HB3698 94TH GENERAL ASSEMBLY

LRB094 06850 AJO 36956 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB3698

Introduced 2/24/2005, by Rep. James H. Meyer

SYNOPSIS AS INTRODUCED:

New Act
30 ILCS 105/5.640 new

Creates the Illinois Opportunity Fund Act. Contains provisions intended to increase the availability and facilitate the delivery of institutional venture capital to emerging and expanding enterprises in the State of Illinois. Defines the role of the Department of Commerce and Economic Opportunity. Creates the Illinois Opportunity Fund and provides for the creation of the Illinois Capital Investment Corporation. Amends the State Finance Act to create the Illinois Opportunity Special Projects Fund. Contains other provisions. Effective immediately.

FISCAL NOTE ACT MAY APPLY

HOUSING AFFORDABILITY IMPACT NOTE ACT MAY APPLY

A BILL FOR

AN ACT to increase the availability and facilitate the delivery of venture capital to emerging and expanding enterprises in the State of Illinois.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Illinois Opportunity Fund Act.

Section 5. Findings and purposes.

(a) The State of Illinois finds that the traditional means by which venture capital and private equity investors direct capital to Illinois markets are inadequately serving the State's needs for that capital and that the shortage is impairing the ability of the State to create jobs, new markets for goods and services, and sustainable economic growth throughout Illinois. The State of Illinois desires to strengthen the overall economy of the State by increasing the availability and delivery of venture capital for emerging and expanding enterprises in Illinois, and to do so in a way that provides for financial returns to private investors.

(b) Furthermore, the State of Illinois finds that certain geographic areas and populations within the State have been subject to economic disparities and have lacked access to the private capital needed to create jobs and economic opportunities.

(c) Venture capital shall be directed to geographic areas and populations within the State that have been subject to economic disparities and have lacked access to the private capital needed to create jobs and economic opportunities, and to sectors considered to be strategic industries for the State of Illinois as determined by the Department of Commerce and Economic Opportunity in coordination with the entities formed under this Act.

(d) These investments are intended to create high-quality and sustainable employment opportunities for Illinoisans, create domestic and global markets for the products and services of funded enterprises, and help to strengthen the State's economic base. This Act has the mission of mobilizing private investment in a broad variety of venture capital funds in diversified industries and geographic regions of the State of Illinois. To achieve this mission, the General Assembly believes that it is important to retain the private sector culture of focusing on rate of return in the investing process. Therefore, this Act is intended to facilitate the establishment of the Illinois Opportunity Fund, seek private investment, and create interest in these investments by offering State credit enhancements that limit risk to private investors. This Act also has the mission of facilitating and enhancing the flow of venture capital into the State of Illinois and improving the infrastructure through which capital is delivered throughout the State so as to grow commerce in the State of Illinois. It is the goal and intent of this legislation to accomplish these missions in such a manner as to minimize any appropriations by the State of Illinois to effectuate these purposes.

Section 10. Definitions. In this Act, unless the context requires otherwise:

"DCEO" means Department of Commerce and Economic Opportunity, or its successor agency.

"Certificate" means an assignable contract between DCEO Economic Opportunity and an investor in the Illinois Opportunity Fund under which the terms of the tax credits being issued for the benefit of the investor, or any assignee of the investor, as established by DCEO, are set forth.

"Person" means an individual, a corporation, a partnership, or any other lawfully organized entity, whether domiciled in Illinois or outside of Illinois.

"Illinois Capital Investment Corporation" means the private not for profit corporation established pursuant to this Act.

"Illinois Opportunity Fund" means the private for profit fund established by the Illinois Capital Investment Corporation pursuant to this Act.

"Tax credits" means credits against taxes imposed pursuant to Section 201 of the Illinois Income Tax Act for any taxable year ending after December 31, 2009, and having such terms as are established by DCEO in accordance with Section 25 of this Act, including any contingencies on redemption.

"SBIC" means small business investment company within the meaning of the federal Small Business Investment Act of 1958.

CDFI and CDVC. "CDFI" means a community development financial institution as defined in the Illinois Investment and Development Authority Act, and "CDVC" means community development venture capital, a type of CDFI specific to investing equity interests in Illinois firms with the dual goal of financial returns and economic and social benefit.

Section 15. Illinois Capital Investment Corporation.

