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Minnesota Legislature

Office of the Revisor of Statutes

SF 435

1st Engrossment - 89th Legislature (2015 - 2016) Posted on 03/05/2015 08:33am

KEY: stricken = removed, old language.
underscored = added, new language.

Current Version - 1st Engrossment

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A bill for an act
relating to economic development; adopting the Minnesota New Markets
Jobs Act; providing capital for business growth in economically distressed
communities; imposing penalties; requiring a report; proposing coding for new
law as Minnesota Statutes, chapter 116X.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116X.01] TITLE.
new text end

new text begin This chapter shall be known as and may be cited as the "Minnesota New Markets
Jobs Act."
new text end

Sec. 2.

new text begin [116X.02] DEFINITIONS.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin For the purposes of this chapter, the following terms defined
in this section have the meanings given.
new text end

new text begin Subd. 2. new text end

new text begin Affiliate. new text end

new text begin For the purposes of subdivision 10, the term "affiliate" shall
include any entity, without regard to whether such entity otherwise constitutes a qualified
community development entity under subdivision 10, that is the initial holder, either
directly or through one or more special purpose entities, of a qualified equity investment
in the qualified community development entity and any entity, without regard to whether
such entity otherwise constitutes a qualified community development entity under
subdivision 10, that provides insurance or any other form of guaranty to the ultimate
recipient of tax credits under section 116X.03 with respect to a recapture or forfeiture of
such tax credits under section 116X.06, either directly or through the guaranty of any other
economic benefit that is paid in lieu of the tax credits allowable under section 116X.03.
The determination of whether an entity is an affiliate shall be made by taking into account
all relevant facts and circumstances, including the description of the proposed amount,
structure, and initial purchaser of the qualified equity investment required by section
116X.05, subdivision 1, paragraph (a), clause (4), and the determination shall assume that
the information provided pursuant to section 116X.05, subdivision 1, clause (4), is true
and complete as of the date an application is submitted pursuant to section 116X.05.
new text end

new text begin Subd. 3. new text end

new text begin Applicable percentage. new text end

new text begin "Applicable percentage" means zero percent
for the first two credit allowance dates, eight percent for the third through sixth credit
allowance dates, and seven percent for the seventh credit allowance date.
new text end

new text begin Subd. 4. new text end

new text begin Code. new text end

new text begin "Code" or "the Code" means the Internal Revenue Code of 1986 as
amended through the date in section 290.01, subdivision 19.
new text end

new text begin Subd. 5. new text end

new text begin Credit allowance date. new text end

new text begin "Credit allowance date" means with respect to
any qualified equity investment:
new text end

new text begin (1) the date on which the investment is initially made; and
new text end

new text begin (2) each of the six anniversary dates of that date thereafter.
new text end

new text begin Subd. 6. new text end

new text begin Department. new text end

new text begin "Department" means the Department of Employment and
Economic Development.
new text end

new text begin Subd. 7. new text end

new text begin Long-term debt security. new text end

new text begin "Long-term debt security" means any debt
instrument issued by a qualified community development entity at par value with an
original maturity date of at least seven years from the date of its issuance, with no
acceleration of repayment, amortization, or prepayment features prior to its original
maturity date. The qualified community development entity that issues the debt instrument
must not make cash interest payments on the debt instrument during the period beginning
on the date of issuance and ending on the final credit allowance date in an amount that
exceeds the cumulative operating income, as defined by regulations adopted under section
45D of the Code of the qualified community development entity for that period prior to
giving effect to the expense of the cash interest payments. This subdivision shall not limit
the holder's ability to accelerate payments on the debt instrument in situations where the
issuer has defaulted on covenants designed to ensure compliance with this section or
section 45D of the Code.
new text end

new text begin Subd. 8. new text end

new text begin Purchase price. new text end

new text begin "Purchase price" means the amount paid to the issuer of a
qualified equity investment for such qualified equity investment.
new text end

