H.B. 243 Enrolled

1

AMENDMENTS TO THE FUND OF FUNDS
2 2014 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: Jim Bird
5 Senate Sponsor: Curtis S. Bramble
6 Cosponsors:
7 Jacob L. Anderegg
8 Johnny Anderson
9 Stewart BarlowMelvin R. Brown
James A. Dunnigan
Gage Froerer
John KnotwellCurtis Oda
Dixon M. Pitcher
Larry B. Wiley 10
11 LONG TITLE
12 General Description:
13 This bill amends Title 63M, Chapter 1, Part 12, the Utah Venture Capital Enhancement
14 Act.
15 Highlighted Provisions:
16 This bill:
17 . amends the quorum requirements of the Utah Capital Investment Board;
18 . requires that the annual report and the annual audit for the Utah fund of funds be
19 completed on or before September 1 for the previous calendar year;
20 . describes additional information required in the annual report and audit;
21 . provides that the aggregate outstanding certificates may not exceed a total of
22 $150,000,000 for a loan guarantee;
23 . provides that the aggregate outstanding certificates may not exceed a total of
24 $75,000,000 for a guarantee of equity investments in the Utah fund of funds; and
25 . makes technical changes.
26 Money Appropriated in this Bill:
27 None
28 Other Special Clauses:

29 This bill coordinates with S.B. 31, State Agency Reporting Amendments, by providing
30 superseding substantive and technical amendments.
31 Utah Code Sections Affected:
32 AMENDS:
33 63M-1-1203 , as last amended by Laws of Utah 2008, Chapter 18 and renumbered and
34 amended by Laws of Utah 2008, Chapter 382
35 63M-1-1205 , as last amended by Laws of Utah 2010, Chapter 286
36 63M-1-1206 , as last amended by Laws of Utah 2012, Chapter 242
37 63M-1-1214 , as last amended by Laws of Utah 2008, Chapter 18 and renumbered and
38 amended by Laws of Utah 2008, Chapter 382
39 63M-1-1217 , as renumbered and amended by Laws of Utah 2008, Chapter 382
40 63M-1-1218 , as last amended by Laws of Utah 2011, Chapter 342
41 Utah Code Sections Affected by Coordination Clause:
42 63M-1-1206 , as last amended by Laws of Utah 2012, Chapter 242
43
44 Be it enacted by the Legislature of the state of Utah:
45 Section 1. Section 63M-1-1203 is amended to read:
46 63M-1-1203. Definitions.
47 As used in this part:
48 (1) "Board" means the Utah Capital Investment Board.
49 (2) "Certificate" means a contract between the board and a designated investor under
50 which a contingent tax credit is available and issued to the designated investor.
51 (3) (a) Except as provided in Subsection (3)(b), "claimant" means a resident or
52 nonresident person.
53 (b) "Claimant" does not include an estate or trust.
54 (4) "Commitment" means a written commitment by a designated purchaser to purchase
55 from the board certificates presented to the board for redemption by a designated investor.
56 Each commitment shall state the dollar amount of contingent tax credits that the designated

57 purchaser has committed to purchase from the board.
58 (5) "Contingent tax credit" means a contingent tax credit issued under this part that is
59 available against tax liabilities imposed by Title 59, Chapter 7, Corporate Franchise and
60 Income Taxes, or Title 59, Chapter 10, Individual Income Tax Act, if there are insufficient
61 funds in the redemption reserve and the board has not exercised other options for redemption
62 under Subsection 63M-1-1220 (3)(b).
63 (6) "Corporation" means the Utah Capital Investment Corporation created under
64 Section 63M-1-1207 .
65 (7) "Designated investor" means:
66 (a) a person who makes a private investment; or
67 (b) a transferee of a certificate or contingent tax credit.
68 (8) "Designated purchaser" means:
69 (a) a person who enters into a written undertaking with the board to purchase a
70 commitment; or
71 (b) a transferee who assumes the obligations to make the purchase described in the
72 commitment.
73 (9) "Estate" means a nonresident estate or a resident estate.
74 (10) "Person" means an individual, partnership, limited liability company, corporation,
75 association, organization, business trust, estate, trust, or any other legal or commercial entity.
76 (11) "Private investment" means:
77 (a) an equity interest in the Utah fund of funds; or
78 (b) a loan to [or other debt obligation from the Utah fund of funds] the Utah fund of
79 funds initiated before July 1, 2014, including a loan refinanced on or after July 1, 2014, that
80 was originated before July 1, 2014.
81 (12) "Redemption reserve" means the reserve established by the corporation to
82 facilitate the cash redemption of certificates.
83 (13) "Taxpayer" means a taxpayer:
84 (a) of an investor; and

