SB0544

SENATE BILL 544

52nd legislature - STATE OF NEW MEXICO - first session, 2015

INTRODUCED BY

John C. Ryan and Luciano "Lucky" Varela

AN ACT

RELATING TO PUBLIC FINANCES; ALLOWING THE STATE INVESTMENT OFFICER TO TRANSFER TO THE ECONOMIC DEVELOPMENT DEPARTMENT A PORTION OF THE SEVERANCE TAX PERMANENT FUND FOR INVESTMENT IN CERTAIN BUSINESSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

SECTION 1. Section 7-27-5.15 NMSA 1978 (being Laws 1990, Chapter 126, Section 5, as amended) is amended to read:

"7-27-5.15. NEW MEXICO PRIVATE EQUITY FUNDS AND BUSINESS INVESTMENTS.--

A. No more than nine percent, and no less than the following percentages, of the market value of the severance tax permanent fund may be invested directly or indirectly in New Mexico [private equity funds or New Mexico] businesses under this section or transferred to the economic development department for investment in businesses pursuant to Section 7-27-5.27 NMSA 1978 in the following fiscal years:

(1) four percent in fiscal year 2015;

(2) five percent in fiscal year 2016;

(3) six percent in fiscal year 2017; and

(4) seven percent in fiscal year 2018 and each subsequent fiscal year.

B. [In making] Investments made pursuant to [Subsection A of] this section [the council] shall [make investments] be made by the state investment officer in New Mexico private equity funds or New Mexico businesses whose investments or enterprises enhance the economic development objectives of the state.

C. [The state investment officer shall make] Investments [pursuant to Subsection A of this section only] made by the state investment officer pursuant to Subsection A of this section shall be upon approval of the council, upon review of the recommendation of the private equity investment advisory committee and within guidelines and policies established by the council. Amounts to be transferred by the state investment officer to the economic development department pursuant to Subsection A of this section shall be transferred at the times and in the amounts necessary for investments pursuant to the provisions of Section 7-27-5.27 NMSA 1978.

D. As used in this section:

(1) "New Mexico business" means, in the case of a corporation or limited liability company, a business with its principal office and a majority of its full-time employees located in New Mexico or, in the case of a limited partnership, a business with its principal place of business and eighty percent of its assets located in New Mexico; and

(2) "New Mexico private equity fund" means a limited partnership, limited liability company or corporation organized and operating in the United States and maintaining an office staffed by a full-time investment officer in New Mexico that:

(a) has as its primary business activity the investment of funds in return for equity in or debt of businesses for the purpose of providing capital for start-up, expansion, product or market development, recapitalization or similar business purposes;

(b) holds out the prospects for capital appreciation from such investments;

(c) has at least one full-time manager with at least three years of professional experience in assessing the growth prospects of businesses or evaluating business plans and who has established permanent residency in the state;

(d) is committed to investing or helps secure investing by others, in an amount at least equal to the total investment made by the state investment officer in that fund pursuant to this section, in businesses with a principal place of business in the state and that hold promise for attracting additional capital from individual or institutional investors nationwide for businesses in the state; and

(e) accepts investments only from accredited investors as that term is defined in Section 2 of the federal Securities Act of 1933, as amended (15 USCA Section 77(b)), and rules and regulations promulgated pursuant to that section, or federally recognized Indian tribes, nations and pueblos with at least five million dollars ($5,000,000) in overall investment assets.

E. The state investment officer is authorized to make investments in New Mexico businesses to create new job opportunities and to support new, emerging or expanding businesses in a manner consistent with the constitution of New Mexico if:

(1) the investments are made:

(a) in conjunction with cooperative investment agreements with parties that have demonstrated abilities and relationships in making investments in new, emerging or expanding businesses;

(b) in a New Mexico aerospace business that has received an award from the United States government or one of its agencies or instrumentalities: 1) in an amount, not less than one hundred million dollars ($100,000,000), that is equal to at least ten times the investment from the severance tax permanent fund; and 2) for the purpose of stimulating commercial enterprises; or

(c) in a New Mexico business that: 1) is established to perform technology transfer, research and development, research commercialization, manufacturing, training, marketing or public relations in any field of science or technology, including but not limited to energy, security, defense, aerospace, automotives, electronics, telecommunications, computer and information science, environmental science, biomedical science, life science, physical science, materials science or nanoscience, using research developed in whole or in part by a state institution of higher education or a prime contractor designated as a national laboratory by an act of congress that is operating a facility in the state, or an affiliated entity; and 2) has an agreement to operate the business on state lands;

(2) an investment in any one business does not exceed ten percent of the amount available for investment pursuant to this section; and

(3) the investments represent no more than fifty-one percent of the total investment capital in a business; provided, however, that nothing in this subsection prohibits the ownership of more than fifty-one percent of the total investment capital in a New Mexico business if the additional ownership interest:

(a) is due to foreclosure or other action by the state investment officer pursuant to agreements with the business or other investors in that business;

(b) is necessary to protect the investment; and

F. The state investment officer shall make a commitment to the small business investment corporation pursuant to the Small Business Investment Act to invest one percent of the market value of the severance tax permanent fund to create new job opportunities by providing capital for land, buildings or infrastructure for facilities to support new or expanding businesses and to otherwise make investments to create new job opportunities to support new or expanding businesses in a manner consistent with the constitution of New Mexico. On July 1 of each year, the state investment officer shall determine whether the invested capital in the small business investment corporation is less than one percent of the market value of the severance tax permanent fund. If the invested capital in the small business investment corporation equals less than one percent of the market value of the severance tax permanent fund, further commitments shall be made until the invested capital is equal to one percent of the market value of the fund.

