SB-0566, As Passed House, November 30, 2011

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 566

A bill to amend 1984 PA 270, entitled

"Michigan strategic fund act,"

by amending sections 5, 88c, and 88h (MCL 125.2005, 125.2088c, and

125.2088h), section 5 as amended by 2008 PA 224 and sections 88c

and 88h as added by 2005 PA 225.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 5. (1) There is created by this act a public body

corporate and politic to be known as the Michigan strategic fund.

The fund shall be within the department of treasury and shall

exercise its prescribed statutory powers, duties, and functions

independently of the state treasurer. The statutory authority,

powers, duties, functions, records, personnel, property, unexpended

balances of appropriations, allocations, and other funds of the

fund, including the functions of budgeting, procurement, personnel,

and management-related functions, shall be retained by the fund,

and the fund shall be an autonomous entity within the department of

treasury in the same manner as the Michigan employment security

commission was designated an autonomous entity within the Michigan

department of labor under section 379 of the executive organization

act of 1965, 1965 PA 380, MCL 16.479.

(2) Except as otherwise provided in this act, the purposes,

powers, and duties of the Michigan strategic fund are vested in and

shall be exercised by a board of directors.

(3) Except as provided in subsection (4), the board shall

consist of the director of the department of ~~labor and economic~~

~~growth~~ licensing and regulatory affairs or his or her designee from

within the department of ~~labor and economic growth~~ licensing and

regulatory affairs, the state treasurer or his or her designee from

within the department of treasury, the chief executive officer of

the MEDC or his or her designee, and 6 other members with

knowledge, skill, and experience in the academic, business, or

financial field, who shall be appointed by the governor with the

advice and consent of the senate. None of the 6 members appointed

under this section shall be employees of this state. Not less than

5 members of the board appointed under this subsection shall be

members of the private sector. Five of the 6 members appointed

under this subsection shall serve for fixed terms. Upon completion

of each fixed term expiring after December 30, 2005, a member shall

be appointed for a term of 4 years. Of the private sector members

appointed by the governor for a fixed term, 1 shall be appointed

from a list of 3 or more nominees of the speaker of the house of

representatives representing persons within the private sector with

experience in private equity or venture capital investments,

commercial lending, or commercialization of technology and 1 shall

be appointed from a list of 3 or more nominees of the senate

majority leader representing persons within the private sector with

experience in private equity or venture capital investments,

commercial lending, or commercialization of technology. A member

appointed under this subsection or subsection (4) shall serve until

a successor is appointed, and a vacancy shall be filled for the

balance of the unexpired term in the same manner as the original

appointment. The member appointed under this subsection and serving

without a fixed term shall serve at the pleasure of the governor.

Of the members appointed under this subsection and subsection (4),

there shall be minority, female, and small business representation.

After December 31, 2005, at least 2 of the members of the board

shall have experience in private equity or venture capital

investments, at least 1 of the members shall have experience in

commercial lending, and at least 1 of the members of the board

shall have experience in commercialization of technology.

(4) In addition to the 9 members of the board under subsection

(3), not later than December 15, 2005, the governor shall appoint,

with the advice and consent of the senate, 2 additional members to

the board for terms expiring December 31, 2007. After the initial

appointments under this subsection, members appointed under this

subsection shall be appointed for a term of 4 years. The members

appointed under this subsection shall be from the private sector

and shall have experience in private equity or venture capital

investments, commercial lending, or commercialization of

technology. From the date of the appointment of the members under

this subsection until December 31, 2015, the board shall have 11

members. After December 31, 2015, the board shall have 9 members

and no members shall be appointed under this subsection.

(5) The governor shall designate 1 member of the board to

serve as its chairperson. The governor shall designate 1 member of

the board to serve as president of the fund and may designate 1

member to serve as vice-president of the fund. The chairperson,

president, and vice-president, if a vice-president is designated,

shall serve as those officers at the pleasure of the governor.

(6) Members of the board shall serve without compensation for

their membership on the board, except that members of the board may

receive reasonable reimbursement for necessary travel and expenses.

(7) The board may delegate to its president, vice-president,

staff, or others those functions and authority that the board deems

necessary or appropriate, which may include the oversight and

supervision of employees of the fund. However, responsibilities

specifically vested in the board under chapter 8A shall be

performed by the board and shall not be transferred to the MEDC,

except that Michigan business development program incentives under

section 88r, and community revitalization incentives under chapter

8C, of $1,000,000.00 or less can be authorized by the president of

the fund.