85 (b) if that taxpayer is a:
86 (i) claimant;
87 (ii) estate; or
88 (iii) trust.
89 (14) "Trust" means a nonresident trust or a resident trust.
90 (15) "Utah fund of funds" means a limited partnership or limited liability company
91 established under Section 63M-1-1213 in which a designated investor purchases an equity
92 interest.
93 Section 2. Section 63M-1-1205 is amended to read:
94 63M-1-1205. Board members -- Meetings -- Expenses.
95 (1) (a) The board shall consist of [five] the following five members[. (b) Of the five
96 members]:
97 (i) [one shall be] the state treasurer;
98 (ii) [one shall be] the director or the director's designee; and
99 (iii) three [shall be] members appointed by the governor and confirmed by the Senate.
100 [(c)] (b) The three members appointed by the governor shall serve four-year staggered
101 terms with the initial terms of the first three members to be four years for one member, three
102 years for one member, and two years for one member.
103 (c) The governor shall appoint members of the board based on demonstrated expertise
104 and competence in:
105 (i) the supervision of investment managers;
106 (ii) the fiduciary management of investment funds; or
107 (iii) the management and administration of tax credit allocation programs.
108 (2) When a vacancy occurs in the membership of the board for any reason, the vacancy
109 shall be:
110 (a) filled in the same manner as the appointment of the original member; and
111 (b) for the unexpired term of the board member being replaced.
112 (3) Appointed members of the board may not serve more than two full consecutive

113 terms except [where] when the governor determines that an additional term is in the best
114 interest of the state.
115 (4) [Three] (a) Four members of the board constitute a quorum for conducting
116 business and exercising board power[, provided that a minimum of three affirmative votes is
117 required for board action and at least one of the affirmative votes is cast by either the director
118 or the director's designee or the state treasurer].
119 (b) If a quorum is present, the action of a majority of members present is the action of
120 the board.
121 (5) A member may not receive compensation or benefits for the member's service, but
122 may receive per diem and travel expenses in accordance with:
123 (a) Section 63A-3-106 ;
124 (b) Section 63A-3-107 ; and
125 (c) rules made by the Division of Finance [pursuant] according to Sections 63A-3-106
126 and 63A-3-107 .
127 [(6) Members of the board shall be selected on the basis of demonstrated expertise and
128 competence in:]
129 [(a) the supervision of investment managers;]
130 [(b) the fiduciary management of investment funds; or]
131 [(c) the management and administration of tax credit allocation programs.]
132 [(7)] (6) The board and its members are considered to be a governmental entity with all
133 of the rights, privileges, and immunities of a governmental entity of the state, including all of
134 the rights and benefits conferred under Title 63G, Chapter 7, Governmental Immunity Act of
135 Utah.
136 [(8)] (7) Meetings of the board, except to the extent necessary to protect the
137 information identified in Subsection 63M-1-1224 (3), are subject to Title 52, Chapter 4, Open
138 and Public Meetings Act.
139 Section 3. Section 63M-1-1206 is amended to read:
140 63M-1-1206. Board duties and powers.

