UDC-10-13-00004-P Bonding Guarantee Assistance Program

3/6/13 N.Y. St. Reg. UDC-10-13-00004-P

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 10

March 06, 2013

RULE MAKING ACTIVITIES

URBAN DEVELOPMENT CORPORATION

PROPOSED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. UDC-10-13-00004-P

Bonding Guarantee Assistance Program

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Addition of Part 4253 to Title 21 NYCRR.

Statutory authority:

Urban Development Corporation Act, section 5(4); L. 1968, ch. 174; L. 1994, ch. 169, section 16-f

Subject:

Bonding Guarantee Assistance Program.

Purpose:

Provide the basis for administration of the Bonding Guarantee Assistance Program.

Substance of proposed rule (Full text is not posted on a State website):

Part 4253

Bonding Guarantee Assistance Program

4253.1 Purpose

The purpose of this rule and these regulations is to effectuate section 16-f of the New York State Urban Development Corporation Act, that authorizes the Bonding Guarantee Assistance Program, and to provide for the implementation and administration of the program by the New York State Urban Development Corporation which is authorized by the Program (i) to provide to surety companies the additional financial backing needed in order to induce such companies to issue payment and performance bonds for contractors that are small businesses, as defined in this rule, and certified, pursuant to article fifteen-A of the Executive Law, minority-owned business enterprises or women-owned business enterprises, in order for such contractors to meet payment and performance bonding requirements for construction projects, including but not limited to, government sponsored, transportation related construction projects and (ii) to provide technical assistance in completing bonding applications for such contractors seeking surety bonding in preparation for bidding on construction projects, including transportation related projects.

4253.2 Definitions

a) “Agent” shall mean a third party that has entered into an agreement with the Corporation for the purpose of administering the Program.

b) “Bid Bond” shall mean a written guaranty provided to a principal by a surety on behalf of a contractor who is submitting a bid, in order to ensure that upon acceptance of the bid by the principal, the contractor will proceed with the contract and will replace the bid bond with a performance bond.

c) “Program” shall mean the Bonding Guarantee Assistance Program created pursuant to section 16-f of the New York State Urban Development Corporation Act.

d) “Certified” shall mean certification of a business enterprise as a Minority-Owned Business Enterprise or a Women-Owned Business Enterprise pursuant to article 15-A of the Executive Law.

e) “Corporation” shall mean the new York State Urban Development Corporation d/b/a Empire State Development, a corporate governmental agency of the State of New York, constituting a political subdivision and public benefit corporation created by chapter one hundred seventy-four of the Laws of nineteen hundred sixty-eight, as amended.

f) “Minority-Owned Business Enterprise” shall mean a business enterprise, including a sole proprietorship, partnership or corporation that is: (1) at least fifty-one percent owned by one or more Minority Group Members; (2) an enterprise in which such minority ownership is real, substantial and continuing; (3) an enterprise in which such minority ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (4) an enterprise authorized to do business in this state and independently owned and operated; (5) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (6) an enterprise that is a Small Business, unless the term Minority-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.

g) “Minority Group Members” shall mean persons who are:

1) Black;

2) Hispanic persons of Mexican, Puerto Rican, Dominican, Cuban, Central or South American descent or either Indian or Hispanic origin, regardless of race;

3) Asian and Pacific Islander persons having origins in the Far East, Southeast Asia, the Indian sub-continent or the Pacific Islands; or

4) American Indian or Alaskan Native persons having origins in any of the original people of North America and maintaining identifiable tribal affiliations through membership and participation or community identification, unless the term Minority Group Member is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.

h) “Payment Bond” shall mean a written guaranty provided to a principal by a surety on behalf of a contractor that guarantees that a contractor will pay suppliers, laborers, and subcontractors subject to contract terms for labor and materials.

i) “Performance bond” shall mean a written guaranty provided to a principal by a surety on behalf of a contractor that guarantees that a contractor will adhere to the terms and conditions of a contract.

j) “Small Business” shall mean a business that is resident and authorized to do business in the State, independently owned and operated, not dominant in its field, whose primary place of business is in New York State, and that employs one hundred or fewer persons on a full time basis, unless such term is otherwise defined in section 131 of the Economic Development Law, in which case the definition shall be as set forth for such term in such section.

k) “State” shall mean the State of New York.

