THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY MIRABITO, BELFANTI, BRADFORD, BRENNAN, BRIGGS, BROWN, BURNS, CALTAGIRONE, CONKLIN, DALEY, DePASQUALE, DERMODY, DeWEESE, DRUCKER, FREEMAN, GEORGE, GERGELY, GINGRICH, HARKINS, HORNAMAN, HOUGHTON, JOSEPHS, KORTZ, KOTIK, LONGIETTI, MANN, MATZIE, MELIO, MILNE, M. O'BRIEN, PRESTON, READSHAW, SANTARSIERO, SANTONI, SIPTROTH, R. TAYLOR, WANSACZ, WHITE, YOUNGBLOOD, GIBBONS, CREIGHTON, KESSLER, GALLOWAY, BUXTON, CARROLL AND GEIST, APRIL 8, 2010

AS AMENDED ON SECOND CONSIDERATION, HOUSE OF REPRESENTATIVES, APRIL 26, 2010   

AN ACT

Amending the act of July 2, 1984 (P.L.555, No.111), entitled, as

amended, "An act creating a small business incubator program;

providing for grants, loans and loan guarantees to small

business incubators; specifying the conditions of and

requirements for grants and loans; providing for seed grants;

and making appropriations," defining "applicant"; further

defining "local sponsor" or "sponsor" and "seed capital

fund"; further providing for creation of program, for

incubator grants, loans and loan guarantees and for

responsibilities of local sponsors; repealing provisions

relating to challenge grants for seed capital funds; further

providing for general powers and duties of the board and for

indicators of program impact; providing for funding; and

repealing provisions relating to time limit on approvals.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The definitions of "local sponsor" or "sponsor"

and "seed capital fund" in section 2 of the act of July 2, 1984

(P.L.555, No.111), known as the Small Business Incubators Act,

are amended and the section is amended by adding a definition to

read:

Section 2.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

* * *

"Applicant."  A local sponsor.

* * *

"Local sponsor" or "sponsor."  An organization which enters

into a written agreement with the board to establish, operate

and administer a small business incubator facility or to provide

funding to an organization which operates such a facility,

including municipalities, local development districts of the

Appalachian Regional Commission, industrial and commercial

development authorities established pursuant to the act of

August 23, 1967 (P.L.251, No.102), known as the Industrial and

Commercial Development Authority Law, redevelopment authorities

established pursuant to the act of May 24, 1945 (P.L.991,

No.385), known as the Urban Redevelopment Law, municipal

authorities organized pursuant to the act of May 2, 1945

(P.L.382, No.164), known as the Municipality Authorities Act of

1945, or any private nonprofit or for-profit organization

approved by the board, including Ben Franklin Technology

Partners.

["Seed capital fund."  A special investment vehicle which

provides equity and other capital to small businesses during the

earliest stages of business growth, including businesses in

incubators.]

* * *

Section 2.  Section 3 of the act is amended to read:

Section 3.  Creation of program.

There is hereby established under the direction of the board

a Statewide grant, loan and loan guarantee program for the

establishment, operation and administration of small business

incubators, to be known as the Small Business Incubator Program.

Section 3.  Section 4 of the act, amended July 9, 1986

(P.L.1193, No.101) and July 9, 1987 (P.L.233, No.41), is amended

to read:

Section 4.  Incubator grants, loans and loan guarantees.

(a)  Application.--A local sponsor may submit an application

to the board to obtain a grant, loan or loan guarantee to

establish an incubator. Each application shall:

(1)  Demonstrate that:

(I)  A facility exists that can be transformed into

an incubator at a specified cost; or

(II)  In the case of new and expansion construction,

appropriate existing facilities are not available within

the geographic area and an incubator facility will be

constructed or expanded at a specified cost.

(2)  Demonstrate the ability to directly provide or

arrange for the provision of business development services

for tenants of the incubator. These services shall include,

but not be limited to, financial consulting assistance,

management and marketing assistance and physical services.

(3)  Demonstrate a potential for sustained use of the

incubator facility by eligible tenants, through a market

study or [other means] business plan that identifies

sustainability.

(4)  Demonstrate the ability to manage and operate the

incubator facility in accordance with section 5, including

ongoing financial responsibilities.

(5)  Include other information as the board may require

through guidelines.

(b)  Review of application.--The board shall review and

accept applications based on the following criteria:

(1)  Ability of the local sponsor to carry out the

provisions of section 5.

(2)  Economic impact of the incubator on the community.

(3)  Conformance with areawide and local economic

development plans if such exist.

(4)  Location of the incubator, in order to encourage

geographic distribution of incubators across the State.

(5)  Such other criteria as may be established by the

board through guidelines.

(c)  Grant and loan conditions.--

(1)  Grants and loans awarded or guaranteed shall be used

only for the acquisition and leasing of land and buildings,

the construction, rehabilitation and expansion of buildings

or other facilities [and], the purchase of equipment and

furnishings and operational funds not to exceed 20% of the

award, which are necessary for the creation and operation of

the incubator.

