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SB-0533, As Passed House, September 28, 2005

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 533

A bill to amend 1984 PA 270, entitled

"Michigan strategic fund act,"

(MCL 125.2001 to 125.2093) by adding sections 88g, 88h, 88i, 88j,

and 88k.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 88g. (1) The strategic economic investment board is

created within the fund. The board shall exercise its powers,

duties, and decision-making authority as an autonomous entity

independent of the fund and the department of treasury.

(2) The board shall award grants and loans from the

competitive edge technologies fund only for basic research, applied

research, university technology transfer, and commercialization of

products, processes, and services to encourage the development of

competitive edge technologies with high probability to create jobs

in this state.

(3) Subject to subsection (2), the fund as determined by the

board shall do all of the following:

(a) Establish a competitive process to award grants and make

loans for competitive edge technologies. The competitive process

shall include, but is not limited to, the following:

(i) A provision that the applications must be peer-reviewed by

independent peer review experts based on the scientific, technical,

and commercial merit of the application. Scientific, technical, and

commercial merit shall be given equal weight in the review and

scoring process.

(ii) A preference for proposals that can contribute to the

development of economic diversification or the creation of

employment opportunities in this state.

(iii) A provision that out-of-state business must have a

significant existing or proposed business activity in this state.

(iv) A provision that the program will utilize contracts with

measurable milestones, clear objectives, provisions to revoke

awards for breach of contract, and repayment provisions for loans

given to qualified businesses that leave Michigan within 3 years of

the execution of the contract or otherwise breach the terms of the

contract.

(v) A provision that the applicant leverage other resources as

a condition of the grant or loan. If an applicant is seeking a

grant or a loan under this chapter to match federal funds for small

business innovation research or small business technology transfer

programs, the grant or loan under this chapter shall not exceed 25%

of the federal funds and must leverage third party

commercialization funding at both the phase I and phase II levels.

(vi) Overhead rates for recipients of grants and loans that

reflect actual overhead but not greater than 15% of the grant or

loan.

(vii) Except as provided in subparagraph (v), a provision that

grants can only be awarded to Michigan institutions of higher

education and Michigan research institutions.

(viii) A preference for collaborations between institutions of

higher education, Michigan nonprofit institutions, and qualified

businesses.

(b) The fund shall contract with independent peer review

experts selected by the board to assist the board with its

responsibilities under this chapter.

(4) The board shall establish standards to ensure that money

expended under this chapter will result in economic benefit to this

state and ensure that a major share of the business activity

resulting from the expenditures occurs in this state.

(5) The board shall ensure that a recipient of money expended

under this chapter agrees as a condition of receiving the money not

to use the money for 1 or more of the following:

(a) The development of a stadium or arena for use by a

professional sports team.

(b) The development of a casino regulated by this state under

the Michigan gaming control and revenue act, the Initiated Law of

1996, MCL 432.201 to 432.226, a casino at which gaming is conducted

under the Indian gaming regulatory act, Public Law 100-497, 102

Stat. 2467, or property associated or affiliated with the operation

of either type of casino described in this subdivision, including,

but not limited to, a parking lot, hotel, motel, or retail store.

(6) The board shall ensure that money expended under this

section shall not be used for 1 or more of the following:

(a) Grants or loans to a person who has been convicted of a

criminal offense incident to the application for or performance of

a state contract or subcontract. As used in this subdivision, if a

person is a business entity, then person includes affiliates,

subsidiaries, officers, directors, managerial employees, and any

person who, directly or indirectly, holds a pecuniary interest in

that business entity of 20% or more.

(b) Grants or loans to a person who has been convicted of a

criminal offense, or held liable in a civil proceeding, that

negatively reflects on the person's business integrity, based on a

finding of embezzlement, theft, forgery, bribery, falsification or

destruction of records, receiving stolen property, or violation of

state or federal antitrust statutes. As used in this subdivision,

if a person is a business entity, then person includes affiliates,

subsidiaries, officers, directors, managerial employees, and any

person who, directly or indirectly, holds a pecuniary interest in

that business entity of 20% or more.

in the United States for the purpose of inducing the enterprise to

relocate outside the United States.

(d) Grants or loans to a business enterprise currently located

in this state for the purpose of inducing the enterprise to

relocate outside this state if the incentive or inducement is

likely to reduce the number of employees of the business enterprise

in this state.

