Senate File 2204 - Introduced SENATE FILE 2204 BY BROWN A BILL FOR An Act relating to tax credits awarded by the economic 1 development authority for specific capital contributions 2 made to certified rural business growth funds for investment 3 in qualified businesses. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5161XS (2) 88 ko/jh

S.F. 2204 Section 1. NEW SECTION . 15.281 Short title. 1 This part shall be known and may be cited as the “Iowa Rural 2 Development Tax Credit Program” . 3 Sec. 2. NEW SECTION . 15.282 Definitions. 4 As used in this part, unless the context otherwise requires: 5 1. “Affiliate” means a person that directly, or indirectly 6 through one or more intermediaries, controls, is controlled 7 by, or is under common control with another person. A person 8 is controlled by another person if the controlling person 9 holds, directly or indirectly, the majority voting or ownership 10 interest in the controlled person or has control, by contract 11 or by law, over the day-to-day operations of the controlled 12 person. 13 2. “Authority” means the economic development authority 14 created in section 15.105. 15 3. “Closing date” means the date on which a rural business 16 growth fund completes collection of all contributions and 17 investments and submits all required documentation to the 18 authority pursuant to section 15.283, subsection 7. 19 4. “Credit-eligible capital contribution” means an investment 20 of cash by a person in a rural business growth fund that is 21 eligible for a tax credit certificate issued by the authority 22 pursuant to section 15.284, subsection 1. The cash investment 23 shall purchase either of the following: 24 a. An equity interest in the growth fund. 25 b. A debt instrument, at par value or premium, issued by the 26 growth fund that has a maturity date at least six years after 27 the growth fund’s closing date. 28 5. “Eligible investment authority” means the amount stated 29 on the certification the authority issues pursuant to section 30 15.283, subsection 7, paragraph “a” . At least sixty percent 31 of a growth fund’s eligible investment authority shall be 32 comprised of credit-eligible capital contributions. 33 6. “Employee” means a natural person who is employed in this 34 state by a qualified business and who is either salaried, works 35 -1- LSB 5161XS (2) 88 ko/jh 1/ 21

S.F. 2204 a minimum of thirty-five hours per week, or another period of 1 time generally accepted by custom, industry, or practice as 2 full-time employment. 3 7. “Equity holder” means a person that makes an equity 4 investment in a rural business growth fund. 5 8. “Growth investment” means any capital or equity 6 investment a growth fund makes in a qualified business, or any 7 loan from a growth fund to a qualified business with a stated 8 maturity at least one year after the date of issuance. 9 9. “Jobs created” means the number of new employees at a 10 qualified business, after an initial growth investment, at 11 the end of each subsequent calendar year. This number is 12 calculated annually by adding together the number of employees 13 at the qualified business on the last day of each calendar 14 month and dividing by twelve, then subtracting the number of 15 employees at the qualified business on the date the day before 16 the date of the initial growth investment. If the resulting 17 total is less than zero, the jobs created is equal to zero. 18 10. “Jobs retained” means the number of employees at a 19 qualified business the day before the date of an initial growth 20 investment that the qualified business’s chief executive 21 officer or similar officer certifies as being positions located 22 in this state that would have been eliminated but for the 23 initial growth investment. 24 11. “Located in” means the place or places at which a 25 business’s operations are located and where at least sixty 26 percent of the business’s employees work, or where employees 27 that are paid at least sixty percent of the business’s payroll 28 work. 29 12. “Program” means the Iowa rural development tax credit 30 program administered under this part. 31 13. “Qualified business” means any business within this 32 state that has fewer than two hundred fifty employees, 33 including ostensible subcontractors pursuant to 13 C.F.R. 34 §121.103(h)(4). 35 -2- LSB 5161XS (2) 88 ko/jh 2/ 21

