Economic Devel Revolv Loan F
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MEMORANDUM
December 14, 2004
TO:
The Honorable Mayor and City Council Members
FROM:
Michael C. Van Milligen, City Manager
SUBJECT: Establishment of Economic Development Revolving Loan Fund Programs
The City of Dubuque has a history of using Community Development Block Grant
Program funds to assist in financing two economic development programs: the
Commercial/Industrial Building Rehabilitation Program and the Economic Development
Loan Program.
The Commercial/Industrial Rehabilitation Program provides low-interest loans for
rehabilitating commercial and industrial buildings in the City's older neighborhoods and
downtown. The renovation of the former Star Brewery building is the most recent
example of the type of project funded through this program.
The Economic Development Loan Program targets both large and small businesses
with attractive low-interest loans to support the creation and retention of jobs in the City.
These funds are targeted to capital investments and for the benefit of low and
moderate-income persons.
Economic Development Director Bill Baum recommends City Council approval of the
formal establishment of two Revolving Loan Fund (RLF) Programs for the Economic
Development Department from the Community Development Block Grant Program.
The major benefit of establishing a RLF is that the repayments will be, through the
approval of a formal RLF plan, dedicated to be used for making other loans to
businesses for the purposes of the fund. Another advantage is that payments placed in
the RLF are not counted for compliance with the HUD regulation that requires minimum
expenditure levels.
,,::;
I concur with the recommendation and respectfully request Mayor and City Council
approval.
/)'7 (I J(/, /71 I
I 11.~,~/11 éP/ 'f V "\
Michael C. Van Milligen ~
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Attachment
cc: Barry Lindahl, Corporation Counsel
Cindy Steinhauser, Assistant City Manager
William Baum, Economic Development Director
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MEMORANDUM
December 13, 2004
TO:
FROM:
Michael Van Milligen, City Manager
William Baum, Economic Development Director ~~
SUBJECT: Establishment of Economic Development Revolving Loan Fund Programs
INTRODUCTION
The purpose of this memorandum is to request approval of the formal establishment of
revolving loan programs for the Economic Development Department from the
Community Development Block Grant Program.
BACKGROUND AND DISCUSSION
The City of Dubuque has a history of using Community Development Block Grant
Program funds to assist in financing two economic development programs:
. Commercial/Industrial Building Rehabilitation Program
. Economic Development Loan Program
The Commercial/Industrial Rehabilitation Program provides low interest loans for
rehabilitating commercial and industrial buildings in the City's older neighborhoods and
downtown. The buildings playa significant role in the life of the City's older
neighborhoods. Unfortunately, many of the buildings are in a vacant or underutilized
and deteriorated condition. This program provides financing for the rehabilitation and
reuse of the structures. The renovation of the former Star Brewery building is the most
recent example of the type of project funded through this program.
The Economic Development Loan program targets both large and small businesses
with attractive low-interest loans to support the creation and retention of jobs in the City.
These funds are targeted to capital investments and for the benefit of low and
moderate-income persons. This program is funded by a direct allocation of CDBG funds
and the reDavments from existina loans from both Droarams. although no formal
revolving loan program or plan has been approved.
Many CDBG grantees (Cities, Counties, and States) throughout the country establish
formal Revolving Loan Fund (RLF) programs for economic development purposes.
Under an approved RLF, the payments from loans (principal and interest) are placed in
a separate account to be used only for the purpose of the RLF. All CDBG program
regulations continue to apply to the use of the RLF.
However, a major advantage in establishing the RLF is that payments placed in an RLF
are not counted for compliance with the HUD regulation that requires minimum
expenditure levels. Since approximately $38,754 is projected as principal and interest
payments from these two programs in FY06, establishing the RLFs would not have a
significant impact on this regulation this year.
However, advantages in the future as the programs grow are apparent. For example,
today the CDBG amount available for these programs is $300,000. If that money is
committed and loaned in the near future, the principal and interest payments to future
years' RLF accounts could help the City meet that regulation.
The major benefit of establishing a Revolving Loan Fund program is that the
repayments will be, through the approval of a formal RLF plan, dedicated to be used for
making other loans to businesses for the purposes of the fund.
