EDA Agenda 04-23-1991AGENDA
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
Tuesday, April 23, 1991 - 7:00 PM
City Hall
MEMBERS: Chairperson Ron Hoglund, Barb Schwientek, Bob Mosford,
Brad Fyle, Clint Herbst, Harvey Kendall, and Al Larson.
STAFF: Rick Wolfsteller,. Jeff O'Neill, and 011ie Koropchak.
1. CALL TO ORDER.
2. CONSIDERATION TO APPROVE OF THE JANUARY 29, 1991 EDA ANNUAL
MEETING MINUTES.
3. CONSIDERATION TO REVIEW THE REVISED 1990 EDA FINANCIAL
STATEMENTS.
a) Accountability of Remaining Committed $62,000 GMEF Balance.
b) Consideration of the Bank to Reduce the GMEF Bank Service
Fee.
c) Financial Report Consistent to Accounting Procedures.
4. CONSIDERATION TO REVIEW THE RESEARCHED UDAG INFORMATION.
5. CONSIDERATION TO REVIEW AMENDED GMEF GUIDELINES FOR SECOND
RECOMMENDATION TO THE CITY COUNCIL.
a) Request for City Council To Authorize a Committment of a
Romaining Minimum $100,000 GMEF Balance.
6. CONSIDERATION TO HEAR OF POTENTIAL GMEF APPLICATIONS.
a) Aroplax Corporation.
b) Donnie Pomerleau.
7. OTHER BUSINESS.
S. ADJOURNMENT.
5
7 ANNUAL MEETING MINUTES
I MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
Tuesday, January 29, 1991 - 7:00 AM
City Hall
MEMBERS PRESENT: Bob Mosford, Harvey Kendall, Al Larson, Brad
Fyle, Clint Herbst, and Barb Schwientek (tardy).
MEMBERS ABSENT: Ron Hoglund.
STAFF PRESENT: Rick Wolfsteller and 011ie Koropchak.
1. CALL TO ORDER.
In the absent of Chairperson Ron Hoglund and the tardiness of
Vice Chairperson Barb Schwientek, EDA Executive Director
Koropchak called the EDA meeting to order at 7:06 AM.
2. WELCOME TO NEW EDA MEMBERS.
With the appointment of Brad Fyle and Clint Herbst to the EDA
by Mayor Maus and the Council, Koropchak welcomed the now
council members and introductions between EDA members
occurred.
3. APPROVAL OF THE OCTOBER 30, 1990 EDA MINUTES.
Harvey Kendall noted a typing correction be made on page three
of the EDA minutes, second to the bottom paragraph from 1/58
to 1.5%. With the above noted correction, Harvey Kendall made
a motion to approve the October 30, 1990 EDA minutes, seconded
by Al Larson, the minutes were approved as written and
corrected.
4. CONSIDERATION TO REVIEW AND ACCEPT THE 1990 EDA ANNUAL REPORT.
Koropchak explained to the EDA members that the process to
secure bank financing for an SBA loan has been altered for
startup or marginal companies. Previously, the SBA loan
application was completed prior to securing bank financing as
was in the case of the Eastey Company. Upon Mr. Poletring's
advise, now the company applicato representatives, Mr.
Pelstring, and Koropchak moot with lending institutions
allowing tho bank to hear the company's product concept and to
roviow preliminary financials or projections. This reduces
Mr. Polstring's preparation time thereby reduces the coat to
the city.
By consensus of the EDA, the 1990 EDA Report was accepted.
Page 1
EDA Minutes
1/29/91
5. CONSIDERATION TO REVIEW AND ACCEPT THE 1990 EDA FINANCIAL
REPORT.
At the time of EDA establishment, the City Council commited to
transfer of $200,000 from the City Liquor Store Fund with a
maximum loan request of one-half the GMEF remaining balance.
EDA Treasurer Wolfsteller noted the two GMEF loans approved in
1990 for Tapper's Inc at $88,000 and the Muller Theatre at
$50,000 on the Year End Report. Interest earned on each loan
was noted with expenses of loan service fees and legal fees
also being noted. Harvey Kendall asked where the
accountability of the remaining $62,000 Council commitment was
shown. On this report it wasn't shown. Bob Mosford asked if
the EDA loan fee was waived on both loans since no income was
recorded on the report. Koropchak indicated yes to the
Tapper's loan and questioned the waiving of the Muller loan
fee. The EDA members recalled their previous discussion to
negotiate reduction of the bank service fees as this is a
cooperative effort for the good of the community. EDA members
requested Mr. Wolfsteller to contact the local banks regarding
reduction of the service fees.
The EDA further discussed the availability of additional
transfer funds as with the proposed request of $30,000 GMEF
from Axoplax, the remaining fund balance would be $32,000
thereby allowing a maximum loan request of $16,000. Without
a pro -Council authorization of additional transfer funds, the
EDA available funds becomes like a path down a blind alley,
Barb Schwientek expressed. Moaning Koropchak has no
substantial amount of funds to market. The UDAG repayments
from the Fulfillment Systems, Inc. loan has a balance of
approximately $80,000 currently. Approximate total repayment
over the next ton years will be $250,000 which was earmarked
for economic development. Mr. Wolfstellor informed the EDA
that City Council authorization would be necessary for use of
the UDAG funds as tho City Council originally authorized the
loan. The UDAG loan is a federal loan of which a City retains
the paybacks. Upon the request of Harvey Kendall and by EDA
conconsus, Koropchak will rosearch tho background of the UDAG
and its permissible alternative uses for the next EDA agenda,
this to earmark funds and requost City Council authorization.
Upon further discussion, the EDA agreed upon a nooded
remaining minimum $100,000 GMEF balance which would bo
available for loan request. Al Larson made a motion
rocommanding City Council authorizo a commitment of a
remaining minimum $100,000 GMEF balanco. Barb Schwientok
seconded tho motion and without further discussion tho motion
passed 6-0.
Pago 2
EDA Minutes
J 1/29/91
14— Bob Mosford volunteered to assistaflee Mr. Wolfsteller with
setting of the EDA Financial Report consistent to accounting
procedures. Harvey Kendall made a motion to accept the 1990
EDA Financial Report as revised with Mr. Mosford's assistance.
Seconded by Al Larson and without further discussion the
report was accepted.
6. CONSIDERATION TO ELECT 1991 EDA OFFICERS,.
In accordance with the EDA Bylaws, the officers must be
elected at the annual meeting. Koropchak informed members
that Ron Hoglund had been contacted prior to this meeting to
confirm his willingness to remain EDA President of which he
confirmed. With the acknowledgement of other EDA officers
willing to retain their office, Al Larson made a motion to
elect 1991 EDA officers as follows: Ron Hoglund, President;
Barb Schwientek, Vice President; Rick Wolfsteller, Treasurer;
Bob Mosford, Assistant Treasurer; and 011ie Koropchak,
Secretary. Harvey Kendall seconded the motion and without
further discussion the motion passed 6-0.
7. OTHER. BUSINESS.
Koropchak informed the EDA of the proposed GMEF request from
Axoplax. The company's total financial package will consist
of bank, SBA, TIF, and GMEF participation. The forty year old
family business manufactures plastic injection molding. The
company has talked to their bank which indicates an interest
to participate. The company would relocate from the motro
area to allow production, receiving, and shipping on one
level. The company employs 20-25 personnel at a semiskilled
wage level. BDS, Inc.; Koropchak; and the company will meet
this Friday to detail financing process.
As previous EDA minutes indicate, upon appointment of the new
City Council representatives, the EDA members will discuss the
possibility to change the EDA meeting time. With EDA members
in agreement, Al Larson made a motion to amend the EDA Bylaws
changing the EDA mooting time from 7:00 A.M. to 7:00 P.M.
Seconded by Barb Schwientek and without further discussion the
motion passed 6-0.
Koropchak informed the EDA membors of the City Council's lack
of support to second the motion to amend the GMEF Guidolines
as recommended by the EDA at their October 30, 1990 meeting.
The EDA elected to further discuss this issue at the next
regular scheduled EDA meeting with possible rovised
recommendations to the Council along with the request for the
commitment of remaining minimum $100,000 GMEF balance.
Pago 3
EDA Minutes
1/29/91
ADJOURNMENT.
Harvey Kendall made a motion to adjourn the EDA meeting, Al
Larson seconded the motion, and the EDA meeting adjourned at
8:06 AM.
Ceast� �,949�-�
011ie Koropcha , EDA Secretary
Pago 4
EDA AGENDA
4-23-91
3. CONSIDERATION TO REVIEW THE REVISED 1990 EDA FINANCIAL
STATEMENTS.
A. REFERENCE AND BACKGROUND.
Enclosed you will find a copy of the 1990 EDA Financial
Statements as prepared by Bob Mosford and submitted to Mr.
Wolfsteller. The report is in accordance to accounting
procedures and includes the remaining committed $62,000 GMEF
Balance. I bring to your attention under the 1991 Cash Flow
Projections, Appropriations - Other, the $100,000. It may be
my misunderstanding and correction needed in the January
minutes, however, I understood upon the EDA reviewing the GMEF
Guidelines for recommendation to the City Council, the EDA in
their motion recommended the City Council to authorize a
commitment of a remaining minimum $100,000 GMEF balance
meaning the GMEF would maintain a minimum of $100,000 for
potential loan requests or at this time a different of $38,000
or $138,000 ($100,000 minus $62,000 equals $38,000 or $200,000
minus $62,000 equals $136,000). In addition, Mr. Wolfsteller
will report on the status of the Bank Service Fee.
Upon review of these items, I recommend the EDA accept or
recognize the revised 1990 EDA Financial Statements.
4. CONSIDERATION TO REVIEW THE RESEARCHED UDAG INFORMATION.
This information to be provided at the meeting.
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
GREATER MONTICELLO ENTERPRISE FUND (GMEF)
Statement of Revenues, Expenditures And Changes In Fund Balance
For The Year Ended December 31, 1990
REVENUES
Appropriations from Liquor Fund 3 200,000.00
Interest income -notes 3,697.39
Interest income -investment -0-
Loan fees -0-
Total Revenues $ 203,697.39
EX$ENDITVRES
Legal fees E 1,824.01
Service fees 140.00
Total Expenditures 1.964.01
Excess of Revenues Over Expenditures S 201,733.38
FUND BALANCE - Beginning Of Year -0-
FUND BALANCE - End Of Year S 201.733.38
r�
C
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
GREATER MONTICELLO ENTERPRISE FUND (GMEP)
Balance Sheet
December 31, 1990
ASSETS
Cash in bank S 2,552.78
Notes receivable - Tapper*s Inc. 87,260.97
Notes receivable - Mueller Theater 49,919.63
Appropriations receivable - Liquor Fund 62.000.00
TOTAL ASSETS
Fund balance
Reserved for participation loans
(economic development)
S 201.733.38
TOTAL LIABILITIES AND FUND EQUITY 5201.733.38
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
GREATER MONTICELLO ENTERPRISE FUND (GMEP)
j 1991 Cash Plow Projection
RECEIPTS
Appropriations -Liquor Fund $ 62,000.00
Appropriations -Other 100,000.00
Note amortization payments-TapperIa Inc. (736.07 Mo.) 8,833.00
Note amortization payments -Mueller Theater (418.22 Mo.) 5,019.00
Interest income -investment 500.00
Loan fees 2.250.00
Total Receipts 3 178,602.00
EXPENDITURES
GMEP loans 3 150,000.00
Legal fees 1,500.00
Service fees 480.00
Total Expenditures 151.980.00
Excess of Receipts Over Expenditures $ 26.622.00
EDA AGENDA
4-23-91
4.. CONSIDERATION TO REVIEW THE RESEARCHED UDAG INFORMATION.
A.- - REFERENCE AND BACKGROUND.
'At the January EDA meeting, the EDA requested Koropchak•
`to research the UDAG information and its "permissible
alternative uses, this to earmark funds and request City
Council authorization of funds.