(a) DCEO shall create the Illinois Capital Investment Corporation as a private not for profit corporation under the General Not For Profit Corporation Act of 1986 and not as a public corporation or instrumentality of the State. The corporation shall not enjoy any of the privileges nor be required to comply with any of the requirements of a State agency. Except as provided in this Act, nothing in this Act exempts the Illinois Capital Investment Corporation from the same requirements under State law that apply to other corporations organized under the General Not For Profit Corporation Act of 1986. The Director or Acting Director of DCEO or his or her designee shall be the incorporator of the Illinois Capital Investment Corporation.

(b) The Illinois Capital Investment Corporation shall recommend and DCEO shall approve investment objectives and criteria for the Illinois Opportunity Fund established to provide financial returns to investors, create jobs, and strengthen the economy of the State of Illinois. DCEO shall assist the corporation in performing its duties, and undertake such other responsibilities as are set forth in this Act or as may be necessary or appropriate to give effect to the intent and purposes of this Act.

(c) Subject to the assistance of DCEO, the Illinois Capital Investment Corporation shall receive investment returns from the Illinois Opportunity Fund and shall reinvest those funds in further venture capital investments subject to the provisions of this Act, and shall have responsibility for organizing and overseeing the management of the Illinois Opportunity Fund, identifying and engaging a private fund manager or managers for the Illinois Opportunity Fund, and establishing investment objectives for the Illinois Opportunity Fund designed to create jobs and strengthen the economy of the State of Illinois.

(d) The Illinois Capital Investment Corporation shall exercise no governmental functions. Without limiting the authority of DCEO to issue tax credits pursuant to this Act under certificates that are binding on DCEO and the Illinois Department of Revenue, the obligations of the Illinois Capital Investment Corporation are not obligations of the State or any political subdivision of the State within the meaning of any constitutional or statutory debt limitations, but are obligations of the corporation payable solely and only from the corporation's funds. The Illinois Capital Investment Corporation shall itself have no authority to pledge the credit or taxing power of the State or any political subdivision of the State or make its debts payable out of any moneys except those of the corporation.

(e) The board of directors of the Illinois Capital Investment Corporation shall have not less than 7 nor more than 11 members. The Director or Acting Director of DCEO or his or her designee shall be a member of the board of directors of the Illinois Capital Investment Corporation. The Governor, with the advice and consent of three-fifths of the members elected to the Senate, shall appoint the remaining members of the board of directors of the Illinois Capital Investment Corporation and fill any vacancies in the same manner as original appointments. DCEO shall recommend to the Governor candidates for the board and shall advise as to the qualifications of any other candidates the Governor desires to consider. In recommending and selecting directors, DCEO and the Governor shall seek to ensure that (i) each candidate has meaningful experience reviewing, preparing, analyzing, or interpreting financial statements or has sophistication in financial matters generally, has meaningful experience in the supervision or management of venture capital or private equity investments, has meaningful experience operating or managing investments in businesses engaged in the industries or sectors targeted by DCEO as candidates for investment by the Illinois Opportunity Fund, or has meaningful experience managing or selecting investments for institutional, seed, angel, mezzanine, or community development venture capital funds or SBIC's; (ii) the board includes minority and female representatives; (iii) a majority of the board includes representatives of geographic areas beyond Cook County and the collar counties; and (iv) the board includes at least 3 venture capital professionals, including one or more representatives associated with venture capital fund trade associations that maintain a meaningful physical presence in the State of Illinois. Directors shall endeavor to avoid conflicts of interest that interfere with their ability to exercise their fiduciary obligations to the Illinois Capital Investment Corporation and its constituents, shall agree to make full disclosure of any conflicts of interest involved in the exercise of their duties, and shall abstain from participating in any manner whatsoever in the consideration of a matter in which they have an interest. The secretary of the Illinois Capital Investment Corporation shall advise DCEO of the nature of any such conflicts, and DCEO shall make written recommendations to the Governor, with copies of the recommendations being filed contemporaneously with the Clerk of the House and the Secretary of the Senate, if DCEO believes that pervasive conflicts are interfering with the ability of the board as a whole to function efficiently and to give full effect to the intent and purposes of this Act.

(f) In its selection of a private fund manager or managers for the Illinois Opportunity Fund, the Illinois Capital Investment Corporation shall consider each applicant's level of experience in institutional, seed, angel, mezzanine, or community development venture capital or SBIC's investing, its quality of management, its investment philosophy, its plan for fundraising, and its prior investment fund results. Any fund manager selected shall demonstrate substantial successful experience in the design, implementation, and management of institutional, seed, angel, mezzanine, or community development venture capital investment programs or of SBIC's and in capital formation. Each applicant shall submit an investment plan for review by the Illinois Capital Investment Corporation, which plan shall describe the applicant's plan for seeking investment opportunities, evaluating and structuring investments, and achieving the financial and policy goals of this Act.