new text begin Subd. 9. new text end

new text begin Qualified active low-income community business. new text end

new text begin "Qualified active
low-income community business" has the meaning given in section 45D of the Code
and Code of Federal Regulations, title 26, section 1.45D-1. A business is considered
a qualified active low-income community business for the duration of the qualified
community development entity's investment in, or loan to, the business if the entity
reasonably expects, at the time it makes the investment or loan, that the business will
continue to satisfy the requirements for being a qualified active low-income community
business, throughout the entire period of the investment or loan. The term qualified active
low-income community business excludes any business that derives or projects to derive
15 percent or more of its annual revenue from the rental or sale of real estate. This
exclusion does not apply to a business that is controlled by, or under common control with,
another business if the second business:
new text end

new text begin (1) does not derive or project to derive 15 percent or more of its annual revenue
from the rental or sale of real estate; and
new text end

new text begin (2) is the primary tenant of the real estate leased from the first business.
new text end

new text begin Subd. 10. new text end

new text begin Qualified community development entity. new text end

new text begin (a) "Qualified community
development entity" has the meaning given in section 45D of the Code; provided that
the entity has entered into an allocation agreement with the Community Development
Financial Institutions Fund of the United States Department of the Treasury with respect
to credits authorized by section 45D of the Code, which includes Minnesota within the
service area set forth in the allocation agreement. The term includes subsidiary community
development entities or affiliates of any qualified community development entity, all of
which shall be treated as a single applicant for purposes of section 116X.05.
new text end

new text begin (b) The term qualified community development entity shall not include any regulated
financial institution that is subject to the Community Reinvestment Act of 1977, United
States Code, title 12, chapter 30, or any subsidiary or affiliate thereof.
new text end

new text begin (c) Paragraph (b) shall not apply to a regulated financial institution, or subsidiary
or affiliate thereof, if the regulated financial institution is chartered by, or headquartered
in, the state of Minnesota and the regulated financial institution otherwise meets the
requirements of paragraph (a).
new text end

new text begin Subd. 11. new text end

new text begin Qualified equity investment. new text end

new text begin (a) "Qualified equity investment" means
any equity investment in, or long-term debt security issued by, a qualified community
development entity that:
new text end

new text begin (1) is acquired after January 1, 2014, at its original issuance solely in exchange
for cash;
new text end

new text begin (2) has at least 100 percent of its cash purchase price used by the issuer to make
qualified low-income community investments in qualified active low-income community
businesses located in this state by the first anniversary of the initial credit allowance
date; and
new text end

new text begin (3) is designated by the issuer as a qualified equity investment under this subdivision
and is certified by the department as not exceeding the limitation contained in section
116X.05, subdivision 4.
new text end

new text begin (b) Notwithstanding the restrictions on transferability contained in section 116X.04,
this term shall include any qualified equity investment that does not meet the provisions of
paragraph (a) if the investment:
new text end

new text begin (1) is transferred to a subsequent holder; and
new text end

new text begin (2) was a qualified equity investment in the hands of any prior holder.
new text end

new text begin (c) This term shall not include either (1) any qualified equity investment that entitles
the holder to claim tax credits under section 45D of the Code, or (2) any qualified equity
investment, the proceeds of which are used to make debt or equity investments in, directly
or indirectly, any other qualified community development entity.
new text end

new text begin Subd. 12. new text end

new text begin Qualified low-income community investment. new text end

new text begin "Qualified low-income
community investment" means any capital or equity investment in, or loan to, any
qualified active low-income community business. With respect to any one qualified
active low-income community business, the maximum amount of qualified low-income
community investments that may be made in the business, on a collective basis with all of
its affiliates, with the proceeds of qualified equity investments that have been certified
under section 116X.05 shall be $5,000,000 whether made by one or several qualified
community development entities.
new text end

