Brief(1)
S.B. 487 would amend existing law to authorize Kansas Venture Capital, Inc. (KVCI) to repay the state's preferred stock investment of $5 million. This investment, made by the Pooled Money Investment Board through a commitment of idle funds, matched $6.6 million of private, equity capital raised primarily by banks. The bill provides for KVCI to redeem the state's stock in installments determined by the KVCI Board of Directors. However, certain conditions are set forth in the bill concerning the repayment schedule. KVCI would be required to make an initial minimum payment of $1 million by July 31, 1998 and each successive year by that date until the state's stocks are redeemed for a total of $5 million. A payment may be deferred in the event that such payment would result in noncompliance with federal law or with KVCI having a book value of less than $10 million. Deferred payments must be payable on the next scheduled payment date unless such payments would cause KVCI to realize a book value below the $10 million threshold. If sufficient funds are available at that time, a partial payment of the deferred payment would be required if the full payment cannot be made. Repayments would be made to the Pooled Money Investment Board which, in turn, would remit all moneys received to the State Treasury. Any amounts remitted to the State Treasury from KVCI repayments would be credited to the Public Water Supply Loan Fund.
The bill would reinstate investment capacity that had been reserved for investments in KVCI. This capacity had not been reached and the maximum allowable tax credits had not been claimed prior to the expiration date of January 1, 1998. In addition, the bill would commit a portion of investment capacity, and associated tax credits, originally intended for Sunflower Technology Ventures. Sunflower Technology Ventures was to provide funding for early-stage technologically-oriented companies but never became operational. (The combined investment capacity from these two sources would be $6,012,345 and maximum allowable tax credits--25 percent of total investment capacity--would be $1,503,086.) The bill would impose no time limit on the use of allowable tax credits which could be claimed for any new investments made in KVCI after December 31, 1997.
Finally, the bill would eliminate the existing requirement that KVCI invest all its funds in Kansas companies once the state has been completely repaid. The bill also would sunset the state's additional investment commitment of $5 million to KVCI. (This investment had been predicated upon an unrealized private, equity capital match of an additional amount of $3.6 million.)
Background
S.B. 487 was requested by the KVCI Board as a means of privatizing KVCI to respond to: (1) public policy concerns raised by legislative and administrative officials over public funding of venture capital companies; and (2) market concerns resulting from negative publicity surrounding such public investments. According to testimony from Tom Blackburn, KVCI's Executive Vice-President, KVCI will rely exclusively on future repayments and capital gains from portfolio company investments to fund ongoing operations and redeem the state's preferred stock investment within five years. Mr. Blackburn explained that the intent of the reinstated and redirected tax credits is to encourage the private sector to make new investments in KVCI.
Other proponents of the bill included: Dan Hermes, Director of Governmental Affairs, Governor's Office; Jamie Clover Adams, Legislative Liaison, Governor's Office; Elmer Ronnebaum, General Manager, Kansas Rural Water Association; Chuck Stones, Director of Research, Kansas Bankers Association; and Chris McKenzie, Executive Director, League of Kansas Municipalities. The Committee received information from several conferees about the Kansas Public Water Supply Loan Fund. The proceeds from repayment by KVCI would be credited to this Fund to leverage federal EPA capitalization grants. These funds, together with revenue bond proceeds, would be used to provide low-interest revolving loans to communities and rural water districts to enable them to upgrade or replace their aging water supply infrastructure.
The Senate Committee chairperson appointed a subcommittee to consider adding more specificity to KVCI's repayment obligation. Amendments proposed by the subcommittee, with additional clarifying modifications, were incorporated into the bill.
The Division of the Budget's fiscal note on the introduced version of the bill indicated the bill would have no fiscal or operational impact because the transfer of moneys from KVCI to the State Treasury would constitute a revenue neutral transaction and the tax credits, made available in this bill, had been funded previously.
1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at http://www.ink.org/public/legislative/fulltext-bill.html.