S.F. 2204 14. “Revenue” means the total state and local income 1 produced by a rural business growth fund’s economic activity. 2 15. “Rural business growth fund” or “growth fund” means a 3 person, or an affiliate of a person, certified by the authority 4 pursuant to section 15.283, subsection 7, paragraph “a” . 5 16. “Within this state” means in the state of Iowa, or an 6 out-of-state business that has agreed to use a proposed growth 7 investment to become a qualified business within one hundred 8 eighty days of receiving the growth investment. 9 Sec. 3. NEW SECTION . 15.283 Application and agreement. 10 1. The authority shall begin accepting program applications 11 on January 4, 2021. An application is deemed received based 12 on the date and time stamp that shall be generated by the 13 authority upon receipt of the application. Applications 14 received by the authority on the same day shall be deemed to 15 have been received simultaneously. 16 2. A person seeking certification as a rural business 17 growth fund shall apply to the authority in the form and manner 18 prescribed by the authority. The application must include all 19 of the following: 20 a. The eligible investment authority sought by the 21 applicant. 22 b. A copy of the applicant’s, or an affiliate of the 23 applicant’s, license as a rural business investment company 24 as defined under 7 U.S.C. §2009cc(14), or license as a small 25 business investment company under 15 U.S.C. §681. 26 c. Documentation as required by the authority to establish 27 that at least one principal of the applicant has been an 28 officer or an employee of the rural business investment 29 company, the small business investment company, or an affiliate 30 thereof, for a minimum of four years prior to the date of 31 application. 32 d. A revenue impact assessment for the applicant’s proposed 33 growth investments as determined by an econometric analysis 34 conducted by a nationally recognized third-party independent 35 -3- LSB 5161XS (2) 88 ko/jh 3/ 21

S.F. 2204 econometric firm. The revenue impact assessment must provide 1 an analysis of the applicant’s proposed growth investments over 2 the ten consecutive years following the date the applicant’s 3 application is submitted to the authority, and must demonstrate 4 that there will be a positive revenue impact on this state 5 that exceeds the cumulative amount of tax credits, that if the 6 application is approved, may be issued by the authority to the 7 rural business growth fund’s investors. 8 e. The number of jobs created and the number of jobs 9 retained assumed in the revenue impact assessment required by 10 paragraph “d” . 11 f. A signed affidavit from each investor that identifies 12 the investor and the amount of the credit-eligible capital 13 contribution that the investor has committed to the applicant’s 14 proposed growth fund. 15 g. A nonrefundable application fee of five thousand dollars. 16 All application fees submitted to the authority pursuant to 17 this paragraph shall be used by the authority to administer 18 this part. 19 3. The authority shall review and make a determination 20 to approve or deny each application within the time frame 21 adopted by rule by the authority. The authority shall review 22 applications on a first-come, first-served basis as determined 23 pursuant to subsection 1. 24 4. The authority shall not approve more than one hundred 25 million dollars in eligible investment authority and not 26 more than sixty million dollars in credit-eligible capital 27 contributions under the program. If approved applications 28 that are simultaneously received would collectively exceed the 29 maximum limit on eligible investment authority or the maximum 30 on credit-eligible capital contributions, the authority shall 31 proportionally reduce the growth fund’s eligible investment 32 authority and credit-eligible capital contributions for each 33 of the simultaneous applications as necessary to comply with 34 the maximum limits. 35 -4- LSB 5161XS (2) 88 ko/jh 4/ 21

S.F. 2204 5. The authority shall reject an application for any of the 1 following reasons: 2 a. The applicant failed to comply with any of the 3 requirements pursuant to subsection 2. 4 b. The authority has already approved the maximum eligible 5 investment authority or the maximum credit-eligible capital 6 contributions pursuant to subsection 4. 7 6. a. If the authority rejects an application, the 8 authority shall send a notice of rejection to the applicant and 9 provide a reason for the rejection. 10 b. If the authority has rejected an application on any 11 grounds other than subsection 5, paragraph “b” , the applicant 12 may provide additional information to the authority to cure 13 the defects in the application. All additional information 14 must be received by the authority within fifteen business days 15 from the date the authority sent the notice of rejection to 16 the applicant. The authority shall review and reconsider, 17 within the time frame adopted by rule by the authority, any 18 application for which additional information is provided within 19 the fifteen business days. If an application is approved by 20 the authority after review and reconsideration, the application 21 shall be considered complete as of its original date of 22 submission. 23 c. If an applicant does not submit additional information 24 within fifteen business days from the date the authority sent 25 the applicant the notice of rejection, the applicant may submit 26 a new application at any time pursuant to subsection 2 and the 27 application shall be reviewed by the authority pursuant to 28 subsection 3. 29 7. a. If the authority approves an application, the 30 authority shall send a notice to the applicant certifying all 31 of the following: 32 (1) The applicant as a rural business growth fund. 33 (2) The growth fund’s eligible investment authority and 34 required credit-eligible contributions. 35 -5- LSB 5161XS (2) 88 ko/jh 5/ 21