new text begin Subd. 13. new text end

new text begin Refundable performance fee. new text end

new text begin "Refundable performance fee" means a
fee that a qualified community development entity seeking to have an equity investment or
long-term debt security designated as a qualified equity investment and eligible for tax
credits under section 116X.05 shall pay to the department as assurance of compliance with
certain requirements of this chapter. The amount of the fee shall be equal to one-half of
one percent of the original amount of the equity investment or long-term debt security
requested to be designated as a qualified equity investment.
new text end

new text begin Subd. 14. new text end

new text begin State premium tax liability. new text end

new text begin "State premium tax liability" means any
liability incurred by any entity under chapter 297I.
new text end

Sec. 3.

new text begin [116X.03] CREDIT ESTABLISHED.
new text end

new text begin (a) Any entity that makes a qualified equity investment earns a vested right to credit
against the entity's state premium tax liability on a premium tax report filed under this
section that may be utilized as described in paragraphs (b) to (e).
new text end

new text begin (b) On each credit allowance date of the qualified equity investment, the entity, or
subsequent holder of the qualified equity investment, shall be entitled to utilize a portion
of the credit during the taxable year, including the credit allowance date.
new text end

new text begin (c) The credit amount shall be equal to the applicable percentage for the credit
allowance date multiplied by the purchase price paid to the issuer of the qualified equity
investment.
new text end

new text begin (d) The amount of the credit claimed by an entity shall not exceed the amount of the
entity's state premium tax liability for the tax year for which the credit is claimed. Any
amount of tax credit that the entity is prohibited from claiming in a taxable year as a result
of this chapter may be carried forward for use in any subsequent taxable year.
new text end

new text begin (e) An entity claiming a credit under this chapter is not required to pay any additional
retaliatory tax levied under section 297I.05 as a result of claiming that credit. In addition,
it is the intent of this act that an entity claiming a credit under this chapter is not required
to pay any additional tax that may arise as a result of claiming that credit.
new text end

Sec. 4.

new text begin [116X.04] TRANSFERABILITY.
new text end

new text begin No tax credit claimed under this chapter shall be refundable or saleable on the open
market. However, a participating investor may transfer credits to an affiliated insurance
company, provided that it gives prior written notice to the department. Tax credits earned
by a partnership, limited liability company, S-corporation, or other "pass-through" entity
may be allocated to the partners, members, or shareholders of the entity for their direct
use in accordance with the provisions of any agreement among those partners, members,
or shareholders. Any allocation of tax credits made to a partner, member, or shareholder
in accordance with this section shall not be considered a sale of such tax credits for
purposes of this chapter.
new text end

Sec. 5.

new text begin [116X.05] CERTIFICATION OF QUALIFIED EQUITY INVESTMENTS.
new text end

new text begin Subdivision 1. new text end

new text begin Application. new text end

new text begin A qualified community development entity that seeks
to have an equity investment or long-term debt security designated as a qualified equity
investment and eligible for tax credits under this chapter shall apply to the department.
The department shall begin accepting applications on October 1, 2015. The qualified
community development entity shall include the following in its application:
new text end

new text begin (1) evidence of the applicant's certification as a qualified community development
entity, including evidence of the service area of the entity that includes Minnesota;
new text end

new text begin (2) a copy of the allocation agreement executed by the applicant, or its controlling
entity, and the Community Development Financial Institutions Fund under section
116X.02, subdivision 10;
new text end

new text begin (3) a certificate executed by an executive officer of the applicant attesting that the
allocation agreement remains in effect and has not been revoked or canceled by the
Community Development Financial Institutions Fund;
new text end

new text begin (4) evidence that the applicant or its controlling entity has received more than one
allocation of qualified equity investment authority from the Community Development
Financial Institutions Fund, at least one of which shall have been received on or after
January 1, 2015;
new text end