l) “Surety Company” shall mean a surety company that has a certificate of solvency from, and its rates approved by, the New York State Department of Financial Services and/ or appears in the most current edition of the U.S. Department of Treasury Circular 570 as eligible to issue bonds in connection with procurement contracts for the United States of America.

m) “Women-Owned Business Enterprise” shall mean a business enterprise, including a sole proprietorship, partnership or corporation that is: (1) at least fifty-one percent owned by one or more United States citizens or permanent resident aliens who are women; (2) an enterprise in which the ownership interest of such women is real, substantial and continuing; (3) an enterprise in which such women ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (4) an enterprise authorized to do business in State and independently owned and operated; (5) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (6) an enterprise that is a Small Business, unless the term Women-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section.

4253.3 Program Overview

a) The amount of additional Program assistance provided to a Surety Company with respect to each contract shall generally not be greater than the amount necessary to induce such Surety Company to issue the bonds required for the contract, and in no event shall exceed fifty percent of the face value of bonds to be issued by the Surety Company for such contract.

b) The Corporation may provide to Small Businesses, Certified Minority-Owned Business Enterprises and Certified Women-Owned Business Enterprises seeking surety bonding in preparation for bidding on construction projects, including transportation related projects, technical assistance in completing bonding applications. The Corporation may refer such businesses to various business service providers or the Department of Economic Development for technical assistance as such businesses may need, including, but not limited to:

1. a review of the applicant’s market and business competitive strategy;

2. consultation and review of the development and planned implementation of a working capital budget;

3. assistance with applications for the receipt of funding from other financial sources and providing referrals to other appropriate public and private sources of financing; and

4. assistance from the regional offices of the Department of Economic Development, pursuant to article 11 of the Economic Development Law, and the Entrepreneurial Assistance Program, pursuant to article 9 of such law, and any other such program receiving State funds from the New York State Urban Development Corporation Act or the Department of Economic Development or any other state agency that is intended to provide technical assistance to Small Businesses, Certified Minority-owned Business Enterprises and Certified Women-owned Business Enterprises.

4253.4 Eligible Contractors

a) In order to be eligible for consideration for Program assistance, a contractor must be a Small Business, a Certified Minority-Owned Business Enterprise or a Certified Women-Owned Businesses Enterprise that is unable to obtain a bond from a Surety Company without Program assistance.

b) The Corporation may provide each Surety Company that participates in the Program with additional requirements or guidelines on contractor eligibility, such as minimum years in businesses, contract performance history, revenue limits or minimums, or other factors. The Surety Company may be required to verify information regarding Program eligible contractors or to secure such assurances from prospective Program eligible contractors as the Corporation may deem necessary.

4253.5 Eligible Surety Companies

In order to be eligible to participate in the Program, a surety company must, among other requirements to be determined by the Corporation:

a) have a certificate of solvency (pursuant to section 111 of the Insurance Law) from, and have its rates approved by, the New York State Department of Financial Services and/or appear in the most current edition of the U.S. Department of Treasury Circular 570 as eligible to issue bonds in connection with procurement contracts for the United States of America;

b) have a satisfactory performance record regarding contractor default, termination of contracts, application of satisfactory underwriting standards and principles and practices for evaluating contractor credit and capacity and processing claims, including diligent and commercially reasonable recovery efforts; and

c) be rated B+ or higher if rated by A.M Best’s Key Rating Guide Property/Casualty.

4253.6 Financial Backing Program Assistance

Program assistance is limited to the financial backing necessary to secure Bid Bonds, Performance Bonds, and Payment Bonds issued in connection with contract bids or awards. Such Program assistance shall be in such form as the Corporation may determine, and may include irrevocable standby letters of credits issued to a Surety Company by a financial institution for the account of the Corporation in connection with the Surety Company providing such bonds on behalf of a Program eligible contractor with respect to a contract. The amount of such Program assistance provided to a Surety Company with respect to each contract shall generally not be greater than the amount necessary to induce such Surety Company to issue the bonds required for the contract, and in no event shall exceed fifty percent of the face value of bonds to be issued by the Surety Company for such contract. Generally, a Surety Company may not receive Program assistance for more than two contracts for the same contractor at the same time.