S.F. 2204 (3) The required number of jobs created and the required 1 number of jobs retained based on the number submitted in the 2 applicant’s application, prorated if the growth fund’s eligible 3 investment authority is reduced pursuant to subsection 4. 4 b. Within forty-five calendar days of the date the authority 5 sent the notice of certification pursuant to paragraph “a” , 6 the rural business growth fund shall comply with all of the 7 following requirements: 8 (1) Collect all credit-eligible capital contributions 9 from each investor whose affidavit was included in the growth 10 fund’s application. If the growth fund’s requested eligible 11 investment authority has been proportionally reduced pursuant 12 to subsection 4, each investor’s required credit-eligible 13 capital contribution shall be reduced by the same proportion. 14 (2) Collect one or more equity investments contributed 15 directly or indirectly by affiliates of the growth fund, 16 including employees and principals of such affiliates, that 17 must equal at least ten percent of the growth fund’s eligible 18 investment authority. 19 (3) Collect one or more investments of cash that, when added 20 to the contributions collected under subparagraphs (1) and (2), 21 equal the growth fund’s total eligible investment authority. 22 c. Within sixty-five calendar days of the date the authority 23 sent the notice of certification pursuant to paragraph “a” , 24 the rural business growth fund shall comply with all of the 25 following requirements: 26 (1) Submit documentation to the authority sufficient to 27 prove to the satisfaction of the authority that the growth fund 28 has collected amounts described in paragraph “b” , subparagraphs 29 (1), (2), and (3). 30 (2) Submit documentation to the authority that identifies 31 all affiliates of an investor described in paragraph “b” , 32 subparagraph (1), that may be eligible to claim a tax credit 33 issued by the authority pursuant to section 15.284, subsection 34 1. 35 -6- LSB 5161XS (2) 88 ko/jh 6/ 21

S.F. 2204 8. If a growth fund fails to comply with subsection 7, 1 paragraph “b” or “c” , the growth fund’s certification shall 2 lapse. Any eligible investment authority and credit-eligible 3 capital contributions that lapse pursuant to this subsection 4 shall not count toward the maximum limits on eligible 5 investment authority and credit-eligible capital contributions 6 pursuant to subsection 4. If a growth fund’s eligible 7 investment authority lapses pursuant to this subsection, the 8 authority shall first award the lapsed eligible investment 9 authority pro rata to each rural business growth fund that 10 was awarded less than the eligible investment authority that 11 the rural business growth fund sought in the growth fund’s 12 application. A rural business growth fund that is awarded 13 lapsed eligible investment authority pro rata must comply with 14 the requirements of subsection 7, paragraph “b” , as related to 15 the additional eligible investment authority. The authority 16 may award any remaining lapsed eligible investment authority to 17 new applicants until the maximum limits on eligible investment 18 authority and credit-eligible capital contributions pursuant 19 to subsection 4 are met. 20 9. After a growth fund’s successful submission to the 21 authority of the required documentation pursuant to subsection 22 7, paragraph “c” , subparagraphs (1) and (2), the growth fund 23 shall enter into an agreement with the authority that specifies 24 the requirements that must be met for successful completion 25 of the program. At a minimum, the agreement shall contain 26 provisions addressing all of the following: 27 a. The legal name of the growth fund. 28 b. The growth fund’s closing date. 29 c. The growth fund’s eligible investment authority as 30 certified by the authority. 31 d. Each investor of the growth fund and each investor’s 32 credit-eligible capital contribution. 33 e. The minimum number of jobs that must be created and the 34 minimum number of jobs that must be retained as a result of 35 -7- LSB 5161XS (2) 88 ko/jh 7/ 21

