PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Addition of Part 4251 to Title 21 NYCRR.
Statutory authority:
Urban Development Corporation Act, section 5(4); L. 2011, ch. 103, section 16-K; and L. 1968, ch. 174
Finding of necessity for emergency rule:
Preservation of public health, public safety and general welfare.
Specific reasons underlying the finding of necessity:
The current economic crisis, including high unemployment and the immediate lack of financing from traditional financial institutions for job generating small business, are the reasons for the emergency adoption of this Rule which is required for the immediate implementation of the Capital Access Program in order to promptly provide assistance to the State's small businesses in order to sustain and increase employment generated by these businesses.
Subject:
Capital Access Program.
Purpose:
Provide the basis for administration of the Capital Access Program.
Substance of emergency rule:
The Capital Access Program (the "Program") was created pursuant to Chapter 103 of the Laws of 2011 (the "Enabling Legislation"). The general purpose of the Program is to promote economic development in the State by assisting small businesses that otherwise find it difficult to obtain regular or sufficient bank financing through the funding of loan loss reserves for loans made to such small businesses by participating financial institutions.
The Enabling Legislation creates Section 16-k of the New York State Urban Development Corporation Act (the "Act"), which governs the Program. The Enabling Legislation requires the New York State Urban Development Corporation (the "Corporation") to promulgate rules and regulations for the Program (the "Rules") in accordance with the provisions of the State Administrative Procedure Act. The Rules set forth the framework for the eligibility, evaluation criteria, application and project process and administrative procedures of the Program as follows:
1. Program Operations:
A participating financial institution shall provide to the Corporation a plan for the marketing of the Program to eligible small businesses, including small businesses in highly distressed areas and MWBEs, with appropriate lending objectives identified by the participating financial institution for such areas and businesses. Program loans to eligible small businesses shall only be for the purposes of expansion, facility or technology upgrading, start-up or working capital purposes. No program loan will exceed five hundred thousand dollars in principal amount. For each program loan, there shall be deposited in the loan loss reserve fund an amount, specified or agreed to in writing by the Corporation, from both the participating financial institution and the eligible small business borrower, aggregating neither less than three percent nor more than seven percent of the principal amount of the program loan, whereby the amount contributed by the eligible small business is not greater than fifty percent of such aggregate. With respect to each program loan, it shall be certified to the Corporation in such a fashion and with such supporting information as the Corporation shall prescribe, that the participating financial institution has made such loan and delivered the aggregate loan loss reserve fund contribution with respect to such loan. The Corporation, after satisfactory certification pursuant to the Rules shall transfer to the loan loss reserve fund an amount, as determined by the Corporation, that is (1) not less than the aggregate contribution of the participating financial institution and the small business with respect to such loan, and (2) not greater than one hundred fifty percent of such aggregate contributions as determined by the Corporation.
2. Program Administration:
The Corporation may administer the Program through a third party agent, which may be the New York Business Development Corporation, established under section 210 of the Banking Law, provided, however, that if the third party agent is to be a financial institution other than the New York Business Development Corporation, then such third party agent will be selected pursuant to a competitive process. With respect to these third party agents, the Rules specify requirements for contract duration, performance evaluation and contract renewals.
3. Application and Approval Process:
The Corporation shall identify, review, and approve eligible participating financial institutions through an open recruitment and enrollment process. Participating financial institutions participating in the Program will possess sufficient commercial lending experience, financial and managerial capabilities, and operational skills to meet the Program objectives. The Rules provide guidance as to what documents can be provided by various lending entities to assist in the Corporation's evaluation of applicants.
4. Auditing, Compliance and Reporting:
The Rules set forth requirements for quarterly and annual reporting from participating financial institutions, including updated specific information regarding loan loss reserve funds and individual program loans. The Corporation may conduct audits of participating financial institutions in order to ensure compliance with the provisions of applicable laws and regulations, and with respect to and agreements between the Participating Financial Institution and the Corporation and the Agent.
This notice is intended
to serve only as an emergency adoption, to be valid for 90 days or less. This rule expires July 2, 2012.
Text of rule and any required statements and analyses may be obtained from:
Antovk Pidedjian, New York State Urban Development Corporation, 633 Third Avenue, 37th Floor, New York, NY 10017, (212) 803-3792, email: apidedjian@esd.ny.gov
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-k of the Act provides for the creation of the Capital Access 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 low interest loans to Community Based Lending Organizations and Participating Financial Institutions, in order to provide funding for those organizations' loans to New York's small businesses that are unable to obtain adequate credit or adequate terms for such credit.