(8) A majority of the members of the board appointed and

serving constitutes a quorum for the transaction of business at a

meeting, or the exercise of a power or function of the fund,

notwithstanding the existence of 1 or more vacancies. The board may

act only by resolution approved by a majority of board members

appointed and serving. Voting upon action taken by the board shall

be conducted by majority vote of the members appointed and serving.

Members of the board may be present in person at a meeting of the

board or, if authorized by the bylaws of the board, by use of

telecommunications or other electronic equipment. The fund shall

meet at the call of the chair and as may be provided in the bylaws

of the fund. Meetings of the fund may be held anywhere within the

state of Michigan.

(9) The business of the board shall be conducted at a public

meeting of the board 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 the meeting shall be given in the manner required by

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

also be provided on an internet website operated by the fund. A

record or portion of a record, material, or other data received,

prepared, used, or retained by the fund or any of its centers in

connection with an application to or with a project or product

assisted by the fund or any of its centers or with an award, grant,

loan, or investment ~~under chapter 8A~~ that relates to financial or

proprietary information submitted by the applicant that is

considered by the applicant and acknowledged by the board or a

designee of the board as confidential shall not be subject to the

disclosure requirements of the freedom of information act, 1976 PA

442, MCL 15.231 to 15.246. The disclosure of a record concerning

investment information described in section 88c under the freedom

of information act, 1976 PA 442, MCL 15.231 to 15.246, is subject

to the limitations provided in section 88c. The board may also meet

in closed session pursuant to the open meetings act, 1976 PA 267,

MCL 15.261 to 15.275, to make a determination of whether it

acknowledges as confidential any financial or proprietary

information submitted by the applicant and considered by the

applicant as confidential. Unless considered proprietary

information, the board shall not acknowledge routine financial

information as confidential. If the board determines that

information submitted to the fund is financial or proprietary

information and is confidential, the board shall release a written

statement, subject to disclosure under the freedom of information

act, 1976 PA 442, MCL 15.231 to 15.246, that states all of the

following:

(a) The name and business location of the person requesting

that the information submitted be confidential as financial or

proprietary information.

(b) That the information submitted was determined by the board

to be confidential as financial or proprietary information.

proprietary information determined to be confidential.

(10) The fund shall not disclose financial or proprietary

information not subject to disclosure pursuant to subsection (9)

without consent of the applicant submitting the information.

(11) Any document to which the fund is a party evidencing a

loan, insurance, mortgage, lease, venture, or other type of

agreement the fund is authorized to enter into shall not be

considered financial or proprietary information that may be exempt

from disclosure under subsection (9).

(12) For purposes of subsections (9), (10), and (11),

"financial or proprietary information" means information that has

not been publicly disseminated or which is unavailable from other

sources, the release of which might cause the applicant significant

competitive harm.

Sec. 88c. (1) The fund board shall exercise the duties of a

fiduciary with respect to 21st century investments consistent with

the purposes of this chapter. The prudent investor rule shall be

applied by the fund board and any agent of the fund board in the

management of 21st century investments. The prudent investor rule

as applied to 21st century investments means that in making 21st

century investments, the fund board shall exercise the judgment and

care under the circumstances then prevailing that an institutional

investor of ordinary prudence, discretion, and intelligence would

exercise in similar circumstances in a like position. The fund

board shall maintain a reasonable diversification among 21st

century investments consistent with the requirements of this

chapter.

(2) The fund board shall select qualified private equity

funds, qualified venture capital funds, and qualified mezzanine

funds by issuing a request for proposal. At a minimum, the request

for proposal shall require a responding entity to disclose any

conflict of interest, disclose any criminal convictions, disclose

any investigations by the internal revenue service, the securities

and exchange commission, or any other federal or state taxing or

securities regulatory body, or court, or pertinent litigation

regarding the conduct of the person or entity. The fund board shall

establish a standard process to evaluate proposals submitted as a

result of a request for proposal and appoint a committee to review

the proposals.

(3) The fund board shall ensure that a recipient of money

under sections 88d, 88e, 88f, ~~and~~ 88g, and 88r and chapter 8C

agrees as a condition of receiving the money not to use the money

for any 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 IL 1, 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.

(4) The fund board shall establish requirements to ensure that

money expended under sections 88d, 88e, 88f, ~~and~~ 88g, and 88r and

chapter 8C shall not be used for any of the following:

(a) Provision of money 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, person includes affiliates,

subsidiaries, officers, directors, managerial employees as

determined by the board, and any person who, directly or

indirectly, holds a pecuniary interest in that business entity of

20% or more.

(b) Provision of money 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, 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.

qualified businesses or small businesses to leave this state.

(d) Provision of money 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.

(e) Provision of money to a corporation or an affiliate of the

corporation who is incorporated in a tax haven country after

September 11, 2001, while maintaining the United States as the

principal market for the public trading of the corporation's stock.

