An Act establishing a linked deposit program, amending P.L.1977, c.281 and supplementing Title 34 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) As used in this act:

"Authority" means the New Jersey Economic Development Authority.

"Authorized depositor" means the State Treasurer.

"Eligible business" means a business entity that employs less than 100 full-time employees or is a woman or minority owned business.

"Fund" means the Minority and Small Business Linked Deposit Program Fund created pursuant to subsection h. of section 1 of P.L.1977, c.281 (C.52:18A-90.4).

"Lender" means any commercial bank which becomes an approved depository of State funds pursuant to section 1 of P.L.1977 c.281 (C.52:18A-90.4) and agrees to participate in the program.

"Linked deposit" means a deposit placed with a lender by the State Treasurer for a period of two years at the linked deposit interest rate, provided the lender agrees to:

(1) Lend the equivalent value of such deposit to an eligible business at the interest rate provided for in section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill); and

(2) Permit the deposit to be comprised of a series of ninety day deposits each bearing an interest rate equal to the linked deposit interest rate fixed at the time the original deposit is placed.

"Linked deposit interest rate" means a fixed rate of interest which is up to three hundred basis points below the lender's posted two year certificate of deposit rate.

"Linked loan" means a loan to an eligible business, in an amount equal to a linked deposit, and bearing interest for the first two years at the interest rate provided in section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill).

"Program" means the Minority and Small Business Linked Deposit Program.

2. (New section) a. The authority shall establish a Minority and Small Business Linked Deposit Program to improve the performance and competitiveness of eligible State businesses through low interest rate loans.

b. The State Treasurer shall not allow more than $50 million to be placed in linked deposits at any given time.

c. When the State Treasurer places moneys into the fund, two calendar years worth of deposits must be identified before the deposit can be made. The two year deposit may be composed of multiple smaller deposits from multiple sources; however any individual deposit shall remain in the fund for not less than 90 days and the cumulative result of the smaller deposits must be an amount equal to the original deposit held continuously with the fund for at least two calendar years.

3. (New section) a. The executive director of the authority shall administer the program. The responsibilities of the executive director shall include, but not be limited to:

(1) Marketing and promotion of the program;

(2) Preparing an annual report concerning the program, including information about the number and size of loans originated, cost of the program to the State, and jobs created; and

(3) Final approval on any loans submitted by a lender for approval.

b. The responsibilities of the State Treasurer shall include and be limited to:

(1) Placing moneys into the fund;

(2) Entering into deposit agreements with lenders that ensure that two calendar years of funds will remain available; and

(3) Placing moneys made available in the fund on deposit with a lender, subject to the approval of a loan by the executive director.

4. (New section) Loans issued by a lender under this program shall conform to the following standards, including, but not limited to:

a. Loans shall be for an amount not to exceed $200,000 or the size of the linked deposit placed with the lender, whichever is less.

b. The decision to issue a linked loan shall be solely made by the lender.

c. The linked deposit relating to the linked loan shall be for a period of not more than two years.

d. In the event that the lender and eligible business agree to a term longer than two years for the loan, then the interest rate charged for the period of the loan beyond the initial two year period shall be agreed to by the lender and the eligible business without restriction by P.L. , c. (C. ) (pending before the Legislature as this bill).

e. Loans shall bear interest at a fixed rate for the first two years of the loan up to three percentage points below the fixed interest rate the lender sets in the absence of a linked deposit based on its usual credit considerations.

f. Lenders who make loans pursuant to the program shall not be entitled to charge any discount, points, origination fees, handling fees, service charges, refinancing fees or penalties, or any charge other than those normally charged and in such amounts normally charged by the lender for loans of the type being made without regard to the program.

g. The State shall bear no liability for lack of payment or delays in payment by an eligible business of the principal or interest of a linked loan. Any delay in payments or default on a linked loan shall in no way affect the linked deposit agreement between the lender and the authorized depositor.

h. In the event of an increase in the interest rate of a linked loan as a result of a default or renegotiation, or if the loan shall be charged off, the linked deposit shall automatically mature thirty days from the date of the occurrence of such event or the next repayment date, whichever occurs first. Upon early repayment of a linked loan, the deposit shall automatically mature with payment due to the authorized depositor on or before the last day of the month in which prepayment occurs.

5. (New section) The process of establishing a linked deposit and linked loan shall be as follows:

a. The State Treasurer shall deposit money into the fund, making that money available for deposit with a lender.

b. The executive director shall inform lenders that State funds are available for deposit through the program.

c. An eligible business shall apply to a lender for a linked loan under the program.

d. A lender, upon approving a borrower for a linked loan under the program according to that lender's credit standards, shall submit the approved application to the executive director for final approval.

e. The executive director shall have 30 days following receipt of the application from the lender to review the application and make a final decision for approval or disapproval of the linked loan.

f. The executive director shall evaluate the linked loan based upon the number of jobs likely to be created, the significance of the linked loan in assisting the eligible business, the significance of the linked loan in improving the competitiveness and profitability of the eligible business, and any other criteria that the executive director finds relevant.

g. If the executive director approves the linked loan, then the executive director shall notify the lender of that approval and then send a request to the authorized depositor to deposit funds with the lender.

h. Upon approval by the executive director of the linked loan, the authorized depositor shall then place on deposit with a lender, moneys from the fund in an amount equal to the amount of the approved linked loan.

i. Upon receipt of the deposited funds, the lender shall be required to complete the linked loan with the borrower and distribute the linked loan funds.

j. Once State moneys have been placed on deposit with the lender, and the lender has issued a linked loan to an eligible business, a linked deposit and corresponding linked loan is established.