new text begin (5) evidence that the applicant, its controlling entity, and subsidiary qualified
community development entities of the controlling entity have collectively made at least
$50,000,000 in qualified low-income community investments under the federal New
Markets Tax Credit Program or other states' new markets tax credit programs with a
maximum qualified low-income community investment size of $5,000,000 per business;
new text end

new text begin (6) a description of the proposed amount, structure, and initial purchaser of the
qualified equity investment;
new text end

new text begin (7) the minimum amount of the qualified equity investment the qualified community
development entity is willing to accept in the event the amount proposed to be certified
under clause (4) is less than the applicant's proposed amount of qualified equity investment;
new text end

new text begin (8) a plan describing the proposed investment of the proceeds of the qualified equity
investment, including the types of qualified active low-income community businesses in
which the applicant expects to invest. Applicants are not required to identify qualified
active low-income community businesses in which they will invest when submitting
an application; and
new text end

new text begin (9) the refundable performance fee required by section 116X.08.
new text end

new text begin Subd. 2. new text end

new text begin Consideration of application. new text end

new text begin Within 30 days after receipt of a completed
application containing the information in subdivision 1, including the payment of the
application fee and the refundable performance fee, the department shall grant or deny the
application in full or in part. If the department denies any part of the application, it shall
inform the qualified community development entity of the grounds for the denial. If the
qualified community development entity provides any additional information required
by the department or otherwise completes its application within 15 days of the notice of
denial, the application shall be considered completed as of the original date of submission.
If the qualified community development entity fails to provide the information or complete
its application within the 15-day period, the application remains denied and must be
resubmitted in full with a new submission date.
new text end

new text begin Subd. 3. new text end

new text begin Certification. new text end

new text begin If the application required under this section is complete, the
department shall certify the proposed equity investment or long-term debt security as a
qualified equity investment that is eligible for tax credits under this chapter, subject to the
limitations contained in subdivision 5. The department shall provide written notice of the
certification to the qualified community development entity. The notice shall include the
name of the initial purchaser of the qualified equity investment and the credit amount.
Before any tax credits are claimed under this chapter, the qualified community development
entity shall provide written notice to the department of the names of the entities eligible to
claim such credits as a result of holding a qualified equity investment. If the names of the
entities that are eligible to utilize the credits change due to a transfer of a qualified equity
investment or an allocation or affiliate transfer pursuant to section 116X.04, the qualified
community development entity shall notify the department of the change.
new text end

new text begin Subd. 4. new text end

new text begin Amount certified. new text end

new text begin The department shall certify $250,000,000 in qualified
equity investments. The department shall certify qualified equity investments in the order
applications are received by the department. Applications received on the same day shall
be deemed to have been received simultaneously. For applications that are complete and
received on the same day, the department shall certify, consistent with remaining qualified
equity investment capacity, the qualified equity investments in proportionate percentages
based upon the ratio of the amount of qualified equity investment requested in an
application to the total amount of qualified equity investments requested in all applications
received on the same day. If any amount of qualified equity investment that would be
certified under this section is less than the acceptable minimum amount specified in the
application as required by subdivision 1, clause (5), the application is deemed withdrawn
and the amount of qualified equity investment shall be proportionately allocated among
the other applicants pursuant to this subdivision.
new text end

new text begin Subd. 5. new text end

new text begin Transfer of authority. new text end

new text begin An approved applicant may transfer all or a
portion of its certified qualified equity investment authority to its controlling entity or any
subsidiary qualified community development entity of the controlling entity, provided
that the applicant provides the information required in the application with respect to
such transferee and the applicant notifies the department of the transfer within 30 days
of the transfer.
new text end

new text begin Subd. 6. new text end

new text begin Cash investment. new text end

new text begin Within 60 days of the applicant receiving notice
of certification, the qualified community development entity or any transferee under
subdivision 5 shall issue the qualified equity investment and receive cash in the amount of
the certified amount. The qualified community development entity or transferee under
subdivision 5 must provide the department with evidence of the receipt of the cash
investment within ten business days after receipt. If the qualified community development
entity or any transferee under subdivision 5 does not receive the cash investment and issue
the qualified equity investment within 60 days following receipt of the certification notice,
the certification shall lapse and the entity may not issue the qualified equity investment
without reapplying to the department for certification. Lapsed certifications revert back to
the department and shall be reissued, first, pro rata to other applicants whose qualified
equity investment allocations were reduced under subdivision 4 and, thereafter, in
accordance with the application process.
new text end