In August, 1983, the City Council authorized the
submission of an Urban Development Action Grant (UDAG)
Application for Fulfillment Systems, Inc. (FSI), with
UDAG approval in 1984. In accordance with the UDAG
Agreement (Grant No.: B -83 -AB -27-0203) _EXHIBIT A. •Any7
repayments received after completion of the UDAG funded
Recipient Activities shall be deemed miscellaneous
revenues and shall be spent for activities eligible under.
Title I of the Housing and Community Development Act -of
1974, as amended, and shall not be governed by Part 570.
In accordance with the agreement between the city and the
developer, all program income received by the developer
after the completion of all recipeint activities shall,
at the option of the developer, either be transmitted to
the city, or used by the developer with city approval,
for community and economic development activities which
would be eligible for assistance under Title I of the
Act, unless otherwise provided in the close-out agreement
between City and HUD.
Principal and interest paid by FSI to date is $90,907.05.
The debt service payments are received monthly for a
yearly total of $27,971.40. The dobt service was
amortized over 12 years with final payment duo December
1999.
At present, the GMEF has a balance of $62,000 with a
maximum lending capability of $31,000. Two preliminary
loan applications are expected with request of $30,000
GMEF monies oach.
Information for review:
1) Council minutes of 8-22-83
2) Rosolution adopted by the City Council in 1983
3) Monticello UDAG rapaymont activities eligible
4) Eligible program income by agreement
5) UDAG Repayment
6) UDAG City Budget (1990 and 1991)
C 7) Title I Eligible ACtiviti0s (summarized)
8) Analysis of the Incomo Cities Earn from UDAG
Projects
r
Upon review of the above information, the EDA may wish to
1) Define community and economic development
2) Earmark UDAG repayment funds with recommending
to the City Council for approval:
a) Special Economic Development Activities
which basically covers all the Title I
eligible activities
b) for GMEF funding in accordance with the
GMEF guidelines
C) Title I eligible activities
d) Other (specify industrial development)
If necessary determine subrecipient
Council Minutes - 8/22/83
9. Consideration of Authorizing the Submission of an Urban Develop-
ment Action Grant Application.
Recently, the City of Monticello has been notified that it would
no longer meet the criteria established by HUD to be eligible
for future UDAG,grant money_ofter August_31,_1983._An_Urban
Development Action Grant is basically a grant to the City which
in turn lends money to an economic developer at a�reduced
'interest rate. _When -the money -is repaid back with interest,
the community is allowed to keep the funds and reuse the money ,
in a similar fashion -to help other development within, the City.
The program--ie-quires -substantial- commitment -from the eveloper,
with the higher ratio of private geetor dollars to public
dollars creating a greater chance for grant approval.
in the last few weeks, Fulfillment Systems of Monticello has
approached the City in order to relocate their business within
the corporate limits and they have expressed an interest in
trying to meet the August 31, 1983, deadline to apply for the
UDAG grant funds to help them establish their business in
the City. The City Staff has been working on trying to got
the applications submitted prior to August 31st and would
require Council authorization to apply.
A motion was made by Blonigen, seconded by Maxwell and unani-
mously carried to authorize the submission of an Urban Develop-
ment Action Grant application for Fulfillment Systems Devolop-
mant plan. (See Resolution 1983 977).
10, Consideration of Rescheduling the First Meeting in September
from Mondav, September 12th to '1Vosday, September 13, 1983.
Duo to the annual Industry Day banquet scheduled for Monday,
September 12, 1983, it was the conconsue of the Council to
hold its first regularly scheduled Council meeting of the
month on Tuesday, September 13th, 1983. In addition, the first
regular meeting in Octobor..was rescheduled from Monday,
October 10th (Columbus Day) to October 11, 1983.
11. Approval of the Bills.
A motion was made by Maxwoll, seconded by Fair, and unani-
mously carried to approve the bills for the month of August
as pro ntad.
Rick WolfstslA
Assistant Administrator
5)
4
RESOLUTION 1983 #77
WHEREAS, the City of Monticello has been declared a distressed City
by the Department of Housing and Urban Development, and;
WHEREAS, said declaration permits the City to pursue eligibility and
financial assistance through the Urban Development Action Grant
Program, and;
WHEREAS, Fulfillment Systems, Inc. has presented an industrial develop-
ment proposal to the City which would require UDAG assistance to complete,
and;
WHEREAS, it has been determined that the proposal by Fulfillment Systems,
Inc. would create a substantial number of employment opportunities for
low and moderate income persons in the community.
NOW THEREFORE, BE IT RESOLVED BY THE COU11CIL OF THE CITY OF MONTICELLO,
that an application for an Urban Development Action Grant be prepared
and submitted to the Department of Housing and Urban Development.
BE IT FURTHER RESOLVED, that the Mayor and City Administrator execute
said application, and negotiate a development agreement with Fulfill-
ment Systems, Inc.
Adopted this 22nd day of August, 1983.
Arve A. Grimsmo, Mayor
Thomas A. Eidem
City Administrator
J
Section 2.04 Recipient's Use of Proqram Income
(a) In order to provide funds to assure completion of the Recipient
Activities, the Secretary shall have the right to require all Program Intone
received by the Recipient, or by any Participating Party, prior to the caupletion
of all Recipient Activities, to he deposited in escrow under arrangements approved
by the Secretary. The Secretary may exercise said right either by specifying such
requirement in Exhibit A of this Grant Agreement or by separate written instructions
to the Recipient delivered at any time prior to the completion of all kecipient
Activities arra the draw of grant funds to pay costs incurred for such activities.
(b) Unless otherwise specifically stated in Exhibit A of this Crant
Agreement, all Program Income which is received by the Recipient or any
rarticipating Party, prior to completion of all Recipient Activities shall be,
used prior to, and in place of, any draw under the Letter of Credit to tle
extent adequate to pay costs so incurred.
(c) Unless otherwise specifically stated in Exhibit A of this Grant
Agreement or in the close-out agreement between the Recipient arca IIUL, all Program
Income received by the Recipient, or any Participating Party, after the completion
of all Recipient Activities shall be used by the Recipient, or the Participating
Party subject to the approval of the Recipient,. for community or economic development
activities eligible for assistance under Title I of the Act.
(d) For rockets of Poverty Projects, all Program :none received
by the Recipient, or any Participating Party, after the caupletion of all
Recipient Activities shall be used only for activities which directly benefit
low- and moderate -income residents of the pocket.
ARTICLE III
DISRURSr ENT OF GM1T FUNES
Section 3.01 Letter of Credit Procedures
(a) Pranptly after the Secretary has received from the Iecipient not
less tlmn three (3) fully executed copies of this Grant kjreement ano has al proven
evidenLiary m aLerials required by Exhibit F. of this Grant Agreement tint would allow
a drawcbwn of grant funds pursuant to the terms of Exhibit F of this GranL Agreement.,
Ute Secretary shall cause a Letter of Credit to be issued to Ute Recipient by Llw
reparLm:nt of the Treasury, or shall cause the Letter of Credit previously issue.l
to the Rocipient by the Department of the Treasury with respect to Une Cunuunicy
Revised 6/81
Activities, the Recipient shall SuuulL Li, w,.. .._
executed by the thief executive officer of the Recipient, stating Lhat all
Recipient Activities, have been completed consistent with the terms of this
Grant Agreement, and specifying the date of completion and the cost for cacti
Recipient Activity.
Section 8.03 Certification After Conuletion of All Iron -Recipient
Activities
Within thirty (30) days after the completion of all tion -Recipient
Activities, the Recipient shall subnit to the Secretary a written certification,
executed by the chief executive officer of the Recipient, stating that all tron-
Pecipient Activities, have been completed consistent with the terms of this Grant
Agreement, and specifyirxl'the date of completion and the cost for each ton -Recipient
Activity. The certification shall have attached to it a statement from each
Participating Party that Une information in the certification with respect to
the hon -Recipient Activities carried out by that Participating Party is complete
and correct.
ARTICLE. IY.
ihIRD PAM t'o1nRIC1' RIQIARDIUrAS
Section 9.01 Escrow of Program Incone
The Recipient shall include in all contracts with Participating Parties
involving activities to be paid for with grant funds, a provision that, upon
instruction by the Secretary, all Program Income received by the Participating
Party, prior to the completion of all Recipient Activities, shall Le deposited
in escrow under arrangements approved by the Secretary, in order to provide
funds to assure the completion of the Recipient Activities. D
:Section 9.02 Proqram Income Applied to Costs Y`
Unless Cxhibit A of this Grant Agreement authorizes or requires
otherwise, the Recipient shall include in all contracts with Participating
lorties involving activities to be paid for with grant funds, a provision that
all Program Incame received by the Participating Party, prior to the completion
of all Recipient Activities, shall be transmitted to the Recipient for payment
of costs incurred for Recipient Activities.
Section 9.03 Program Incone for Title I Activities
Unless Exhibit A to this Grant Agreement authorizes or requires
othnerwise, the Recipient shall include in all contracts with Participating
i•orties involving activities to be paid for with grant funds, a provision that
all kogram hnc(Ao received by the Participating Party after the conpletion of
all Incipient Activities shall, at tha option of the ii:cipient, either ix:
transmitted to the Recipient, or used by the wrticipoting Party with Recipient
allwoval, for conmunity and econanic davololment activities which would Lo
eligible for assistance unnnier Title I of the Act, unless otherwise provided in
Uno clown -out oyreciiait between Recipient and HUD.
Revised 6/81 ti re-,\
2. Letter date,' October 12, 1983 (with enClocures) from Tl jtyik,�
8
Virginia Holman,
9
3. Letter dated October 17, 1983 (with enclosures) from Thomas Edem to
30
Virginia Holman.
)1
4. Telegram dated October 20, 1983 from Roy Lilke, Fulfillment Systems to
12
Virginia Holman.
13
Rider to Section 1.03(12). The term "Participating Party" consists of
14
the following persons, firms, corporations and entities:
IS
"Developer" shall mean Fulfillment Systems, Inc., of Monticello,
16
Minnesota, a 14innesota Corporation.
17
"Bank" shall mean a consortium of banks comprised of Wright County State
18
Bunk, Lead Bank, with ist State Bank of Lake Lillian and Citizens State Wank
19
of Clara City as participating banks.
20
Rider to Section 1.03(13). The phrase "the UDAG percentage of" contained
71
on the first line of paragraph (13) and the last sentence thereof are deleted
22
In their entirety.
23
Rider to Section 2.01. The amount of this UDAG grant is Two Hundred
14
Forty -Three Thousnnd, Five Hundred Dollars ($243,500).
25
Rider to Sections 2.04, 9.01, 9.02 and 4.03• Any repayment or other
26
payments received pursuant to Paragraph V of Exhibit E of this Grant Agreement
27
and received prior to completion of the UDAG funded Recipient Activities shall
28
be held in escrow pursuant to Section 2.04(a) of this Grant Agreement until
29
completion of the UDAG funded Recipient Activities. All escrowed funda shall
30
bear interest with the nceounts insured by nn agency of the U.S. Government.
31
Upon completion of the UDAG funded 'ilenipient Activities, ,uly funds held in
32
ani+l Parrow ohall he upent, for activities eligihle under Title J of the
F%''l1111'i A Pace 1 of 2
M
14ecipient: Monticello, Minnesota Grant ilo.: B-83-AB-27-0103
i
Housing and Community Development Act of 1974, as amended, and shall he spent
in accordance with Part 570 of Title 24 Code of Federal Regulations. Any
1 repayments received after completion of the WAG funded Recipient Activities
2 shall be deemed miscellaneous revenues and shall be spent for activities
3 eligible under Title I of the llousing and Commmity Development Act of 1974, C,-,-'
CP&vo �q
4 as amended, and shall not be governed by Part 570. n °u
5 Rider to Section 5.01(8). Paragraph (8) shall be deleted in its entirety
6 and the following shall be inserted in place thereof:
T "(8) Recipient shall comply with the conflict of interest provision set forth
8 in 24 CFR Section 570.611 (48 Federal Register 186, pp.43571-72, 9/23/83)"•
9 Rider to Sections 5.03 and 9.06. The jobs referenced at Section 5.03 and
10 the assurances required at Section 9.06 shall aggregate:
11 Total Permanent Jobs: 65
12 Total Permuient Jobs for Low- and Moderate-Income Persons: 23
l3 Totnl Permment Jobs for CETA-Eligible Persons: 12
16 Total Perrwurent Jobs for Minorities: 2
15 Total Permanent ,Jobs for Low- and Moderato-Income Residents
16 of the Pocket of Poverty:
I? Job Requirermints airall be completed within 48 months from the
is Dat: of Preliminary Approval.