(e) Grants or loans that would contribute to the violation of

internationally recognized workers rights, as defined in section

507(4) of the trade act of 1974, 19 USC 2467(4), of workers in a

country other than the United States, including any designated zone

or area in that country.

(f) Grants or loans in a corporation or an affiliate of the

corporation incorporated in a tax haven country after September 11,

2001, but with the United States as the principal market for the

public trading of the corporation's stock, as determined by the

board. As used in this section, "tax haven country" includes a

country with tax laws that facilitate avoidance by a corporation or

an affiliate of the corporation of United States tax obligations,

including Barbados, Bermuda, British Virgin Islands, Cayman

Islands, Commonwealth of the Bahamas, Cyprus, Gibraltar, Isle of

Man, the Principality of Liechtenstein, the Principality of Monaco,

and the Republic of the Seychelles.

(7) When the board approves a grant or a loan under this

chapter, the board shall state the specific objective reasons the

applicant was selected over other applicants for a grant or loan

under this chapter.

(8) The board shall not award more than 10% of the money

described in section 88b(1) for basic research of competitive edge

technologies.

(9) The fund shall create and implement a program to assist

institutions of higher education to transfer competitive edge

technology research to the private sector.

(10) Before adopting a resolution that establishes or changes

a program operated by the fund pursuant to an appropriation act,

including any fees, charges, or penalties attached to that program,

the board shall give notice of the proposed resolution to the

governor, to members of the senate and house of representatives

appropriation committees, to members of the standing committees of

the senate and house of representatives that deal with the subject

matter of the proposed resolution, and to each person who requested

from the fund in writing or electronically to be notified regarding

proposed resolutions. The notice and proposed resolution and all

attachments shall be published on the fund's internet website. The

board shall hold a public hearing not sooner than 14 days and not

longer than 35 days from the date notice of a proposed resolution

is given and offer a person an opportunity to present data, views,

questions, and arguments. Board members or 1 or more persons

designated by the board who have knowledge of the subject matter of

the proposed resolution shall be present at the public hearing and

shall participate in the discussion of the proposed resolution. The

board may act on the proposed resolution no sooner than 15 days

after the public hearing and all written comments are received. The

board shall produce a final decision document that describes the

basis for its decision. The final resolution and all attachments

and the decision document shall be provided to members of the

senate and house of representatives appropriation committees and to

members of the standing committees of the senate and house of

representatives that deal with the subject matter of the resolution

and shall be published on the fund's internet website.

(11) The notice described in subsection (10) shall include all

of the following:

(a) A copy of the proposed resolution and all attachments.

(b) A statement that the addressee may express any data,

views, or arguments regarding the proposed resolution.

date by which comments must be mailed or electronically

transmitted, which date shall not be less than 35 days from the

date of the mailing or electronic transmittal of the notice.

(d) The date, time, and place of the public hearing.

(12) The board shall allocate not less than $50,000,000.00

each year for 5 years for grants and loans for life sciences as

provided in this chapter.

Sec. 88h. (1) The board shall consist of 19 members, as

provided under subsections (2) and (3).

(2) The board shall include each of the 2 following voting ex

officio members:

(a) The director of the department of labor and economic

growth or his or her designee from within the department of labor

and economic growth.

(b) The state treasurer or his or her designee from within the

department of treasury.

(3) The board shall include the following 17 members appointed

by the governor with, except for the individuals described in

subdivisions (c) and (d), the advice and consent of the senate:

(a) Seven members representing business with expertise,

knowledge, skill, or experience in venture capital investments,

business finance, bringing competitive edge technology products to

market, or representing a qualified business.

(b) A member representing the Van Andel institute, a Michigan

charitable trust, MICS 13607, or a successor organization.

selected by the majority leader of the senate representing

qualified businesses or persons with business, technological, or

financial experience related to competitive edge technology.

(d) One member appointed from a list of 2 or more individuals

selected by the speaker of the house of representatives

representing qualified businesses or persons with business,

technological, or financial experience related to competitive edge

technology.

(e) A member representing Michigan state university.

(f) A member representing the university of Michigan.

(g) A member representing Wayne state university.

(h) A member representing western Michigan university.

(i) A member representing Michigan technological university.

(j) A member representing a public university in Michigan

other than Michigan state university, the university of Michigan,

Wayne state university, western Michigan university, or Michigan

technological university.