G. The state investment officer shall report semiannually on the New Mexico private equity investments made pursuant to this section. Annually, a report shall be submitted to the legislature prior to the beginning of each regular legislative session and a second report no later than October 1 each year to the legislative finance committee, the revenue stabilization and tax policy committee and any other appropriate interim committee. Each report shall provide the amounts invested in each New Mexico private equity fund, as well as information about the objectives of the funds, the companies in which each fund is invested and how each investment enhances the economic development objectives of

the state. Each report shall provide the amounts invested in

each New Mexico business."

SECTION 2. Section 7-27-5 NMSA 1978 (being Laws 1983, Chapter 306, Section 7, as amended) is amended to read:

"7-27-5. INVESTMENT OF SEVERANCE TAX PERMANENT FUND.--The severance tax permanent fund shall be invested in separate differential rate and market rate investment classes. "Differential rate investments" are permitted in Sections

7-27-5.3 through 7-27-5.5, 7-27-5.13 through 7-27-5.17, 7-27-5.22 and 7-27-5.24 through [7-27-5.26] 7-27-5.27 NMSA 1978 and are intended to stimulate the economy of New Mexico and to provide income to the severance tax permanent fund. "Market rate investments" are investments that are not differential rate investments and are intended to provide income to the severance tax permanent fund. All market rate investments and differential rate investments shall be invested in accordance with the Uniform Prudent Investor Act and shall be accounted for in accordance with generally accepted accounting principles."

SECTION 3. A new section of the Severance Tax Bonding Act, Section 7-27-5.27 NMSA 1978, is enacted to read:

"7-27-5.27. [NEW MATERIAL] ECONOMIC DEVELOPMENT DEPARTMENT INVESTMENTS IN QUALIFIED BUSINESSES.--

A. Using amounts of the market value of the severance tax permanent fund transferred by the state investment officer pursuant to Subsection C of Section 7-27-5.15 NMSA 1978, the economic development department is authorized to make investments in qualified businesses to create new job opportunities and to support new, emerging or expanding businesses if each investment is made:

(1) contemporaneously with and on substantially the same terms as one or more qualified investments in the qualified business; and

(2) per qualified business, in an aggregate amount of:

(a) no less than five hundred thousand ($500,000); and

(b) no more than fifty percent of the aggregate amount of contemporaneous qualified investments in the qualified business.

B. The economic development department shall:

(1) invest no more than one million dollars ($1,000,000) in any twelve-month period in a single qualified business;

(2) not evaluate a proposed investment other than to the extent necessary to determine compliance with this section; and

(3) transfer the proceeds from investments made pursuant to this section to the state investment officer for deposit in the severance tax permanent fund.

C. By September 1, 2016 and each subsequent year, the economic development department shall appear before the legislative finance committee to provide a detailed report about investments made and proceeds transferred for deposit in the immediately preceding fiscal year pursuant to this section, including:

(1) the total:

(a) number of investments made;

(b) amount of money invested; and

(2) for each investment:

(a) the name and a detailed description of the qualified business;

(b) the amount of the investment;

(d) an analysis of the: 1) efficacy of the investment in fostering business growth in the state; 2) financial viability of the qualified business; and 3) earnings projections for the qualified business.

D. As used in this section:

(1) "business" means a corporation, general partnership, limited partnership, limited liability company or other similar entity, but excludes an entity that is a government or a nonprofit organization designated as such by the federal government or any state;

(2) "equity" means common or preferred stock of a corporation, a partnership interest in a limited partnership or a membership interest in a limited liability company, including debt subject to an option in favor of the creditor to convert the debt into common or preferred stock, a partnership interest or a membership interest;

(3) "high-technology research" means research:

(a) that is undertaken for the purpose of discovering information that is technological in nature and the application of which is intended to be useful in the development of a new or improved business component of the qualified business; and

(b) substantially all of the activities of which constitute elements of a process or experimentation related to a new or improved function, performance, reliability or quality, but not related to style, taste or cosmetic or seasonal design factors;

(4) "manufacturing" means combining or processing components or materials to increase their value for sale in the ordinary course of business, but does not include:

(a) construction;

(b) farming;

(d) preparing meals for immediate consumption, on- or off-premises;

(5) "qualified business" means a business that:

(a) maintains its principal place of business in New Mexico;

(b) engages in high-technology research or manufacturing activities in New Mexico;

(c) is not primarily engaged in or is not primarily organized as any of the following types of businesses: credit or finance services, including banks, savings and loan associations, credit unions, small loan companies or title loan companies; financial brokering or investment; professional services, including accounting, legal services, engineering and any other service the practice of which requires a license; insurance; real estate; construction or construction contracting; consulting or brokering; mining; wholesale or retail trade; providing utility service, including water, sewerage, electricity, natural gas, propane or butane; publishing, including publishing newspapers or other periodicals; broadcasting; or providing internet operating services;

(d) has not issued securities registered pursuant to Section 6 of the federal Securities Act of 1933, as amended; has not issued securities traded on a national securities exchange; is not subject to reporting requirements of the federal Securities Exchange Act of 1934, as amended; and is not registered pursuant to the federal Investment Company Act of 1940, as amended, at the time of the investment;

(e) has one hundred or fewer employees calculated on a full-time-equivalent basis at the time of the investment; and

(f) has not had gross revenues in excess of five million dollars ($5,000,000) in any fiscal year ending on or before the date of the investment; and

(6) "qualified investment" means a cash investment in a qualified business for equity, but does not include an investment by a taxpayer if the taxpayer, a member of the taxpayer's immediate family or an entity affiliated with the taxpayer receives compensation from the qualified business in exchange for services provided to the qualified business within one year of investment in the qualified business."

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