39 Rider to Section 9.13 Conflict of Interest. Section 9.13 shall be
20 deleted in ito entirety and the following shall be inserted in place thereof.
t1 The Recipient shall include in all contracts with Participating Parties and in
22 all cantrncts with any party involving the use of grant Ainda, n conflict of
23 interest provision consistent with 24 CF11 Section 570.611 (48 Federal Register
24 186, pp. 43571-72, 9/23/83)
25 Rider to Section 11.01. Tho address of the Recipient for the purpoaea of
26 communications relnting to this Grant Agreement ohall be the following:
27 Thomas A. Eidem, City Administrator
5. Guarantee: The repayment of the loan and completion of the project
shall be unconditionally and irrevocably guaranteed by DEVELOPER.
6. Prepayment of Loan: The loan may be prepaid at anytime without
penalty.
7. Escrow of Program Income: Upon instruction by the Secretary, all
Program Income received by the DEVELOPER, prior to the completion of all
Recipient Activities, shall be deposited in escrow under arrangements approved by
the Secretary, In order to provide funds to assure the completion of the Recipient
Activities.
8. Program Income Applied to Costs: All Program Income received by the
DEVELOPER, prior to the completion of all Recipient Activities, shall be
transmitted to the City for payment of costs incurred for Recipient Activities
8.= Procnim Income for Title l Activities-: All Program Income received by
l the DEVELOPER after the completion of all Recipient Activities shell, at the
option of the DEVELOPER, either be transmitted to the CITY, or used by the
DEVELOPER with CITY approval, for community and economic development
activities which would be eligible for assistance under Title I of the Act, unless
otherwise provided in the closeout agreement between CITY and HUD.
10. Assurance of Governmental ADnravaLt The CITY and DEVELOPER
have obtained, or have reasonable assurance that they will obtain, all Federal,
State and local governmental approvals and reviews required by law to be obtained
by the CITY or DEVELOPER for the Project.
11. Completion of Protect: The DEVELOPER acknowledges that the
Secretary, in selecting the CITY for the award of the UDAG Grant, relied in
material part upon the assured completion of the Project and the. DEVELOPER
assures the CITY that such activities will be completed by the DEVELOPER *(D
6
UDAG REPAYMENT
INITIAL PRINCIPAL AMOUNT: $256,957.71
YEAR
INTEREST
PRINCIPAL
TOTAL R E M A I N I N G
BALANCE
1988
$ 6,832.41
$18,808.04
$24,640.45
1989
$ 6,855.71
$21,115.69
$27,971.40
1990
$10,075.22
$17,896.18
$27,971.40
1991
$ 3,281.33
$ 6,042.47
$ 9,323.80 $193,095.33
4-12-91
$27,907.05
$63,862.38
$90,907.05
PROJECTED
1991
$ 9,461.45
$18,509.95
$27,971.40
I
I
I
r
UDAG
j
1990 BUDGET
FUND N0. 125
REVENUE
12 AA 000 A 013
1059 Principal
$ 17,600
(Loan Repayment FSI)
12 36 300 0 382
3582 Interest
10,350
(Loan Repayment FSI)
12 36 300 0 382
3582 Interest Income
3,200
TOTAL REVENUE
S 31,150
I
I
r
REVENUE
INTEREST EARNINGS
202.36210
TOTAL REVENUE
UDAG FUND
1991 BUDGET
70
13,925
13,925
ELIGIBLE ACTIVITIES
570.201 BASIC ELIGIBLE ACTIVITIES
a) Acquisition
b) Disposition
C) Public facilities and improvements
d) Clearance activities
e) Public services
f) Interim assistance
g) Payment of non -Federal share
h) Urban renewal completion
i) Relocation
J) Loss of rental income
k) Removal of architectural barriers
1) Privately owned utilities
M) Construction of housing
570.202 ELIGIBLE REHABILITATION AND PRESERVATION ACTIVITIES
a) Types of buildings and improvements eligible for
rehabilitation assistance:
1) Privately owned buildings and improvements for
residential purposes;
2) Low-income public housing and other publicly
owned residential buildings and improvements;
3) Publicly or privately owned commercial or
industrial buildings, except that the
rehabilitation of such buildings owned by a
private for-profit business is limited to
improvements to the exterior of the building
and the correction of code violations
(pursuant to Economic Development Activities);
and
4) Manufactured housing when such housing
constitutes part of the community's permanent
housing stock
b) Types of assistance (Community decides).
c) Code Enforcement
d) Historic preservation
e) Renovation of closed buildings
570.203 SPECIAL_ ECONOMIC_ DEVELOPMENT ACTIVITIES
A _incipient may-= use -funds-- for special. -economic
developmentactivitiesin- addition_to -other activities
-authorizod-in this subpart which -may be carried out as
part of an economic development project. Special
activities authorized under this section do not include
assistancefor the construction of new housing. Special
economic development activities include:
a) - The, .-acquisition, construction, reconstruction,
rehabilitation or installation of commerical or
industrial buildings, structures, and other -real
,-property equipment and improvements, including
railroad spurs or similar extensions. Such
IN
activities may be carried out bythe recipient or
public or private nonprofit subrecipients.
b) The provision of assistance to a private for-profit
business, including, but not limited to, grants,
loans, loan guarantees, interest supplements,
technical assistance, and other forms of support,
for any activity where the assistance is necessary
or appropriate to carry out an economic development
project, excluding those described as ineligible in
S570.207a. In order to ensure that any such
assistance does not unduly enrich the for-profit
business, the recipient shall conduct an analysis
to determine that the amount of any financial
assistance to be provided is not excessive, taking
into account the actual needs of the business in
making the project financially feasible and the
extent of public benefit expected to be derived
from the economic development project. The
recipient shall document the analysis as well as
any factors it considered in making its
determination applies whether the business is to
receive assistance from the recipient or through a
subrecipient.
570.204 SPECIAL ACTIVITIES BY CERTAIN SUBRECIPIENTS
a) Eliqible activities. The recipient may provide
funds (e.g., grants or loan) to any of the three
types of subrecipients specified in paragraph (c)
of this section to carry out a neighborhood
revitalization, community economic development, or
energy conservation project. Such a project may
include activities not otherwise listed as eligible
under this subpart, except those described as
ineligible in S570.207a, when the recipient
determines that such activities are necessary or
appropriate to achieve its community development
objectives. Notwithstanding that such
subreceipients may carry out activities as part of
such project that aro not otherwise eligible under
this subpart, this provision does not authorize:
1) provision of public services that do not moot
the requirement of S570.201e (1) or (2);
2) provision of assistance to a for-profit
business that does not comply with the
requirements of S570.203b; or
3) carrying out activities that would otherwise
be eligible under 5570.205 or 5570.206 but
that would rosult in the rocopient exceeding
the limitation in S570.200g.
b) Recipient responsibilities. Recipients are
responsible for ensuring that the funds are used by
the subrecipients in a manner consistent with the
requirements for this part and other applicable
Federal, State, or local law. Recipients aro also
j responsible for carrying out the environmental
^► review and clearance responsibilities.
C) Eliqible subrecipients. The following are
subrecipients authorized to receive assistance
under this section.
1) Neighborhood -based nonprofit organizations
2) Section 301d Small Business Investment
Companies
3) Local development corporations
5570:205. ELIGIBLE PLANNING, URBAN -ENVIRONMENTAL DESIGN AND POLICY -
PLANNING -MANAGEMENT -CAPACITY -BUILDING ACTIVITIES
5570.206 PROGRAM ADMINISTRATION COSTS
i
t
� �3
INELIGIBLE ACTIVITIES
5570.207 The general rule is that any activity that is not
authorized under the provisions of SS570.201-570.206 is
ineligible to be assisted with funds. This section
identifies specific activates that are ineligible and
provides quidance in determining the eligibility of other
activities frequently associated with housing and
community development.
a) The following activities may not be assisted with
funds:
1) Buildings or portions thereof, used for the
general conduct of government
2) General government expenses
3) Political activites
b) The following activities may not be assisted with
funds unless authorized under provisions of
5570.203 or as otherwise specifically noted herein,
or when carried out by a subrecipient under the
provisions of S570.204
1) Purchase of equipment: Construction equipment,
fire protection equipment, or furnishings and
personal property.
2) Operating and maintenance expenses
3) New housing construction )
4) Income payments
0 — )
Payments from t•iea. Most UDACa grant agreements can for a tamp sum payment to the grantee upon
the sale ole development. In addition to paying off the loan, the developers commonly pay a
percentage of any profit reaiired on the deal. Cities reporting Income from the sale of projects
numbered 87, or 15 percent of the total responding. A nigher percent of projects are sold In small
communities than in large cities. Of the 96 projects sold, 41 percent are commercial projects and 35
percent industrial projects. Forty seven percent of these projects yielded no income to the cities upon
sale. Most at rhe income (57%) came from the sate of commercial projects.
TABLE 1.7.
REPORTED INCOME FROM SALE OF PROJECTS,
BY CITY POPULATION
Dumber of Income from Projects with Sates as a
City Population Respondents Sale of Projects Percent of all Projects
tin millions) with Income,
under 2,500
8
S2.829
18.01%
2,501 thru 10,000
17
574
11.6
10,001 thru 50.000
27
18,606
11.1
50.001 thru 200,000
17
9,715
10.5
200,001 thru highest
17
16,044
6.1
Totals
86
547,832
9.7%
%tel Prot�etdBYel Pevmants. Combining income from all three sources- repayments, cash flow, and
..ale of projaua - results Ina total reported Income of S281,977.7801n 387 communities. Savenry-nine
percent of me Income reported by responding grantees comes from repayments on loans. Cash flow
participanon accounts for four percent and sate of projects seventeen percent. We attribute the
differences seen in sources Of Income across city sizes largely to the pattern Of project yeas. Small
cities, under f0,000, have a higher percent of Industrial projects: larger cities have more commercial
projects. (7ab1O 7.9)
C
111
TABLE 1.8
SOURCE OF INDIVIDUAL PROJECT INCOME,
Bl' CIT)' POPULATION
Cir• Population Repavments Cash Flow Project Sale Total
under 2;500 71t7c 0% 29% 100%
2,501 thru 10,000 94 1 5 100
10,001 thru 50,00 68 8 16 100
50,001 thru 200,000 71 10 19 100
over 201,000 86 3 11 100
All Cities 79ric 4% 17% 100%
Payback% byProf t9t Tyne One factor that has bearing On the amount of Income received by
different city categories from projects Is the project mix. Elghty-one percent of Industrial projects with
loans have produced income for the cities. By contrast, 68 percent of commercial projects with loans
have produced income, 51 percent of mbred projects and 41 percent of housing projects. The terms
of deferent project types very considerably. The housing projects have the lowest Interest and longest
terms and the Industrial projects have high Interest end short terms. Housing projects have less ability
to repay Molt loans than Industrial projects. As a result of this differential in terms, Industrial projects
have produced comparatively, more Income for titles. Table 1.8 shows that smeller cities haves
higher percent of industrial projects and a lower percent of commercial and housing projects, The
largest percent of commercial projects are in cities from 50,001 to 200,000.
TABLE 1.9.
TYPE OF PROJECT BV CITI' POPULATION
Project Tvpe
Cir• Population Commercial Housln¢ Industrial Other Total
under 2,500 321lc 2 C 599c 7% 100ro
2,501 thru 10,000 31 7 57 5 100
10,001 thru 50,000 37 11 40 12 100
50.001 thru 200,000 57 7 26 10 100
over 200,001 44 17 28 11 100
All Cities 42% l Inc 38%, 9% 10070
2-
0
2. HOW ARE CITIES MANAGING INCOME FROM
UDAG PROJECTS?