(2)  Grants, loans and loan guarantees may not exceed

[50%] 80% of total eligible project costs, or [$650,000]

$800,000, whichever is less. The maximum grant amount awarded

in any project may not exceed [$240,000. Grants shall be

provided only to projects located in municipalities

designated as distressed under the act of July 2, 1984

(P.L.520, No.105), known as the Business Infrastructure

Development Act] 20% of the award.

(3)  Funds loaned shall be secured by lien positions on

collateral at the highest level of priority which can

accommodate the borrower's ability to raise sufficient debt

and equity capital. When the obligation of a local sponsor is

guaranteed, the financial institution holding the obligation

shall be required to adequately secure the obligation.

(4)  Grants, loans and loan guarantees for an incubator

in which the facility is currently leased shall only be made

if the applicant intends to buy the facility. These loans

shall be secured by a leasehold mortgage.

(5)  Payment of interest and principal on loans may be

deferred at the discretion of the board.

(6)  Interest on all loans shall be determined by the

secretary and published as a notice in the Pennsylvania

Bulletin and shall not be required to be equal throughout

this Commonwealth.

(7)  Funds may be lent for a maximum of ten years or the

useful life of the property, as established by the United

States Department of Treasury, whichever is greater.

(8)  If a business operating within an incubator that is

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administered by a local sponsor relocates outside of this

Commonwealth or transfers an ownership interest to an entity

located outside of this Commonwealth, the business shall

repay the local sponsor the full value of services and

assistance the business has received that were funded by

grants, loans or guaranteed loans received by the local

sponsor under this act. If the local sponsor does not utilize

repaid funds to provide services to other businesses in the

incubator, the local sponsor shall return the funds to the

board. If a local sponsor transfers ownership of an incubator

to an entity located outside of this Commonwealth, the local

sponsor shall return all grant funds awarded under this act

to the board.

Section 4.  Section 5 of the act, amended July 9, 1986

(P.L.1193, No.101), is amended to read:

Section 5.  Responsibilities of local sponsors.

A local sponsor, or the organization receiving assistance

through the local sponsor, shall have the following

responsibilities and duties in establishing and operating an

incubator with assistance from this program:

(1)  Secure title on the facility or a lease with the

intent to secure title to the facility.

(2)  Manage the physical development of the incubator

facility, including the provision of common conference or

meeting space.

(3)  Furnish and equip the facility to provide business

services to the tenants.

(4)  Market the facility and secure eligible tenants.

(5)  Provide financial consulting, marketing and

management assistance services or arrange for the provision

of these services for tenants of the incubator, including

assistance in accessing private financial markets.

(6)  Set rental and service fees.

(7)  Encourage the sharing of ideas between tenants and

otherwise aid the tenants in an innovative manner while they

are within the incubator.

[(8)  Establish policies and criteria for the acceptance

of tenants into the incubator. Retail enterprises, not-for-

profit enterprises (except not-for-profit enterprises engaged

in research and development), wholesale enterprises and

personal service enterprises are not permitted as tenants in

incubators funded through this act. Up to 20% of the useful

square footage of such a facility shall be occupied by an

anchor tenant who does not meet these eligibility

requirements.

(9)  Establish a local advisory committee to assist in

the performance of these functions.]

Section 5. Section 6 of the act is repealed:

[Section 6.  Challenge grants for seed capital funds.

(a)  Purpose.--The board is authorized to award challenge

grants for the purposes of establishing seed capital funds to

assist young small businesses, including businesses in

incubators, to create new jobs in this Commonwealth.

(b)  Application.--Advanced technology centers or other

organizations approved by the board may submit applications to

receive challenge grants to assist in establishing seed capital

funds. Each application shall:

(1)  Describe the purposes of the proposed seed capital

fund, including the types of businesses to receive

investments and the types of investments to be made,

consistent with subsection (c).

(2)  Explain the need for the challenge grant in

attracting private investment to the proposed seed capital

fund.

(3)  Present a plan for establishing the proposed seed

capital fund, including the amount of private investment

sought, the strategy for obtaining such investments and the

persons or organizations who may manage the fund.

(4)  List private investment commitments obtained to

date.

(c)  Use of funds.--The board may award challenge grants to

eligible applicants following receipt of an application

consistent with the criteria specified in this act. Recipients

of grants shall not expend any of the funds awarded unless and

until the board has assured itself that the following conditions

hold:

(1)  Either:

(i)  at least $3 of private investment has been

committed to the proposed seed capital fund for every $1

of the challenge grant awarded and at least $3,000,000 of

total investment, including the challenge grant, has been

committed to the proposed fund; or

(ii)  at least $1 of private investment has been

committed to the proposed seed capital fund for every $1

of the challenge grant awarded; at least $1.5 million of

total investment, including the challenge grant, has been

committed to the seed capital fund; and no investment is

to be made from the fund in a small business project

without an equal or greater investment from private

sources other than the fund in the same small business

project, such that, in total, at least $3 of private

investment has been committed to an individual small

business project for every $1 of challenge grant funds

invested.

