B.__"Certificate" means a tax credit certificate issued by the authority under this subchapter.

C.__"Equity equivalent loan" means a loan made by an investor to a borrower on terms that are substantially equivalent to an equity investment as set forth in rules established by the authority, or with the following characteristics:

(1) The loan is carried as an investment on the investor's balance sheet in accordance with generally accepted accounting principles as defined in Title 5, section 1660-D, subsection 13;

(2) It is a general obligation of the borrower that is not secured by any borrower assets;

(3) It is fully subordinated to the right of repayment of all other creditors of the borrower;

(4) It does not give the investor the right to accelerate payment unless the borrower ceases its normal operations;

(5) It carries an interest rate that is not tied to any income received by the borrower and is at least 400 basis points below the prime rate of interest as reported by The Wall Street Journal at the time the loan is made with interest-only payments during the term of the loan; and

(6) It has an original term of at least 10 years or has a rolling term and an indeterminate maturity and provides that no demand for payment may be made without 180 days' notice.

D.__"Investment" means an equity equivalent loan made to a borrower.

E.__"Investor" means a financial institution as defined in Title 36, section 5206-D, subsection 8 or an insurer as defined in Title 24-A, section 4.

2.__Administration.__The authority shall administer eligibility for credits under this section and shall adopt rules for the allocation, administration and revocation of

certificates.__Rules adopted under this section are routine technical rules as defined in Title 5, chapter 375, subchapter II-A.__The authority shall certify all eligible investments and allocate certificates to eligible investors.

3.__Application; certificate.__An investor must file an application with the authority for a certificate before the end of the calendar year and prior to making an investment.__The authority may charge an application fee of up to $250.__The certificate must authorize a total amount of tax credit over the duration of the certificate equal to 60% of the face amount of the investment.__The certificate must authorize the credit to be claimed in 10 equal installments over a period of 10 years.__An investor must demonstrate that the investment would not have been made in the absence of a credit and must sign an agreement with the authority that the investor will not require the investment to be repaid for 10 years, unless the borrower ceases normal operations.__A certificate expires 10 years after issuance.

4.__Limitation.__The following limitations apply to certificates issued under this section.

A.__The authority may issue new certificates each fiscal year from fiscal year 2001-02 to fiscal year 2005-06 allocating up to $100,000 annually in new credits.__A certificate may not be allocated and in effect if it would result in new credits eligible to be claimed by investors under this section in the aggregate in excess of $100,000 in any one calendar year.

B.__The amount of a certificate allocated under this section for any one investor in any one tax year may not exceed 25% of the total tax credits available for that tax year.

C.__Investments in any one borrower may not be eligible for more than 25% of the total tax credits available annually.

D.__Certificates must be issued on a first-come first-served basis, except that rules established by the authority may establish reserved credits to ensure certificates are distributed on a statewide basis.

E.__Certificates may not be issued after fiscal year 2005- 06.

F.__A certificate may not be issued for an investment in a borrower that has failed to provide the information required in subsection 6, paragraphs A and B.

5.__Revocation.__The authority shall revoke a certificate and notify the State Tax Assessor if it finds that:

A.__The investment no longer meets the requirements of this section; or

B.__The investor has failed to report to the authority as required by subsection 6.

6.__Reports.__The following reports are required under this section.

A.__Each investor and borrower shall report annually to the authority any information requested by the authority to verify continuing eligibility for a certificate.

B.__Each borrower shall report annually to the Department of Economic and Community Development any information requested by that department to verify that the proceeds of the investments made under this section are directed toward public benefits, including, but not limited to, job creation and retention, quality of the jobs created and retained, community development and improvement and development and expansion of small business entrepreneurship.__Information relating to jobs created and retained must include the number of jobs categorized by the major groupings of the occupational employment statistics program of the United States Department of Labor, the average wages of jobs created and retained and the benefits associated with those jobs.__The Department of Economic and Community Development shall notify the authority if a borrower fails to report as required by this paragraph.

C.__The Department of Economic and Community Development shall report to the joint standing committee of the Legislature having jurisdiction over taxation matters by January 15, 2005 regarding the operation of this section.__ The report must include data concerning the numbers of investors and borrowers participating in the credit program, the value of certificates issued and the public benefit of the credit program including the information reported to the department under paragraph B.

Sec. 3. 36 MRSA §2527 is enacted to read:

§2527.__Equity equivalent loan credit

1.__Definitions.__As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A.__"Authority"__means the Finance Authority of Maine.

B.__"Certificate" means a tax credit certificate issued by the authority under Title 10, chapter 110, subchapter XI.

2.__Credit.__A taxpayer is allowed a credit against the tax imposed by this chapter otherwise due in an amount equal to the annual credit amount authorized by a certificate issued to the taxpayer.

3.__Credit nonrefundable.__The credit may not reduce the tax otherwise due under this chapter below zero for any taxable year.

4.__Carry-over.__Credits not claimed because of the limitations in Title 10, section 1100-Y, subsection 4 may be claimed in the following taxable year in which the credit may be claimed; however, the limitations of Title 10, section 1100-Y, subsection 4 also apply to carry-over years.

5.__Carry-back.__Credits may not be carried back to prior years.

6.__Recapture.__If the authority revokes a certificate, an additional tax is added to the tax imposed on the taxpayer under this chapter for the taxable year in which the revocation occurs.__ The additional tax is equal to the excess of the amount of the certificate revoked over the amount of certificate not yet claimed.

Sec. 4. 36 MRSA §5216-D is enacted to read:

§5216-D.__Equity equivalent loan credit

1.__Definitions.__As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A.__"Authority"__means the Finance Authority of Maine.

B.__"Certificate" means a tax credit certificate issued by the authority under Title 10, chapter 110, subchapter XI.

2.__Credit.__A taxpayer is allowed a credit against the tax imposed by this Part otherwise due in an amount equal to the annual credit amount authorized by a certificate issued to the taxpayer.

3.__Credit nonrefundable.__The credit may not reduce the tax otherwise due under this chapter below zero for any taxable year.

4.__Carry-over.__Credits not claimed because of the limitations in Title 10, section 1100-Y, subsection 4 may be claimed in the following taxable year in which the credit may be claimed; however, the limitations of Title 10, section 1100-Y, subsection 4 also apply to carry-over years.

5.__Carry-back.__Credits may not be carried back to prior years.

6.__Recapture.__If the authority revokes a certificate, an additional tax is added to the tax imposed on the taxpayer under this Part for the taxable year in which the revocation occurs.__ The additional tax is equal to the excess of the amount of the certificate revoked over the amount of certificate not yet claimed.

SUMMARY

This bill establishes a credit against the income tax, the insurance premium tax and the bank franchise tax for investments in eligible nonprofit economic development organizations. The credit would be equal to 6% of the face value of the investment annually for 10 years. The total of the aggregate additional new credits that may be authorized each year is limited to $100,000. No new credits may be authorized after fiscal year 2005-06. Investors and borrowers are required to report annually regarding activities. Authorization for a credit may be revoked and previous credits recaptured if the investor fails to meet eligibility requirements.