The issues we consider when asking how cities are managing their Income from UDAG projects are
these:
o What difficulties have cities faced in collecting awected earnings from UDAG projects?
° What are cities spending the money for?
° Whet policies govern the use of rhe income?
° What benefits has the city gained by reinvesting the UDAG project income?
COLLECTING EXPECTED INCOME
One of every four titles (25.2 percent) with a completed or closed our UDAG project has racelvad less
than Is due from repayments on loans or participation in cash flow. The chance Met a project will pay
less than expected increases directly with the size of the grantee. Among the largest Cities, those with
populations 200,000 or higher, more than half (53.6 percent) report shortfalls In coilecting on
repayments and cash flow.
TABLE 2.1.
NUMBER OF CITIES RECEIVINC LESS INCOME
FROM UDAG PROJECTS THAN EXPECTED,
Bl' CITY POPULATION
Clues Recelvintt Less than Expected
Number or Percent of All Cities
Citv Population Cities Size Group
Under 2,500 16 10.6%
2,501 thru 10,000 33 21.3
10,001 thru 50,000 37 18.9
50,001 thru 200,000 30 32.3
over 200,001 30 53.6
Totals lab 25.2%
Bankruptcy of a dovoloper is a cause of Moss shortfalls in 54 tides, 0.3 percent of the total responding
to the survoy. The chance Mat a grantee will have experienced bankruptcy with a proja_t 4 more than
twice as high among Me largest cities (more than 200,000) as it la among the smaller titles. This
relationship holds nue oven when we consider the number of projects In a grantee's Inventory.
J
IL
In all, there have been 67 L1DAG project bankruptcies reported In the Questionnaires, eight percent of
i all projects with Icars. Industrial projects are 49 percent of bankruptcies and commercial projects, 44
percent. Fifteen bankrupt projects were sold, yielding $1.6 million In income from project sales. Loans
outstanding for these projects were S60 million, 59 percent of which were commercial loans.
There is considerable variation by project We in projects that have paid less to date than the city
expected, particularly for larger cities. overall, projects with a commercial element were more likely to
have shortfalls In expected income than industrial or housing projects. Twenty -live percent of
commercial projects with income did not meet expectations. In comparison, 76 percent of Industrial
projects and 74 percent of housing Pro/acts had shordalls.
TABLE 2.2
PERCENT OF PROJECTS WITH INCOME PAYING
LESS THAN IS DUE Bl' PROJECMPE
AND CITY POPULATION
Population
Project Tvpe 50,000 or Less More than 50,000 All Cities
Commercial 264r 25%' 25%
Housing 19 13 14
Industrial 19 1g 18
Mixed 20 36 29
All projects 21% 23% 229c
Several responses exist for dealing with the financial difficulties of developers that lead to less than
expected revenues, Table 2.3 shows the ones reported by responding grantees. The most common
response involved renegotiating the loan agreement, a response chosen by 54 grantees, which was
37% of all those cities reporting they had received lass than Is due. Twonry-five cites chose to forgive
part or at/ of a loan to a developer, which Is 78% of the cities which reported receiving less than Is due
on their loans.
TABLE2J
CIT)' RESPONSES TO FINANCIAL DIFFICULTIES OF DEVELOPERS
Responses Number of Percent of Cities
Cities Recelvina Less Than Is Due
Renegotiated the loan agreement
54
3757c
Requested prompt payment
40
27
Took legal action against developer
39
27
Forgave part of the loan
14
10
Forgave all of the loan
11
g
V y
There Is another way to view payback income: the percent W the loan which has been paid beck. An
examination of these data shows that there is a wide variation In payback experience for different
project types. Industrial projects are, by far, the better performers as shown in Table 2.4. Housing
projects have the lowest payback ratios because of their long terms and low Interest. Commercial and
mired projects are in the middle.
For example, the table shows that developers have paid back 67 percent of the total industrial loans for
Projects approved in 1980. By contrast, 31 percent of commercial loans, 14 percent of loans to mixed
projects and 7I percent of those made to housing projects had been repaid. The table also shows
that for housing and mixed projects approved in 7985 and 1986 nothing has been repaid.
One major aspienstion for the difference in repayment rates Is the difference In loan terns. Housing
Projects have the longest average rem, 20 years. The term is 21 years for mixed projects, 18 for
commercial projects, and 73 for industrial projects. Housing and mixed projects have the lowest
Interest , rates, 4.4 and 4.8 percent respectively. Commercial projects have a mean rate of 5.9 percent
and industrial projects, 6.7 percent.
TABLE 2.4.
PERCENT OF LOAN REPAI D Bl' YEAR OF APPROVAL
AND PROJECT TYPE
Date orApproval
Project
Tvae 1978 1979 1980 1981 1982 1983 1984 1985 1986
Commercial 617c 28 31c7c 0 2557, 21% 8% 2457, 26%
Housing 0 10 11 17 4 2 3 0 0
Industrial 27 38 67 44 51 30 22 17 15
Mixed 27 27 14 22 0 1 17 0 0
SPENDING PAYBACK INCOME
v re ntn a r}� Income spam we asked grantees to report the total amount of projoct income collectod
and the amount disbursed to data. In the 367 grantees that rospondad with useful Information to that
request, disbursal was, an rhe average, 53.7 percent of income. This average masks the variation In
performance by cities. Of cities reporting both spending and income, 30 percent had spent 90 percent
or more of their income; and 25 percent had spent less then t0 percent. FlftyJlve percent had spent
more than 60 porcont of their Income. Thus, there was marked variation In timeliness of the use of
funds.
Another way to view axpendituras is the ratio between total Wonditures and total roto/pts. Overall,
68 percent of the income was spent by cities. The best record was 0large Cities (more than 200,000
S
13
(i
population) which had spent 73 percent of their income; by contrast, the smallest category of cities
spent 53 percent of their income.
By definition, that money not spent was saved. Presumably, titles were drawing Interest on
repayments which tied been made. This would add to total reported Income for clues from paybacks.
Type of Activities Supported. To understand how cities use the money earned from UDAG projects
we organized spending by basic types of community and economic development: commercial and
Industrial development, housing, Infrastructure, public services, and administrative. We asked the
UDAG grantees to tell us what percent of Meir payback income they spent on these activities. Most
grantees are spending of least half of Meir payback income on economic development. Those
respondents who were able to differentiate between commercial and Industrial development said that
they were giving slightly more emphasis to the commercial side. City size did not affect Mese patterns
of spending.
TABLE: 2.5.
T)'PE OF ACTIVITIES ON WHICH PAYBACK INCOME IS SPENT
I
POLICIES GOVERNING THE USE OF PAYBACK INCOME
We asked UDAG grantees to identify how they used payback funds. We asked about three areas:
coordination of spending with Community Development Block Grant (Cnrn) using funds for
special public works; and revolving loan funds.
The size of rho grantee was a factor In two of these areas. First, rho smaller the grantee, the more
likely It was to earmark payback Income for special public works projects. Fi*rwo porcont of the
smallest cities used funds In this way, while sir percent of rho largest did rho same. Second, the larger
grantees tonded more to coordinate rho spending of payback funds with their CD8G allocation.
Probably this results from some smaller cities havir^ very little or no CDBG funding from their State
CDBG program or the fact that this funding Is discontinuous.
Sbq%throe percent of responding grantees with income used revoMng loan funds. Furthermore, this
rate was constant across all City flze groups. Those cities word, Choosing to manage UDAG payback
Income In a form that would provide continuing, long -form reuse of the funds.
14
�0
Average City
Number
Percent of Paybacks
Tvpes of Expense
of cities
Soent on Various Activities
Economic development
269
52.6%
Infrastructure
266
10.9
Housing
264
6.5
Administration
264
6.4
Public Services
264
3.5
Other uses
266
12.0%
I
POLICIES GOVERNING THE USE OF PAYBACK INCOME
We asked UDAG grantees to identify how they used payback funds. We asked about three areas:
coordination of spending with Community Development Block Grant (Cnrn) using funds for
special public works; and revolving loan funds.
The size of rho grantee was a factor In two of these areas. First, rho smaller the grantee, the more
likely It was to earmark payback Income for special public works projects. Fi*rwo porcont of the
smallest cities used funds In this way, while sir percent of rho largest did rho same. Second, the larger
grantees tonded more to coordinate rho spending of payback funds with their CD8G allocation.
Probably this results from some smaller cities havir^ very little or no CDBG funding from their State
CDBG program or the fact that this funding Is discontinuous.
Sbq%throe percent of responding grantees with income used revoMng loan funds. Furthermore, this
rate was constant across all City flze groups. Those cities word, Choosing to manage UDAG payback
Income In a form that would provide continuing, long -form reuse of the funds.
14
�0
TABLE 2.6.
TECHNIQUES FOR USING PAYBACK INCOME,
BY CITY POPULATION
Percent of Cities with Income
Coordination Special Revolving
with CDBG Public Loan
Cin• Population Program Works Fund
Undet 2,500 26.0% 52.017c 68.0%
2,501 thru 10,000 ' 30.9% 30.9% 72.0%
10,001 thru 50,000 59.7Pc 41.8% 61.9t7c
50,001 thru 200,000 65.7% 22.85c 54.3%
over 200,001 69.4% 6.1% 55.1
All Cities 50,V( 32.89c 63.09c
Many Cities have Criteria for the types of projects which may use UDAG payback funds. About 45
` percent of Che respondents with incomes limited reinvestment to industrial or Commercial
development. Seventeen percent earmarked funds tot investment in housing. Thirty-two percent set
Me minimum standard as required by Federal law mat grantees must use repayments lot activities
eligible under Title I of the Mousing and Community Development Act. When we consider city size, a
low patterns emerge. Smaller communities tend to give greeter preference to industrial projects than
do the larger cities. In housing, the largest cities reinvest project income in housing at sit times the
rare of the smallest cities.
TABLE 2.7.
LIMITATIONS ON "TYPES OF PROJECTS SUPPORTED BY
UDAG PAYBACK FUNDS
Project Type Percent of Responding Cities
with income
Industrial 46.057c
Commercial 45.747c
Any Title I activity 32.5%
Housing 17.1%
We also looked of the qualifications required by grantees In order for projects to receive Support from
UDAG payback funds. Overall, two thirds of cities had some sort of qualification standards. The most
common Standard, In 58 percent of the responding Cities with income, required funded projects to
provide new, pemtanonf jobs. Most of Moso required that the jobs be for low` and rnodorate-incoma
JWA4duat1, Thirraan flereant of the grantees targeted funding to small businesses.
YA
15
TABLE 2.8.
QUALIFICATION STANDARDS FOR
PAYBACK
SUPPORTED PROJECTS
puanfication Standard
Percent of Responding Cities
Project must:
Provide new, permanent jobs
55.51Jc
Provide evidence of need for assistance
46.8
Provide low- and moderate -income jobs
45.2
Benefit low- and moderate -income families
42.5
Be limited to specific areas of city
27.5
Have a minimum leverage ratio
26.0
Be limited to small businesses
13.257,
BENEFITS OF REINVESTMENT
In all, responding grantees have channeled payback income Into 1,456 projects. They report the
creation of 22,479 jobs and the construction or rehabilitation of 2,068 housing units. We reported
earlier on the tax revenues earned from UDAG projects. In addition, cities reap additional taxes from
the protects supported by payback funds. These taxes total S17.7 million dollars for 139 grantees who
provided data on this Item.
3. EXCELLENCE IN PAYBACK MANAGEMENT
While carrying out our survey, we discovered many practical and profitable techniques developed at
Me local level for the management of payback funds. We also found that some cities have only
rudimentary systems for tracking and reinvesting payback income. The following brief examples can
serve to illustrate some of the better approaches being used to manage payback funds.
ECONOMIC DEVELOPMENT INITIATIVES
We have found several innovative approaches to economic development using UDAG repayments in
Ovary pan of the country. Small and large cities alike have developed techniques such as revolving
loan funds to make maximum use of UDAG paybacks.