S.F. 2204 the growth fund’s growth investments to avoid paying state 1 reimbursement pursuant to section 15.288. 2 f. Revocation and recapture of tax credits pursuant to 3 section 15.285. 4 g. Any terms deemed necessary by the authority to effect 5 compliance with the program requirements pursuant to this part. 6 Sec. 4. NEW SECTION . 15.284 Tax credits. 7 1. After an agreement is executed pursuant to section 8 15.283, subsection 9, the authority shall issue a tax credit 9 certificate to each investor whose affidavit was included 10 in the growth fund’s application and whose credit-eligible 11 capital contribution was collected pursuant to section 12 15.283, subsection 7, paragraph “b” , subparagraph (1). The 13 tax credit certificate shall specify the amount of the 14 tax credit allocated to that investor as a result of the 15 investor’s credit-eligible capital contribution. The tax 16 credit allocated to any one investor shall be equal to the 17 investor’s credit-eligible capital contribution to the growth 18 fund. The tax credit certificate shall contain the taxpayer’s 19 name, address, tax identification number, the amount of the tax 20 credit the eligible taxpayer may claim against the insurance 21 premium tax and insurance retaliatory premium tax imposed 22 in chapter 432, the name of the rural business growth fund 23 associated with the tax credit, and any other information 24 required by the department of revenue. 25 2. Twenty-five percent of a tax credit issued to an investor 26 pursuant to subsection 1 may be used in each taxable year 27 beginning in the calendar year following the second anniversary 28 of the closing date of the growth fund in which the investor 29 made the credit-eligible capital contribution, and concluding 30 in the calendar year following the sixth anniversary of that 31 closing date, exclusive of the amount of tax credit carried 32 forward pursuant to subsection 4. 33 3. a. A tax credit issued under this part is not 34 refundable and shall not be sold, transferred, or allocated 35 -8- LSB 5161XS (2) 88 ko/jh 8/ 21

S.F. 2204 by the investor to any person other than an affiliate of the 1 investor that was an affiliate at the time of the growth fund’s 2 submission of the investor’s affidavit pursuant to subsection 3 15.283, subsection 2, paragraph “f” . 4 b. Within ninety calendar days of the sale, transfer, or 5 allocation of a tax credit, the affiliate shall submit the tax 6 credit certificate to the department of revenue along with a 7 statement containing the affiliate’s name, tax identification 8 number, address, and any other information required by the 9 department of revenue. 10 c. Within thirty calendar days of receiving the tax credit 11 certificate and the affiliate’s statement, the department of 12 revenue shall issue the affiliate a replacement tax credit 13 certificate. The replacement tax credit certificate must 14 contain all of the information required for the original tax 15 credit certificate and must have the same expiration date that 16 appeared on the original tax credit certificate. 17 4. To claim a tax credit under this section, a taxpayer 18 shall submit the tax credit certificate with the taxpayer’s 19 tax return for each taxable year in which the tax credit is 20 claimed. Any tax credit in excess of the taxpayer’s tax 21 liability for the tax year may be carried forward to the 22 taxpayer’s tax liability for subsequent years until the tax 23 credit is depleted. 24 Sec. 5. NEW SECTION . 15.285 Revocation and recapture of tax 25 credits. 26 1. The authority shall recapture any tax credits used by 27 a taxpayer and shall revoke any tax credits issued pursuant 28 to section 15.284, subsection 1, if, before a rural business 29 growth fund exits the program pursuant to section 15.287, any 30 of the following occur: 31 a. The growth fund cannot provide documentation to the 32 authority to substantiate to the satisfaction of the authority 33 all of the following: 34 (1) That the growth fund, within two years after the growth 35 -9- LSB 5161XS (2) 88 ko/jh 9/ 21

S.F. 2204 fund’s closing date, has invested a minimum of two-thirds of 1 the growth fund’s eligible investment authority in growth 2 investments. 3 (2) That the growth fund, within three years after the 4 growth fund’s closing date, has invested one hundred percent 5 of the growth fund’s eligible investment authority in growth 6 investments. 7 (3) That the growth fund, after investing one hundred 8 percent of the growth fund’s eligible investment authority 9 in growth investments within three years after the growth 10 fund’s closing date, has maintained growth investments equal to 11 one hundred percent of the growth fund’s eligible investment 12 authority at all times up to the sixth anniversary after the 13 growth fund’s closing date. For purposes of this subparagraph, 14 a growth investment is maintained even if it is sold or repaid, 15 as long as the growth fund reinvests an amount equal to the 16 growth investment returned or recovered from the original 17 growth investment, exclusive of any profits realized, in other 18 growth investments in this state within the twelve consecutive 19 months immediately after the date of the return or recovery 20 of such growth investment. Amounts received periodically 21 by a growth fund are deemed continuously invested in growth 22 investments if the amounts are reinvested by the growth fund in 23 one or more qualified businesses by the end of the following 24 calendar year. 25 b. The growth fund makes a growth investment in a qualified 26 business that directly, or indirectly through an affiliate, 27 owns, has the right to acquire an ownership interest in, makes 28 a loan to, or makes an investment in, the growth fund, an 29 affiliate of the growth fund, or an investor in the growth 30 fund. This paragraph shall not apply to investments in 31 publicly traded securities by a qualified business, or to an 32 owner or an affiliate of the qualified business. For purposes 33 of this paragraph, a growth fund shall not be considered an 34 affiliate of a qualified business solely because of the growth 35 -10- LSB 5161XS (2) 88 ko/jh 10/ 21