HUD requires that we set up two RLFs, rather than combine the two. Therefore,
enclosed you will find two separate proposed Revolving Loan Fund Plans.
The Revolving Loan Fund Plans for the two programs have been presented to the City's
Community Development Commission, and the Commission has approved the funding
for the program as part of the recommended 2006 Annual Consolidated Plan.
RECOMMENDATION
I recommend the City Council adopt the two resolutions approving the two Revolving
Loan Fund programs.
F:\USERS\WBaum\Gen EDlMemo on RLFs.doc
RESOLUTION NO.
A RESOLUTION APPROVING A REVOLVING LOAN FUND PLAN FOR
COMMERCIAL/INDUSTRIAL BUILDING REHABILITATION LOAN PROGRAM
Whereas, the Department of Housing and Urban Development (HUD) provides
Community Development Block Grant (CDBG) funds to the City of Dubuque on an
annual basis, and
Whereas, the City Council of the City of Dubuque has approved CDBG funding
for an economic development program identified as the Commercial/Industrial
Rehabilitation Loan program, and
Whereas, HUD allows cities to formally establish revolving loan programs using
program income from economic development loan programs such as the
Commercial/lndustrial Rehabilitation Loan Program, and
Whereas, a proposed Revolving Loan Fund Plan for use of CDBG
Commercial/Industrial Building Rehabilitation Program Income has been reviewed and
approved by the City's Community Development Commission as part of the CDBG
Annual Plan for Fiscal Year 2006;
NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF DUBUQUE,
IOWA:
1. The City of Dubuque hereby approves the attached REVOLVING LOAN FUND
PLAN FOR THE INTENDED USE OF COMMUNITY DEVELOPMENT BLOCK
GRANT COMMERCIAL/INDUSTRIAL BUILDING REHABILITATION PROGRAM
INCOME.
2. The PLAN is hereby incorporated into the City's fiscal year 2006 CDBG Annual
Plan for submission and approval to the U. S. Department of Housing and Urban
Development.
Passed and approved this 20th day of December 2004.
Terrance M. Duggan, Mayor
Attest:
Jeanne F. Schneider, City Clerk
F:IUSERSIWBaumIGen EDIRESOLUTION approving the CIRPRLF.doc
REVOLVING LOAN FUND PLAN FOR THE
INTENDED USE OF COMMUNITY DEVELOPOMENT
BLOCK GRANT COMMERCIAL/INDUSTRIAL
BUILDING REHABILITATION
PROGRAM INCOME
City of Dubuque
Economic Development Department
City Hall
50 West 11th Street
Dubuque, Iowa 52001
December 2004
I.
II.
III.
A.
B.
C.
D.
Table of Contents
Page
PURPOSE
3
GENERAL GUIDELINES
A.
B.
C.
D.
E.
F.
G.
Type of Assistance
Eligibility
Application Procedure
Threshold Criteria
Other Criteria
Regulatory Requirements
Loan Agreement
4
4
4
4
5
5
5
OTHER CONSIDERATIONS
Administration of the Fund
Conflict of Interest
Retention of Records
Plan Amendments
6
6
6
6
2
ECONOMIC DEVELOPMENT
COMMERCIAL/INDUSTRIAL BUILDING REHABILITATION
REVOLVING LOAN FUND
In an effort to promote and encourage economic development within the community,
and provide incentives for redevelopment of the City's older neighborhoods, the City of
Dubuque is establishing a revolving loan fund to provide financial assistance to
property owners and developers. Funding for this program is being provided from the
principal and interest payments of one of the City's economic development programs
funded by the federal Community Development Block Grant (CDBG) program:
. The Commercial/Industrial Building Rehabilitation Program.
These funds carry specific restrictions which must be adhered to both by the City of
Dubuque and subsequent loan recipients.
I. PURPOSE
The City recognizes the existance of many underutilized stuctures formerly used as
commercial/industrial buildings. The Revolving Loan Fund Program will be used by
the City to make loans designed to provide supplemental financing to assist property
owners with the rehabilitation of these former commercial/industrial buildings located
in the City's older neighborhoods and downtown.