141 (1) The board shall:
142 (a) establish criteria and procedures for the allocation and issuance of contingent tax
143 credits to designated investors by means of certificates issued by the board, provided that a
144 contingent tax credit may not be issued unless the Utah fund of funds:
145 (i) first agrees to treat the amount of the tax credit redeemed by the state as a loan from
146 the state to the Utah fund of funds; and
147 (ii) agrees to repay the loan upon terms and conditions established by the board;
148 (b) establish criteria and procedures for assessing the likelihood of future certificate
149 redemptions by designated investors, including:
150 (i) criteria and procedures for evaluating the value of investments made by the Utah
151 fund of funds; and
152 (ii) the returns from the Utah fund of funds;
153 (c) establish criteria and procedures for registering and redeeming contingent tax
154 credits by designated investors holding certificates issued by the board;
155 (d) establish a target rate of return or range of returns [on venture capital investments]
156 for the investment portfolio of the Utah fund of funds;
157 (e) establish criteria and procedures governing commitments obtained by the board
158 from designated purchasers including:
159 (i) entering into commitments with designated purchasers; and
160 (ii) drawing on commitments to redeem certificates from designated investors;
161 (f) have power to:
162 (i) expend funds;
163 (ii) invest funds;
164 (iii) issue debt and borrow funds;
165 (iv) enter into contracts;
166 (v) insure against loss; and
167 (vi) perform any other act necessary to carry out its purpose; and
168 (g) make, amend, and repeal rules for the conduct of its affairs, consistent with this part

169 and in accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act.
170 (2) (a) All rules made by the board under Subsection (1)(g) are subject to review by the
171 Legislative Management Committee:
172 (i) whenever made, modified, or repealed; and
173 (ii) in each even-numbered year.
174 (b) Subsection (2)(a) does not preclude the legislative Administrative Rules Review
175 Committee from reviewing and taking appropriate action on any rule made, amended, or
176 repealed by the board.
177 (3) (a) The criteria and procedures established by the board for the allocation and
178 issuance of contingent tax credits shall:
179 (i) include the contingencies that must be met for a certificate and its related tax credits
180 to be:
181 (A) issued by the board;
182 (B) transferred by a designated investor; and
183 (C) redeemed by a designated investor in order to receive a contingent tax credit; and
184 (ii) tie the contingencies for redemption of certificates to:
185 (A) the targeted rates of return and scheduled redemptions of equity interests purchased
186 by designated investors in the Utah fund of funds; and
187 (B) the scheduled principal and interest payments payable to designated investors that
188 have made loans [or other debt obligations] initiated before July 1, 2014, including a loan
189 refinanced on or after July 1, 2014, that was originated before July 1, 2014, to the Utah fund of
190 funds.
191 (b) The board may not issue contingent tax credits under this part [prior to] before July
192 1, 2004.
193 (4) (a) The board may charge a placement fee to the Utah fund of funds for the
194 issuance of a certificate and related contingent tax credit to a designated investor.
195 (b) The fee shall:
196 (i) be charged only to pay for reasonable and necessary costs of the board; and

197 (ii) not exceed .5% of the private investment of the designated investor.
198 (5) The board's criteria and procedures for redeeming certificates:
199 (a) shall give priority to the redemption amount from the available funds in the
200 redemption reserve; and
201 (b) to the extent there are insufficient funds in the redemption reserve to redeem
202 certificates, shall grant the board the option to redeem certificates:
203 (i) by certifying a contingent tax credit to the designated investor; or
204 (ii) by making demand on designated purchasers consistent with the requirements of
205 Section 63M-1-1221 .
206 (6) (a) The board shall, in consultation with the corporation, publish on or before
207 September 1 an annual report of the activities conducted by the Utah fund of funds, and submit
208 the report to the governor [and]; the Business, Economic Development, and Labor
209 Appropriations Subcommittee[.]; the Business and Labor Interim Committee; and the
210 Retirement and Independent Entities Committee.
211 (b) The annual report shall:
212 (i) be designed to provide clear, accurate, and accessible information to the public, the
213 governor, and the Legislature;
214 [(i)] (ii) include a copy of the audit of the Utah fund of funds [and a valuation of the
215 assets of the Utah fund of funds] described in Section 63M-1-1217 ;
216 (iii) include a detailed balance sheet, revenue and expenses statement, and cash flow
217 statement;
218 (iv) include detailed information regarding new fund commitments made during the
219 year, including the amount of money committed;
220 (v) include the net annual rate of return of the Utah fund of funds for the reported year,
221 and the net rate of return from the inception of the Utah fund of funds, after accounting for all
222 expenses, including administrative and financing costs;
223 (vi) include detailed information regarding:
224 (A) realized gains from investments and any realized losses; and