Philadelphia has recently announced the creation of a min/-UDAG program to help replace the
canceled Federal UDAG program. The Philadelphia Industrial Development Corporadon is managing a
Neighborhood Action Loan Program with UDAG repayments drat will target loans to distressed
neighborhoods. Neighborhood based groups as well as private developers may qualify for loans
under the program. The city will select projects on a competitive basis. An Independent loan
committee will review all applications using only professional underwriting considerations in project
selection.
Los Angeles has created a new program that leverages the paybacks available from the UDAG
program to the maximum. Under this now program called the Common Bond Reserve Fund, the city
will use S5 million dollars In peybacks to set up a Business Development Trust Fund. This is a
secondary reserve for a $40 million bank letter of credit (the toner of credit may eventually axpand to
S 720 million). The ciy can draw upon this letter of credit to make economic development loans In
distressed areas, Including Stare-dosignated Enterprise Zones, Loans will go to small manufacturing
companies In Enterprise Zones or low-income areas, which have difficul y qualifying for conventional
loans,
Not aft innovative and successful programs are in large cities. The &mail town of Huntington, lndlana
has 5750,000 in UDAG poybecks from two UDAG projects and axpecm to earn an additional St. i million
in UDAG paybacks in Ne next tive years. These paybacks underwrite a revolving loan fund that has
already Supported 25 nrojects. -The income from Shat reinvestment has Increased the fund'S value to
$2 milliom in addition, the City has created more than 1,300 jobs and built or rehabilitated 750 housing
units with recycled paybacks,
Another Impressive small town program Is In Go Ilion, Ohio. The city has placed both COBG end
UDAG repayment funds in a $500,000 revolving loan fund. It has made loans to 53 small businesses
from this fund; twenty businesses have already paid off their loans, These projects have created 930
lobs, Jamestown, Now York also has an excellent revolving loan program supported in pan by UDAG
repayments. The Jamestown Local Development Corporation has sponsored 79 business projects,
generating or preserving some 2041 iobs in the community.
Covington, Kentucky also has an outstanding program. Four communities in the area cosponsorod a
UDAG funded steel mill in 1980. They have shared in paMcks prat will continua for 30 years,
Covington receives 82 percent of the repayment or 5565,000 a treat, a process begun in 1981. ThoCity
has already disbursed $3 million, 80 percent of which has gone into economic development. This has
generated more than 2,000 jobs, the highest number of jobs from peybacks reported by any community
In rhe United States, It hes built or rehabilitated Some 150 units of housing and generated hot now
annual raxos of 1500,000. The city has also offered technical help and has undaneken low•tost (�
t
Infrastruclure improvements in its Enterprise Zone. This effort should continue to eland because the
city expects to receive S3.5 million in paybacks during the nett live years.
The Newark Economic Development Corporation has collected nearly seven million dollars in UDAG
paybacks and has used about $500,000 of this for a Revolving Loan Fund. It makes loans to small and
minority businesses. For every dollar in the revolving fund that comes from repayments, the Greater
Newark Business Development Consortium puts up two dollars, providing considerable leverage for
the paybacks. The funds from the business firms come from their social investment fund.
HOUSING INITIATIVES
Some communities have placed their emphasis on housing rehabilitation and have developed
innovative approaches to serve low- and moderate -income residents.
The small city of Commerce, California has assigned $770,000 of its $2.3 million in paybacks already
received to housing. This has resulted in the construction of 300 units of low- and moderate -income
housing. The UDAG funds are the bulk of funds available to the city that receives 5750,000 each year
from the Community Development Block Grant program. Commerce e,pecrs to receive S5.8 million in
paybacks during the next live years. These funds will helpmeet the critical housing and employment
needs of its low-income, mostly Hispanic population. Profits from one of the UDAG projects in
Commerce goes to a Hispanic owned Community Development Corporation that uses the money to
support social service programs. These include a large scholarship fund for low income Hispanic
students, a senior-cltizen transit system, three 75 -unit low-cost housing projects for senior citizens,
and a revolving loan fund to provide low-interest loans for small business commercial revitalization.
( Another positive example where repayments have been used to provide housing to distressed
communities Is the Vermont Slausen UDAG project in Los Angeles. Shay percent of the net income of
the shopping center goes t0 the Vermont Slausen Economic Development Corporation (EDC). The
EDC uses the funds, totalling $420,000 so far, for housing rehabilitation loans and financial aid to low,
and moderato -income persons in this poor community near Warts. They also use funds for
commercial revitalization• rehabilitation of small businesses, and industrial development incentive
programs.
Baltimore has several housing programs funded with paybacks. it provided $250,000 to the
Neighborhood Assistance Corporation to make home ownership affordable to low -Income families.
The Corporation will make loans to low•income families to cover the difference between the State's
mortgage revenue bond down payment requirement and total settlement expenses. Funds are also
going to help renovate a city-ownod public school to provide 37 units of transitional housing for
homeless families.
MANAGEMENT INITIATIVES
Several communities Illustrate the two aspects of what we view as excellence in the management of
paybacks. First, these communities make sure that they receive the paybacks from developers In the
correct amount In a timely manner. Second, they make effective use of these paybecks once they
receive them, leveraging the income to the maximum extent possible.
The small suburban Community of Conshohocken. Pennsylvania shares a problem with moat small
cities throughout Cie United States, If has a very &mall city staff and lacks the skills needed to apply for
and menage complicated UDAG projects, For this reason, a private consulting firm, has been
responsible for preparing UDAG applications and managing the payback portfolio. Conshohok&n has
done well with the UDAG program, It tecolvad almost S20 million in grants. The borough has already
\0
a
received $324,000 in UDAG repayments and earpected to receiver another one million dollars in the Wert
five years. These funds are the core of rhe borough's redevelopment efforts.
In New York City, the Financial Services Corporation (FSC) menages $26 million In payback income.
The FSC has the UDAG loan portfolio computerized and sends statements to UDAG project managers
every month. FSC may be unique in that It compares project performance against industry averages. It
identifiers problems wim prajects darty and provides technical aid for those In trouble. The results at
this good payback management program are clear. There have been two bankruptcies of 38
campfeted and closed out projects, and More is a one to one ratio between avected and actual
paybacks overall. Only eight percent of New York's projects have brought fewer paybecks than
expected.
Cleveland, Ohio has attacked the difficult problem of monitoring cash flow participation agreements
by working through auditors funded by the developers. The city and the auditors aMved at an
approach that provides enough information to the city to determine when cash now participation
returns to the city should begin. Bator& MIs reform, Cleveland found the borrower -horded
independent audits produced reports met merle It difficult to enforce cash flow participation
agreements. They did not provide an adequate basis for determining wnen cash now, participation
agreement paybacks would start. With the now approach, income is up, none of Cleveland's 26
projects have paid less than is due, and none have gone bankrupt.
I
R
IN
EDA AGENDA
3-23-91
5. CONSIDERATION TO REVIEW AMENDED GMEF GUIDELINES FOR SECOND
RECOMMENDATION OT THE CITY COUNCIL.
A. REFERENCE AND BACKGROUND.
At the January EDA meeting, the members elected to table this
item until the next regular EDA meeting which would allow more
time for discussion. I have enclosed with this agenda item
copies of the EDA minutes and copies of the City Council
agendas and minutes relating to this issue. The enclosed data
is arranged in the time sequence as they occurred beginning
with the EDA Minutes of September 28 approving of the Muller
Theatre Loan, the City council Agenda of October 9 to review
the GMEF approval, the City Council Minutes of October 9, the
EDA Minutes October 30 to review and discuss the GMEF Public
Purpose Criteria and Guidelines, the City Council Agenda of
November 13 to amend the GMEF Guidelines inclusive of the
recommended guidelines, and the City Council Minutes of
November 13. Although, this is a mass of information it
provides a picture the past activities.
Potential amending:
1. The items recommended previously by the EDA.
2. Consider commerical funding subject only to redevelopment
of blighted property.
3. Consider Council to approve or disapprove EDA recommended
loans.
4. Consider source of continued funding.
5. Consider that the GMEF not Como in behind Asset Base
Lenders. (Recommendation per Kevin Doty.)
6. Bylaws amended to read EDA meetings at 7:00 PM.
7. Others.
1
Council Agenda - 10/9/90
12. Consideration to review Greater Monticello Enterprise Fund
(GMEF) approval. (O.K.)
REFERENCE AND BACKGROUND:
On September 28, 1990, the Economic Development Authority
(EDA) met with the four members present and reviewed the GMEF
loan application from Mike Muller for the Muller Theatre
expansion.
Mr. Muller explained the theatre expansion plans to the EDA
and responded to questions. Mr. Muller expects the demolition
of the Stoke's property and the beginning theatre construction
to occur simultaneously. The planned parking lot to the west
of the theatre expansion will not receive hard surfacing until
the frost is out of the ground in the spring. Mike hopes to
open the new addition in the spring.
Kevin Doty, Commercial Lending Officer for the Muller project,
determined and so stated that Mike and Bob Muller, an informal
partnership, to be a credit worthy partnership. Jack Maxwell,
Century 21, appraised the total new expanded facility at
$900,000. The anticipated loan structure would consist of:
Wright County State Bank, $360,000; Another Bank, $35,000;
GMEF, $50,000; and the family, $112,000. Mr. Muller has
already invested $110,000 for theatre seats, projectors, etc.
EDA Attorney, Tom Hayes, viewed the expansion as a good GMEF
project as it meets the criteria of our loan policies, and
agreed with Mr. Doty on the difficulty for businesses to
obtain adequate commercial funding at this time.
Barb Schwientek made a motion to approve the GMEF loan
application for Michael and Robert Muller, an informal
partnership. The loan amount is $50,000 at 8% interest,
amortized over 20 -years, with a balloon payment in five years.
The GMEF will be in second position on real estate and M b E.
Loan fee not to exceed $500. Mr. Hayes is to draft
appropriate documents and a commitment letter with terms and
conditions. The motion was seconded by Harvey Kendall. With
no further discussion, the motion passed unanimously. The
loan was approved because the Muller loan application met the
GMEF public purpose policies, the partnership was determined
to be credit worth by the lending officer, the project creates
six now full-time jobs, assists in maintaining a more vibrant
downtown, supports stroetscapo, increases utilization of the
property, adds aesthetic value to the downtown, increases the
/( local tax base (project not gain approximately $8,350
annually), assists a non-compotitivo commercial business
within the City limits, and will assist an existing business
expansion.
Council Agenda - 10/9/90
With the approval of two GMEF loans to Tapper's, Inc. and
Michael Muller, $88,000 and $50,000 respectively, the
remaining balance of the loan fund is $62,000. This means the
maximum we can consider for our next loan applicant is
$31,000.
In accordance with the GMEF policy, "The EDA shall have
authority to approve or deny loans; however, within 21 days of
EDA approval, the City Council may reverse a decision by the
EDA to approve a loan if it is determined by Council that such
loan was issued in violation of GMEF guidlines". Therefore,
unless the Council determines the EDA approval for Michael and
Robert Muller to be in violation of the GMEF guidelines, no
action is necessary.
B. ALTERNATIVE ACTIONS:
1. The Council determines the Michael and Robert Muller loan
to be in violation of the GMEF guidelines; therefore,
reverses the EDA loan approval.
2. The Council determines the Michael and Robert Muller loan
not to be in violation of the GMEF guidelines; therefore,
no action is necessary.
C. STAFF RECOMMENDATION:
Staff supports the EDA approval; however, gives no
recommendation.
D. SUPPORTING DATA:
None.
14
Council Minutes - to/g/90
12. Consideration to review Greater Monticello Enterprise Fund
approval.
Economic Development Director, 011ie Koropchak, reported that
on September 28, 1990, the EDA reviewed the Greater Monticello
Enterprise Fund loan application for Mike Muller for the
Monticello Theatre expansion. Koropchak informed Council that
the GMEF loan application in the amount of $50,000 was
approved. The terms include 88 interest amortized over
20 years with a balloon payment in five years. Koropchak
reminded Council that the EDA has the authority to approve or
deny loans; however, within 21 days of EDA approval, City
Council may reverse a decision by the EDA to approve a loan if
it is determined by Council that such a loan was issued in
violation of GMEF guidelines.
