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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: January 22, 2001

SUBJECT: Small Business Administration; New Markets Venture Capital Program

SOURCE: Federal Register, January 22, 2001, Vol. 66, No. 14, page 7217

AGENCIES: Small Business Administration (SBA)

ACTION: Interim Final Rule

SYNOPSIS: SBA is adding a new Part 108, New Markets Venture Capital ("NMVC") Program, to its regulations in Title 13 of the Code of Federal Regulations (CFR) to implement the New Markets Venture Capital Program Act of 2000, which was part of the Consolidated Appropriations Act of 2001 (Public Law 106-554, enacted December 21, 2000). The NMVC is intended to help create an economic infrastructure in underserved areas by encouraging business growth through program-supported investment.

DATES: The effective date for the interim final rule is February 21, 2001. Comments on the interim final rule must be submitted on or before March 23, 2001.

ADDRESSES: Send comments to Austin Belton, Investment Division, Office of New Markets Venture Capital, U.S. Small Business Administration, 409 3rd Street, SW, Washington, DC 20416.

FOR FURTHER INFORMATION CONTACT: Austin Belton, Director, Office of New Markets Venture Capital, 202-205-6510.

SUPPLEMENTAL INFORMATION: Between 1997 and 1998, the median income for the nation's households rose 3.5% in real terms, yet 12.7% of Americans (34.5 million people) still lived below the poverty line. Many of these Americans live in inner city and rural areas, where job opportunities are scarce and there is little to attract small business investors. In rural and urban communities, poverty remains a persistent problem. Job growth is well below the national average, with unemployment at or above 14%. Unemployment is 7.5% in the African American urban community, and is 6.4% in the Hispanic urban population; both are nearly double the national average.

Congress decided that it is not enough to create jobs in these pockets of poverty, but that these communities need a new economic infrastructure to enable them to develop their full potential and participate fully in the economic mainstream, so it enacted the NMVC program. The NMVC program will encourage the growth of such an infrastructure by supporting new equity capital investments by NMVC companies and Specialized Small Business Investment Companies (SSBICs) and by providing operational assistance to smaller enterprises located in low-income geographic areas whose growth will foster the creation of wealth and job opportunities in such areas.

SBA intends to enter into participation agreements with NMVC companies that have a solid business plan for making investments in the low-income geographic areas targeted by the act, and that have the most likelihood of expanding economic opportunities in such areas.

The act establishes six bases for determining low-income geographic areas:

  1. Any census tract or equivalent county division as defined by the Bureau of the Census in which the poverty rate is 20% or more. To determine whether a particular census tract or equivalent county division meets this criteria, go to http://www.census.gov/geo/www/ezstate/poverty.html.

  2. Any census tract or equivalent county division as defined by the Bureau of the Census that is located in a metropolitan area and in which 50% or more of the households in that tract or division have an income below 60% of the area median gross income. This criteria corresponds to the definition of "qualified census tract" in the Low Income Housing Tax Credit (LIHTC) program, which is administered by the Department of Housing and Urban Development (HUD). For a list and map of all tract and division numbers, go to http://www.census.gov. For information on the LIHTC program, go to http://www.huduser.org/datasets/qct/dda2000.html.

  3. Any census tract or equivalent county division as defined by the Bureau of the Census that is not located in a metropolitan area and in which the median household income for such tract or division does not exceed 80% of the statewide median household income. This is a four step process:

    1. The appropriate tract or division number must be identified. A list and map of all tract and division numbers is available at http://www.census.gov.

    2. Determine whether the tract or division is located within a metropolitan area. A list of all metropolitan areas is in the Bureau of the Census publication "State and Metropolitan Area Databook 1997-98," Table B-1. This publication is available at http://www.census.gov/prod/3/98pubs/smadb-97.pdf. Census tracts or divisions not in the table are not located within a metropolitan area.

    3. Determine the median household income for the tract or division. The necessary income statistics for this determination are available in the Bureau of the Census "Summary Tape File (STF) 3A," Table P80A. This is available at http://venus.census.gov/cdrom/lookup.

    4. Determine whether the median household income for the tract or division exceeds 80% of the statewide median household income. The median household income statistics are in the Bureau of the Census publication "Historical Income Tables -- Households," Table H-8. This table is available at http://www.census.gov/hhes/income/histinc/h08.html.

    5. Any area located within a HUBZone. Whether an area is located within a HUBZone can be determined at the Small Business Administration's website at http://www.sba.gov/hubzone.

  4. Any area located within an Urban Empowerment Zone ("EZ") or Urban Enterprise Community ("EC"). Whether an area is located within an Urban EZ or EC can be determined at HUD's website at http://www5.hud.gov/urban.

  5. Any area located within an Rural EZ or Rural EC. Whether an area is located within a Rural EZ or EC can be determined by visiting the Department of Agriculture's website at http://www.ezec.gov.

Other than having to determine whether a geographical area is a low-income area eligible for NMVC program, the regulations have been patterned after the similar regulations governing SBA's Small Business Investment Company ("SBIC") program in 13 CFR Part 107. Since SBA has been administering the SBIC program for 43 years, most of the problems and challenges the NMVC program will face have already been addressed in the SBIC regulations. The new NMVC regulations incorporate many of the SBIC regulations that SBA believes are fundamental to the safety and soundness of the SBIC program.

The NMVC program will provide $150 million in government guaranteed funds which will be managed and invested in qualifying small businesses by NMVC companies. An important component of the new program is an additional $30 million in matching funds for technical assistance grants which will help the small businesses effectively use the new capital with professional operational support.

The NMVC companies must raise at least $5 million in investment capital which will be supplemented with the issuance of SBA debentures. No interest payment on the guaranteed funding will be required for the first five years.

The NMVC companies must also obtain commitments to provide at least $1.5 million in technical assistance funding that can come from any source other than the SBA. The SBA will provide matching technical assistance grants. These grants will cover the costs of technical assistance provided by NMVC companies to the small businesses in which they invest. The SBA will require each NMVC company to invest principally in smaller businesses in low income areas.

The venture capital companies will be newly formed community-based for-profit organizations with management that has a proven track record of investing capital in small businesses for the purpose of community development. Also, existing community development venture capital companies and groups with equivalent experience are encouraged to apply for NMVC status. The application is available on the SBA website at http://www.sba.gov/inv/venture.html or by requesting an application from the SBA at U.S. Small Business Administration, Investment Division, Attn: Austin Belton, 409 Third Street, SW, Washington, DC 20416.

Also today, SBA published a notice of funds availability (NOFA) for the NMVC. The deadline for application is April 19, 2001. SBA expects to designate 15 to 20 NMVC companies and to award up to $30 million in appropriated funds under this NOFA. There will be other NOFAs in the future.

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2001 by Panoptic Enterprises. All Rights Reserved.

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