II. GENERAL GUIDELINES
&. Tvpe of Assistance. The Loan Fund will provide direct loans to property owners or
developers for rehabilitation purposes. The interest rate charged and length of the
loan will be determined for each project individually based on demonstrated need.
Loans at no interest or forgiveable loans are permitted if such an arrangement is
determined to be necessary. Term of a loan will not exceed ten (10) years. The
maximum loan allowed to a single business is $500,000.
§.." Eliaibilitv. Applications for projects must be located within the city limits of
Dubuque, Iowa.
C. Application Procedure. Applications for the Commercial/Industrial Revolving Loan
Fund will be accepted by the City of Dubuque Economic Development Department at
any time during the year and considered on a continuous basis contingent on the
availability of loan funds.
Application forms and instructions will be available from the City of Dubuque or by
calling the Economic Development Department at 563-589-4393.
The applicant must agree to allow the Economic Development Department to research
the property and property owner's/developer's history, make credit checks, contact the
borrower's financial institution, and perform other related activities necessary for the
reasonable evaluation of the application. In the event inaccuracies, omissions, or
errors are found, the City shall have the discretion of rejecting the application or re-
rating it based on correct information.
Upon processing of the application, a recommendation will be made to the City
Manager. After City Manager review, a formal request for approval, including the
proposed loan agreement, will be made to the City Council. The City Council may
approve the loan and terms of the agreement, disapprove the application, or defer
action until additional information is available.
D. Threshold Criteria. All applicants for City of Dubuque Commercial/Industrial
Revolving Loan fund must satisfy the following minimum requirements to be eligible
for assistance:
1.
Loan funds shall provide no more than 35% of the financing for any project,
up to a maximum of $500,000;
2.
There must be evidence of adequate private equity;
3.
There must be evidence that Revolving Loan funds are necessary to make
the proposed project feasible;
4.
There must be evidence that the project is feasible and that the borrower's
project requesting assistance can continue as a "going concern" in the
foreseeable future without additional or ongoing assistance;
5.
There must be evidence that no significant negative land use or
environmental impacts will occur as a result of the project;
6.
If a borrower has a record of violations of the law, including but not limited to
environmental and worker safety statutes, rules, and regulations, over a
period of time that tends to show a consistent pattern, the business shall not
qualify for economic development assistance under this part, unless the
Economic Development Department finds that the violations did not
seriously affect public health or safety, or the environment, or if it did that
there were mitigating circumstances.
4
~ Other Criteria. The following other criteria will be used to review applications for
the Commercial/Industrial Building Revolving Loan Fund:
1.
Percent of funds other than Revolving Loan Funds in the project.
2.
Need for and impact of the project; consideration will include, resultant new
economic activity, project schedule, property tax enhancement and other
effects on the local tax base.
3.
Priority will be given to projects that perform rehabilitation to the standards
of the Department of Interior regulations for Rehabilitation of Historic
Structures. Refinancing or restructuring of existing loans will be considered
low priorities.
E Reaulatorv Reauirements. All applicants will be required to certify to the City and
the U.S. Department of Housing and Urban Development (HUD) that they will comply
with all applicable Community Development Block Grant regulations. A summary of
the regulations will be provided by the Economic Development Department.
G. Loan Aareement. If a proposal is approved for funding by the City Council, the
applicant will sign a Promissory Note and Loan Agreement with the City. The Note and
Loan Agreement, at a minimum, will establish the following:
1.
The interest rate of the loan, whether it is fixed or variable, and the terms of
its variability;
2. The term of the loan;
3. The frequency of loan payments;
4. Penalties for late payment;
Interest rates may differ between projects. Rates charged depend upon the needs of
each project and the degree to which the proposal is in conformance with the goals
and priorities of the City of Dubuque's Commercial/Industrial Revolving Loan Fund
Program.
Loans may be long or short term, but not to exceed -10 years, depending upon the
particular situation. The term may vary from project to project.
Revolving Loan Funds may be secured by mortgages and/or liens against fixed
assets, and/or corporate guarantees. Such mortgages and/or liens may be
subordinated to conventional bank financing. Other security, including Personal
Guarantees, may be required.
Loans may be renegotiated. Renegotiation proceedings, however, are not the
borrower's inherent right.