225 (B) unrealized gains and any unrealized losses based on the net present value of
226 ongoing investments;
227 (vii) include detailed information regarding all yearly expenditures, including:
228 (A) administrative, operating, and financing costs;
229 (B) aggregate compensation information separated by full- and part-time employees,
230 including benefit and travel expenses; and
231 (C) expenses related to the allocation manager;
232 (viii) include detailed information regarding all funding sources for administrative,
233 operations, and financing expenses, including expenses charged by or to the Utah fund of
234 funds, including management and placement fees;
235 [(ii)] (ix) review the progress of the investment fund allocation manager in
236 implementing its investment plan and provide a general description of the investment plan;
237 [and]
238 (x) for each individual fund that the Utah fund of funds is invested in that represents at
239 least 5% of the net assets of the Utah fund of funds, include the name of the fund, the total
240 value of the fund, the fair market value of the Utah fund of funds' investment in the fund, and
241 the percentage of the total value of the fund held by the Utah fund of funds;
242 (xi) include the number of companies in Utah where an investment was made from a
243 fund that the Utah fund of funds is invested in, and provide an aggregate count of new full-time
244 employees in the state added by all companies where investments were made by funds that the
245 Utah fund of funds is invested in;
246 (xii) include an aggregate total value for all funds the Utah fund of funds is invested in,
247 and an aggregate total amount of money invested in the state by the funds the Utah fund of
248 funds is invested in;
249 [(iii)] (xiii) describe any redemption or transfer of a certificate issued under this part[.];
250 (xiv) include actual and estimated potential appropriations the Legislature will be
251 required to provide as a result of redeemed certificates or tax credits during the following five
252 years;

253 (xv) include an evaluation of the state's progress in accomplishing the purposes stated
254 in Section 63M-1-1202 ; and
255 (xvi) be directly accessible to the public via a link from the main page of the Utah fund
256 of fund's website.
257 (c) The annual report may not identify [any] a specific designated investor who has
258 redeemed or transferred a certificate.
259 [(d) (i) Beginning July 1, 2006, and thereafter every two years, the board shall publish
260 a progress report which shall evaluate the progress of the state in accomplishing the purposes
261 stated in Section 63M-1-1202 .]
262 [(ii) The board shall give a copy of the report to the Legislature.]
263 Section 4. Section 63M-1-1214 is amended to read:
264 63M-1-1214. Compensation from the Utah fund of funds to the corporation --
265 Redemption reserve.
266 (1) The corporation shall be compensated for its involvement in the Utah fund of funds
267 through the payment of the management fee described in Section 63M-1-1211 .
268 (2) Before any returns may be reinvested in the Utah fund of funds:
269 (a) [Any] any returns shall be paid to designated investors, including the repayment by
270 the Utah fund of funds of any outstanding loans;
271 (b) any returns in excess of those payable to designated investors shall be deposited in
272 the redemption reserve and held by the corporation as a first priority reserve for the redemption
273 of certificates[.];
274 [(b) Any] (c) any returns received by the corporation from investment of amounts held
275 in the redemption reserve shall be added to the redemption reserve until it has reached a total of
276 [$300,000,000.] $250,000,000; and
277 [(c) If] (d) if at the end of a calendar year the redemption reserve exceeds the
278 [$300,000,000] $250,000,000 limitation referred to in Subsection (2)[(b)](c), the corporation
279 [shall] may reinvest the excess in the Utah fund of funds.
280 (3) Funds held by the corporation in the redemption reserve shall be invested in