S.F. 2204 fund’s growth investment in the qualified business. 1 c. The growth fund, before exiting the program pursuant to 2 section 15.287, makes a distribution or payment that results 3 in the growth fund having less than one hundred percent of its 4 initial investment authority invested in growth investments in 5 this state, available for growth investments, or held in cash 6 and marketable securities. 7 2. The maximum amount of a growth investment in a qualified 8 business, including any amounts invested in affiliates of the 9 qualified business, that a growth fund may count toward the 10 growth fund’s satisfaction of the requirements pursuant to 11 subsection 1, paragraph “a” , subparagraphs (2) and (3), is 12 the greater of twenty percent of the growth fund’s eligible 13 investment authority and five million dollars, excluding any 14 amounts reinvested in a qualified business. 15 3. Before revoking or recapturing a tax credit, the 16 authority shall provide notice to the growth fund of the reason 17 for the pending revocation or recapture. The growth fund shall 18 have ninety calendar days after the date the authority sends 19 the notice to address to the satisfaction of the authority any 20 issues identified in the notice. Failure of the growth fund to 21 satisfactorily address any issues in the notice shall result in 22 revocation or recapture of the tax credit. 23 4. The authority shall not revoke or recapture a tax credit 24 for any action of a growth fund that occurs after the growth 25 fund has exited the program pursuant to section 15.287. This 26 subsection shall not prohibit the authority from revoking or 27 recapturing a tax credit due to an action of a growth fund 28 pursuant to subsection 1 that occurs before the date the growth 29 fund exits the program, even if the growth fund’s action is 30 discovered after the date the growth fund exits the program. 31 Sec. 6. NEW SECTION . 15.286 Annual report. 32 On or before March 31, unless a growth fund has exited the 33 program pursuant to section 15.287, each growth fund shall 34 submit an annual report to the authority in the form and manner 35 -11- LSB 5161XS (2) 88 ko/jh 11/ 21

S.F. 2204 the authority prescribes that covers the preceding calendar 1 year. The report must include each of the growth fund’s growth 2 investments and must contain all of the following information: 3 1. Financial statements that provide evidence of each 4 growth investment. 5 2. Evidence that the growth fund is in compliance with 6 applicable investment requirements pursuant to section 15.285, 7 subsection 1, paragraph “a” , subparagraphs (1), (2), and (3). 8 3. The name, location, and industry for each qualified 9 business that received a growth investment, and evidence that 10 the business met the requirements to be a qualified business at 11 the time the growth investment was made. 12 4. The number of employees at each qualified business on 13 the date of the growth fund’s initial growth investment in the 14 qualified business. 15 5. The number of jobs created at each qualified business and 16 the average annual salary for the jobs created. 17 6. The number of jobs retained at each qualified business 18 and the average annual salary for the jobs retained. The 19 number of jobs retained at a qualified business may not exceed 20 the number of jobs retained at the same qualified business on 21 the first annual report submitted by the growth fund. 22 7. Any other information the authority requires. 23 Sec. 7. NEW SECTION . 15.287 Exiting the program. 24 1. On or after the sixth anniversary of a rural business 25 growth fund’s closing date, in the form and manner the 26 authority prescribes, the growth fund may apply to the 27 authority to exit the program. The growth fund’s application 28 must include the state reimbursement calculation pursuant to 29 section 15.288. 30 2. The growth fund shall be eligible to exit the program 31 if a tax credit associated with the growth fund has not been 32 revoked or recaptured pursuant to section 15.285. 33 3. Within the time frame adopted by rule by the authority, 34 the authority shall send notice to the growth fund of the 35 -12- LSB 5161XS (2) 88 ko/jh 12/ 21