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.

(5) Before adopting a resolution that establishes or

substantially changes a 21st century investment program, including

any fees, charges, or penalties attached to that program, the fund

board shall give notice of the proposed resolution to the governor,

to the clerk of the house of representatives, to the secretary of

the senate, to members of the senate and house of representatives

appropriation committees, 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 fund board

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

than 30 days from the date notice of a proposed resolution is given

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

questions, and arguments. Members of the fund board or 1 or more

persons designated by the fund 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 fund board may act on the proposed

resolution no sooner than 14 days after the public hearing. The

fund 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 the

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

secretary of the senate, and to members of the senate and house of

representatives appropriation committees and shall be published on

the fund's internet website.

(6) The notice described in subsection (5) 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 before the date of the public

hearing.

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

(7) The fund board shall employ or contract with a fund

manager or other persons it considers necessary to implement this

section. The person employed or contracted under this subsection

shall have not less than 10 years' experience in commercial

lending, private equity, mezzanine funding, or venture capital. The

person employed or contracted under this section shall exercise the

duties of a fiduciary toward investments from the investment fund

under this section. Management fees payable by the fund and other

investors in a qualified private equity fund, a qualified mezzanine

fund, or a qualified venture capital fund shall be considered an

investment expense and not an administrative cost incurred by the

fund.

(8) Subject to subsection (9), a record received, prepared,

used, or retained by an investment fiduciary in connection with an

investment or potential investment of the investment fund that

relates to investment information pertaining to a portfolio company

in which the investment fiduciary has invested or has considered an

investment that is considered by the portfolio company and

acknowledged by the investment fiduciary as confidential, or that

relates to investment information whether prepared by or for the

investment fiduciary regarding loans and assets directly owned by

the investment fiduciary and acknowledged by the investment

fiduciary as confidential, is exempt from the disclosure

requirements of the freedom of information act, 1976 PA 442, MCL

15.231 to 15.246, if at least annually the fund provides to the

fund board, and makes available to the public, a report of fund

investments during the prior state fiscal year that includes all of

the following:

(a) The name of each portfolio company in which the investment

fund invested during the reporting period.

(b) The aggregate amount of money invested by the investment

fund in portfolio companies during the reporting period.

the investments of the investment fund in portfolio companies.

(d) The source of any public funds invested by the investment

fund in portfolio companies during the reporting period.

(9) If a record described in subsection (8) is an agreement or

instrument to which an investment fiduciary is a party, only those

parts of the record that contain investment information are exempt

from the disclosure requirements of the freedom of information act,

1976 PA 442, MCL 15.231 to 15.246.

(10) As used in subsections (8) and (9):

(a) "Investment fiduciary" means a person who exercises any

discretionary authority or control over an investment of the

investment fund or renders investment advice for the fund for a fee

or other direct or indirect compensation.

(b) "Investment information" means information that has not

been publicly disseminated or that is unavailable from other

sources, the release of which might cause a portfolio company or an

investment fiduciary significant competitive harm. Investment

information includes, but is not limited to, financial performance

data and projections, financial statements, list of coinvestors and

their level of investment, product and market data, rent rolls, and

leases.

fiduciary has made or considered an investment on behalf of the

investment fund.

(d) "Record" means all or part of a writing, as that term is

defined in section 2 of the freedom of information act, 1976 PA

442, MCL 15.232.

Sec. 88h. (1) The jobs for Michigan investment fund is created

within the fund as a permanent fund authorized by section 19 of

article IX of the state constitution of 1963. Money in the

investment fund at the close of the fiscal year shall remain in the

investment fund and shall not lapse to the general fund. Money in

the investment fund shall not be transferred to another

governmental entity or a separate legal entity and public body

corporate established under the urban cooperation act of 1967, 1967

(Ex Sess) PA 7, MCL 124.501 to 124.512, except as authorized in

this chapter.

(2) Money or other assets deposited in the investment fund

shall be held as permanent funds as provided under section 19 of

article IX of the state constitution of 1963 and invested only as

authorized under this chapter, including, but not limited to,

investments in the stock of a company, association, or corporation.

(3) The investment fund shall be invested as authorized under

this chapter for the benefit of the people of the state of Michigan

and for the purpose of creating incentives for the following in

this state:

~~(a) Diversifying the economy.~~

(a) ~~(b)~~ Retaining or creating jobs.

(b) ~~(c)~~ Increasing capital investment activity.

(d) ~~(e)~~ Encouraging the development and commercialization of

competitive edge technologies.

(e) Revitalizing Michigan communities.