281 accordance with Title 51, Chapter 7, State Money Management Act.
282 Section 5. Section 63M-1-1217 is amended to read:
283 63M-1-1217. Annual audits.
284 (1) Each calendar year, an audit of the activities of the Utah fund of funds shall be
285 made as described in this section.
286 (2) (a) The audit shall be conducted by:
287 (i) the state auditor; or
288 (ii) an independent auditor engaged by the state auditor.
289 (b) An independent auditor used under Subsection (2)(a)(ii) must have no business,
290 contractual, or other connection to:
291 (i) the corporation; or
292 (ii) the Utah fund of funds.
293 (3) The corporation shall pay the costs associated with the annual audit.
294 (4) The annual audit report shall:
295 (a) be delivered to:
296 (i) the corporation; and
297 (ii) the board; [and]
298 (b) include a valuation of the assets owned by the Utah fund of funds as of the end of
299 the reporting year[.];
300 (c) include an opinion regarding the accuracy of the information provided in the annual
301 report described in Subsection 63M-1-1206 (6); and
302 (d) be completed on or before September 1 for the previous calendar year so that it may
303 be included in the annual report described in Section 63M-1-1206 .
304 Section 6. Section 63M-1-1218 is amended to read:
305 63M-1-1218. Certificates and contingent tax credits.
306 (1) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act, the
307 board, in consultation with the State Tax Commission, shall make rules governing the form,
308 issuance, transfer, and redemption of certificates.

309 (2) The board's issuance of certificates and related contingent tax credits to designated
310 investors is subject to the following:
311 (a) the aggregate outstanding certificates may not exceed a total of [$300,000,000]:
312 (i) $150,000,000 of contingent tax credits[;] used as collateral or a guarantee on loans
313 for the debt-based financing of investments in the Utah fund of funds, including a loan
314 refinanced using debt- or equity-based financing as described in Subsection (2)(e); and
315 (ii) $75,000,000 used as a guarantee on equity investments in the Utah fund of funds;
316 (b) the board shall issue a certificate contemporaneously with an investment in the
317 Utah fund of funds by a designated investor;
318 (c) the board shall issue contingent tax credits in a manner that not more than
319 $20,000,000 of contingent tax credits for each $100,000,000 increment of contingent tax
320 credits may be redeemable in [any] a fiscal year; [and]
321 (d) the credits are certifiable if there are insufficient funds in the redemption reserve to
322 make a cash redemption and the board does not exercise its other options under Subsection
323 63M-1-1220 (3)(b)[.];
324 (e) the board may not issue additional certificates as collateral or a guarantee on a loan
325 for the debt-based financing of investments in the Utah fund of funds that is initiated after July
326 1, 2014, except for a loan refinanced using debt- or equity-based financing on or after July 1,
327 2014, that was originated before July 1, 2014;
328 (f) after July 1, 2014, and on or before December 31, 2017, the board may issue
329 certificates that represent a guarantee of no more than 100% of the principal of each equity
330 investment in the Utah fund of funds; and
331 (g) the board may not issue certificates after December 31, 2017.
332 (3) In determining the [$300,000,000 maximum limit in Subsection] maximum limits
333 in Subsections (2)(a)(i) and (ii) and the $20,000,000 limitation for each $100,000,000
334 increment of contingent tax credits in Subsection (2)(c):
335 (a) the board shall use the cumulative amount of scheduled aggregate returns on
336 certificates issued by the board to designated investors;