(g) The Illinois Capital Investment Corporation may charge a fee to the Illinois Opportunity Fund, which shall be in addition to any fee payable by the Illinois Opportunity Fund to the fund manager or managers engaged. The fee payable to the Illinois Capital Investment Corporation shall be structured to cover the reasonable costs of the corporation in fulfilling its oversight functions and of DCEO in fulfilling its obligations under this Section and Section 25.

(h) Directors of the Illinois Capital Investment Corporation shall be compensated for direct expenses and mileage but shall not receive a director's fee or salary for their service as directors.

(i) The Illinois Capital Investment Corporation shall have the power to engage consultants, expend funds, invest funds, contract, bond or insure against loss, and perform any other act necessary to carry out its mission.

(j) The directors of the Illinois Capital Investment Corporation shall adopt bylaws, policies, and procedures necessary to administer the affairs of the corporation.

(k) Upon the dissolution of Illinois Capital Investment Corporation, any assets owned by it shall thereupon be distributed to the State of Illinois.

Section 20. Illinois Opportunity Fund.

(a) Following the organization of the Illinois Capital Investment Corporation, the corporation shall organize the Illinois Opportunity Fund for the purpose of making investments in private institutional, seed, angel, mezzanine, or community development venture capital funds or SBIC's in a manner that is intended to strengthen the economy of the State, help business in Illinois gain access to capital resources, help build a significant, permanent resource available to serve the needs of Illinois businesses, and accomplish all these benefits in a way that minimizes the use of tax credits and provides market rate returns to the Illinois Opportunity Fund. The Illinois Capital Investment Corporation shall organize the Illinois Opportunity Fund as a for profit limited partnership or limited liability company under Illinois law pursuant to which the Illinois Capital Investment Corporation shall be the general partner or managing member, as the case may be.

(b) DCEO shall assist the Capital Investment Corporation in developing investment policies the effect of which ensures that venture capital is directed first to business projects that meet all of the following criteria:

(1) they may not otherwise have access to such financing; and

(2) they are in areas of Illinois experiencing a lack of economic and job growth.

The policy goal is that venture capital should be directed throughout the State on an equitable basis.

(c) Qualified investors shall be permitted to invest in equity interests or debt obligations of the Illinois Opportunity Fund. Such interests or obligations shall provide for a fixed or variable rate of return established by the Illinois Capital Investment Corporation in consultation with DCEO. DCEO may award contingent tax credits to investors in the Illinois Opportunity Fund that shall be redeemable if the Illinois Opportunity Fund fails to achieve results sufficient to repay the amounts invested by such investors and provide them with specified returns. Returns on investments generated by the Illinois Opportunity Fund in excess of amounts required to (i) repay the amounts invested by investors and provide them with specified returns, and (ii) pay all or an agreed upon portion of DCEO's costs for establishing and operating specified business development programs designed to promote economic development within the State of Illinois, including by increasing the availability of viable investment opportunities and business start-ups in all regions of the State, shall be reinvested by the Illinois Opportunity Fund in investments in private institutional, seed, angel, mezzanine, or community development venture capital funds, SBIC's, or other entities in the manner described in this Section.

(d) DCEO and the Capital Investment Corporation shall consult any State agency that is also overseeing similar venture capital and other business financing programs to ensure that State financing and investment efforts are not duplicated and that business projects in all areas of the State have access to State venture capital and financing options.

(e) The Illinois Opportunity Fund shall operate primarily as a fund of funds that invests principally in high-quality institutional, seed, angel, mezzanine, and community development venture capital funds and SBIC's that (i) maintain a meaningful physical presence in the State of Illinois, (ii) are managed by private investment managers who commit that their funds will invest not less than the amount invested with them by the Illinois Opportunity Fund in businesses that are headquartered or maintain meaningful business operations in the State of Illinois, and (iii) meet the investment objectives and criteria established by DCEO and this Act. In establishing these objectives and criteria, DCEO shall consult with leaders in business, science, and government to identify strategic industries and sectors that offer the potential to create high-quality and sustainable employment opportunities for Illinoisans and create domestic and global markets for the products and services of investee companies. In addition, in establishing these objectives and criteria, DCEO shall seek to ensure that funds will be available for investment by the Illinois Opportunity Fund in seed funds, angel funds, and CDVC or other CDFI funds in diverse geographies within Illinois.