Council was then asked to discuss whether or not the proposed
loan to a theater is consistent with the Greater Monticello
Enterprise Fund guidelines.
Dan Blonigen noted that he did not support the use of the
revolving loan fund for this type of commercial operation. it
was his view that the revolving loan fund should be reserved
for industrial uses only.
Assistant Administrator O'Neill reported that the use of tax
increment financing to help defray excessive redevelopment
costs associated with demolition and land acquisition is no
longer available to the City due to recent action by the state
legislature. In addition, the loan applicant has worked hard
at obtaining financing from private sources but is unable to
obtain the full amount needed to conduct the project;
therefore, the money requested should be considered as gap
financing. Without the added assistance by the City via the
revolving loan fund, this project would not proceed, and the
redevelopment of the site could not occur.
Ken Maus noted that if the City utilizes the revolving fund to
supplement the theater expansion finance plan, we should
better define under what terms and circumstances the City
woald utilize this fund to finance commercial development. He
noted in this case, with the state removing our ability to use
TIF for redevelopment of an under-utilized area, use of the
fund is acceptable. This criteria for use of the fund is not
noted by our fund guidelines; therefore, the guidelines should
be updated. In addition, he noted that the guidelines should
provide a clear definition of what constitutes creation of
full-time versus part-time jobs.
Page 7
CL Council Minutes - 10/9/90
After discussion, motion was made by Warren Smith, seconded by
Fran Fair, to approve the GMEF loan application for Michael
and Robert Muller in the amount of $50,000. The commercial
loan is approved only because it provides gap financing that
will result in redevelopment of a blighted property. The main
thrust of the loan program is to continue to be oriented
toward providing gap financing for industrial development.
Motion to include a request that the EDA adjust the GMEF
guidelines accordingly. Voting in favor of the motion:
Shirley Anderson, Fran Fair, Warren Smith, Ken Maus. Opposed:
Dan Blonigen.
13. Other matters.
011ie Koropchak and Jeff O'Neill reported that the City of
Monticello received the Star City Marketing Award for 1990.
Star City Marketing Award judges commented that Monticello had
overall a very strong, well thought out marketing campaign.
The repeat appearance of the logo reinforces Monticello's
image and is easy to identify. It also neatly ties in all of
the various elements used in a strong marketing campaign. The
materials in the brochure were excellent and very well
coordinated. The consistency and attractiveness makes the
program work. The brochure was tasteful and not overdone.
Ken Maus requested that staff consider putting together
detailed information outlining the basis of each department
budget. He is interested in going through the logic behind
how each department budget is developed. Dan Blonigen agreed
that additional detail and a review of department service
delivery methods would assist Council in development of the
1991 budget.
John Badalich reported that the City is nearing a population
of 5.000; and in fact, if the City's challenge to the census
figures is validated, the City will be eligible to receive a
minimum of $80,000 in state highway aids for 1991. Staff was
directed to provide the Minnesota Department of Transportation
with information needed to expedito the acquisition of state
aid funding in 1991.
There being no further discussion, the meeting was adjourned.
Jeff O'Neill
Assistant Administrator
Pago 8
MINUTES
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
/7 Friday, September 28, 1990 - 7:00 AM
f City flail
MEMBERS PRESENT: Chairperson Ron Hoglund, Barb Schwlentek,
Harvey Kendall, and Fair Fair.
MEMBERS ABSENT: Warren Smith, Bob Mosford, and Al Larson.
STAFF: Rick Wolfsteller and 011ie Koropchak.
GUESTS: Mike Muller, President of the Muller 'Theatre.
Kevin Doty. Commercial Lender, Wright County State Bank.
Tom Bayes, EDA Attorney.
1. CALL TO ORDER.
Chairperson Ron Hoglund called the EDA meeting to order at
7:03 AM.
2. APPROVAL OF THE JULY 24, 1990 EDA MINUTES.
Barb Schwientek made a motion to approve the July 24, 1990
EDA minutes, seconded by Fair Fnir, the minutes were npproved
as written.
3. CONSIDERATION TO HEAR UL'DA'rli ON GMEF LOAN APPLICATION FOR
JEFF IMSTEY ENTERPRISES, INC.
Koropchnk reported Lite SBA 7(n) lonn application requesting
bank pnrtl.clpntion wits denied by Wright County State Bank.
Chnrlle Rogers, Attorney for the Jeffrey Enstey Enterprises, Inc.,
Informed Koropchnk of the bank's notification to Lite company.
The company will submit applications to First Nntional of
Monticello. Norwest of Maple Grove, and n lending Institution
in Young America. Until the Enstey Company receives SDA
bnnk pnrticlpatlon will the HDA receive the compnny'a formal GMEF
appllcntion for conntdernLion and will the preliminnry npplicaLlon
for the Central Minnesota lnitntive Fund be submitted.
4. CONS IDEIIA'TtON TO RRVIEW PRELIMINARY AND FORMAL GMEF APPLICATION
FOR MuLLuR THEATRE EXPANSION.
FDA Clint rperson Ron Hoglund called upon Mike Muller. President
of Lite Mu llor ThenLre, to expinln the theatre axpnnslon project.
The project to begin tills fall, after receiving ndegante funding.
will. enlarge Lila present theatre from two screens with senting
capacity of approxlmntaly 500 to n total of four screens
with nenting rnpncll:y of nppr0xlmnLely 1000. 1110 lobby nran
will, be expanded into one. large nren to nerve the entire complex
InClunlve of n Inrlle chnntlel-ler which will Illuminnte through
the glass floor length ponaln of Lite new lobby wren. Tho show
V`. Liman will be staggered to control. traffic. With the demolition
EUA Minutes
9/28/90
Page 2
._ 4. CONTINUED.
of the Stoke's Marine Service building and the demolished
National Rushing building by Wright County State Rank, the
bank and theatre will share the use of the parking lot
through a lease agreement. Parking lot plans have been
approved by the Planning Commission and the City Council.
Demolition of the Stoke's building and the beginning
thentre construction should occur simultaneously with the
hard surfacing of the parking lot not to occur until the
frost Is out of the ground in the spring. To remain
competitive in the thentre business, a thentre must offer
seve.rnl choices to Its customers with the most current
releases, therefore, if the thentre is unable to expand
customers will he drnwn to Lhe multi screens in Elk River
or planned thentre expansion In Buffalo. Mr. Muller has
gone out for three different bids in effort to reduce the
expansion cost. Originally, the thentre plans consisted
of two storles,the second and third bids consisted on
one story plana. The building construction costs were
reduced from $405,000 to $710,000.
Kevin Doty, Lending Officer, told Lite EDA members that the
total appraisal of the completed thentre (expanlon plus existing)
its determined by Jack Maxwell was $900,000. The project cost
vas outlined no:
Project Cost: $ 69,500 Land Cost
310,000 Construction Cost
175,500 M&E
$555,000 'total Project Cost
USES: $555,000 Project Cost
112,000 Muller Family Existing Mortgage
$667.000 10TA I.
SOURCB : $760,000 WrlKht County State. Batik 541
75,000 Other Bank 51
112,000 Muller Family Existing Mortgage. Itemortgnited 171
50.000 CMHF • 81
1111,000 IS()I11'fY (M4E) 161
$667,000 TOTAI, 1001
The total debt service, in $551,000 of which the existing Mul)or
Family mortgage will be remortgnged ($112,000) along with the new
mortgnge at $445.000. Anliclpnted plans call for the Muller
Family to deed the property to the, hank through a warranty deed
therenfter Mike Muller and his wife will deed through an assignment
deed or quick claim deed Lite existing remortgaged lonn back to
the Muller Family. Kevin Doty reported that Wright County State
Bank vas willing to participnle of 5111, however, at 601 would he the
ponsibillty of n no go. It Is anticipated to ask another lending
Inntltutlon for partial funding, nmount. and lending inntltullon
yat to ba dotarminad. This ar,o-nt :Il: be determinod up— Lila
• To he determined
EDA Minutes
9128190
Page 3
4. CONTINUED.
EDA's willingness to participate and if so, the dollar amount of
part lclpattoil. The business current Ly owns and operates two
theatres in Delano and Waconia, and anticipates the construction
of a theatre In East Bethel. Kevin Doty recommended to Lite
EUA, to the best of fits ability and expertise, thnt the Michnel
and Robert Muller I'artnershlp to be a credit -worthy Informal
partnership and stated Lire IiDA loan would be a Cumpanion Direct Loan.
As Included 1n the EUA agenda, the present theatre's EMV
for 1990 is $232,100 and tine estimated EMV for the theatre
expansion as per Doug Gruber, County Assessor, is $269.100.
Estimated new total EMV for the theatre is $501,200. With
the planned expanton, the total projected new Jobs as per
Mr. Muller is two full time and eight part-time for n total
of six full time Jobs. Present employment is two full time
and nine part-time for a total or six point five full time.
Ait,ernative recommendations for EDA participation ranged
from $30.000 to $50,000.
Koropchnk outlined how Lite loan application meets the (;MFF
Policy Criteria.
r
A. PUBLIC PURVOSE:: Must comply with four or more. of the six
V.,
pit bl lc purpose crIter In (crenI inn of _lobs
be Ing n must..)
I.
Creates new J(1hs: Two full time and eight part-time for
n total of six stew full time Jobs.
2.
InCrefanna community tax base: Estimated net gain of annual
taxes. $8.350.
3.
Assists nn existing lion -competitive commercial business
it) improve or expand its operation. The. Muller Thentre
is n business In nn direct. competition with existing
bultinens within Lite City of Monticello (no other thontre.)
4.
tined no it secondnry sttnrce of financing to a convOntlooni
hank. Conventional banks of Wright County Slate Bank and
one other.
5.
Uned as gnp finnuclog. D11e Lo I.egisintive TIP 1'1!8111iCLlons
effective Mny 1. 1990, this project does not moot the requtrement
far the establishment oi' It Rcdovelopment or Renovation District,
nor tit'. TIF definition of blight or substntulard buildings.
Additlonally. it thantre expansion does not qualify for
SRA or Sinte financing programn. Thirdly, tite dovelopetr
made an efinrt to snit did reduce his cnnntructiau cost
from $405,0110 to $310,000 by gotng out for three hide.
Finally. due to the country's economy, Commercial lending
Is more difficult to secure.
6.
Does 1101 assist In obtaining other funds such as SRA. federal
or state. grants. (Theatres till not qunllfy under these programs.
There.bye.tltn loan application meets five out of the nix public purpose
cYlt et'tn inrl„aivn of Jnb trans inn and manta the purpngn trr nnrmr rnpn
EDA Minutes
9/28/90
Page 4
4. CONTINUED.
economic development
In add ILton, the Muller Thentre expansion Is on aIIgill lc
business as It Is non-competitive business which enhances
the community, the business Is located in Lite city of
Monticello, Lite business has been determined to be n
credit-wor Lhy Informal partnership, the business Is an
existing business, and the business qualifies for a
loan nmount of $60.000 (6 Jobs 2 $10.000) or $67.7.75
($5.0(10 per every $20,000 lacre,nse in property market
evolution, $269,100) whichever Is higher. The project
will also assist In maintaining a more vlbrunt downtown.,
supports SLreetscape, would Increase Lite atlllzatlon of the
property, would encourage the demolition of an adjoining substandard
site, would eliminate lite potential of business
leaving town, and enhances the Business Retention and
Expansion Program.
Koropchnk further outlined that In accordance with lite
CMF.F guidelines and the loan under discussion to be a
Companion Direct Lonn means that Lite CMEF loan will be
In Lite subordinated position to the primary lenders and
collaLernl is required. Thr. CMEF would be In second
position to lite banks on fixed real assets and machinery
and equipment (UCC Filings). Presently, lbe, maximum dollar
nmounl of CMEV available to n business Is 556,0110. Prime
rnLe as of October 7.4, 1990. Not loon] Itank of Mianenpol is
(former First Banks) Is 102.
Mr. Mul tat, Informed the. E.DA members thnt he not lc,lpn Les
comple.t Ion of the S. 775 sq ft thent the expansion on
Lot 4 plus W 24 Inches of Lot 7, Illork 57, City of MOIILIC011 o,
and the remodeled present theatre to be 1n the spring of '91.