Sec. 6.

new text begin [116X.06] DISALLOWANCE OF TAX CREDITS AND PENALTIES.
new text end

new text begin (a) The department shall disallow the utilization of any tax credits earned as a result
of holding a qualified equity investment, but not yet claimed, if:
new text end

new text begin (1) the issuer redeems or makes principal repayment with respect to a qualified
equity investment prior to the seventh anniversary of the issuance of the qualified equity
investment. In this case, the department's disallowance of unclaimed tax credits shall be
proportionate to the amount of the redemption or repayment with respect to such qualified
equity investment; or
new text end

new text begin (2) the issuer fails to invest an amount equal to 100 percent of the purchase price
of the qualified equity investment in qualified low-income community investments in
Minnesota within 12 months of the issuance of the qualified equity investment and
maintain at least 100 percent of such level of investment in qualified low-income
community investments in Minnesota until the last credit allowance date for the qualified
equity investment. For purposes of this section, an investment shall be considered held
by an issuer even if the investment has been sold or repaid if the issuer reinvests an
amount equal to the capital returned to or recovered by the issuer from the original
investment, exclusive of any profits realized, in another qualified low-income community
investment within 12 months of the receipt of such capital. An issuer shall not be required
to reinvest capital returned from qualified low-income community investments after the
sixth anniversary of the issuance of the qualified equity investment, the proceeds of which
were used to make the qualified low-income community investment, and the qualified
low-income community investment shall be considered held by the issuer through the
seventh anniversary of the qualified equity investment's issuance.
new text end

new text begin (b) Notwithstanding any contrary provision, any tax credits already claimed under
this chapter shall not be subject to recapture upon the occurrence of an event set forth in
paragraph (a), clause (1) or (2).
new text end

new text begin (c) If the department disallows the utilization of tax credits under this section, it may
also, at its discretion, impose penalties on the qualified community development entity
that issued the qualified equity investment for which tax credits are disallowed, not to
exceed the amount of the refundable performance fee required under section 116X.08
and without regard to whether such fee has been refunded to the qualified community
development entity.
new text end

Sec. 7.

new text begin [116X.07] NOTICE OF NONCOMPLIANCE.
new text end

new text begin Enforcement of each of the disallowance and penalty provisions shall be subject
to a six-month cure period. No disallowance or penalty shall occur until the qualified
community development entity shall have been given notice of noncompliance and
afforded six months from the date of the notice to cure the noncompliance.
new text end

Sec. 8.

new text begin [116X.08] REFUNDABLE PERFORMANCE FEE.
new text end

new text begin Subdivision 1. new text end

new text begin Performance guarantee amount. new text end

new text begin A qualified community
development entity that seeks to have an equity investment or long-term debt security
designated as a qualified equity investment and eligible for tax credits under this section
shall pay a refundable performance fee to the department for deposit in the new markets
performance guarantee account, which is hereby established. The entity shall forfeit:
new text end

new text begin (1) the performance fee in its entirety if the qualified community development entity
and its subsidiary qualified community development entities fail to issue the total amount
of qualified equity investments certified by the department and receive cash in the total
amount certified under section 116X.05, subdivision 3; or
new text end