S.F. 2204 authority’s determination regarding the growth fund’s 1 application and confirmation of the state reimbursement the 2 growth fund owes pursuant to section 15.288. If the authority 3 denies the growth fund’s application, the notice shall include 4 the reasons for the denial. If the authority approves the 5 growth fund’s application, the growth fund is deemed to have 6 exited the program on the date the authority sends notice 7 to the growth fund. If the growth fund owes the state 8 reimbursement, the growth fund shall be prohibited from making 9 any distributions to any equity holders of the fund until the 10 growth fund has remitted the state reimbursement amount to the 11 authority. All state reimbursement amounts remitted to the 12 authority shall be deposited in the general fund of the state. 13 Sec. 8. NEW SECTION . 15.288 State reimbursement 14 calculation. 15 1. A state reimbursement shall be calculated any time a 16 rural business growth fund exits the program or any time a 17 rural business growth fund proposes to make a distribution to 18 the growth fund’s equity holders. The state reimbursement 19 shall equal the proposed distribution multiplied by one minus a 20 fraction that is composed of the following: 21 a. The numerator shall be the aggregate number of jobs 22 created plus the number of jobs retained as reported pursuant 23 to section 15.286, subsections 5 and 6, with the following 24 modifiers. 25 (1) Any job created or retained at a qualified business 26 located in a rural area shall be counted as one job. 27 (2) Any job created or retained at a qualified business 28 located in a rural area and in a county with a population of 29 less than thirty thousand, as determined by the most recent 30 population estimates issued by the United States bureau of 31 census, shall be counted as one and one-half of a job. 32 (3) Any job created or retained at a qualified business 33 located in an area other than an area in subparagraph (1) or 34 (2) shall be counted as one-half of a job. 35 -13- LSB 5161XS (2) 88 ko/jh 13/ 21

S.F. 2204 b. The denominator shall be the number of jobs created plus 1 the number of jobs retained as stated in the certification 2 pursuant to section 15.283, subsection 7, paragraph “a” , 3 subparagraph (3). 4 2. If the fraction is greater than one hundred percent, the 5 growth fund shall not owe state reimbursement. 6 3. The authority may adopt by rule additional options 7 for the state reimbursement calculation that are equivalent 8 to job creation and job retention to measure a growth fund’s 9 growth investments impact on economic activity at a qualified 10 business. 11 4. For purposes of this section, “rural area” means the 12 same as defined in 7 C.F.R. §4279.108(c), in which a business 13 must be located to qualify as an eligible borrower for a United 14 States department of agriculture business and industry loan 15 pursuant to 7 C.F.R. §4279.108. 16 Sec. 9. NEW SECTION . 15.289 Remedies. 17 The remedies for a breach or default of any of the terms of 18 this part by a rural business growth fund shall be revocation 19 or recapture of tax credits pursuant to section 15.285 and the 20 state reimbursement pursuant to section 15.288. 21 Sec. 10. NEW SECTION . 15.290 Rules. 22 The authority, in conjunction with the department of 23 revenue, shall adopt rules pursuant to chapter 17A as necessary 24 for the implementation and administration of this part. 25 Sec. 11. NEW SECTION . 432.12N Rural development tax 26 credits. 27 The taxes imposed under this chapter shall be reduced by a 28 rural development tax credit allowed under section 15.284 for a 29 credit-eligible capital contribution to a rural business growth 30 fund. 31 EXPLANATION 32 The inclusion of this explanation does not constitute agreement with 33 the explanation’s substance by the members of the general assembly. 34 This bill relates to tax credits awarded by the economic 35 -14- LSB 5161XS (2) 88 ko/jh 14/ 21

