EARLY STAGE VENTURE INVESTMENT                  H.B. 4195 (S-1), 4196 (S-1), & 4365 (H-1):

                                                                                                    SUMMARY OF BILL

                                                                                      REPORTED FROM COMMITTEE

 

 

 

 

 

 

 

 

 

House Bill 4195 (Substitute S-1 as reported)

House Bill 4196 (Substitute S-1 as reported)

House Bill 4365 (Substitute H-1 as reported without amendment)

Sponsor:  Representative Al Pscholka (H.B. 4195)

               Representative Michael D. McCready (H.B. 4196)

               Representative Brandt Iden (H.B. 4365)

House Committee:  Commerce and Trade

Senate Committee:  Economic Development and International Investment

 

CONTENT

 

House Bill 4195 (S-1) would amend the Michigan Early Stage Venture Investment Act to prohibit the Michigan Early Stage Venture Investment Corporation from entering into any new agreements with investors after the effective date of the bill. The Corporation would be allowed to modify an existing agreement with an investor as long as no additional principal was borrowed from the investor and the amount of total tax vouchers was not increased above $450.0 million. (A tax voucher is a certificate that a taxpayer can remit in lieu of a tax payment or a portion of a tax payment.)  The Corporation also would be allowed to modify an existing agreement with an investor from which it had received a loan or line of credit and spend money to modify that agreement as long as it did not spend more than $500,000 without the consent of the State Budget Director and it notified the State Budget Office and the chairpersons of the House and Senate Appropriations Committees within 30 days of the finalization of the modification.

 

The bill would prohibit the Corporation from creating a Michigan Early Stage Venture Investment Fund or making any new commitments to contribute capital to a venture capital company after the effective date of the bill. A fund could modify an existing agreement or investment with a venture capital company as long as no additional money was committed to the company.

 

Upon dissolution of the Michigan Early Stage Venture Investment Corporation, the Act requires the property remaining after providing for its debts and obligations to be distributed to a governmental unit or a tax-exempt organization as designated by its board of directors. If the board fails to designate an organization, the property must pass to the State. The bill instead would require the first $140 million to go to the General Fund and the remaining amount to the 21st Century Jobs Trust Fund.

 

The Act requires the Michigan Early Stage Venture Investment Corporation to publish an annual report detailing its activities, the economic impact of its investment plan on the State, and other information. The bill also would require the report to be published on the internet and include the following items:

 

 --    Return from investments made by each Michigan Early Stage Venture Investment Fund in venture capital companies.

 --    The number of seed or early stage businesses that had been funded by venture capital companies.

 --    The aggregate net distributions made to each fund by the venture capital companies that had entered into agreements with each fund through the end of the fiscal year and since the inception of each fund.

 --    The total amount invested by each fund in venture capital companies.

 --    Any upcoming use of tax vouchers that was certain and the timing of that use.

 --    An estimate of the potential use of tax vouchers over the five-year period following the end of the fiscal year.

 

House Bill 4196 (S-1) would amend the Michigan Early Stage Venture Investment Act to change the expiration date of the Michigan Early Stage Venture Investment Fund from January 1, 2054, to January 1, 2030, and would require all money in the Fund (minus outstanding debts and obligations) to be distributed in a specific manner upon dissolution. The first $140 million would have to go to the General Fund and the remaining amount to the 21st Century Jobs Trust Fund.

 

House Bill 4365 would amend the Michigan Business Tax Act to change the total allowable amount of voucher certificates from $600.0 million to $450.0 million.

 

The three bills are tie-barred to each other.

 

MCL 125.2237 et al. (H.B. 4195)                                 Legislative Analyst:  Drew Krogulecki

       125.2261 (H.B. 4196)

       208.1419 (H.B. 4365)

 

FISCAL IMPACT

 

The bills would effectively increase State revenue by an unknown amount by: 1) reducing the potential number of tax vouchers that may be redeemed against State tax liabilities, and 2) requiring net returns from affected investments to be deposited into the General Fund. While $450.0 million of tax vouchers has already been issued under the Act, current law allows as much as $600.0 million in vouchers to be issued.  The bills would limit that exposure to the $450.0 million that has already been issued, effectively preventing a potential revenue reduction of $150.0 million.

 

The bills also would direct net returns from affected investments to the General Fund, which would increase General Fund revenue by an unknown amount that would depend on the performance of the underlying investments.  Because the bills also would accelerate when the Michigan Early Stage Venture Investment Fund will expire, those provisions could potentially reduce the return that might be earned if the investments are held for a longer period of time.  The magnitude of any change in return from accelerating the expiration date is unknown.

 

Date Completed:  9-25-15                                                         Fiscal Analyst:  David Zin

This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.