2. Legislative Objectives: Section 16-k of the Act (Uncon. Laws section 6266-k, added by Chapter 103 of the Laws of 2011) sets forth the Legislative objective of authorizing the Corporation, within available appropriations, to provide low interest loans to financial institutions and other community based lending organizations, in order to provide funding for those organizations' loans to New York's small businesses that are unable to obtain adequate credit or adequate terms for such credit. The adoption of 21 NYCRR Part 4251 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 $18,994,204 of federal funds to provide low interest loans to financial institutions and other community based lending organizations, in order to provide funding for those organizations' loans to New York's small businesses that are unable to obtain adequate credit or adequate terms for such credit. Small businesses have been determined to be a major source of employment throughout the State. Small 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 loans to small businesses should sustain and potentially increase the employment provided by such businesses, especially during this period of historically high unemployment and underemployment. The Program allows the Corporation to use either the New York Business Development Corporation or another third party contracted through a competitive process by the Corporation to administer the Capital Access Program. The rule further facilitates the administration of the Program by defining eligible and ineligible small businesses,eligible uses of the proceeds of loans to small businesses and other criteria to be applied by the institutions in making loans to small businesses.
4. Costs: The Program is funded by a State appropriation of federal funds in the amount of $18,994,204 dollars. Pursuant to the rule, principal amount of Program Loans will not be greater than $500,000. The costs to participating financial institutions or community based lending organizations would depend on the extent to which they participate in the Program and their effectiveness and efficiency in making small business loans.
5. Paperwork / Reporting: There are no 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 applications and loan 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 larger financial institutions can potentially provide small business financing and the community based lending organizations already provide small business financing, access to financing remains limited. The State has established the Program in order to enhance the access of small businesses to such financing, and the proposed rule provides the regulatory basis for providing low interest loans to community based lending organizations for lending to small businesses in accordance with the statutory requirements of the Program.
9. Federal Standards: There are no minimum federal standards related to this regulation. The regulation is not inconsistent with any federal standards or requirements.
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; "Community Based Lending Organization" is defined as including community development financial institutions, small business lending consortia, certified development companies, providers of United States department of Agriculture business and industrial guaranteed loans, United States Small Business Administration loan providers, community development credit unions, and community banks; and "Financial Institution" is defined as any bank, trust company, savings bank, savings and loan association or cooperative bank chartered by the State or any national banking association, federal savings and loan association or federal savings bank or any Community Based Lending Organization, provided, however, that such entity has its principal office located in the State. 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") assist small businesses, that otherwise find it difficult to obtain regular or sufficient bank financing, through the funding of loan loss reserves for loans made to such small businesses by participating financial institutions.
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 lending institutions regardless of size. This is a voluntary program. Lending institution 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. With respect to small business lending institutions, they must comply with the compliance cost requirements applicable to all participating lending institutions regardless of size. This is a voluntary program. Lending institution not wishing to undertake the compliance obligations need not participate.
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 feasible 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 access to capital through the funding of loan loss reserves for loans made to small businesses by participating financial institutions.
7. Small Business and Local Government Participation: A number of banks and community lending organizations were surveyed by the Corporation and were supportive of the program and its structure.
Rural Area Flexibility Analysis
1. Types and Estimated Numbers of Rural Areas: Community development financial institutions serving all of the 44 counties defined as rural by the Executive Law § 481(7), are eligible to apply for the Capital Access 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 financial institution receiving a similar loan 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 affirmative acts will be needed to comply other than the said reporting requirements and the making of loans to small businesses in the normal course of the business for any financial institution that receives Program assistance; and, it is not anticipated that applicants will have to secure any professional services in order to comply with this rule.
3. Costs: The costs to financial institutions 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 Program loans to small businesses and the administrative costs in connection with such small business loans and the fees, if any, charged to small businesses in connection with loans to such businesses that include Program funds.
4. Minimizing Adverse Impact: The purpose of the Program is to provide loans to financial institutions in order to enhance the ability of these entities to make loans to small businesses, especially those small businesses that may otherwise not be able to borrow funds at acceptable rates. This rule provides a basis for cooperation between the State and financial institutions, including lending institutions that serve rural areas of the State, in order to maximize the Program's effectiveness and minimize any negative impacts for such financial institutions and the small businesses, including small businesses located in rural areas of the State, that such financial institutions 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 financial institutions that engage in lending 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 greater access to capital for main street everyday small businesses. 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.
