Relates to the capital access program; provides for a new technology seed fund

Summary of provisions

Section 1 of the bill would amend New York State Urban Development Corporation Act ("UDC Act") § 16-k to enhance the ability of small businesses in New York State to access loan capital through the State's existing Capital Access Program. The legislation would expand the group of New York-based financial institutions that can participate in the program by defining "financial institution" to include a "community development financial institution or community-based lending organization" that is based principally in New York State.

Section 1 of the bill would also clarify that the purpose of the Capital Access Program is to assist small businesses that otherwise find it difficult to obtain regular or sufficient bank financing. This section would also require the New York State Urban Development Corporation doing business as Empire State Development (the "Corporation") to assure adequate geographic distribution of participating financial institutions throughout the State to the extent feasible.

Finally, section 1 of the bill would authorize the Corporation to contract with a third party financial institution to act as the Corporation's agent in administering the Capital Access Program and provide that the selection of any such third party agent other than the New York Business Development Corporation would be made pursuant to a competitive process.

Section 2 of this bill would amend the UDC Act by adding a new section 16-u that establishes the Innovate NY Fund.

Subdivision 1 of section 16-u states that the purpose of the Innovate NY fund is to make available state funds to eligible applicants to support emerging business ideas and products that result in the growth of business within the state and the concomitant creation of jobs and tax revenues for the State.

Subdivision 2 of section 16-u would provide that eligible applicants for Innovate NY funds may include economic development organizations, technology development organizations, research universities and investment funds that provide seed-stage investments in New York companies.

Subdivision 3 of section 16-u would establish the requirements for the ultimate beneficiaries of an investment. These would include that the entity must currently be, or will agree in writing to be, located within the State; the entity must be in the seed-stage of development as defined by the Corporation; and the entity must demonstrate a potential for substantial growth and job development and have the potential to generate additional economic activity in New York State. This subdivision would provide that priority be given to companies involved in commercialization of research and development or high-tech manufacturing.

Subdivision 4 of section 16-u would provide for the Corporation to establish a competitive process for receiving and evaluating applications for the Innovate NY Fund. This subdivision would also provide that the applications be evaluated based on certain criteria and sets forth certain of those criteria. The subdivision states that the Corporaticm is to assure that applicants demonstrate the need for seed capital in the areas served and provide for adequate geographic distribution of awards throughout the State to the extent feasible. It would also require the Corporation to distribute funds promptly pursuant to a disbursement process agreed to between the Corporation and the applicant to enable the applicant to fulfill commitments to beneficiary companies in a timely manner.

Subdivision 5 of section 16-u would require that investments of Innovate NY funds in beneficiary companies be leveraged with private sources of capital at a ratio equal to or greater than two to one (2:1). The leveraged match would be met on an aggregate basis and excludes investments after the initial funding round. Compliance with the match requirement would be determined by the Corporation when the applicant has invested fifty percent of the Innovate NY funds committed to such applicant and annually thereafter.

Subdivision 6 of section 16-u would impose limitations on the amount of Innovate NY funds that an applicant may invest in any single beneficiary company.

Subdivision 7 of section 16-u would authorize the Corporation to establish an Innovate NY program fund and to pay into such fund any eligible resources available to the Corporation from any source, including appropriations made by the State.

Subdivision 8 of section 16-u would require the Corporation to submit a report annually on December 31 to the Director of the Budget, the Temporary President of the Senate, the Speaker of the Assembly, the Minority Leader of the Senate and the Minority Leader of the Assembly providing information on investments made by, and the results achieved through, the Innovate NY Fund.

Subdivision 9 of section 16-u would authorize the Corporation to promulgate rules and regulations to implement this legislation,

including rules and regulations with respect to the reasonable management and other fees and charges of applicants that receive Innovate NY funds as well as the repayment of funds received by a beneficiary company if the beneficiary company leaves the State within a certain period of time to be determined by the Corporation.

Subdivision 10 of section 16-u would permit the Corporation to impose fees, establish repayment terms and provide for equity participation by the Corporation in connection with investments from the Innovate NY Fund in accordance with rules and regulations to be promulgated by the Corporation.

Subdivision 11 of section 16-u would exempt the Corporation from the provisions of sections 10 and 16(2) of the UDC Act.

Section 3 of the bill would provide for an appropriation of the federal monies received by the Department of Economic Development to be paid to the Corporation to fund the Capital Access Program, the Innovate NY Fund and the Corporation's Bonding Guarantee Assistance Program.

Section 4 would make the bill effective immediately.

Existing law

Section 16-k of the UDC Act provides for the current Capital Access Program.

Statement in support

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 (the "Act") to help increase credit availability for small businesses. The Act included the State Small Business Credit Initiative ("SSBCI"), a $1.5 billion program administered by the U.S. Department of the Treasury ("Treasury") intended to provide direct support to states for use in programs designed to increase access to credit for small businesses. Pursuant to the Act, Treasury allocated funds to the states according to a statutory formula. New York is eligible to receive approximately $55.4 million and no state matching funds are required.

The SSBCI permits funding for two state program categories: capital access programs ("CAPs") and other credit support programs ("OCSPs"). This bilI would allow New York State to employ a portion of its federal SSBCI allocation in the State's existing Capital Access Program. In addition, this bill would amend current law to make the existing program more accessible to small businesses in New York State.

The existing Capital Access Program is inactive. This bill would reinvigorate the Capital Access Program by strengthening the statute governing its function and by providing for new funding. This would greatly assist small businesses by enhancing the climate for lending in traditional and alternative financial institutions.

In addition to funding the Capital Access Program, it is expected that federal SSBCI resources will be used to fund the Corporation's bonding guarantee assistance program. This

program will aid small businesses, including minority-owned and women-owned firms, in obtaining the necessary bonding authority to secure State contracts.

This bill would also establish the Innovate NY Fund. The Fund would leverage federal SSBCI funding by providing funding to entities, including regional and local economic development organizations, technology development organizations, research universities and investment funds, which would use the funding to make seed-stage investments in New York State companies.

The Innovate NY Fund would invest approximately $25 million with firms investing in seed-stage businesses in New York that have developed cutting-edge breakthroughs in emerging technologies. To maximize the effectiveness of available resources, an applicant seeking Innovate NY funds would be evaluated based on a number of criteria. The Innovate NY Fund, supported through an allocation of SSBCI federal resources and appropriately leveraged with significant private investment, would increase the State's ability to make much-needed investments that will enhance the tremendous intellectual capital and innovative spirit of New York State.

Together, these provisions would help ensure that New York State remains "Open for Business," by creating a climate within which innovation, creativity and growth can flourish. The bill would provide a system within which public-private partnerships could be fostered in a manner that capitalizes on the business and university infrastructure that anchors economic development in New York. This strategy will encourage economic growth in New York State.

Prior legislative history

This is a new bill.

Fiscal implications

There are no fiscal implications from this bill.

Effective date

This bill takes effect immediately.