(k) A member representing automation alley, a Michigan

nonprofit corporation incorporated on May 21, 1998, or a successor

organization.

(4) Of the members of the board initially appointed under

subsection (3), 5 members shall be appointed for terms expiring on

December 31, 2006, 5 members shall be appointed for terms expiring

on December 31, 2007, 5 members shall be appointed for terms

expiring on December 31, 2008, and 2 members shall be appointed for

terms expiring on December 31, 2009. After the expiration of the

initial appointment terms provided for by this subsection, members

of the board shall be appointed for terms of 4 years.

(5) For members of the board appointed under subsection (3), a

vacancy on the board occurring other than by expiration of a term

shall be filled in the same manner as the original appointment for

the balance of the unexpired term. A member of the board shall hold

office until a successor has been appointed and qualified. A member

of the board is eligible for reappointment. State employees are not

eligible to serve as members appointed under subsection (3).

(6) The governor shall designate 1 of the members of the board

to serve as its chairperson at the pleasure of the governor. The

board shall select from among its members a member to serve as

vice-chairperson and a member to serve as secretary.

(7) Upon appointment to the board under this section and upon

the taking and filing of the constitutional oath of office

prescribed in section 1 of article XI of the state constitution of

1963, a member shall enter the office and exercise the duties of

the office.

(8) Members of the board shall serve without compensation, but

may be reimbursed for actual and necessary expenses.

(9) Upon the initial appointment of members under this

section, the board shall organize and adopt its own policies,

procedures, schedule of regular meetings, and a regular meeting

date, place, and time.

(10) The board may act only by resolution approved by a

majority of board members appointed and serving. A majority of the

members of the board then in office shall constitute a quorum for

the transaction of business. The board shall meet in person or by

means of electronic communication devices that enable all

participants in the meeting to communicate with each other.

(11) The board shall conduct all business at public meetings

held in compliance with the open meetings act, 1976 PA 267, MCL

15.261 to 15.275. Public notice of the time, date, and place of

each meeting shall be given in the manner required by the open

meetings act, 1976 PA 267, MCL 15.261 to 15.275, and shall be

published on the fund's internet website.

Sec. 88i. (1) The competitive edge technologies grant fund is

created within the state treasury.

(2) The state treasurer may receive money or other assets from

any source for deposit into the grant fund. The state treasurer

shall direct the investment of the grant fund. The state treasurer

shall credit to the grant fund interest and earnings from grant

fund investments and loan repayments.

(3) Money in the grant fund at the close of the fiscal year

shall remain in the grant fund and shall not lapse to the general

fund.

(4) All expenditures by the grant fund shall be made pursuant

to an appropriation as provided by law.

(5) The board shall expend money from the grant fund only for

competitive edge technologies as provided in this chapter.

Sec. 88j. (1) Notwithstanding section 3(1) of 1968 PA 317, MCL

15.323, members of the board are considered public servants subject

to 1968 PA 317, MCL 15.321 to 15.330, and public officers subject

to 1973 PA 196, MCL 15.341 to 15.348. A member of the board shall

discharge the duties of the position in a nonpartisan manner, in

good faith, in the best interests of this state, and with the

degree of diligence, care, and skill that a fiduciary would

exercise under similar circumstances in a like position. In

discharging duties of the office, a member of the board when acting

in good faith may rely upon the report of an independent expert or

independent peer review expert or upon financial statements of the

board represented to the member of the board by the officer of the

board having charge of its books or accounts or stated in a written

report by the auditor general.

(2) A member of the board shall not make, participate in

making, or in any way attempt to use his or her position as a

member of the board to influence a decision regarding a loan,

grant, or other expenditure under this chapter to his or her

employer.

(3) An independent peer review expert shall not have any

financial interest in a recipient of investment fund proceeds under

this chapter.

(4) A member, employee, or agent of the board shall not engage

in any conduct that constitutes a conflict of interest and shall

Senate Bill No. 533 (H-4) as amended September 28, 2005

immediately advise the board in writing of the details of any

incident or circumstances that may present the existence of a

conflict of interest with respect to the performance of the board-

related work or duty of the member, employee, or agent of the

board.