6. Section 1 of P.L.1977, c.281 (C.52:18A-90.4) is amended to read as follows:

1. a. Notwithstanding the provisions of section 2 of P.L.1970, c.270 (C.52:18A-90.2), the Director of the Division of Investment may, subject to the approval of the State Investment Council and the State Treasurer, establish, maintain and operate a common trust fund to be known as the State of New Jersey Cash Management Fund in which may be deposited the surplus public moneys of the State, its counties, municipalities and school districts and the agencies or authorities created by any of these entities. This fund shall be considered a legal depository for public moneys and shall satisfy the requirements in that regard of section 1 of P.L.1956, c.174 (C.52:18-16.1) and N.J.S.40A:5-14.

b. The State Treasurer shall be the custodian of the fund and may receive public moneys paid into the fund by any other custodian of public moneys for the purpose of holding and investing said moneys. In that capacity, he may enter into an agreement with any one or more of the national banks and the banks authorized by this State to carry on a banking business, as he may select, for the custodianship of securities held in the fund and for recording the amounts deposited and withdrawn by each participant, the investment transactions entered into, and the balance to each participant's credit each day. A bank selected by the State Treasurer as custodian pursuant to this section shall have a physical presence in this State in the form of a principal office or branch office and shall employ New Jersey residents. Each bank selected by the State Treasurer may use recognized depositories or clearinghouses for the securities held in the fund or may use other banks as sub-custodians or sub-fiscal agents for these securities, provided that in every case each bank selected by the State Treasurer shall retain primary responsibility for these securities.

c. If a bank selected by the State Treasurer delegates its responsibilities as custodian or fiscal agent, or both, to a sub-custodian or sub-fiscal agent, the sub-custodian or sub-fiscal agent shall be responsible for the services delegated to it to the same degree as the primary custodian or primary fiscal agent and shall maintain accounting records and be otherwise held accountable to the same degree of fiduciary duty and responsibility as the appointing primary custodian or fiscal agent.

d. A bank selected by the State Treasurer as a primary custodian or fiscal agent which delegates its responsibilities as custodian or fiscal agent, or both, to a sub-custodian or sub-fiscal agent, shall not be relieved of its fiduciary duties and responsibilities.

e. The State Treasurer may promulgate such rules and regulations pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), as he deems necessary for the efficient administration of the State of New Jersey Cash Management Fund, including but not limited to, (1) the specification of minimum amounts which may be deposited in the fund and minimum periods of time for which deposits shall be retained in the fund; (2) creation of a reserve for losses; (3) provision for payment of administration expenses from its earnings; and (4) distribution of the earnings in excess of such expenses or allocation of losses to the several participants in a manner which equitably reflects the differing amounts of their respective investments and the differing periods of time for which such amounts were in the custody of the fund.

f. The Director of the Division of Investment may invest the public moneys constituting the State of New Jersey Cash Management Fund in the same types of investments and subject to the same limitations provided for the investment of funds in the State Treasury. The director shall be responsible for the adequacy of the accounting services provided by the custodian bank and shall maintain such accounting records as may be required for that purpose.

g. The Director of the Division of Investment may establish separate sub-funds within the State of New Jersey Cash Management Fund or establish a separate fund where the public moneys are invested in tax-exempt securities in order to segregate and account for separately the investment of moneys from participants in the fund to comply with federal law and regulations governing tax-exempt securities, provided however, that such sub-funds or funds shall be subject to all laws and regulations that apply to the New Jersey Cash Management Fund.

h. The Director of the Division of Investment shall establish a separate sub-fund within the State of New Jersey Cash Management Fund named the "Minority and Small Business Linked Deposit Program Fund." Any public moneys available to the State of New Jersey Cash Management Fund which will not be required for a period of at least 90 days may be deposited into the fund at the discretion of the State Treasurer.

(cf: P.L.2009, c.150, s.1)

7. (New section) The executive director of the authority, in consultation with the State Treasurer, shall promulgate any rules and regulations pursuant to the "Administrative Procedure Act" P.L.1968, c.410 (C.52:14B-1 et seq.) necessary to effectuate the provisions of this act.

8. This act shall take effect 90 days following enactment.

STATEMENT

This bill would establish the Small Business and Minority Linked Deposit Program. Under the program, funds made available by the State Treasurer from the State of New Jersey Cash Management Fund would be placed on deposit with certain eligible banks at rates up to three percent below the standard interest rate offered by a bank on a two year certificate of deposit. The bank would then makes loans equal to the amount deposited by the State Treasurer to eligible small businesses and minority and women owned businesses at rates up to three percent below the standard loan rate offered by the bank.

The program would be administered by the New Jersey Economic Development Authority (EDA) in consultation with the State Treasurer. The executive director of the EDA would have final approval over loans after a bank has approved a loan through its standard approval process. The executive director of the EDA would approve loans based upon the ability of the loans to generate jobs, improve the competitiveness and profitability of businesses receiving the loans, and the significance of the loan to the business.

The bill provides that loans issued under this program must be offered at similar terms to those the lender offers to other borrowers with the exception of the lowered interest rate. In addition, no loan can be issued for more than $200,000. The lender and borrower can agree to any loan term but the reduced interest rate will only apply for the initial two years of the loan. In the event that the borrower defaults or renogitates the loan, the State will not be held liable in any way and the State deposit backing the loan shall mature within 30 days of the default.