Agenda Item 7 A
February 5,2013
Introduction
MEMORANDUM
February 1, 2013
TO:
County Council
FROM:
Robert H. Drummer, Senior Legislative
Attorney~
Economic Development Fund - Equity
Introduction:
Bill 3-13, Finance
SUBJECT:
Investments
Bill 3-13, Finance - Economic Development Fund Equity Investments, sponsored by
the Council President at the request of the County Executive, is scheduled to be introduced on
February
5. A
public hearing is tentatively scheduled for February
26
at
1:30
p.m.
Background
The Maryland General Assembly enacted Chapter 710 of the 2010 Laws of Maryland
authorizing the County to make an equity investment in a company located in, or relocating to,
the County through the Economic Development Fund. This State enabling act took effect on
October 1,2010. Bill 3-13 would implement this authority.
The Bill would:
(1)
authorize the County to make an equity investment in a company located
in, or relocating to, the County;
(2)
provide that the proceeds of an equity investment made by the County be
used for certain purposes;
(3)
limit the amount and type of ownership interest the County may acquire;
(4)
require the County to post a notice of each equity investment on the
County website within a certain period of time; and
(5)
generally amend the laws governing the Economic Development Fund.
This packet contains:
Bill 3-13
Legislative Request Report
Transmittal Memo from County Executive
Fiscal and Economic Impact statement
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Circle #
1
5
7
9
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Bill No.
3-13
Concerning: Economic
Development
Fund - Equity Investments
Revised: January
30, 2013
Draft No.
~
Introduced:
February
5,2013
Expires:
August
5, 2014
Enacted:
[date]
Executive:
[date signed]
Effective:
[date takes effect]
Sunset Date: [date expires]
Ch.
JttL,
Laws of Mont. Co.
[year1
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the request of the County Executive
AN
ACT to:
(1)
(2)
(3)
(4)
(5)
authorize the County to make an equity investment in a company located in, or
relocating to, the County;
provide that the proceeds of an equity investment made by the County
be
used for
certain purposes;
limit the amount and type of ownership interest the County may acquire;
require the County to post a notice of each equity investment on the County website
within a certain period oftime; and
generally amend the laws governing the Economic Development Fund.
By amending
Montgomery County Code
Chapter 20, Finance
Sections 20-74 and 20-75
By adding
Montgomery County Code
Chapter 20, Finance
Section 20-75A
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL No. 3-13
1
Sec.
1.
Sections 20-74 and 20-75 are amended and Section 20-75A is
added as follows:
20-74. Purpose of Fund.
(a)
The purpose of the Fund is to aid the economic development of the
County by assisting private employers who are located or plan to locate
or substantially expand operations in the County.
(b) Assistance to a private employer from this Fund may take the form of:
(1) loans or grants of public funds as otherwise authorized by law;
(2) transfers of real or personal property as otherwise authorized by
law;
(3)
provision of services, when otherwise authorized, by a County
agency; [or]
(4)
plans, studies, or other technical
assistance~
or
an equity investment as authorized
Qy
Section 20-75A.
2
3
4
5
6
7
8
9
10
11
12
13
14
ill
(c)
15
16
17
18
As used in this Article, "private employer" means any for-profit or
nonprofit corporation or firm that is not owned, primarily funded, or
controlled by a government agency.
"Private employer" includes a
lessor or supplier of real or personal property or services to a
government agency.
19
20
20-75. Use of Fund.
21
*
(d)
*
*
22
23
24
25
The Executive must not provide assistance to a private employer valued
at more than $500,000 unless the grant.1 [or] 10an.1 or equity investment
is approved by the Council in a special or supplemental appropriation.
The amount of any discount from market value in the sale of County
property offered as part of the assistance must be included in the value
ofthe assistance. The Executive must submit an economic development
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26
27
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BILL No.
3-13
28
agreement to the Council within 60 days after all parties to the
agreement execute it.
29
30
31
32
*
20-7SA. Equity investments.
*
*
W
Subject to Section 20-75, the County may make an equity investment
through the Economic Development Fund in
~
33
34
company that is located
in the County or that agrees to relocate its business to the County.
35
36
37
.chl
The proceeds of an equity investment made under subsection
W
may be
used for:
38
39
40
41
42
43
44
ill
ill
ill
ill
ill
®
working capital;
salaries;
marketing materials;
acquisition of inventory, equipment, or real property;
construction;
renovation;
leasehold improvements; or
research and development.
m
.aD
W
@
45
46
47
The County may not acquire an ownership interest exceeding 25% of
any company.