(f) The Illinois Opportunity Fund shall have the power to engage consultants, expend funds, invest funds, contract, bond or insure against loss, and perform any other act necessary to carry out its mission. Without limiting the foregoing, the Illinois Opportunity Fund may (i) issue debt or equity securities and borrow such funds as may be needed to accomplish its goals, (ii) open and manage bank and short-term investment accounts as deemed necessary by its fund manager or managers, and (iii) expend funds to secure investment ratings. The Illinois Opportunity Fund shall adopt investment and diversification policies.

(g) The Illinois Opportunity Fund shall engage a certified public accountant to conduct an annual audit of its financial condition and results of operations.

(h) DCEO shall provide to the Governor and the General Assembly reports on the performance of the Illinois Opportunity Fund and other pertinent information concerning the Illinois Opportunity Fund and the Illinois Capital Investment Corporation, except for trade secrets and commercial or financial information obtained from a person or business if the information is proprietary, privileged, or confidential or if disclosure may cause competitive harm or could reasonably be expected to produce private gain or public loss.

(i) Fifty years after the formation of the Illinois Opportunity Fund, it shall be liquidated and its assets shall be distributed in accordance with law.

Section 25. Contingent tax credits.

(a) The State of Illinois hereby allows an aggregate of $200,000,000 of contingent tax credits, which may be allocated and issued by DCEO to qualified investors in the Illinois Opportunity Fund. DCEO shall not be obligated to issue certificates equal to the full aggregate amount allowed by the State of Illinois, and it may elect to suspend or terminate the issuance of certificates at any time if it does not believe that the continued issuance of certificates will assist the State of Illinois in meeting the objectives of this Act. Tax credits may be redeemed in any year redemption is permitted to the extent the Illinois Opportunity Fund is unable to make required repayments to its investors of the amounts invested by them and provide them with specified fixed or variable rate returns. Tax credits shall be redeemable not earlier than January 1, 2010 nor later than December 31, 2033 as may be specified in any certificate.

(b) DCEO shall determine the amount of tax credits to be allowed to investors in the Illinois Opportunity Fund and the years those tax credits may first be redeemed. The aggregate redemptions of tax credits issued by DCEO, however, shall not exceed $40,000,000 in any fiscal year of the State of Illinois.

(c) All tax credits shall be evidenced by certificates. DCEO shall establish and set forth in each certificate all terms and conditions under which tax credits may be redeemed. In establishing the terms of any tax credits and issuing certificates, DCEO shall seek to promote the purposes of this Act. Tax credits may not be redeemed except in accordance with the terms of the certificate under which they have been issued. The certificates shall, upon proper issuance to investors in the Illinois Opportunity Fund, be binding on DCEO and the Illinois Department of Revenue.

(d) Tax credits issued pursuant to this Section shall be freely transferable by their holders. DCEO shall, in conjunction with the Illinois Department of Revenue, develop a system for registration of any tax credits allowed or transferred pursuant to this Act that permits verification that any tax credit claimed upon a tax return is valid and properly taken in the year of claim, and that any transfers of the tax credit are made in accordance with the requirements of this Act.

(e) Tax credits allowed or transferred pursuant to this Act shall not be considered securities under any Illinois law relating to securities.

Section 30. Powers and effectiveness. Nothing contained in this Act is or shall be construed as a restriction or limitation upon any powers that DCEO might otherwise have under any other law of this State, and the provisions of this Act are cumulative to those powers. The provisions of this Act do and shall be construed to provide a complete, additional, and alternative method for the doing of the things authorized and shall be regarded as supplemental and additional to powers conferred by any other laws.

Section 35. Acceptable investments. Investments by designated investors in the Illinois Opportunity Fund shall be deemed permissible investments for State chartered banks and for domestic insurance companies under the appropriate laws of the State of Illinois.

Section 40. Business development grants. DCEO may establish a business planning and development assistance grant program to provide grant funds to help entrepreneurs with business creation and expansion or related activities, subject to appropriation.

Section 45. Illinois Opportunity Special Projects Fund. The Illinois Opportunity Special Projects Fund is created as a special fund in the State treasury. DCEO may accept disbursements from the Illinois Opportunity Fund for deposit into the Illinois Opportunity Special Projects Fund and expend those funds for the purposes set forth in subsection (g) of Section 15 and subsection (c) of Section 20 of this Act, subject to appropriation.

Section 95. The State Finance Act is amended by adding Section 5.640 as follows:

(30 ILCS 105/5.640 new)

Sec. 5.640. The Illinois Opportunity Special Projects Fund.

Section 99. This Act takes effect upon becoming law.