new text begin (2) the amount of the performance fee equal to the product of the original amount of
the refundable performance fee multiplied by the percentage of the remaining amount of
the proceeds of the qualified equity investment not used to make qualified low-income
equity investments if the qualified community development entity or any subsidiary
qualified community development entity that issues a qualified equity investment certified
under this section fails to meet the investment requirement under section 116X.06 by the
second credit allowance date of such qualified equity investment. Forfeiture of the fee
or any portion thereof under this clause shall be subject to the six-month cure period
established under section 116X.07.
new text end

new text begin Subd. 2. new text end

new text begin Request for refund. new text end

new text begin The fee required under subdivision 1 shall be paid
to the department and held in the new markets performance guarantee account until
compliance with subdivision 1 shall have been established. The qualified community
development entity may request a refund of the fee from the department no sooner than 30
days after having met all the requirements of subdivision 1. The department shall have 30
days to comply with the request or give notice of noncompliance.
new text end

Sec. 9.

new text begin [116X.09] PREAPPROVAL OF INVESTMENTS.
new text end

new text begin Before making a proposed qualified low-income community investment, a qualified
community development entity may request from the department a written determination
that the proposed investment will qualify as a qualified low-income community investment
and will satisfy all applicable provisions of this chapter. The department must notify a
qualified community development entity within ten business days from the receipt of a
request of its determination and an explanation thereof. Any determination made by the
department pursuant to this section shall be binding on the department.
new text end

Sec. 10.

new text begin [116X.10] MANAGEMENT OF QUALIFIED EQUITY INVESTMENT
BY ANOTHER CERTIFIED DEVELOPMENT ENTITY PROHIBITED.
new text end

new text begin A qualified community development entity, its controlling entity, and its affiliates
shall not contract with or otherwise use any third party or its affiliates to manage, control
the direction of, or source qualified low-income community investments into qualified
low-income community businesses that are approved for qualified investment pursuant
to this program, if the third party is another qualified community development entity or
otherwise performing such functions for another qualified community development entity.
new text end

Sec. 11.

new text begin [116X.11] REPORTING.
new text end

new text begin (a) A qualified community development entity that has issued a qualified investment
shall submit the following to the department within 30 calendar days after each credit
allowance date:
new text end

new text begin (1) a list of all qualified active low-income community businesses in which it has
made a qualified low-income community investment. The list shall describe the type
and amount of investment in each business, the address of the principal location of each
business, and the industry of the business as identified by the North American Industry
Classification System Code. The list shall also include the number of employment
positions created and retained as a result of qualified low-income community investments
along with the average salary of such positions;
new text end

new text begin (2) bank records, wire transfer records, or similar documents that provide evidence
of the qualified low-income community investments made since the last credit allowance
date and a description of the sources of capital for the qualified low-income community
investments made since the last credit allowance date;
new text end

new text begin (3) a verified statement by the chief financial or accounting officer of the community
development entity that no redemption or principal repayment was made with respect to
the qualified investment since the previous credit allowance date; and
new text end

new text begin (4) information relating to the recapture of the federal new markets tax credit since
the last credit allowance date.
new text end

new text begin (b) The department shall report annually to the legislature. The report shall include
the names of the qualified community development entities that have had qualified equity
investments certified under this section, the amount of qualified equity investments and
the lists described in paragraph (a), clause (1). The report must include:
new text end

new text begin (1) the number of women- and minority-owned businesses assisted by the credits;
new text end

new text begin (2) the number of greater Minnesota-located businesses assisted by the credits and
the amount of that assistance;
new text end

new text begin (3) the number of metropolitan area-located businesses assisted by the credits and
the amount of that assistance;
new text end

new text begin (4) the number of jobs created by the credits including the number of women and
minorities obtaining jobs; and
new text end

new text begin (5) the number of jobs created by the credits located in greater Minnesota and in the
metropolitan area.
new text end

Sec. 12. new text beginEFFECTIVE DATE.
new text end

new text begin Sections 1 to 11 are effective the day following final enactment, and apply to
premium tax returns originally due on or after that date.
new text end