The terms of an equity investment must be set forth in
agreement that prohibits the County from:
~
funding
48
49
ill
participating in the selection of the management of the company;
overseeing the operation of the company; and
assuming any present or future liability of the company.
50
51
ill
ill
W
ill
52
53
54
A funding agreement may be:
an investment agreement;
~
ill
limited partnership agreement;
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Economic Dev. Fund - Equity Investments\Bill 4.Doc
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BILL
No. 3-13
55
56
57
ill
ill
ill
£!
preferred stock purchase agreement; or
other documents that the County may require.
The Director of Finance must:
58
59
ill
record the value of the equity investment in the County's
Financial
Statements consistent with
Generally Accepted
60
61
Accounting Principles; and
ill
ill
manage all equity investments acquired in accordance with the
funding agreement and State and County law; and
post notice of each equity investment made under this Section in
£!
readily accessible and clearly identified location on the County
62
63
64
65
66
website within
~
days after the date on which the County initiates
the equity investment transaction.
(g}
If an equity investment is liquidated through
£!
sale or other disposition,
the proceeds must be deposited in the County's general fund.
Approved:
67
68
69
70
71
Nancy Navarro, President, County Council
Date
72
73
Approved:
Isiah Leggett, County Executive
Date
74
75
This is a correct copy o/Council action.
Linda M. Lauer, Clerk of the Council
Date
GtA
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LEGISLATIVE REQUEST REPORT
Bill 3-13
Economic Development
-
Equity Investment Companies
Problem:
Montgomery County created the Economic Development Fund (ED F) in
1995 to provide financial assistance and incentive to private employers who
retain jobs in the County, and to stimulate the creation of new jobs.
The EDF focuses on high techlbiotech companies, manufacturing
companies, businesses located in urban revitalization areas and other
private employers providing the greatest public benefits. Since 1995,
Montgomery County has disbursed more than $40 million through the
EDF in the form of grants and loans to over 280 Montgomery County
based companies, resulting in the retention or creation of over 30,000 jobs,
and leveraging over $52 million in State funding and more than $1 billion
in private investment. By the statutory requirements, the EDF cannot
make an equity investment to private companies, but uses two forms of
assistance; straight loan, or grant convertible to a loan.
The State of Maryland provides creative financing for business enterprises
through its Department of Business and Economic Development,
Maryland Technology Development Corporation and Maryland Economic
Development Corporation. This can be in the form of a grant, loan, loan
guarantee, insurance or an equity investment!. The State's ability to take
an equity stake in companies receiving State funds has garnered
substantial financial returns for Marylanders. A prime example of this is
GeneLogic, which received funding from both the State - through an
equity investment - and Montgomery County - through a loan. When the
company was sold, Maryland's share of the profits exceeded $19 million­
money that went back into State coffers. In contrast, Montgomery County
received $15,000 back from its $188,000 convertible grant.
Through this bill, Montgomery County is simply seeking the right to
benefit from any upswings in the companies that we provide financial
assistance to, similar to the current abilities of the State.
As an equity shareholder, the County, like the State, will be able to reap a
return on its strategic economic development investments when EDF
recipients generate substantial profits from their products and services or
their company is acquired. These economic returns, whether they are
reinvested in the EDF to create a larger funding pool to support business
and job growth or used to augment other economic development
programs, will benefit Montgomery County.
I
The State cannot exceed a 25 percent ownership position and must divest investments within 15 years.
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Goals
&
Objectives:
In the 20
I
0 Maryland General Assembly legislative session, the County
worked hard to pass the State HB 891 to enable Montgomery County to
adopt a local bill to add this important tool to augment its economic
development and job creation.
The purpose of the attached bill is to enact this legislation at the County
level. The provisions of the HB891 only allow the County to make equity
investments through the County-funded EDF.
It
does not mandate
Montgomery County to make such investments, permitting the County to
make equity investment very strategically at its full discretion.
Coordination:
Department of Economic Development, Department of Finance, The
Office of the County Attorney.
This legislation will use the same funds under the Economic Development
Fund, and bears a similar risk to using a loan or a convertible grant to
assist companies. As such, no immediate or direct fiscal impact can be
gauged at this time.
Fiscal Impact:
Economic Impact:
This legislation will allow the County's EDF to make a strategic equity
investment to a select number of high-tech companies with a huge growth
potential, where a conventional form of financial assistance such as a loan
or grant is not suitable, or the County will forego an opportunity for a
large financial return if the transaction is structured as a loan. Due to a
highly speculative nature of the equity investment, not all transaction wi11
be successful. However, the economic impact and the financial return
from the successful transactions will more than offset the unsuccessful
transactions.