In general, repayment of loans will be made via equal payments over the term of the
loan. Payments will be due and payable monthly, quarterly, semi-annually, or annually.
Alternative schedules may be arranged if deemed appropriate.
The date of the first loan payment will be arranged on a project-by-project basis.
Usually the date of first payment will not exceed six months from the date of the loan.
Submission of annual financial statements shall be required of all borrowers.
III. OTHER CONSIDERATIONS
& Administration of the Fund. The Director of Finance will be responsible for
maintaining the appropriate accounting system related to the operation of the
revolving loan fund. Interest and principal payments from the activity will be placed in
a seperate interest bearing account to establish the revolving loan fund. Any interest
earned on the fund will be returned to the U.S. Department of Housing and Urban
Develoment (HUD) annually. Investment of the balance of loan funds shall be in
accordance with the City's investment policy. Administration of specific loan
agreements and monitoring of funded projects shall be the responsibility of the
Ecomomic Development Director or may be subcontracted to a qualified individual or
firm. Cost for the administration of the Revolving Loan fund may be derived from
interest payments on loans made from the fund, or from other City funds.
§.." Conflict of Interest. City officials shall avoid any conflict of interest regarding the
Revolving Loan Fund. The City corporation counsel will decide conflict of interest
situations.
C. Retention of Records. All records related to each loan transaction shall be
retained by the City of Dubuque for a period of at least five (5) years after the date
upon which the final loan payment is received.
D. Plan Amendments. The City Council may amend this plan by resolution, after
holding a public hearing on the proposed change, in accordance with applicable state
law.
6
PASSED, APPROVED, AND ADOPTED this - day of
Terrence M. Duggan, Mayor
A nEST:
Jeanne F. Schneider, City Clerk
F:IUSERSIWBaumIRLF Plan Commerciallndustrialfinal.doc
,2005.
7
RESOLUTION NO.
A RESOLUTION APPROVING A REVOLVING LOAN FUND PLAN FOR ECONOMIC
DEVELOPMENT LOAN PROGRAM
Whereas, the Department of Housing and Urban Development (HUD) provides
Community Development Block Grant (CDBG) funds to the City of Dubuque on an
annual basis, and
Whereas, the City Council of the City of Dubuque has approved CDBG funding
for an Economic Development Loan Program, and
Whereas, HUD allows cities to formally establish revolving loan programs using
program income from Economic Development Loan programs, and
Whereas, a proposed Revolving Loan Fund Plan for use of CDBG Economic
Development Loan Program Income has been reviewed and approved by the City's
Community Development Commission as part of the CDBG Annual Plan for Fiscal Year
2006;
NOW, THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF DUBUQUE,
IOWA:
1. The City of Dubuque hereby approves the attached REVOLVING LOAN FUND
PLAN FOR THE INTENDED USE OF COMMUNITY DEVELOPMENT BLOCK
GRANT ECONOMIC DEVELOPMENT LOAN PROGRAM INCOME.
2. The PLAN is hereby incorporated into the City's fiscal year 2006 CDBG Annual
Plan for submission and approval to the U. S. Department of Housing and Urban
Development.
Passed and approved this 20th day of December 2004.
Terrance M. Duggan, Mayor
Attest:
Jeanne F. Schneider, City Clerk
F:IUSERSIWBaumIGen EDIRESOLUTION approving the RFLforED.doc
REVOLVING LOAN FUND PLAN FOR THE
INTENDED
USE OF COMMUNITY DEVELOPMENT BLOCK
GRANT ECONOMIC DEVELOPMENT LOAN
PROGRAM INCOME
City of Dubuque
Economic Development Department
City Hall
50 West 11 th Street
Dubuque, Iowa 52001
December 2004
I.
II.
Table of Contents
Page
PURPOSE
3
GENERAL GUIDELINES
A.
B.
C.
D.
E.
F.
G.
III.
Type of Assistance
Eligibility
Application Procedure
Threshold Criteria
Other Criteria
Regulatory Requirements
Loan Agreement
4
4
4
4
5
6
6
OTHER CONSIDERATIONS
A.
B.
C.
D.