4253.7 Program Administration

a) In order for a Surety Company to participate in the Program, the Surety Company shall enter into a Program participation agreement with the Corporation in such form as the Corporation or the Agent may prescribe. Such agreements may include provisions for proof of contractor default; termination of contracts; underwriting standards and principles and practices used in evaluating credit and capacity; and requirements for the claims process, including requirements that the Surety Company conduct diligent and commercially reasonable recovery efforts.

b) The Corporation shall conduct the oversight and management of the Program, and the Corporation may engage an Agent for administration and implementation of the Program.

c) The Corporation may contract with one or more financial institutions in order that such financial institution will provide to Surety Companies, as additional financial backing Program assistance, letters of credit or other guarantees for the account of the Corporation.

d) The Corporation or the Agent shall evaluate applications for Program Assistance and make determinations as to business creditworthiness and whether to provide the requested additional financial backing Program assistance. Evaluations of eligible contractors may, among other things, include review of financial information, contract performance history, documents submitted to the Surety Company and other business information.

e) The Corporation may facilitate the provision of technical assistance to eligible Small Businesses and Certified Minority-Owned Business Enterprises and Certified Women-Owned Business Enterprises in accordance with applicable law and regulations.

f) The Corporation or the Agent shall prepare annual reports for the Program.

4253.8 Fees

A participating Surety Company may charge application fees, commitment fees, bonding premiums and other reasonable fees and expenses pursuant to a schedule of fees and expenses adopted by the Surety Company and approved in writing by the Corporation. The Corporation may require a contractor participating in the Program to pay the Corporation for its out-of-pocket costs in connection with the Program assistance for the contractor, including, without limiting the foregoing, the costs with respect to letter of credit and other guarantees to be provided to a Surety Company in connection with bonds for such contractor’s contract.

4253.9 Confidentiality and State Employees

a) To the extent permitted by law, all information regarding the financial condition, marketing plans, customer lists, or other trade secrets and proprietary information of a person or entity requesting assistance from the Program administered through the participating Surety Company, shall be confidential and exempt from public disclosures.

b) No full time employee of the State of New York or any agency, department, authority or public benefit corporation thereof shall be eligible to receive assistance under this Program.

4253.10 Non-Discrimination and Affirmative Action

The Corporation’s affirmative action and non-discrimination policies and programs are grounded in both public policy and applicable law, including but not limited to, Section 2879 of the Public Authorities Law, Article 15 of the Executive Law, Article 15-A of the Executive Law and Section 6254 (11) of the Unconsolidated Laws. These laws mandate the Corporation to take affirmative action in implementing programs. The Corporation has charged the affirmative action department with overall responsibility to ensure that the spirit of these mandates is incorporated into the Corporation’s policies and projects. Where applicable, the Affirmative Action department will work with applicants in developing an appropriate Affirmative Action Program for business and employment opportunities generated by the Corporation’s participation of the Program.

Text of proposed rule and any required statements and analyses may be obtained from:

Antovk Pidedjian, Sr. Counsel - Lending, New York Urban Development Corporation, 633 Third Avenue, 37th Floor, New York, NY 10017, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

60 days after publication of this notice.

Regulatory Impact Statement

1. Statutory Authority: Section 9-c of the New York State Urban Development Corporation Act Chapter 174 of the Laws of 1968 (Uncon. Laws section 6259-c), as amended (the “Act”), provides, in part, that the Corporation shall, assisted by the Commissioner of Economic Development and in consultation with the Department of Economic Development, promulgate rules and regulations in accordance with the State Administrative Procedure Act.

Section 16-f of the Act provides for the creation of the Bonding Guarantee Assistance Program (the “Program”) and authorizes the New York State Urban Development Corporation d/b/a Empire State Development (the “Corporation”), within available appropriations, to provide small businesses and minority and women-owned business enterprises the additional financial backing needed in order to induce surety companies to issue surety bond lines, bid bonds or payment and performance bonds necessary for such contractors to meet requirements for construction projects, including but not limited to, government sponsored, transportation related construction projects and to provide technical assistance in completing bonding applications for such contractors seeking surety bonding in preparation for bidding on construction projects, including transportation related projects.

2. Legislative Objectives: Section 16-f of the Act (Uncon. Laws section 6266-f, added by Chapter 169 of the Laws of 1994) sets forth the Legislative objective of authorizing the Corporation, within available appropriations, to provide the assistance described above. The adoption of 21 NYCRR Part 4253 will further these goals by setting forth the types of available assistance, evaluation criteria, the application process and related matters for the Program.

