House International Relations & Economic Development met on March 28 to consider a number of bills., In order, this report covers: HB 1338 (Raney), HB 1718 (Ashby), HB 1703 (Ordaz), and HB 2575 (Button). A video archive of the hearing can be found here.
This report is intended to give you an overview and highlight the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.
Vote Outs
HB 915 (Craddick) 9-0
HB 1602 (Guillen) 9-0
HB 1550 (Goldman) 9-0
HB 1615 (Button), CS adopted 9-0
Bills on Notice
HB 1338 (Raney) Relating to the participation of community-based organizations in workforce training programs funded by the skills development fund.
- Raney – Permits community-based organizations to work directly with TWC to ensure small businesses can give training
- Requires a training agreement in writing
Detra Davidson, Tucker Construction – For
- It is crucial that small businesses have the ability to train their workforce
- Improvement in skills and trades, safe job sites, and increase in productivity
- Wages increase due to increased productivity
Phil Shackelford, TAMU – Neutral
- Provides the opportunity for community-based organizations without partnerships with other organizations to obtain funding and training
- This legislation ensures small businesses gain access to the fund and training in a timely manner
- Chair Button – Wants to clarify why they registered as neutral?
- It is a nonprofit organization, so they wanted to testify on the bill
Mary York, Texas Workforce Commission – Neutral
- No questions for resource
HB 1338 left pending
HB 1718 (Ashby) Relating to rural development funds and insurance tax credits for certain investments in those funds; authorizing fees
- CS laid out
- Ashby – Have a CS; will improve access to growth capital for small businesses, was approved unanimously before in this committee
- Texas Rural Development Fund through the Comptroller’s Office
- Fund totals $300m of private long term growth capital for those under 250 employees, 65% of which is annual insurance tax credit; redeemed annually
- 60% of $300m to be invested in two years and 100% invested in the next three years; total value of the fund to be invested within 6 years
- Provides recapture of tax credits for noncompliance of fund managers
- Would pay for itself; in 20 states have a similar program ROI is $2 to $4 for every $1 of state investment
- Meza – Concerned about people shopping around for a denial letter to get into this program
- Ashby – Bill and CS requires one denial from a commercial lender; targets those who are not eligible for a conventional loan
- Clardy – Love the bill; should take a look at the fiscal note; confused how they came up with that
- Is no cost until the first tax credit goes out in 2026; if something goes wrong, we can annul program in 2025 session
- Fund managers have agreed to 100% cover the cost for the employees, would be no cost to the state; fiscal note does not account for this or any of the benefits of this program
- Would be $5k fee per applicant
- Button – Is important to have a balanced approach to economic development
- Shine – Bringing venture capital to rural areas and makes them more competitive with urbans
Kent Kalar, AKOS Energy Corporation – For
- Has started multiple companies and moved them to rural areas before; This bill would vastly help this movement and has his full support
Dick Lavine, Every Texan – Against
- This bill is attempted to be passed every two years for the past 5 or 6 sessions
- It is not a well-designed program
- The credits are given out on a first come first serve basis
- There is no minimum job or wage requirements
- There is no Sunset date
- The fiscal note shows not only $300m by 2030 but after that it goes on and on annually
- The state of Maryland has a competitive program for this that requires specific requirements and wages while also giving the state some profits
- All the profits go to the companies in this case and the $300m a year stays with the companies
- There will be a lot of double counting where companies collaborate on successful investments claiming credit for the same outcome creating a $1m profit, but making it look like $2m
- Shine – Money is not coming from the state for this program
- The state money is the credits
- Shine – The credits are created by the venture capital companies
- Doesn’t think that is right and that is shows a cost to general revenue related funds
- Shine – The tax credits are coming from the venture capital companies
- Not his understanding of it
- Clardy – Have you had an opportunity to address your concerns about double counting?
- Yes, the day it was posted articles and worries were sent out
- Clardy – Have you gone and sat down with Ashby?
- No
- Clardy – Encourages them to sit down together before poking holes in the bill
- Thought sending materials would cover that and is not accusing anyone of double counting but that is what has happened with the program in the past
Lynn Kelly, Stonehenge Capital – For
- Of the 400 annual venture capital investments a year only 2-3 of them are going to rural areas (<1%)
- Jobs in rural counties are anticipated to decline in the next decade
- 92% of Stonehenge investors want to go to urban areas
- Several other states have done something similar to this bill with success; creating thousands of jobs
- The private sector must raise the $300m upfront before the state sees any fiscal impact
- This is a unique opportunity to redirect investments from these companies
- The bill lays out a number of requirements for managers to meet to ensure safeguards
- The 3 years ensure that 100% of the capital is out the door before the state sees fiscal impact
- There is not an explicit sunset but all additional capital outside of the $300m has to be reauthorized
- Must provide a frontend third party economic development model that both covers the cost of the tax credits but also generate jobs
- There is a maximum in investing in a single business at $5m so double counting would be avoided
- The state can call back the credits with any violation of the safeguards
- Clardy – Is there any component of the program that would include the designated economic opportunity zones where the funds could be utilized with that program?