Experience Elsewhere:
The State of Maryland, through its Department of Business and
Economic Development, has been operating a very successful
equity investment program for over a decade and a half.
Peter Bang, Chief Operating Officer, Department of Economic
Development, 240-777-2008;
peter. bang@montgomerycountymd.gov
Source of Information:
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OFFICE OF THE COUNTY EXECUTIVE
ROCKVILLE, MARYLAND 20850
lsiah Leggett
County Executive
MEMORANDUM
January 14,2013
TO:
FROM:
SUBJECT:
Nancy Navarro, Council President
Isiah Leggett, County Executiv-y__
o:::­
Proposed Legislation Relating to the Economic Development Fund and Equity
Investments
I am transmitting to Council for introduction a bill to authorize use of the
Economic Development Fund (ED F) to make equity investments in private companies. I am
also transmitting a Legislative Request Report, Fiscal Impact Statement and Economic Impact
Statement for the bilL
In 2010, the State enacted a law (Chapter 710, Montgomery County - Investment
Authority) that gave the County authority to use the EDF to make an equity investment in a
private company. Prior to enactment of that State law, the County had no authority to use the
EDF to make equity investments in private companies and was limited to providing two forms of
assistance: (1) a straight loan; or (2) a grant convertible to a loan.
, The State, through its Department of Business and Economic Development,
currently provides creative financing for business enterprises that can be in the form of a grant,
loan, loan guarantee, insurance or equity investment.
I
The State's ability to take an equity stake
in companies receiving State funds has garnered substantial financial returns for State residents.
A prime example of this is GeneLogic, which received funding from both the State, through an
equity investment, and the County, through a loan. When the company was sold, the State's
share of the profits exceeded $19 million - i.e., money that went back into State coffers. In
contrast, the County received $15,000 back from its $188,000 convertible grant.
This bill would allow the County to benefit from any upswings in the companies
to which we provide financial assistance, similar to the current State practice. As an equity
shareholder, the County will be able to reap a return on its strategic economic development
investments when EDF recipients generate substantial profits from their products and services or
their companies are acquired. These economic returns, whether they are used to create a larger
EDF funding pool to support business and job growth, augment other economic development
programs, or support other County programs, will benefit County residents.
I
The State cannot exceed a 25 percent ownership position and must divest investments within 15 years.
montgomerycountymd.gov/311
240-773-3556 TTY
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Nancy Navarro, Council President
January 14.2013
Page 2
For more information on this proposed legislation, please contact Peter Bang in
the Department of Economic Development at 240-777-2008.
Attachments (3)
c:
Joe Beach, Director, Department of Finance
Marc Hansen, County Attorney
Jennifer Hughes, Director, Office ofManagement and Budget
Steve Silverman, Director, Department of Economic Development
CD
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OFFICE OF MANAGEMENT AND BUDGET
Isiah
Leggett
County Executive
Jennifer
A.
Hughes
Director
MEMORANDUM
November 9, 2012
TO:
FROM:
SUBJECT:
Roger Berliner, President, County Council
lennifer
A.
H..
Joseph F.
~irector,
Office
OfManagemen~get
B~or,
Department
ofFinance
? .
Bill XX-12 ­ Economic Development- Equity Investment Companies
Attached please find the fiscal and economic impact statements for the above­
referenced legislation.
JAH:hpv
c: Kathleen Boucher, Assistant Chief Administrative Officer
Lisa Austin, Offices ofthe County Executive
Joy Nunni, Special Assistant to the County Executive
Patrick Lacefield, Director, Public Infonnation Office
Peter Bang, Department ofEconomic Development
Michael Coveyou, Department of Finance
David Platt, Department of Finance
Alex Espinosa, Office of Management and Budget
Blaise DeFazio, Office ofManagement and Budget
Helen Vallone, Office of Management and Budget
Naeem Mia, Office of Management and Budget
Ayo Apol1on, Office ofManagement and Budget
Office of the Director
101 Monroe Street, 14th Floor • Rockville, Maryland 20850 • 240-777-2800
www.montgomerycountymd.goY
--------~-----------------------
montgomerycountymd.goy
/311
240w773-3556 TTY
(j)
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Fiscal Impact Statement
Council Bill XX-12 - Economic Development - Equity Investment Companies
1.
