81 FR 2129 - Economic Development Investments for Certified Development Companies

SMALL BUSINESS ADMINISTRATION

Federal Register Volume 81, Issue 10 (January 15, 2016)

The U.S. Small Business Administration (SBA) is soliciting comments on whether Certified Development Companies (CDCs) should be required to invest specific amounts in local economic development activities (other than lending through the CDC program) and to reserve specific amounts for their future operations. SBA is also soliciting input into what types of activities may qualify as economic development activities.

[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Proposed Rules]
[Pages 2129-2131]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-00731]


=======================================================================
-----------------------------------------------------------------------

SMALL BUSINESS ADMINISTRATION

13 CFR Part 120

RIN 3245-AG76


Economic Development Investments for Certified Development 
Companies

AGENCY: U.S. Small Business Administration.

ACTION: Advance notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The U.S. Small Business Administration (SBA) is soliciting

[[Page 2130]]

comments on whether Certified Development Companies (CDCs) should be 
required to invest specific amounts in local economic development 
activities (other than lending through the CDC program) and to reserve 
specific amounts for their future operations. SBA is also soliciting 
input into what types of activities may qualify as economic development 
activities.

DATES: Comments must be submitted on or before March 15, 2016.

ADDRESSES: You may submit comments, identified by RIN 3245-AG76, by any 
of the following methods: (1) Federal Rulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments; 
or (2) Mail/Hand Delivery/Courier: U.S. Small Business Administration, 
Attn: Linda Reilly, Acting Director, Office of Financial Assistance, 
409 Third Street SW., 8th Floor, Washington, DC 20416. All comments 
will be posted on www.regulations.gov. If you wish to submit 
confidential business information (CBI) as defined in the User Notice 
at www.regulations.gov, you must submit such information to the U.S. 
Small Business Administration, Attn: Linda Reilly, Acting Director, 
Office of Financial Assistance, 409 Third Street SW., 8th Floor, 
Washington, DC 20416, or send an email to [email protected]. 
Highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review your information and determine whether it will make the 
information public.

FOR FURTHER INFORMATION CONTACT: Linda Reilly, Acting Director, Office 
of Financial Assistance, U.S. Small Business Administration, 409 3rd 
Street SW., 8th Floor, Washington, DC 20416, telephone number (202) 
205-9949 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    The Certified Development Company (CDC) program, also referred to 
as the 504 Loan Program, is authorized pursuant to Title V of the Small 
Business Investment Act of 1958, 15 U.S.C. 695 et seq. The 504 Loan 
Program is an SBA financing program established to target companies in 
their growth cycle to create jobs, expand the tax base, and improve 
American communities. Specifically, the core mission of the 504 Loan 
Program is to provide long-term fixed asset financing (504 Loans) to 
small businesses for the purchase or improvement of land, buildings, 
and major equipment purchases, in an effort to facilitate the creation 
of jobs and local economic development.
    Under the 504 Loan Program, loans are made to small business 
applicants by CDCs, which are SBA's community-based partners for 
providing 504 Loans. With the exception of several for-profit CDCs 
grandfathered into the 504 Loan Program, a CDC is a nonprofit 
corporation that promotes economic development within its community 
through 504 Loans. CDCs are certified and regulated by the SBA, and 
work with SBA and participating lenders (typically banks) to provide 
financing to small businesses with the goal of facilitating the 
creation and retention of jobs and local economic development. There 
are over 260 CDCs nationwide each with a defined Area of Operations 
covering a specific geographic area. The Area of Operations for most 
CDCs is the state in which they are incorporated.
    Under 13 CFR 120.825, CDCs are required to be able to sustain their 
operations continuously with reliable sources of funds, such as income 
from services rendered and contributions from government or other 
sponsors. This regulation also provides that any funds generated from 
loan activity in the 504 Loan Program that remain after payment of 
staff and overhead expenses (such funds referred to herein as 
``remaining funds'') must be retained by the CDC as a reserve for 
future operations or for investment in other local economic development 
activity in the CDC's Area of Operations. In addition, on March 21, 
2014, SBA issued a Final Rule (79 FR 15641) that requires each CDC's 
Board of Directors to ensure that the CDC establishes and maintains 
adequate reserves for operations (13 CFR 120.823(d)(9)) and invests in 
economic development in each State in its Area of Operations where the 
CDC has outstanding 504 Loans (13 CFR 120.823(d)(10)). Accordingly, in 
reading 13 CFR 120.823(d)(9) and (10) and 120.825 together, each CDC's 
Board of Directors must ensure that any remaining funds are either 
retained as a reserve or invested in the CDC's community, but the 
current rules do not require the CDC to retain or invest any specific 
amounts or percentages.
    CDCs have requested that SBA provide guidance on the acceptable 
types and amounts of investments that should apply to the remaining 
funds. To address the issue raised by the CDCs, SBA is considering 
whether to issue a future Proposed Rulemaking that would require CDCs 
to set aside a certain amount of their revenues for investing in other 
local economic development activities. SBA is also considering whether 
the rulemaking should address minimum and/or maximum requirements with 
respect to the size of the reserve that a CDC retains for its future 
operations. As stated above, 13 CFR 120.825 requires a CDC ``to be able 
to sustain its operations continuously, with reliable sources of 
funds,'' and a minimum reserve requirement would assist CDCs in 
complying with this provision. Excessive reserves, however, could limit 
the amount a CDC would have available for investing in local economic 
development activities. To develop a proposed rule to address these 
issues, SBA needs additional information and invites interested parties 
to provide it by responding to the questions set forth below.
    Finally, SBA is considering providing guidance, through an agency 
directive (e.g., Standard Operating Procedure, Procedural or Policy 
Notice), on what constitutes acceptable types of investment in other 
local economic development activities under 13 CFR 120.825, and is 
soliciting comments on how to define investments in economic 
development activity.