(2)  Investments from the seed capital fund will be made

exclusively in small businesses located in this Commonwealth,

including, but not limited to, tenants of incubators. For the

purposes of this section, small businesses shall not include

businesses of a mercantile or services related nature, but

shall include international export related services,

international export related mercantile ventures and advanced

technology or computer related ventures which will increase

the Commonwealth's share of domestic or international

markets.

(3)  Total investments in a small business using seed

capital funds should ordinarily be less than $250,000 during

any round of financing for a small business.

(4)  The grant recipient shall serve as a limited partner

or coinvestor with limited liability in the proposed fund and

returns on investment of challenge grant funds shall be

reinvested in the seed capital fund.

In the event that recipients of funds cannot demonstrate these

conditions by June 30, 1986, the grants, or the portions thereof

for which the conditions are not satisfied, shall be rescinded

by the board and shall be available to the board to use for

loans and loan guarantees to incubators consistent with section

4.]

Section 6.  Section 7 of the act, amended July 9, 1986

(P.L.1193, No.101) and July 9, 1987 (P.L.233, No.41), is amended

to read:

Section 7.  General powers and duties of the board.

The board shall:

(1)  Adopt such rules, statements of policy, procedures,

forms and guidelines as may be necessary for the

implementation of this act, including the encouragement of

incubators in economically distressed areas such as State or

federally designated enterprise zones[, municipalities which

meet criteria for distress as identified in section 6 of the

act of July 2, 1984 (P.L.520, No.105), known as the Business

Infrastructure Development Act,] and urban renewal areas

designated in conformity with the act of May 24, 1945

(P.L.991, No.385), known as the Urban Redevelopment Law:

Provided, That it is not the intent of this act to limit the

establishment of incubators to such economically distressed

areas.

(2)  Make loans and loan guarantees or grants or a

combination of loans and grants to local sponsors for

incubators [and award seed capital challenge grants] and, in

the sole discretion of the board, provide for the conversion

of any liens [issued on or after November 1, 1985,] into

grants or into a combination of grants and loans.

(3)  Ensure that local sponsors receiving loans or loan

guarantees and recipients of [challenge] grants meet the

conditions of this act.

(4)  Receive and evaluate annual reports from local

sponsors. The annual reports shall include, but not be

limited to, a financial statement for the incubator, evidence

that all tenants in the facility are eligible under the terms

of the legislation and a list of companies in the incubator.

[(5)  Receive and evaluate annual reports from recipients

of seed capital challenge grants. The reports shall include,

but not be limited to, the policies and procedures of the

seed capital fund, the amount of private investment in the

fund and the number, types and amounts of investment in small

firms by the fund.]

Section 7.  Section 8 of the act is amended to read:

Section 8.  Indicators of program impact.

On or before March 1 of each year, the board shall provide a

report to both the Chief Clerk of the House of Representatives

and the Secretary of the Senate which shall include, but not be

limited to:

(1)  The number of applications for incubators submitted

to the board.

(2)  The number of applications for incubators approved

by the board.

(3)  The number of incubators created through this

program.

(4)  The number of tenants occupying each incubator.

(5)  The number of jobs provided by each incubator and

tenants of each incubator.

(6)  The occupancy rate of each incubator.

(7)  The number of firms still operating in the

Commonwealth after leaving incubators and the number of jobs

they have provided. The board shall attempt to identify the

reasons why any companies have left the Commonwealth after

starting in an incubator.

[(8)  The number of seed capital funds established with

challenge grants, the amount of private investment in the

funds and the number, types and amounts of investments in

small firms by the funds.]

Section 8.  The act is amended by adding a section to read:

Section 10.  Funding sources.

Notwithstanding 64 Pa.C.S. Ch. 15 (relating to Commonwealth

Financing Authority) to the contrary, the following shall apply:

(1)  The Commonwealth Financing Authority shall have the

authority to incur indebtedness of up to $20,000,000 under 64

Pa.C.S. § 1543 (relating to indebtedness) for programs

established in this act.

(2)  Indebtedness incurred by the authority under 64

Pa.C.S. § 1543(a) for the program established in 64 Pa.C.S. §

1556 (relating to Tax Increment Financing Guarantee Program)

shall not exceed $80,000,000 in the aggregate.

(3)  The following apply to proceeds of the indebtedness

authorized under paragraph (1):

(i)  The proceeds shall be transferred from the

authority to the board to be used for programs

established in this act.

(ii)  The proceeds are hereby appropriated to the

board, on a continuing basis, to be used for programs

established in this act. This appropriation shall not

lapse at the end of any fiscal year.

Section 9.  Section 12 of the act, amended July 10, 1989

(P.L.273, No.45), is repealed:

[Section 12.  Time limit on approvals.

No assistance under section 4 shall be approved by the board

after June 30, 1990.]

Section 10.  This act shall take effect in 60 days.