337 (b) certificates and related contingent tax credits [which] that have expired may not be
338 included; and
339 (c) certificates and related contingent tax credits [which] that have been redeemed shall
340 be included only to the extent of tax credits actually allowed.
341 (4) Contingent tax credits are subject to the following:
342 (a) a contingent tax credit may not be redeemed except by a designated investor in
343 accordance with the terms of a certificate from the board;
344 (b) a contingent tax credit may not be redeemed prior to the time the Utah fund of
345 funds receives full payment from the designated investor for the certificate;
346 (c) a contingent tax credit shall be claimed for a tax year that begins during the
347 calendar year maturity date stated on the certificate;
348 (d) an investor who redeems a certificate and the related contingent tax credit shall
349 allocate the amount of the contingent tax credit to the taxpayers of the investor based on the
350 taxpayer's pro rata share of the investor's earnings; and
351 (e) a contingent tax credit shall be claimed as a refundable credit.
352 (5) In calculating the amount of a contingent tax credit:
353 (a) the board shall certify a contingent tax credit only if the actual return, or payment of
354 principal and interest for a loan initiated before July 1, 2014, including a loan refinanced on or
355 after July 1, 2014, that was originated before July 1, 2014, to the designated investor is less
356 than that targeted at the issuance of the certificate;
357 (b) the amount of the contingent tax credit for a designated investor with an equity
358 interest may not exceed the difference between[: (i) the sum of: (A) the initial private
359 investment of the designated investor in the Utah fund of funds; and (B) the scheduled
360 aggregate return to the designated investor at rates of return authorized by the board at the
361 issuance of the certificate; and (ii)] the actual principal investment of the designated investor in
362 the Utah fund of funds and the aggregate actual return received by the designated investor and
363 any predecessor in interest of the initial equity investment and interest on the initial equity
364 investment;

365 (c) the rates, whether fixed rates or variable rates, shall be determined by a formula
366 stipulated in the certificate; and
367 (d) the amount of the contingent tax credit for a designated investor with [a loan or
368 other debt obligation from] an outstanding loan to the Utah fund of funds initiated before July
369 1, 2014, including a loan refinanced on or after July 1, 2014, that was originated before July 1,
370 2014, shall be equal to the amount of any principal, interest, or interest equivalent unpaid at the
371 redemption of the loan or other obligation, as stipulated in the certificate.
372 (6) The board shall clearly indicate on the certificate:
373 (a) the targeted return on the invested capital, if the private investment is an equity
374 interest;
375 (b) the payment schedule of principal, interest, or interest equivalent, if the private
376 investment is a loan [or other debt obligation] initiated before July 1, 2014, including a loan
377 refinanced on or after July 1, 2014, that was originated before July 1, 2014;
378 (c) the amount of the initial private investment;
379 (d) the calculation formula for determining the scheduled aggregate return on the initial
380 equity investment, if applicable; and
381 (e) the calculation formula for determining the amount of the contingent tax credit that
382 may be claimed.
383 (7) Once money is invested by a designated investor, [the] a certificate:
384 (a) is binding on the board; and
385 (b) may not be modified, terminated, or rescinded.
386 (8) Funds invested by a designated investor for a certificate shall be paid to the
387 corporation for placement in the Utah fund of funds.
388 (9) The State Tax Commission may, in accordance with Title 63G, Chapter 3, Utah
389 Administrative Rulemaking Act, and in consultation with the board, make rules to help
390 implement this section.
391 Section 7. Coordinating H.B. 243 with S.B. 31 -- Superseding substantive and
392 technical amendments.

393 If this H.B. 243 and S.B. 31, State Agency Reporting Amendments, both pass and
394 become law, it is the intent of the Legislature that the amendments to Section 63M-1-1206 in
395 this bill supersede the amendments to Section 63M-1-1206 in S.B. 31, when the Office of
396 Legislative Research and General Counsel prepares the Utah Code database for publication.