The IrDA agreed that lite Mullet' Thentre expansion was a good
project for tile city and for it's people, Flow efforts on Lite port of
developer to close ilia financlnl gnp, rind agreed thnt a good
ase of the GNIiP wits La nsslst In it project thnl would encourage ellminall.
of it suhstnndnrd site and encou ret ge the developmellL of it new appending
aesthetic structure which has a $70,000 glass front.
Attorney Tom Hayes ngre.ed with ilia. ENA end agreed that the project
meetn the KIIA public purpose crllerla and guldellnen Its
outlined by Koropchnk, end recognized this no n difflcoll
time for n developer to secure full conventional Ilanorlolt.
Ile was very comfortnblo with the r.rcdltnh1111y of the develupe.ln.
lin recommended lhnl HDA loan secure. title. Insurnnee un both
properties IIIc soma nn Ilse book recloirementn and to obtain
as murk collateral an possible to protect the 17MEF.
EDA Minutes
9/28/90
Page 5
5. CONSIDERATION TO APPROVE OR DENY GMEF LOAN FOR MULLER
THEATRE EXPANSION.
After the review and discussion of the Muller Theatre
expansion as recorded under Item 4., EDA member Barb
Schwientek made a motion to approve a Greater Monticello
Enterprise Fund (GMEF) loan of $50,000 to Michael and
Robert Muller, an Informal partnership, for the Monticello
Theatre expansion. Loan terms of an 8% fixed Interest rate
to be amortized over twenty years with ballon payment in five
years for real property ncquisltlon, real property rchnbil-
Itatlon (expansion or improvements), and machinery and
equipment. Loan fee was set at not too exceed 1% of
the total loan project or $500 ($50,000 X 1%). Attorney
Tom Hayes to draft the necessary documents for protection
of the GMEF loon. Harvey Kendall seconded the motion
and without further discussion, the motion passed 4-0.
The loan was approved because the application and the project
met the general purpose of the CMEF, the public purpose
criteria of the GMEF, the business eligibility of the
GMEF, and the overall guidelines of the GMEF. The business was
analyzed as credit -Worthy and was further determined by the
EDA to be a good project for both the city and It's people,
it would assist a project with gap financial needs, and
It would nsslst n project which will Increase the aesthetic
value of downtown, therobye, in n domino affect will encourage
another devcleper to demol lith it substnndcu'd sLI'kWLuI0 on
the ndjnining property. Thu City Council to receive notification of
EDA lunn approval.
b. OTHINt BUSINESS.
Koropchnk suggested to the EDA members that at their next
quarterly meeting the public purpose criterin and guidelines
be reviewed. The CMEF boing In exlsLauce for about n year
may need some general housekeeping or further defining
In the area of new john created, possible penalty If jobs
are not crented, leveraging of loan or project, etc.
7. ADJOURNMENT.
Chairperson Non Hoglund adjourned the CDA meeting at 8:7.5 AM.
011ie Koropchnk
KDA Secretary
MINUTES
MONTICELLO ECONOMIC DEVELOPMENT AUTHORITY
Tuesday, October 30, 1990 - 7:00 AM
City Hall
MEMBERS PRESENT: Chairperson Ron Hoglund, Barb Schwientek, Bob
Mosford, Fran Fair, Warren Smith, Al Larson,
and Harvey Kendall.
STAFF PRESENT: Rick Wolfsteller and 011ie Koropchak.
1. CALL TO ORDER.
Chairperson Ron Hoglund called the EDA meeting to order at
7:00 AM.
2. APPROVAL OF THE SEPTEMBER 28, 1990 EDA MINUTES.
Fran Fair made a motion to approve the September 22, 1990
EDA minutes, seconded by Al Larson, without further discussion
the minutes were approved as written.
3. CONSIDERATION TO REVIEW AND DISCUSS THE GMEF PUBLIC PURPOSE
CRITERIA AND GUIDELINES.
Enclosed with the EDA agenda as supporting data were copies of the
original purpose for the creation of the revolving loan
fund, City Council agenda and minutes, and the approved GMEF
Guidelines as written by the original committee, reviewed
by Attorney Hayes, reviewed and accepted by the IDC, and
reviewed and adopted by the City Council. After adoption
of the EDA organization the guidelines were reviewed by
the EDA members in May, 1989. .
Invited but unable to attend this EDA meeting were the originnl
members who wrote the guidelines; Dale Lungwitz. Linda Miolke,
Don Smith, and Jeff O'Neill. With background information having been
discussed, the EDA members proceeded to review, discuss, and
adjust the CHEF Public Purpose Criteria and Guidelines.
The RDA noted thnt the purpose of the CHEF is to encourage
economic development by supplementing conventional financing
sources nvailable to existing and new businesses. Additionally.
all loan must comply with four or more of the public purpose
criterins, of which, criteria O1 is mnndatory.
To comply with the Council's request to clarify the definition
of what constitutes creation of a full-time versus pnrt-timo job.
We FDA considered two options for adjustment. One, a total of 40 hours
per week would constitute one full-time job, and second.
Bob Moaford suggested in consistency with today's norm, 37.5
hours would constitute one full-time job. Bob Mosford made a
motion that one lob be equivalent to a total of 37.5 hours per
vicek. The motion was seconded by Barb Schwientek and without
further discussion passed unanimously.
EDA Minutes
10/30/90
Page 2
3. CONTINUED.
The EDA members agreed no adjustment was necessary for Criteria
112. To provide loans for credit worthy businesses that would
increase the community tax base.
Criteria 03. To assist new or existing industrial or non-
competitive commercial businesses to improve or expand their
operations. Loans will not be provided for businesses in
direct competition with existing businesses within the City
of Monticello. Bob Mosford recalled to the EDA members that
at the time the EDA members reviewed the GMEF guidelines
in May of 1989, the EDA recognized the gray area of this
criteria and recognized the potential of a future tough
decision. The EDA agreed with the City Council that the main
thrust of the loan program should be oriented toward industrial
development, however, on the other hand didn't see a benefit
of restrictive guidelines which would allow no flexibility for
funding. The EDA members interpret the GMEF Guidelines as
guidelines to follow and not as hard -carved policy and based
on common sense prefer to evaluate each GMEF application for
approval on the basis of project merit and project benefit
provided to the community and it's people.. Therefore, the
EDA made no recommendation to adjust criteria B3. The EDA
felt the Muller Theatre loan approval was for a project
which both benefits the community and it's people as the
project Sncrensedthe aesthetic value of downtown, retained
n downtown business, and supports the Streetscape Project.
(See EUA minutes of 9/28/90 for full approved loan criteria.)
Criteria 04. To provide loans to be used as secondary source
of financing that is intended ro supplement conventional financing
(bank financing). The EDA agreed no adjustment was necessary
of this criteria.
Criteria P5. To provide loans in situations to which a funding
gnp exists. The EDA recognized that to no way could the EDA
verify n company's actual gap funding, however, also acknowledged
the original intent of tho revolving loan was to create an
incentive for industrial businesses to locate within Monticello.
This tool was intended to maintain Monticello as a competitive
city for industrial recruitment, in addition, as a retention
and expansion tool for existing buainesses. The Tapper's
loan was part of a financial package developed by Business
Development Services and to the case of the Muller Theatre
loan, the developer did reduce the cost by going out for
bids on three different occasions, a theatre doesn't
meet the SRA or Stnto program criterias and TIF wasn't
applied because a district couldn't be established under
current TiF criteria. The loan application requested
no funds for demolition which would indicate funds to
eliminate blight. The EDA considered the blight Issue as
EDA Minutes
10/30/90
.v Page 3
3. CONTINUED.
they approved the loan based on the total project development benefits to
the community and it's people as the total project development increased
the aesthetic value of downtown. Therefore, the EDA agreed
no recommendation was necesary to adjust criteria 05.
Criteria 06. To provide funds for economic development that
could be used to assist in obtaining other funds such as Small
Business Administration loans, federal and state grants, etc.
The EDA members agreed no recommendation was necessary to
adjust critieria 96.
The EDA continued to review the CMEF Guidelines and based upon
the data presented the members on the attorney's fees for
the Tapper's loan of approximately $1,300 and the banks service
fee of $20.00 per month on the loan, the EDA agreed to recommend
an adjustment. Bob Mosford made a motion to adjust the loan
fee on page 3 to read: Minimum fee of $200 but not to exceed
1.55 (replaced 12) of the total loan project. The motion was
seconded by Warren Smith and without further discussion passed
unanimously.
The EDA discussed the bank's fee of $20.00 a month and what
services were being provided for the charge. Administrator
Wolfsteller expressed his viewpoint that for the services
being rendered compared to the fee charged over the length
of the loan, the city staff has the knowledge to accomplish
the same service. Warren Smith reminded EDA members that
the approval to have the bank service the loan was made to
eliminate additional duties to city staff. Bob Mosford
made a motion recommending Administrator Wolfatellor negotiate
an agreement between the city and the bank which would
maintain the brink's service of the two loans at no cost
ns the CMEF policy enhances the banks policies and is a
benefit to both parties and the community. The motion
was seconded by Al Larson and without further discussion
the motion passed unanimously.
In reference to the recommended adjust to the loan fee of
not to exceed 1155 of the total loan project, Bob Mosford
also made a motion to adjust item 7, on pnga 6, to include:
the City Attorney shall review and/or prepare all contracts.
This adjustment to clnrify the nttornoy's role with the
CMEF lonn closing. The motion was seconded by Warren
Smith and without further discussion passed unanimously.
The EDA briefly discussed the need to astabllsh a policy
which would allow a penalty if designed amount of jobs
weren't satisfied. The EDA at this time doesn't sea the
need to create restrictive policies, however, suggested
that periodical accountnblity of job creation be mnde
within a reasonable time of completed project and ba raported
EDA Minutes
10/30/90
Page 4
3. CONTINUED.
to the EDA as well as the current loan payment statis.
Consideration of any necessary action will be discussed
if the need arises.
The EDA agreed that the definition of new jobs included any
new job created in Monticello due to an expansion or relocation.
4. OTHER BUSINESS.
Harvey Kendall made a motion for the UDAG repayments
to the City from Fulfillment Systems, Inc. be transferred into
the EDA account to assure adequate future funds for the
GMEF. Al Larson seconded the motion and without further
discussion the motion passed unanimously. The EDA expressed
some potential resistance from the City Council to transfer
additional Liquor Store monies to replenish the EDA funds.
Current remaining balnnce of the EDA fund is $62,000 which
allows a maximun of $31,000 available for loan approval.
Fran Fair made a recommendation that new council members
receive education in the area of the EDA functions and
policies by either Rick Wolfsteller or 011ie Koropchak.
EDA members agreed with the recommendation.
5. ADJOURNMENT.
By consensus of the EDA members, the EDA meeting adjourned
at 8:20 AM.
011ie Koropchak
EDA Executive Secretary
Council Agenda - 11/13/90
12. Consideration to amend Greater Monticello Enterprise Fund
Guidelines. (O.K.)
A. REFERENCE AND BACKGROUND:
Upon the request of the City Council, the Economic Development
Authority (EDA) has reviewed and adjusted the Greater
Monticello Enterprise Fund (GMEF) Guidelines. The GMEF was an
idea which originated with the Industrial Development
Committee (IDC) and was written by a committee appointed by
the IDC. That committee was Linda Mielke, Dale Lungwitz, Don
Smith, Jeff O'Neill, and myself. The IDC reviewed the GMEF
Guidelines prior to City Council approval on April 10, 1989.
The EDA reviewed the adopted GMEF Guidelines on May 16, 1989.
On October 30, 1990, the EDA noted the purpose of the GMEF is
to encourage economic development by supplementing
conventional financing sources available to existing and new
businesses. Additionally, all loans must comply with four or
more of the public purpose criterias, of which, criteria #1 is
mandatory.
DEFINITION OF PUBLIC PURPOSE
1. To provide loans for credit worthy businesses that create
new jobs.
To comply with the Council's request to clarify the definition
of what constitutes creation of a full-time versus part-time
job, the EDA added the following definition:
a) Ono iob is equivalent to a total of 37.5 hours per
week.