3. Needs and Benefits: The State has allocated $10,405,173.00 of Federal funds for this program. The Bond Guarantee Assistance Program will provide assistance to New York’s eligible small businesses, minority-owned business enterprises and women-owned business enterprises, in order to provide the collateral support necessary to secure surety bonding. These businesses have been determined to be a major source of employment throughout New York State. These businesses have historically had difficulties obtaining financing or refinancing in order to remain competitive and grow their operations, and the current economic difficulties have exacerbated this problem. Providing assistance to these businesses should sustain and potentially increase the employment provided by such businesses, especially during this period of historically high unemployment and underemployment. The rule defines eligible and ineligible businesses and eligible uses of the assistance and other criteria to be applied to qualify for the Program.

4. Costs: The Program is funded by a State appropriation in the amount of $10,405,173.00 dollars. Pursuant to the rule, the amount of such assistance provided to a surety company with respect to each contract shall not be greater than the amount necessary to induce such surety company to issue the bonds required for the contract, and in no event shall exceed fifty percent of the face value of bonds to be issued by the surety company for such contract. The costs to a participating surety company would depend on the extent to which they participate in the Program and their effectiveness and efficiency providing assistance.

5. Paperwork / Reporting: There are minimal additional reporting or paperwork requirements as a result of this rule for Program participants except those required by the statute creating the Program such as an annual report on the organization’s lending activity and providing information in connection with an audit by the Corporation with respect to the organization’s use of Program funds. Standard documents used for most other assistance by the Corporation will be employed in keeping with the Corporation’s overall effort to facilitate the application process for all of the Corporation’s clients.

6. Local Government Mandates: The Program imposes no mandates – program, service, duty, or responsibility – upon any city, county, town, village, school district or other special district.

7. Duplication: The regulations do not duplicate any existing state or federal rule.

8. Alternatives: While surety companies already provide business credit through surety bonding, access to such credit remains difficult to obtain for contractors that are small businesses and/or certified minority-owned enterprises or women-owned business enterprises. The State has established the Program in order to enhance the access of such businesses to such credit, and the proposed rule provides the regulatory basis for inducing surety companies to provide credit for contractors that are small businesses and/or certified minority-owned enterprises or women-owned business enterprises.

9. Federal Standards: There are no minimum federal standards related to this regulation. The regulation is not inconsistent with any federal standards or requirements. Federal funds through US Treasury’s State Small Business Credit Initiative are being used for this program and all regulations associated with SSBCI will be followed.

10. Compliance Schedule: The regulation shall take effect immediately upon adoption.

Regulatory Flexibility Analysis

1. Effects of Rule: In the rule: “Small business” is defined as a business that is resident and authorized to do business in the State, independently owned and operated, not dominant in its field, and employs one hundred or fewer persons on a full time basis; “Women owned Business Enterprise” is defined as a business enterprise, including a sole proprietorship, partnership or corporation that is: (i) at least fifty-one percent owned by one or more United States citizens or permanent resident aliens who are women; (ii) an enterprise in which the ownership interest of such women is real, substantial and continuing; (iii) an enterprise in which such women ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (iv) an enterprise authorized to do business in State and independently owned and operated; (v) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (vi) an enterprise that is a Small Business, unless the term Women-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section; “Minority-Owned Business Enterprise” is defined as a business enterprise, including a sole proprietorship, partnership or corporation that is: (i) at least fifty-one percent owned by one or more Minority Group Members; (ii) an enterprise in which such minority ownership is real, substantial and continuing; (iii) an enterprise in which such minority ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (iv) an enterprise authorized to do business in this state and independently owned and operated; (v) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification, with a personal net worth that does not exceed three million five hundred thousand dollars, as adjusted annually on the first of January for inflation according to the consumer price index of the previous year; and (vi) an enterprise that is a Small Business, unless the term Minority-Owned Business Enterprise is otherwise defined in section 310 of the Executive Law, in which case the definition shall be as set forth for such term in such section; and “Surety Company” is defined as a surety company that has a certificate of solvency from, and its rates approved by, the New York State Department of Financial Services and/ or appears in the most current edition of the U.S. Department of Treasury Circular 570 as eligible to issue bonds in connection with procurement contracts for the United States of America. The rule will facilitate the statutory Program’s purpose of having New York State Urban Development Corporation d/b/a Empire State Development (the “Corporation”) provide assistance to surety companies in order to provide financial backing to eligible small businesses, certified minority-owned business enterprises or certified women-owned business enterprises to secure bid bonds, performance bonds and payment bonds issued in connection with contract bids or awards. The amount of such assistance provided to small businesses and minority and women-owned small businesses with respect to each contract shall not be greater than the amount necessary to induce such surety company to issue the bonds required for the contract, and in no event shall exceed fifty percent of the face value of bonds to be issued by the surety company for such contract.

