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Agency Strategies to Promote Community Reinvestment in Texas

All members of the Community Reinvestment Work Group submitted to the Texas Comptroller of Public Accounts their agency’s strategies to promote community reinvestment in Texas in 2005 and 2006. These strategies, listed below, do not necessarily reflect the views of all members of the Community Reinvestment Work Group.

Banking Strategies

The Texas Department of Banking plans to participate and promote outreach efforts to educate interested parties in the issues and opportunities related to community reinvestment. The agency’s preparations include using existing agency resources to promote and coordinate community reinvestment programs administered by state and federal agencies. The department also intends to publicize fee savings available on certain applications submitted to the state’s Department of Banking when the applicant institution or branch will be located in a low- or moderate-income area.

Part of the Texas Department of Banking’s strategy for 2005-2006 includes conducting statewide forums with banks regulated by the department and promoting and informing participants of programs and opportunities available to the industry to support community reinvestment and financial literacy. The department plans to actively support financial institutions participating in government-sponsored loan programs designed to spur investment in new companies, small business and business serving traditionally underserved segments of the population. Also, the department will participate in statewide discussions with financial institutions about local and regional economic conditions and access to capital issues that affect community reinvestment.

The Department of Banking continues to coordinate efforts with the Federal Deposit Insurance Corporation on consumer education and financial literacy programs including outreach programs directed at segments of the population that traditionally do not use bank accounts and do not receive mainstream financial services provided by banks. The agency continues to use its publications and studies conducted by the Finance Commission of Texas to inform and promote efforts to educate the public and the industry about community reinvestment issues and financial literacy. The agency continues to support and participate in forums sponsored by the Texas Association of Community Development Corporations, a statewide nonprofit association dedicated to enhancing community economic development in Texas.

Economic Development Strategies

The Economic Development and Tourism Division (EDT) of the Governor’s Office explains that users of the EDT’s programs include but are not limited to businesses, municipalities and industrial development corporations. Economic growth and job creation are the intended outcomes of the programs.

Housing Strategies

For 2005-2006, the Texas Department of Housing and Community Affairs (TDHCA) proposes an increase in the state’s appropriation to the Housing Trust Fund (HTF) and creation of a dedicated funding source for the program. The agency also seeks to expand public support of credit counseling programs.

While TDHCA maintains that the amount of funding allocated to the HTF needs to be increased, due to the projected budgetary shortfall, the department has chosen to hold the line in its request for HTF funds for 2006-2007.

The agency advocates continued expansion of homebuyer/credit counseling programs. If funds become available, TDHCA intends to contract with a national organization to bring reduced-cost homebuyer/credit counseling programs to Texas. Recent studies by Freddie Mac, the National Task Force of Predatory Lending and the Millennial Housing Commission all reiterate the importance of homebuyer education.

The Texas Association of Community Development Corporations also has expressed strong support for increased funding for the HTF because it is a flexible program that “fills the gap” between the cost of affordable housing and the amount that low-income persons can pay. According to the Texas Low Income Housing Information Service, credit-counseling programs are particularly important right now.[101]

Insurance Strategies

The Texas Department of Insurance (TDI) evaluated the strategies for community reinvestment in Texas suggested by the agency in the 2003 update of Community Reinvestment in Texas. The agency’s primary focus is on the availability and affordability of insurance, which can affect community reinvestment.

TDI’s strategies to promote community reinvestment in 2005-2006 include encouraging a competitive market by ensuring that consumers can choose from an array of fairly priced products. TDI has adopted many new policy forms and endorsements for homeowner’s insurance. This gives insurance companies more flexibility in the products they offer. Endorsements are options, generally to add coverage, in the insurance policy. Companies develop their own insurance forms and endorsements. TDI will continue to study and analyze the effect of credit scoring on insurance availability and affordability in underserved areas.

According to TDI officials, the agency will continue to promote public awareness of the homeowners’ Market Assistance Program (MAP) and the homeowner’s Fair Access to Insurance Requirements (FAIR) plan. In fiscal 2004, TDI distributed 45,400 MAP-related publications through the TDI Web site. The agency also distributed MAP brochures and information through various home shows and community events during the year.

Recent legislation enabled the TDI to implement rules to prohibit the use of a homeowner’s water-damage and water-damage claim history, previous mold damage or mold-damage claim history in determining the issuance and pricing of insurance coverage. According to TDI, these rule changes have helped make insurance more available to homeowners in Texas.

Insurance companies voluntarily report to TDI their investments in the state’s disadvantaged areas and TDI compiles a biennial community investment report. The reporting of investments in disadvantaged areas is optional because many companies may not be able to identify the area in Texas.

Certified Capital Company (CAPCO) State Economic Development Program

The Texas Comptroller of Public Accounts and the Texas Treasury Safekeeping Trust Company are responsible for administering the new Texas CAPCO program. Funded by “Insurance Premium Tax Credits,” the CAPCO program supports economic development and generates tax revenues for the state through business growth and job creation.

Starting in February 2005, venture capital companies may apply to the Comptroller’s office to become certified as a CAPCO. In Texas, the law requires CAPCOs to invest 30 percent of their capital in “strategically located” businesses and 50 percent in “early stage” businesses. Within 120 days of rule adoption, which will occur in May 2005, each CAPCO may request an allocation of the total $200 million in available premium tax credits.

Tax credits may not be used until 2009 and are restricted to offsetting future insurance premium taxes starting that year at a maximum rate of 25 percent of earned insurance premium tax credits annually.

Insurance companies must commit to invest money in the CAPCOs up to the amount of their specific allocation. CAPCOs repay the insurance company investors over time with a combination of earnings on their investments and future tax credits. CAPCOs earn the tax credits by investing in targeted businesses. A CAPCO must meet certain investment criteria and timeframe milestones, pay annual certification renewal fees to the Comptroller’s office and adhere to reporting and spending requirements.

CAPCOs, through the CAPCO program administrator of the Texas Treasury Safekeeping Trust Company, may ask the Comptroller’s office to determine whether their investments are considered “Qualified Business Investments.” The Comptroller’s office must review the request and make a determination within a short time frame or the business investment becomes automatically qualified.

The Comptroller’s office will review CAPCOs annually to ensure they comply with program requirements. Annually, CAPCOs must submit reports to the Comptroller’s office with a nonrefundable annual fee of $5,000. Rule violations can lead to administrative penalties or de-certification of the CAPCO. Once decertified, a CAPCO cannot be reinstated, and insurance companies invested in the CAPCO may lose any invested tax credits. Insurance company investors may transfer or sell its tax credits.

Each biennium, the CAPCO program administrator requires the Comptroller’s office to report CAPCO-related job creation and program data to the governor, the lieutenant governor, and the speaker of the Texas House of Representatives.

In 2002, the total taxable premiums attributable to 1,381 licensed insurers and Health Maintenance Organizations (HMOs) in Texas was more than $49.3 billion.[102] Tax revenue in 2002 for the state on those premiums was above $770 million. Under the CAPCO program, excluding growth in premiums or tax rates, Texas should collect nearly $8 billion in insurance premium tax in the next 10 years.

Endnotes

[101] Telephone interview with Brenda Hull, policy analyst, Texas Department of Housing and Community Affairs, Austin, Texas, January 6, 2005.
[102] E-mail communication with Byron Beasley, special program administrator, Texas Treasury Safekeeping Trust Company, Austin,Texas, December 8, 2004. Byron Beasley provided all information included in the CAPCO program description of the report.