- The current bill requires all the investments must be in rural areas and there will definitely be overlap with those zones
- Shine – Venture capital will come in for a specific business in a rural county; do you approach them, or do they seek you?
- Many of the businesses do have a senior lender and are looking for additional capital to scale
- Unique to this program vs. a grant program where there is no private sector in this one they are seeking growth capital in the private sector
- Shine – So you identify a business; What percent of ownership can you make your venture capital invested in a company?
- Cannot take majority positions
- Shine – 49% or below?
- Correct
- Shine – After the 6-year period of investment how much of the credit can they claim?
- There is not a cap in the bill but the insurance company’s return would look somewhere around a 10 year treasury
- Meza – Is there any minimum requirement of amount to be invested in the business by the owner? Or can they do 0?
- There is no requirement in the bill
- Meza – So they can put in 0?
- There is no cap in the statute
- Meza – So the business owner seeking the funds can make 0 investment?
- They typically are investing but, in the statute, there is not a limitation
- Meza – So they could possibly invest 0?
- In their experience that is not the case but there is not a cap in the statute
Eric Holen, Texas Workforce Commission – Neutral
- Chair Button – This is a very important bill, and the committee needs to make sure to get it right
- Chair Button – How exactly is the $300m structured?
- TWC has a small piece of the bill so is unable to talk about the bill as a whole
- Can only provide data TWC would give in the report
- Chair Button – So your involvement is insignificant?
- Not insignificant but limited
- Meza – What is the job creation requirement for the bill?
- Does not know
Shannon Brandt, Comptroller’s Office – Neutral
- Meza – What is the job creation requirement for the bill?
- There is a requirement that jobs be created but there are not jobs per investment
- Does not have a specific per dollar
- Meza – Is troubled that 1 $100k and $1m investment could both require only 1 job creation
- Meza – What about job retention?
- The bill calls for both new jobs and retained jobs to be counted
- Chair Button – How is the $300m structured?
- The investments that are eligible for insurance premium tax can take a credit if they are compliant with the program
- The money goes to the business and then the insurance premium investors can take a credit
- Chair Button – What do you think is the main reason why the bill structured the programs under the comptrollers instead of under the governor’s economic office?
- Cannot answer that
- Shine – When you manage the fund is it managed as a dedicated separate fund for this program?
- Cannot answer that
Rep. Ashby closes
- Lavine has reached out to the office and expressed his concerns; he did not have the committee substitute back and did not have the opportunity to see the revisions
- The article that Lavine passed out is 10 years old and it is a completely different program
- There is an annual report that is required to be turned in by the fund managers
- All of the $300m has to be deployed by the first three years and it is essentially Sunset by whether or not the committee approves the program continuing
- The tax credits are capped annually at 16.25% or $48.7m per year for all investment
- It is reasonable to conclude that the fund managers are not going to make investments to small businesses that are not willing to put skin in the game
- There are realistic expectations that more than one job is created and that a small business also has risk
- Chair Button – Where did $300m come from?
- Private dollars that are being raised by equity and venture capital firms that support small businesses
- The only state involvement comes at year 4 where the first tax credit is offered to investors
- Chair Button – So that is why this bill specified the comptroller office?
- That is why Ashby put it there
- Hayes – Why were insurance premium taxes chosen for this program?
- Insurance companies in this country have tremendous assets that are not being put into rural companies
- The premiums paid out by investment companies are very predictable; so they are trying to repurpose this to small businesses
- Ordaz – If you can show if there are any significant differences from the bill in this session from last session that would be appreciated
HB 1718 left pending
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HB 1703 (Ordaz) Relating to the workforce development evaluation system administered by the Texas Workforce Commission.
- Ordaz – Ensure the states workforce programs are leading Texans to good jobs with good wages
- Negative employment and wage outcomes have been persistent in many programs
- Updates the statute for the workforce evaluation system to produce more data allowing TWC to evaluate which components are working and which are not
- Benefits the entirety of the States workforce pipeline
Renzo Soto, Texas 2036 – For
- There are many workforce programs in the state but there are mixed results; this bill allows them to understand which programs are effective and what is failing in others
Mariana Vega, Texas Workforce Commission – Neutral
- No questions
HB 1703 is left pending
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HB 2575 (Button | et al.) Relating to the workforce diploma pilot program.
- Chair Button – Authorizes the pilot program until September 2027
- Reauthorizes the eligibility for participators in the program
- This bill improves the lives of 3 million adult Texans without high school education
Kerry Ballast, Texas Workforce Commission – Neutral
- No questions for resource
HB 2575 is left pending