S.F. 2204 development authority for specific capital contributions made 1 to certified rural business growth funds for investment in 2 qualified businesses. 3 The bill directs the economic development authority 4 (authority) to begin accepting Iowa rural development tax 5 credit program (program) applications beginning January 4, 6 2021. 7 The bill provides that a person seeking certification 8 as a rural business growth fund (growth fund) must apply 9 to the authority and that the application must include the 10 eligible investment authority sought by the applicant, a copy 11 of the applicant’s license as a rural business investment 12 company under 7 U.S.C. §2009cc(14) or as a small business 13 investment company under 15 U.S.C. §681, documentation that 14 establishes that at least one principal of the applicant 15 has been an officer or an employee of the rural business 16 investment company, the small business investment company, or 17 an affiliate thereof, for a minimum of four years prior to 18 the date of application, a revenue impact assessment for the 19 applicant’s proposed growth investments as determined by an 20 econometric analysis conducted by a third-party independent 21 econometric firm, the number of jobs created and the number 22 of jobs retained assumed in the revenue impact assessment, a 23 signed affidavit from each investor that states the amount of 24 the credit-eligible capital contribution that the investor 25 has committed to the applicant’s proposed growth fund, and 26 a nonrefundable $5,000 application fee. The bill defines 27 “credit-eligible capital contribution” as an investment of 28 cash by a person in a growth fund that is eligible for a tax 29 credit issued by the authority. The investment must be used 30 to purchase either an equity interest in the growth fund or a 31 debt instrument, at par value or premium, issued by the growth 32 fund that has a maturity date at least six years after the 33 growth fund’s closing date. “Eligible investment authority” is 34 defined in the bill as the amount of investment authority that 35 -15- LSB 5161XS (2) 88 ko/jh 15/ 21

S.F. 2204 the authority certifies for a specific growth fund. 1 The bill requires the authority to review each application 2 on a first-come, first-served basis and to make a determination 3 to approve or deny each application within the time frame 4 adopted by rule by the authority. The authority shall not 5 approve more than $100 million in eligible investment authority 6 and not more than $60 million in credit-eligible capital 7 contributions. 8 The authority must reject an application if the applicant 9 fails to submit any of the required information, or if the 10 authority has already approved the maximum eligible investment 11 authority or the maximum credit-eligible capital contributions. 12 If the authority rejects an application, the authority must 13 send a notice of rejection to the applicant, and provide a 14 reason for the rejection. If an application has been rejected 15 because the applicant failed to submit all of the required 16 information, the applicant has 15 days to provide additional 17 information to cure any defects in the application. The 18 authority shall review and reconsider, within the time frame 19 adopted by rule by the authority, any application for which 20 additional information is provided within the 15 business days. 21 If an application is approved by the authority after review and 22 reconsideration, the application shall be considered complete 23 as of its original date of submission. 24 If the authority approves an application, the authority 25 must send a notice to the applicant certifying the applicant 26 as a rural business growth fund, the growth fund’s eligible 27 investment authority, and the required number of jobs created 28 and the required number of jobs retained based on the number 29 submitted in the applicant’s application. Within 45 days of 30 the date the authority sent the notice of certification, the 31 growth fund is required to collect all credit-eligible capital 32 contributions from each investor whose affidavit was included 33 in the growth fund’s application, collect one or more equity 34 investments contributed directly or indirectly by affiliates 35 -16- LSB 5161XS (2) 88 ko/jh 16/ 21

S.F. 2204 of the growth fund, including employees and principals of 1 such affiliates, that equal at least 10 percent of the growth 2 fund’s eligible investment authority, and collect one or more 3 investments of cash that when added to the credit-eligible 4 capital contributions and the equity investments equal the 5 growth fund’s eligible investment authority. Within 65 days 6 of the date the authority sent the notice of certification, 7 the growth fund must submit documentation to the authority 8 to prove that the appropriate amounts have been collected 9 by the growth fund, and documentation that identifies all 10 affiliates of the investor that may be eligible to claim a 11 tax credit issued by the authority. If the growth fund fails 12 to comply with the collection and documentation requirements, 13 all eligible investment authority and credit-eligible capital 14 contributions lapse. Eligible investment authority and 15 credit-eligible capital contributions that lapse do not count 16 toward the maximum limits on eligible investment authority and 17 credit-eligible capital contributions and may be awarded by the 18 authority as outlined in the bill. 19 If a growth fund successfully complies with the collection 20 and documentation requirements, the growth fund must enter 21 into an agreement with the authority that specifies the 22 requirements that must be met for successful completion of 23 the program. The agreement must contain, at a minimum, the 24 legal name of the growth fund, the growth fund’s closing date, 25 the growth fund’s eligible investment authority as certified 26 by the authority, each investor of the growth fund and each 27 investor’s credit-eligible capital contribution, the minimum 28 number of jobs that must be created and the minimum number of 29 jobs that must be retained as a result of the growth fund’s 30 growth investments to avoid paying state reimbursement, and a 31 provision related to revocation and recapture of tax credits if 32 the growth fund fails to meet the applicable program investment 33 requirements. 34 After the agreement is executed, the authority must issue 35 -17- LSB 5161XS (2) 88 ko/jh 17/ 21