(4) Funds or other assets of the investment fund also may be

invested in debt instruments or debt obligations for loans or

guarantees authorized under this chapter.

(5) The investment fund shall consist of all of the following:

(a) Any funds appropriated to, transferred to, or deposited in

the investment fund from the 21st century jobs trust fund under the

Michigan trust fund act, 2000 PA 489, MCL 12.251 to ~~12.256.~~12.260.

(b) Earnings, royalties, return on investments, return of

principal, payments made, or other money received by or payable to

the fund under agreements related to grants, loans, investments, or

expenditures by the fund under this chapter or chapter 8C.

investments, return of principal, payments made, or other money

owed, received by, or payable to the fund or the Michigan economic

development corporation under agreements related to grants, loans,

investments, or other payments funded by appropriations from the

state general fund or tobacco settlement revenue under 1 or more of

the following:

(i) Section 418 of 1999 PA 120, commonly known as the health

and aging research and development initiative or the Michigan life

sciences corridor initiative, or any successor program.

(ii) Section 410 of 2000 PA 292, commonly known as the health

and aging research and development initiative or the Michigan life

sciences corridor initiative, or any successor program.

(iii) Section 410 of 2001 PA 80, commonly known as the health

and aging research and development initiative or the Michigan life

sciences corridor initiative, or any successor program.

(iv) Section 410 of 2002 PA 517, commonly known as the Michigan

life sciences corridor initiative, or any successor program.

(v) Section 410 of 2003 PA 169, commonly known as the Michigan

life sciences and technology tri-corridor initiative, or any

successor program.

(vi) Section 510 of 2004 PA 354, commonly known as the Michigan

technology tri-corridor and life sciences initiative, or any

successor program.

(vii) Section 801 of 2005 PA 11, commonly known as the

technology tri-corridor and life sciences initiative, or any

successor program.

(viii) Section 381(1)(c) of 2003 PA 173, providing for payments

to the life sciences commercial development fund.

(d) Money or assets received by the state treasurer or the

fund from any source for deposit in the investment fund.

(e) Interest and earnings on any funds or other assets

deposited in the investment fund or other net income of the

investment fund.

(6) The net income of the investment fund may be expended by

the fund only for purposes authorized under this chapter or chapter

8C pursuant to an appropriation authorized by law. As used in this

section, the net income of the investment fund shall be computed

annually as of the last day of the state fiscal year in accordance

with generally accepted accounting principles, excluding any

unrealized gains or losses.

(7) The fund board shall be the trustees of the investment

fund and shall direct the investment and reinvestment of the funds

and assets of the investment fund as provided under, and consistent

with the objectives of, this chapter or chapter 8C.

(8) The fund board may establish restricted subaccounts within

the investment fund as necessary to administer the investment fund.

The fund board may contract with the state treasurer to assist the

fund board in administering the investment fund. The fund board may

authorize money in the investment fund not invested as authorized

under sections 88d, 88e, 88f, ~~and~~ 88g, and 88r and chapter 8C to be

managed by the state treasurer as part of the common cash fund of

this state under 1967 PA 55, MCL 12.51 to 12.53. Money managed by

the state treasurer under this subsection shall be separately

accounted for by the state treasurer. When authorized under this

subsection, the state treasurer may invest the funds or assets of

the investment fund in any investment authorized under 1855 PA 105,

MCL 21.141 to 21.147, for surplus funds of this state, in

obligations issued by any state or political subdivision or

instrumentality of the United States, or in any obligation issued,

assumed, or guaranteed by a solvent entity created or existing

under the laws of the United States or of any state, district, or

territory of the United States, which are not in default as to

principal or interest.

(9) A member of the fund board or officer of the fund shall

not gain from any investment of funds or assets of the investment

fund. A member of the fund board or officer of the fund shall not

have any direct or indirect interest in an investment of funds or

assets of the investment fund. A member of the fund board or person

connected with the investment fund directly or indirectly, for

himself or herself, or as an agent or partner of others, shall not

borrow any of the funds or assets of the investment fund or in any

manner use funds or assets of the investment fund except as

authorized under this chapter. A member of the fund board or

officer of the fund shall not become an endorser or surety or

become in any manner an obligor for money loaned by or borrowed

from the investment fund. Failure to comply with this subsection

constitutes misconduct in office subject to removal under section

94. In addition to any other sanction, a person who violates this

subsection is guilty of a misdemeanor punishable by imprisonment

for not more than 90 days or a fine of not more than $500.00, or

both.

Enacting section 1. This amendatory act does not take effect

unless all of the following bills of the 96th Legislature are

enacted into law:

(a) Senate Bill No. 567.

(b) Senate Bill No. 568.