Legislative Summary
The proposed bill authorizes the County to:
• make an equity investment in a company located in, or relocated to, Montgomery
County;
• provide
tha~
the proceeds of an equity investment made by the County be used for
certain purposes;
• limit the ownership interest the County may acquire to no more than 25%;
• require that the terms of an equity investment be set forth in a funding agreement,
including prohibiting the County from taking certain actions;
• provide that a funding agreement may consist of other agreements or documents;
• require the County to post a notice of each equity investment in a readily accessible
and clearly identified location on the Montgomery County website within a certain
period of time; and
• generally address equity investments made by the County in certain businesses in the
County.
2. An estimate of changes in County revenues and expenditures regardless of whether
the revenues or expenditures are assumed in the recommended or approved budget.
Includes source of information, assumptions, and methodologies used.
Due to uncertainties about which company the County will invest in, its value, and its
economic performance,
it
is difficult
to
estimate the potential expenditures (the initial
investment) or revenues that the County may derive from its equity investment.
The proposed legislation will also use the same funds under the Economic Development
Fund, and bears a similar risk to using a loan or a convertible grant to assist companies.
As
such, no immediate or direct fiscal impact can be gauged at this time due to
uncertainties in estimating the risk
3. Revenue and expenditure estimates covering at least the next 6 fiscal years.
See item #2 above.
4.
An
actuarial analysis through the entire amortization period for each bill that would
affect retiree pension or group insurance costs.
Not applicable. This bill does not affect retiree pension or group insurance costs.
5. Later actions that may affect future revenue and expenditures if the bill authorizes
future spending.
The biI1 does not authorize future spending.
6.
An
estimate of the staff time needed to implement the
bilL
No additional staff time is needed to implement the bill as the existing staff will still
conduct similar due diligence on applicant companies.
1
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7. An explanation of how the addition of new staff responsibilities would affect other
duties.
New staff is not required but the existing staff responsibilities will include posting notices
of any completed transactions on the County website to comply with the bill.
8. An estimate of costs when an additional appropriation is needed.
Not applicable.
9. A description of any variable that could affect revenue and cost estimates.
Revenues and cost estimates are detennined by the selected company's value and
economic performance. These variables are difficult to estimate without determining
which company the County
will
choose to invest in.
10. Ranges of revenue or expenditures that are uncertain or difficult to project.
Revenues and costs are affected by the selected company's value and economic
perfonnance. These variables are difficult to estimate without detennining which
company the County will choose to invest in.
11.
If
a bill is likely to have no fiscal impact, why that is the case.
Not applicable.
12. Other fiscal impacts or comments.
None.
13. The following contributed to and concurred with this analysis:
Peter Bang, Department of Economic Development
Helen P. Vallone, Office of Management and Budget
Naeem Mia, Office of Management and Budget
Dati
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Economic
Impact
Statement'
Council
Bill
xx..
12,
Economic Development -
Equity
Investment Companies
Background:
This Bill
autho~zes
the County to make equity investments in companies through the
Economic
Develop~nt
Fund (EDF), limited to an ownership stake of 25% of the
company. The bill could have
an
economic impact if it results in higher. unexpected,
paybacks (tbrough'the increased value of the equity) from companies that perform very
well. The impact could
be
in the form of funding more EDF transactions, whether taking
an
equity interest or not, thereby increasing the number of companies that the County can
provide EDF incentives.
1.
The sources
of
infonnation, asswnptions, and methodologies used.
The information available currently
is
only anecdotal
as to
the economic impact of the
proposed legislation. There is not sufficient experience with this type of incentive to use
as a basis for an economic impact forecast.
2. A
description
of
any variable
that
could affect economic impact statements.
The economic impact depends on the change in the number and value of EDF incentives
granted because of the change in the law, compared to
the
number of EDF incentives that
would have been given without
the
change in the law.
The
proposed legislation
may
cause the County to provide
BDF
incentives
to
companies that it would not have. absent
this change and in so doing may affect the impact on spending. employment, and other
economic
variables
3. The bill's positive or negative
effect,
if
any on employment, spending, saving,
investment, incomes, and property value
in
the County.
The bill could increase the number of companies that
the
County gives EDF incentives,
which could increase employment, spending, saving, investment, income and property
values
in
the County.
The
impact would depend on the specifics of each individual EDF
incentive.
4.
If
a bill is
likely
to have no economic impact,
why
is
that the case?
Not
applicable.
5. The following contributed to and concurred with this analysis: David Platt and
Mike
Coveyou, Finance.
@
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JOF:BCh,1)irector
Department of Finance
~1-~
If
-
Date
\-12...
@