S.F. 2204 a tax credit certificate to each investor whose affidavit 1 was included in the growth fund’s application and whose 2 credit-eligible capital contribution was collected by the 3 growth fund. The certificate must specify the amount of tax 4 credit allocated to that investor and the amount of the tax 5 credit the eligible taxpayer may claim against the insurance 6 premium tax and insurance retaliatory premium tax imposed in 7 Code chapter 432. The tax credit allocated to any one investor 8 is equal to the investor’s credit-eligible capital contribution 9 to the growth fund. An investor may use 25 percent of the tax 10 credit in each taxable year beginning in the calendar year 11 following the second anniversary of the growth fund’s closing 12 date and ending in the calendar year following the sixth 13 anniversary of the closing date. Any tax credit in excess of 14 the taxpayer’s tax liability for a tax year may be carried 15 forward to the taxpayer’s tax liability for subsequent tax 16 years until the tax credit is depleted. 17 The tax credits are not refundable and cannot be sold, 18 transferred, or allocated by the investor to any person other 19 than an affiliate of the investor. The affiliate must submit 20 the tax credit certificate within 90 days to the department 21 of revenue (department) along with a statement containing the 22 affiliate’s name, tax identification number, address, and any 23 other information required by the department. The department 24 must issue the affiliate a replacement tax credit certificate 25 with the same expiration date that appeared on the original tax 26 credit certificate. 27 The authority shall revoke or recapture a tax credit if, 28 before a growth fund exits the program, the growth fund cannot 29 provide documentation to the authority to substantiate that the 30 growth fund, within two years after the growth fund’s closing 31 date, has invested a minimum of two-thirds of the growth fund’s 32 investment authority in growth investments; that the growth 33 fund, within three years after the growth fund’s closing date, 34 has invested 100 percent of the growth fund’s investment 35 -18- LSB 5161XS (2) 88 ko/jh 18/ 21

S.F. 2204 authority in growth investments; that the growth fund, after 1 investing 100 percent of the growth fund’s investment authority 2 in growth investments within three years after the growth 3 fund’s closing date, has maintained growth investments equal to 4 100 percent of its investment authority at all times up to the 5 sixth anniversary after the growth fund’s closing date. The 6 bill specifies that a growth investment is maintained even if 7 it is sold or repaid, as long as the growth fund reinvests an 8 amount equal to the growth investment returned or recovered 9 from the original investment, exclusive of any profits 10 realized, in other growth investments in this state within the 11 12 consecutive months immediately after the date of the return 12 or recovery of such growth investment. The bill also specifies 13 that amounts received periodically by a growth fund are deemed 14 continuously invested in growth investments if the amounts 15 are reinvested by the growth fund in one or more qualified 16 businesses by the end of the following calendar year. 17 The authority must also revoke or recapture a tax credit 18 if, before a growth fund exits the program, the growth 19 fund makes a growth investment in a qualified business that 20 directly, or indirectly through an affiliate, owns, has the 21 right to acquire an ownership interest in, makes a loan to, 22 or makes an investment in, the growth fund, an affiliate of 23 the growth fund, or an investor in the growth fund. This does 24 not apply to investments in publicly traded securities by a 25 qualified business, or to an owner or an affiliate of the 26 qualified business. Further, a growth fund is not considered 27 an affiliate of a qualified business solely because of its 28 growth investment in the qualified business. The authority 29 is also required to revoke or recapture a tax credit if the 30 growth fund, before it exits the program, makes a distribution 31 or payment that results in the growth fund having less than 100 32 percent of its initial investment authority invested in growth 33 investments in this state, available for growth investments, 34 or held in cash and marketable securities. A growth fund may 35 -19- LSB 5161XS (2) 88 ko/jh 19/ 21