Rural Venture Capital Demonstration Program

DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

7 CFR Parts 4279 and 4287

RIN 0570-AA25

Rural Venture Capital Demonstration Program

AGENCY: Rural Business-Cooperative Service (RBS), USDA.

ACTION: Advanced notice of proposed rulemaking.

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SUMMARY: Section 761 of the Federal Agriculture Improvement and Reform

Act of 1996 (Pub. L. 104-127) adds section 381O to the Consolidated

Farm and Rural Development Act (7 U.S.C. 1921 et seq.) which authorizes

a demonstration program using Federal loan guarantees to attract

venture capital funds to rural areas. RBS is preparing to develop

regulations to implement this program.

In order to afford the public the maximum opportunity to contribute

to the development of this new program and to enable the Agency to

consider as many options as possible, RBS is requesting comments to

assist in drafting the proposed rule.

DATES: The advance notice of proposed rulemaking is subject to written

comments received on or before May 9, 1997.

The Agency is limiting the comment period on this advanced notice

to 30 days in order to expedite the rulemaking process. The proposed

rule will have a longer comment period.

ADDRESSES: Submit written comments in duplicate to the Chief,

Regulations and Paperwork Management Division, Rural Development, U.S.

Department of Agriculture, Stop Box 0743, 1400 Independence Avenue SW.,

Washington, DC 20250-0743. All written comments will be available for

public inspection during regular work hours at the above address.

Comments may be submitted via the internet by addressing them to

``[email protected]'' and must contain ``venture'' in the subject.

FOR FURTHER INFORMATION CONTACT: Rick Bonnet, Senior Commercial Loan

Specialist, RBS, U.S. Department of Agriculture, Stop 3221, 1400

Independence Avenue SW., Washington, DC 20250-3221, Telephone (202)

720-1804.

SUPPLEMENTARY INFORMATION:

Classification

This rule will be determined to be ``significant'' and will be

reviewed by OMB under Executive Order 12866.

[[Page 17108]]

The statute calls for the Secretary of Agriculture to designate for

each fiscal year up to 10 community development venture organizations

to demonstrate the utility of guarantees to attract increased private

investment in rural private business enterprises.

To be eligible to participate in the demonstration program, an

organization shall establish a rural business private investment pool

(referred to as a `pool') for the purpose of making equity investment

in rural private business enterprises.

From amounts in the national reserve account of the Trust Fund

authorized under Subtitle E--Rural Community Advancement Program,

section 381E, the Secretary shall guarantee the funds in a pool against

loss, except that the guarantee shall not exceed an amount equal to 30

percent of the total funds in the pool. The Secretary shall issue

guarantees covering not more than $15,000,000 of contingent liabilities

for each of fiscal years 1996 through 2002. The term of a guarantee

shall not exceed 10 years.

To be eligible to participate in the demonstration program, an

organization shall submit a plan that describes potential sources and

uses of the pool to be established by the organization; the utility of

the guarantee authority in attracting capital for the pool; and, on

selection, mechanisms for notifying State, local, and private nonprofit

business development organizations and business of the existing pool.

The Secretary shall conduct a competition for the designation and

establishment of pools. In conducting the competition, the Secretary

shall give priority to organizations that have a demonstrated record of

performance or have a board and executive director with experience in

venture capital, small business equity investment, or community

development finance; propose to serve low-income communities; propose

to maintain an average investment of not more than $500,000 from the

pool of the organization; invest funds statewide or in a multicounty

region; and propose to target job opportunities resulting from the

investments primarily to economically disadvantaged individuals, as

determined by the Secretary. To the extent practicable, the Secretary

shall designate organizations in diverse geographic areas.

Programs Affected

No program in the Catalog of Federal Domestic Assistance is

impacted by this action.

Intergovernmental Review

As set forth in the final rule and related Notice to 7 CFR part

3015, subpart V, 48 FR 29112, June 24, 1983, Rural Venture Capital

Demonstration Program investments are subject to the provisions of

Executive Order 12372 which requires intergovernmental consultation

with state and local officials. RBS conducts intergovernmental

consultation in the manner delineated in RD Instruction 1940-J,

``Intergovernmental Review of Farmers Home Administration Programs and

Activities.''

Comments Invited

Interested parties are invited to participate in the making of the

proposed rule by submitting such written data, views, arguments, or

proposal as they may desire. Comments and proposals may include

illustrations or references to forms and procedures utilized in other

program areas in the industry.

Comments are specifically solicited concerning the choice and

relative importance of selection criteria, structuring of the

guarantee, when and under what circumstances the Agency will make

payment under the guarantee, requirements of the community development

venture organization's proposed workplan, rights and restrictions of

investors in the rural business private investment pools, requirements

for the organizational structure of the community development venture

organizations, Agency oversight responsibilities, investment pool

management, and any other comments concerning this issue.

Dated: April 1, 1997.

Inga Smulkstys,

Acting Under Secretary for Rural Development.

[FR Doc. 97-8993 Filed 4-8-97; 8:45 am]

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