II. Comments Requested

    To assist SBA in addressing the above issues, SBA requests comments 
from interested parties on the following questions:
    1. What percentage of the CDC's 504 Loan Program revenues do 
remaining funds typically represent at the end of the CDC's fiscal 
year?
    2. Should SBA require CDCs to use a certain amount or percentage of 
their remaining funds to invest in other local economic development 
activity in the CDC's Area of Operations? Please provide reasons for 
your response.
    3. If the answer to question 2 is yes, how should the amount 
required to be invested in other local economic development activity in 
the CDC's Area of Operations be calculated? Some possibilities could 
include a percentage of the original loan amount of the CDC's 504 
portfolio, a percentage of the current outstanding loan amount of the 
CDC's 504 portfolio, a percentage of the annual fees received by the 
CDC as a result of its 504 lending, or a percentage of the CDC's 
remaining funds. Should the percentage vary depending upon the dollar 
value of the CDC's portfolio or other factors? If so, describe how the 
percentage should vary and upon what factors.
    4. Should SBA require CDCs to retain a minimum amount as a reserve 
for future operations if there are any remaining funds? If not, why 
not?
    5. If the answer to question 4 is yes, how should the amount of a 
CDC's

[[Page 2131]]

required reserve be calculated? Some possibilities could include a 
percentage of the original loan amount of the CDC's 504 portfolio, a 
percentage of the current outstanding loan amount of the CDC's 504 
portfolio, a percentage of the annual fees received by the CDC as a 
result of its 504 lending, or a percentage of the CDC's remaining 
funds. Another approach would be to calculate the required reserve as a 
dollar amount equal to at least six months, but no more than 12 months, 
of staff and overhead expenses of the CDC.
    6. Should SBA limit the amount that CDCs may retain as a reserve 
for future operations? If not, why not? If yes, what would be a 
reasonable maximum amount to allow as a reserve?
    7. Should a CDC be able to decide that the reserve option would be 
a more prudent use of its remaining funds than economic development 
investments to ensure that it has the ability to ``sustain its 
operations continuously''? Why or why not?
    8. Should SBA require CDCs to first apply any remaining funds to 
the reserve for future operations before using any remaining funds for 
investments? Please provide reasons for your response.
    9. What requirements, if any, should apply to a CDC's remaining 
funds if it voluntarily decertifies or is removed from the 504 Loan 
Program? Should the CDC be required to invest these funds in local 
economic development activities prior to decertification or removal?
    10. What types of economic development activities should be 
included in the definition of ``acceptable investments in economic 
development''? Are there any activities that should not be included in 
the definition? Examples of such acceptable investments in economic 
development could include loans, grants or other forms of direct 
financial support that are issued by the CDC for: (1) Other federal, 
state or local lending programs, such as microlending or revolving loan 
funds; (2) Small Business Development Centers; (3) business incubators; 
(4) industrial development; and (5) other non-profit economic 
development entities. Should the definition include business or 
technical procurement assistance provided by the CDC or paid for by the 
CDC?
    Interested parties are invited to provide any other comments that 
they may have relating to the issues described in this Advance Notice 
of Proposed Rulemaking. We ask that you provide a brief justification 
for any suggested changes.

     Dated: January 7, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-00731 Filed 1-14-16; 8:45 am]
 BILLING CODE 8025-01-P