2. Compliance Requirements: There are no compliance requirements for local governments in these regulations. Small businesses must comply with the compliance requirements applicable to all participating surety companies regardless of size. This is a voluntary program. Companies not wishing to undertake the compliance obligations need not participate.

3. Professional Services: Applicants do not need to obtain professional services to comply with these regulations.

4. Compliance Costs: There are no compliance costs for local governments in these regulations. Small businesses bear no costs, other than the fees imposed by surety companies for the surety bond or by banks for issuing a letter of credit. This program is voluntary. If it is not financially advantageous for a company to participate, then it is not required to do so.

5. Economic and Technological Feasibility: There are no compliance costs for small businesses and local governments in these regulations so there is no basis for determining the economic and technological feasibility for compliance with the rule by small businesses and local governments.

6. Minimizing Adverse Impact: This rule has no adverse impacts on small businesses or local governments because it is designed to provide letters of credit to enhance the ability of small businesses to secure surety bonding.

7. Small Business and Local Government Participation: Small business contractors have repeatedly identified securing surety bonds as a major obstacle to securing government and private contracts.

Rural Area Flexibility Analysis

1. Types and Estimated Numbers of Rural Areas: Surety companies serving all of the 44 counties defined as rural by the Executive Law § 481(7), are eligible to apply for the Bonding Guarantee Assistance Program (the “Program”) assistance pursuant to a State-wide request for proposals.

2. Reporting, Recordkeeping and Other Compliance Requirements and Professional Services: The rule will not impose any new or additional reporting or recordkeeping requirements other than those that would be required of any surety company receiving similar assistance regarding such matters as financial condition, required matching funds, and utilization of Program funds, and the statutorily required annual report on the use of Program funds; no additional acts will be needed to comply other than the said reporting requirements and the making of surety bonds to small businesses in the normal course of the business for any surety company that receives Program assistance; and, it is not anticipated that applicants will have to secure any additional professional services in order to comply with this rule.

3. Costs: The costs to surety companies that participate in the Program would depend on the extent to which they choose to participate in the Program, including the amount of required matching funds for their surety bonds to small businesses and the administrative costs in connection with such small business surety bonds and the fees, if any, charged to small businesses in connection with surety bonds to such businesses that include Program funds.

4. Minimizing Adverse Impact: The purpose of the Program is to provide surety companies the additional financial backing needed in order to induce such companies to issue payment and performance bonds for contractors that are small businesses, certified minority-owned enterprises or women-owned business enterprises, in order for such contractors to meet payment and performance bonding requirements for construction projects, including but not limited to government sponsored transportation related construction projects and to provide technical assistance in completing bonding applications for such contractors seeking surety bonding in preparation for bidding on construction projects, including transportation related projects. This rule provides a basis for cooperation between the State and surety companies, including surety companies that serve rural areas of the State, in order to maximize the Program’s effectiveness and minimize any negative impacts for such surety companies and the small businesses, including small businesses located in rural areas of the State that such surety companies serve.

5. Rural Area Participation: This rule maximizes geographic participation by not limiting applicants to those located only in urban areas or only in rural areas. A number of surety companies that engage in underwriting surety bonds to rural and urban small businesses responded to a survey circulated by the Corporation regarding implementation of the Program. Their comments were considered in the rulemaking process.

Job Impact Statement

These regulations will not adversely affect jobs or employment opportunities in New York State. The regulations are intended to improve the economy of New York by providing small businesses greater access to surety bonds required to participate in the construction industry. The Program includes minorities, women and other New Yorkers who have difficulty accessing regular credit markets.

There will be no adverse impact on job opportunities in the state.