(5) A member of the board who has a conflict of interest

related to any matter before the board shall disclose the conflict

of interest before the board takes any action with respect to the

matter, which disclosure shall become a part of the record of the

board's official proceedings. The member with the conflict of

interest shall refrain from doing all of the following with respect

to the matter that is the basis of the conflict of interest:

(a) Voting in the board's proceedings related to the matter.

(b) Participating in the board's discussion of and

deliberation on the matter.

deliberation, and voting on the matter take place.

(d) Discussing the matter with any other board member.

(6) Failure of a member to comply with subsection (5)

constitutes misconduct in office.

[(7) The board and the fund board shall cooperate with the compliance officer employed by the office of the auditor general to ensure that all 21st century investments and all grants and loans described in this chapter are in compliance with this chapter and state law.]

Sec. 88k. (1) In addition to any audit requirements under

section 9, not later than April 1, 2007 and each subsequent April

1, the auditor general shall conduct and report a financial audit

of the board, the fund, the investment fund, and the grant fund for

the immediately preceding fiscal year. Not less than once every 3

years beginning not later than April 1, 2007, the auditor general

shall conduct and report a performance post audit of the board, the

fund, the investment fund, and the grant fund. The results of the

performance post audit and the post audit of financial transactions

and accounts shall be published on the internet and disseminated by

other means in a manner determined by the fund to advise the

citizens of this state of the result of the audits. Copies of the

audits shall be provided to the governor, the clerk of the house of

representatives, the secretary of the senate, and the chairpersons

of the senate and house of representative standing committees on

appropriations. The auditor general may employ an independent

public accounting firm to conduct the audits described in this

subsection. The costs of the auditor general or of the independent

public accounting firm in conducting the audits described in this

chapter shall be funded by money in the 21st century jobs trust

fund created in the Michigan trust fund act, 2000 PA 489, MCL

12.251 to 12.256. All contracts approved by the fund for 21st

century investments and all contracts approved by the board for

grants or loans under this chapter shall contain a provision to

ensure that the recipient provides an annual financial statement as

determined by the board. If the board has a reasonable belief that

a breach of contract has occurred, the fund has the right to have

the recipient's annual financial statements separately audited by

an independent certified public accountant at its sole cost and

expense. If the audit reveals that a breach of contract has

occurred, the recipient shall reimburse the fund for the fees and

expenses incurred to perform the audit.

(2) In addition to any reporting requirements under section 9,

not later than March 31 of each year, the board and the fund shall

report to the governor, the clerk of the house of representatives,

the secretary of the senate, and the chairpersons of the senate and

house of representatives standing committees on appropriations. The

report shall contain all of the following for the immediately

preceding fiscal year that are related to a grant or loan made by

the fund as determined by the board:

(a) A list of entities that received funding, the amount

received, and the type of funding.

(b) The number of new patents, copyrights, or trademarks

applied for and issued.

(d) The number of new jobs and projected new job growth.

(e) Amounts of other funds leveraged.

(f) Money or other revenue or property returned to the

investment fund.

(g) The total number of new licensing agreements by

institution and the number of new licensing agreements entered into

with Michigan based firms.

(h) Products commercialized.

(3) Not later than March 31 of each year, the fund shall

report to the governor, the clerk of the house of representatives,

the secretary of the senate, and the chairpersons of the senate and

house of representatives standing committees on appropriations. The

report shall contain all of the following for the immediately

preceding fiscal year that are related to a 21st century investment

made by the fund board:

(a) A list of entities that received funding, the amount

received, and the type of funding.

(b) The amount of qualified venture capital fund investments

and qualified private equity fund investments under management in

this state, including year-to-year growth.

qualified private equity fund investments, and qualified venture

capital investments in qualified businesses, including year-to-year

growth.

(d) A statement of the amount of money received by the

investment fund under this chapter from each loan guarantee.

(e) A statement of the loan guarantees activity of the fund

board under this chapter.

(f) A statement of the amount of money in each loan reserve

fund established under the small business capital access program

required under this chapter.

(g) Any recommendations for needed changes and any other

information the board believes would be of interest to the

governor, the legislature, and the public.

Enacting section 1. This amendatory act does not take effect

unless all of the following bills of the 93rd Legislature are

enacted into law:

(a) Senate Bill No. 298.

(b) Senate Bill No. 359.

(d) Senate Bill No. 533.

(e) House Bill No. 4972.

(f) House Bill No. 4973.