Administration of the Fund
Conflict of Interest
Retention of Records
Plan Amendments
7
7
7
7
ECONOMIC DEVELOPMENT
REVOLVING LOAN FUND
In an effort to promote and encourage economic development within the community,
the City of Dubuque is establishing a revolving loan fund to provide financial
assistance to new and expanding businesses. Funding for this program is being
provided from the principal and interest payments the City's Job program funded by
the federal Community Development Block Grant (CDBG) program:
. The Community Development Block Grant Economic Development Loan
Program.
This fund carries specific restrictions which must be adhered to both by the City of
Dubuque and subsequent loan recipients.
I. PURPOSE
The Revolving Loan Fund Program is designed to provide supplemental financing in
support of new and expanding businesses located within the City of Dubuque. The
revolving loan fund will be used by the City to make loans or loan guarantees for the
following purposes:
1.
To increase employment opportunities, particularly for low or moderate
income residents, by increasing the number and type of businesses in the
City of Dubuque.
2.
To offer financial assistance that will promote the retention and expansion
of existing businesses.
3.
To increase the property tax base.
4.
To diversify the community's economic composition by encouraging unique
or essential business opportunities.
II. GENERAL GUIDELINES
&. Tvpe of Assistance. The Loan Fund will provide direct loans to new and expanding
businesses within the City. The interest rate charged and length of the loan will be
determined for each project individually based on demonstrated need. Loans at no
interest or forgiveable loans are permitted if such an arrangement is determined to be
necessary. Term of a loan will not exceed ten (10) years. The maximum loan allowed
to a single business is $500,000.
§.." Eliqibilitv. Applications for projects must be located within the city limits of
Dubuque, Iowa. Any Revolving Loan Fund loan must be immediately repaid,
including outstanding principal and interest, if the project activity is moved outside the
eligible area during the life of the loan.
C. Application Procedure. Applications for the Revolving Loan Fund will be accepted
by the City of Dubuque Economic Development Department at any time during the
year and considered on a continuous basis contingent on the availability of loan funds.
Application forms and instructions will be available from the City of Dubuque or by
calling the Economic Development Department at 563-589-4393.
The applicant must agree to allow the Economic Development Department to research
the company's history, make credit checks, contact the company's financial institution,
and perform other related activities necessary for the reasonable evaluation of the
application. In the event inaccuracies, omissions, or errors are found, the City shall
have the discretion of rejecting the application or re-rating it based on correct
information.
Upon processing of the application, a recommendation will be made to the City
Manager. After City Manager review, a formal request for approval, including the
proposed loan agreement, will be made to the City Council. The City Council may
approve the loan and terms of the agreement, disapprove the application, or defer
action until additional information is available.
D. Threshold Criteria. All applicants for City of Dubuque Revolving Loan funds must
satisfy the following minimum requirements to be eligible for assistance:
1. A minimum ratio of one permanent job created or retained for every $35,000
of Loan funds;
2. At least fifty-one percent (51 %) of the permanent jobs created or retained by
the proposed project will be made available to low or moderate income
4
individuals, according to definintions of the Department of Housing and
Urban Development.
3. The proposed project must create or retain a minimum of ten jobs; job
creation projections are for a three-year period;
4. Jobs created as a result of other jobs being displaced elsewhere in the city
will not be considered new jobs for the purpose of evaluating the application
for assistance;
5. Loan funds shall provide no more than 35% of the financing for any project,
up to a maximum of $500,000;
6. There must be evidence of adequate private equity;
7. There must be evidence that Revolving Loan funds are necessary to make
the proposed project feasible;
8. There must be evidence that the project is feasible and that the business
requesting assistance can continue as a "going concern" in the foreseeable
future without additional or ongoing assistance;
9. There must be evidence that there will be no significant negative impacts on
other businesses or employers in the City;
10. There must be evidence that no significant negative land use or
environmental impacts will occur as a result of the project;
11.lf a business has a record of violations of the law, including but not limited to
environmental and worker safety statutes, rules, and regulations, over a
period of time that tends to show a consistent pattern, the business shall not
qualify for economic development assistance under this part, unless the
Economic Development Department finds that the violations did not seriously
affect public health or safety, or the environment, or if it did that there were
mitigating circumstances.
