails to provide the information or fails to complete its application within the fifteen-day (15)

period, the application remains denied and must be resubmitted in full with a new submission date.

     (d) If the application is deemed to be complete and the applicant deemed to meet all of the

requirements of subsections (a) and (b), the corporation shall certify the proposed equity or debt

investment as a capital investment that is eligible for credits under this chapter, subject to the

limitations contained in subsection (g) of this section. The corporation shall provide written notice

of the certification to the small business development fund.

     (e) The corporation shall certify capital investments in the order that the applications were

received by the corporation. Applications received on the same day shall be deemed to have been

received simultaneously.

     (f) For applications that are complete and received on the same day, the corporation shall

certify applications in proportionate percentages based upon the ratio of the amount of capital

investments requested in an application to the total amount of capital investments requested in all

applications.

     (g) The corporation shall certify sixty-five million dollars ($65,000,000) in capital

investments pursuant to this section; provided that not more than twenty million dollars

($20,000,000) may be allocated to any individual small business development fund certified under

this section except that the corporation in its discretion may allocate more than twenty million

dollars ($20,000,000) to a small business development fund or its affiliate that has already fully

deployed an allocation certified under this section.

     (h) Within sixty (60) days of the applicant receiving notice of certification, the small

business development fund shall issue the capital investment to and receive cash in the amount of

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the certified amount from a small business fund investor. At least forty-five percent (45%) of the

small business fund investor’s capital investment shall be composed of capital raised by the small

business fund investor from sources, including directors, members, employees, officers, and

affiliates of the small business fund investor, other than the amount of capital invested by the

allocatee claiming the tax credits in exchange for the allocation of tax credits; provided that at least

ten percent (10%) of the capital investment shall be derived from the small business investment

fund’s managers. The small business development fund shall provide the corporation with evidence

of the receipt of the cash investment within sixty-five (65) days of the applicant receiving notice of

certification. If the small business development fund does not receive the cash investment and issue

the capital investment within the time period following receipt of the certification notice, the

certification shall lapse and the small business development fund shall not issue the capital

investment without reapplying to the corporation for certification. Lapsed certifications revert to

the authority and shall be reissued pro rata to applicants whose capital investment allocations were

reduced pursuant to this chapter and then in accordance with the application process.

     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND SMALL

BUSINESS DEVELOPMENT FUND

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     This act would expand on the definition of a minority business as a business which self-

certifies that it meets the eligibility criteria of a minority business enterprise as defined under the

Rhode Island department of administration’s rules 220-RICR-80-10-1. Additionally, this act would

allow a corporation in its discretion to allocate more than twenty million dollars ($20,000,000) to

a small business development fund or its affiliate that has already fully deployed an allocation

certified under this section.

     This act would take effect upon passage.

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