~ Other Criteria. The following other criteria will be used to review applications for
the City of Dubuque Revolving Loan Fund:
1.
Number of jobs per funds requested; jobs to be created must be within a
three-year period.
2.
Percent of funds other than Revolving Loan Funds in the project.
3.
Need for and impact of the project; consideration will include local
employment conditions, resultant new economic activity, quality of jobs,
project schedule, property tax enhancement and other effects on the local
tax base.
4.
Priority will be given to projects that create good paying jobs, diversify the
area's economic composition, are unique or essential business concerns,
and/or export products and services. Refinancing or restructuring of
existing loans will be considered low priorities.
E Requlatorv Requirements. All applicants will be required to certify to the City and
the U.S. Department of Housing and Urban Development (HUD) that they will comply
with all regulations governing the Community Development Block Grant Program
where applicable. A summary of the regulations will be provided by the Economic
Development Department.
G. Loan Aareement. If a proposal is approved for funding by the City Council, the
applicant will sign a Promissory Note and Loan Agreement with the City. The Note and
Loan Agreement, at a minimum, will establish the following:
1.
The interest rate of the loan, whether it is fixed or variable, and the terms of
its variability;
2.
The term of the loan;
3.
The frequency of loan payments;
4.
Penalties for late payment;
5.
Job creation and/or retention schedule, as provided in the application;
6.
Penalties for failure to meet job creation or retention goals.
Interest rates may differ between projects. Rates charged depend upon the needs of
each project and the degree to which the proposal is in conformance with the goals
and priorities of the City of Dubuque's Revolving Loan Fund Program.
Loans may be long or short term, but not to exceed 10 years, depending upon the
particular situation. The term may vary from project to project.
Revolving Loan Funds may be secured by mortgages and/or liens against fixed
assets, and/or corporate guarantees. Such mortgages and/or liens may be
subordinated to conventional bank financing. Other security, including Personal
Guarantees, may be required.
6
Loans may be renegotiated. Renegotiation proceedings, however, are not the
borrower's inherent right.
In general, repayment of loans will be made via equal payments over the term of the
loan. Payments will be due and payable monthly, quarterly, semi-annually, or annually.
Alternative schedules may be arranged if deemed appropriate.
The date of the first loan payment will be arranged on a project-by-project basis.
Usually the date of first payment will not exceed six months from the date of the loan.
In the event that the borrower does not achieve the job creation levels specified, or in
the event that the total project cost is less than the amount specified in the application,
then loan funds received from the City will be subject to disallowance and immediate
repayment. The maximum percentage of loan funds, which may be disallowed due to
failure to achieve performance targets within three years, will be equal to the
percentage of the performance targets not achieved.
Submission of annual financial statements and job creation reports shall be required
of all borrowers.
III. OTHER CONSIDERATIONS
&. Administration of the Fund. The Director of Finance will be responsible for
maintaining the appropriate accounting system related to the operation of the
revolving loan fund. Interest and principal payments from the activity will be placed in
a seperate interest bearing account to establish the revolving loan fund. Any interest
earned on the fund will be returned to the U.S. Department of Housing and Urban
Develoment (HUD) annually. Investment of the balance of loan funds shall be in
accordance with the City's investment policy. Administration of specific loan
agreements and monitoring of funded projects shall be the responsibility of the
Ecomomic Development Director or may be subcontracted to a qualified individual or
firm. Cost for the administration of the Revolving Loan fund may be derived from
interest payments on loans made from the fund, or from other City funds.
§.." Conflict of Interest. City officials shall avoid any conflict of interest regarding the
Revolving Loan Fund. The City corporation counsel will decide conflict of interest
situations.
C. Retention of Records. All records related to each loan transaction shall be
retained by the City of Dubuque for a period of at least five (5) years after the date
upon which the final loan payment is received.
7
D. Plan Amendments. The City Council may amend this plan by resolution, after
holding a public hearing on the proposed change, in accordance with applicable state
law.
PASSED, APPROVED, AND ADOPTED this - day of
,2005.
Terrence M. Duggan, Mayor
ATTEST:
Jeanne F. Schneider, City Clerk
F:IUSERSIWBaumIGen EDIRLF plan for EDfinal.doc