2. To provide loans for credit worthy businesses that would
increase the community tax base.
No adjustment necessary.
3. To assist now or existing industrial or non-compotitive
commercial businesses to improve or expand their
operations. Loans will not be provided for businesses in
direct competition with existing businesses within the
City of Monticello.
At the time, the EDA reviewed the adopted GMEF Guidelines in
May, 1989, they recognized the gray area of this criteria and
recognized the potential of a tough decision. Although, the
EDA agroes with City Council that the main thrust of the loan
program should be oriented toward industrial development; they
also make no recommendation to eliminate the possibility of
Council Agenda - 11/13/40
funding a non-competitive business as this allows no
flexibility for funding. The EDA interprets 'the GMEF
Guidelines as guidelines to follow and not as hard -carved
policy. In addition, the EDA prefers to evaluate each GMEF
application for approval on the basis of project merit and
project benefit provided to the community and it's people.
4. To provide loans to be used as a secondary source of
financing that is intended to supplement conventional
financing (bank financing).
No adjustment necessary.
To provide loans in situations in which a funding gap
exists.
The EDA approved the Muller Theatre Expansion Loan as they
determined a funding gap did exist. Mr. Muller, acting in
good faith, reduced his construction cost from $405,000 to
$310,000 through submittal of three separate bidding
processes; a theatre does not qualify for Small Business
Administration or State Funding Programs; and Tax Increment
Financing (TIF) did not apply to this project because the
$50,000 loan was for raw land acquisition, expansion
construction, and machinery and equipment; and not for
demolition of a substandard building. The $50,000 loan caused
a domino affect which encouraged another developer to demolish
a substandard building.
Therefore, no adjustment necessary.
6. To provide funds for economic development that could be
used to assist in obtaining other funds such as Small
Business Administration loans, federal and state grants,
etc.
No adjust noceasary.
The remaining GMEF Guidelines were also reviewed by the EDA
and one correction was made on page 3 under Loan Foe: Minimum
fee of $200 but not to exceed 1.5% (replaced itj of the total
loan project. This recommendation comes because the EDA was
advised of the cost to the EDA for the Tapper project:
Attorney's fee, approximately $1,300 and the banks service fee
of $20 par month. Ono addition was made on page 6, Item 7,
the City Attorney shall review and/or arooare all contracts.
This recommendation comes from the EDA because in addition to
reviewing all documents, the attorney prepares necessary
documents for the GMEF.
q.
Council Agenda - 11/13/90
The EDA submits to the City Council the adjusted GMEF
Guidelines for consideration to amend. (Adjusted GMEF
Guidelines enclosed as supporting data.)
G B. ALTERNATIVE ACTIONS:
O1 To amend the GMEF Guidelines as adjusted by the EDA.
2. To deny amendment of the GMEF Guidelines as adjusted by
the EDA.
3. To deny amendment of the GMEF Guidelines and City Council
adjust the GMEF Guidelines.
C. STAFF RECOMMENDATIONS:
The recommendation is to amend the GMEF Guidelines as adjusted
by the EDA (Alternative Action 11).
D. SUPPORTING DATA:
1. Copy of the adjusted GMEF Guidelines.
2. Copy of the October 9, 1990, Agenda Item.
3. Copy of the October 9, 1990, Council Minutes.
.I.,
- 1;1
Council Minutes - 11/13/90
connection for K mart, the total cost of the project comes to
$256,339. The contractor has already been paid $238,761;
therefore, the final payment due is $17,578. Simola noted
that it is the recommendation of the City Engineer and himself
that the City Council authorize final payment to R.L. Larson
Excavating of St. Cloud, Minnesota, in the amount of $17,578.
City staff and City Engineer are well satisfied with the work
performed by R.L. Larson Excavating and his subcontractors.
After discussion, motion was made by Shirley Anderson,
seconded by Dan Blonigen, to approve final payment as
proposed. Motion carried unanimously.
12. Consideration to amend Greater Monticello Enterprise Fund
Guidelines.
Ken Maus reviewed the proposed amendments to the Greater
Monticello Enterprise Fund Guidelines and noted that the
amendments were requested as a result of the decision to
approve a loan application to the Monticello Theatre.
011ie Koropchak reported that the EDA desired to limit any
amendments to the guidelines so as to allow flexibility in
addressing future requests for loans. 'The EDA suggested that
changes not be made to the guidelines in a manner that would
limit future use of the funds for commercial use.
Assistant Administrator O'Neill indicated that it was his
understanding that the Council desired amendments to the
policy that would reflect specific reasons why Council allowed
GMEF funds to be used in conjunction with the theatre
expansion. The loan for the theatre was approved only because
it provided gap financing for a project that results in
redevelopment of a blighted property. Removal of blight along
with gap financing is to be established in the policy as a
prerequisite for use of the fund for commercial development.
After discussion, a motion was made by Fran Fair to amend the
guidelines as submitted. Motion died for lack of a second.
Dan Blonigen stated that this fund should be used to enlarge
the work force and should be focused on job creation. No
further action was taken on this matter. The guidelines
remain unchanged.
Page 10
GREATER MONTICELLO ENTERPRISE FUND GUIDELINES
CITY OF MONTICELLO
250 EAST BROADWAY
MONTICELLO, MINNESOTA 55362
(612) 295-2711
INTRODUCTION
The purpose of the Greater Monticello Enterprise Fund (GMEF) is to
encourage economic development by supplementing conventional
financing sources available to existing and new businesses.
Through this program administered by the Economic Development
Authority and participating lending institution(s), loans are made
to businesses to help them meet a portion of their financing needs.
All loans must serve a public purpose by complying with four or
more of the criteria noted in the next section. In all cases, it
is mandatory that criteria bl be satisfied, which requires the
creation of new jobs. It is the responsibility of the EDA to
assure that loans meet the public purpose standard and comply with
all other GMEF policies as defined in this document. Along with
establishing the definition of public purpose, this document is
designed to outline the process involved in obtaining GMEF
financing.
DEFINITION OF PUBLIC PURPOSE
To provide loans for credit worthy businesses that create new
jobs.
u One iob is equivalent to a total of 37.5 hours per week.
2. To provide loans for credit worthy businesses that would
increase the community tax base.
To assist new or existing industrial or non-competitive
commercial businesses to improve or expand their operations.
Loans will not be provided for businesses in direct
competition with existing businesses within the city of
Monticello.
4. To provide loans to be used as a secondary sourco of financing
that is intended to supplement conventional financing (bank
financing).
5. To provide loans in situations in which a funding gap exists.
To provide funds for economic development that could be used
to assist In obtaining other funds such as Small Business
Administration loans, federal and state grants, etc.
GMEF GUIDELINES: 11/1/90 Pago 1
THE GREATER MONTICELLO ENTERPRISES
REVOLVING LOAN FUND POLICIES
I. BUSINESS ELIGIBILITY
+ Industrial businesses
• Non-competitive commercial businesses which enhance the
community
• Businesses located within the city of Monticello
• Credit worthy existing businesses
• Non-credit worthy start-up businesses with worthy
feasibility studies (Deny all historical non-credit
worthy businesses)
• $10,000 loan per each job created, or $5,000 per every
$20,000 increase in property market valuation, or $5,000
per every $20,000 increase in personal property used for
business purposes, whichever is higher.
II. FINANCING METHOD
• COMPANION DIRECT LOAN - Example: Equity 20%, RLF 30%,
and bank 50%. (All such loans
may be subordinated to the
primary lender(s) if requested
by the primary lender(s). The
RLF loan is leveraged and the
lower interest rate of the RLF
lowers the effective interest
rate on the entire project.)
• PARTICIPATION LOAN - RLF buys a portion of the loan
(the RLF is not in a
subordinate position, no
collateral is required by the
RLF, and the loan provides a
lower interest rate).
• GUARANTEE LOANS - RLF guarantees a portion of the
bank loan. (Personal and real
estate guarantees handled
separately.)
III. USE OF PROCEEDS
• Real property acquisition and devolopmont
• Roal property rehabilitation (expansion or improvements)
• Machinery and equipment
GMEF GUIDELINES: 11/1/90 Page 2
v IV. TERMS AND CONDITIONS
• LOAN SIZE -
• LEVERAGING -
• LOAN TERM -
+ INTEREST RATE -
• LOAN FEE -
• PREPAYMENT POLICY
• DEFERRAL OF
PAYMENTS -
Minimum of $5,000 and maximum not to
exceed 508 of the remaining
revolving loan fund balance; for
example, if the remaining revolving
loan fund balance is $50,000, the
maximum loan issuance is $25,000.
Minimum 608 private/public non-GMEF
Maximum 308 public (GMEF)
Minimum 108 equity EDA loan
Personal property term not to exceed
life of equipment (generally 5-7
years). Real estate property
maximum of 5 -year maturity amortized
up to 30 years. Balloon payment at
5 years.
Fixed rate not less than 28 below
Minneapolis prime rate. Prime rate
per National Bank of Minneapolis on
date of EDA loan approval.
Minimum fee of $200 but not to
exceed 1.58 of the total loan
project. Fees are to be documented
and no duplication of fees between
the lending institution and the RLF.
Loan fee may be incorporated into
project cost. EDA retains the right
to reduce or waive loan fee or
portion of loan fee.
No penalty for prepayment.
1. Approval of the EDA membership
by majority vote.
2. Extend the balloon if unable to
refinanco, verification letter
from two lending institutions
subject to Board approval.
• INTEREST
LIMITATION ON
GUARANTEED LOANS - Subject to security and/or roviowal
by EDA.
• ASSUMABILITY
OF LOAN - None.
GMEF GUIDELINES: 11/1/90 Page 3
LI • BUSINESS EQUITY
REQUIREMENTS - Subject to type of loan; Board of
Directors will determine case by
case, analysis under normal lending
guidelines.
• COLLATERAL - • Liens on real property in
project (mortgage deed).
• Liens on real property in
business (mortgage deed).
+ Liens on real property held
personally (subject to Board of
Directors - homestead exempt).
• Machinery and equipment liens
(except equipment exempt from
bankruptcy).
• Personal and/or corporate
guarantees (requires unlimited
personal guarantees).
The Greater Monticello Enterprise Fund is operated as an equal
opportunity program. All applicants shall have equal access to
GMEF funds regardless of race, sex, age, marital status, or other
personal characteristics.
ORGANIZATION
The Greater Monticello Enterprise Fund is administered by the City
of Monticello Economic Development Authority (EDA), which is a
soven-member board consisting of two Council members and five
appointed members. EDA members are appointed by the Mayor and
confirmed by the City Council. Formal meetings are held on a
quarterly basis. Please see the by-laws of the EDA for more
information on the structure of the organization that administers
the Greater Monticello Enterprise Fund.
PARTICIPATING LENDING INSTITUTIONS)
1. Participating lending institutions(s) shall be determined by
the GMEF applicant.
2. Participating lending institution(s) shall cooperate with the
EDA and assist in carrying out the policies of the GMEF as
approved by the City Council.
7. Participating lending inetitution(s) shall analyze the formal
application and indicate to the EDA the level at which the
lending institution will participate in the finance package.
r
l�
GMEF GUIDELINES: 11/1/90 Page 4
LOAN APPLICATION/ADMINISTRATIVE PROCEDURES
The EDA desires to make the GMEF loan application process as simple
as possible. However, certain procedures must be followed prior to
EDA consideration of a loan request. Information regarding the
program and procedures for obtaining a loan are as follows:
City Staff Duties:
The Economic Development Director, working in conjunction with the
Assistant City Administrator, shall carry out GMEF operating
procedures as approved by the EDA and Council. Staff is
responsible for assisting businesses in the loan application
process and will work closely with applicants in developing the
necessary information.
Application Process:
1. Applicant shall complete a preliminary loan application.
Staff will review application for consistency with the
policies set forth in the Greater Monticello Fund Guidelines.
Staff consideration of the preliminary loan application should
take approximately one week.
Staff will ask applicant to contact a lending institution
/1 regarding financing needs and indicate to applicant that
further action by the EDA on the potential loan will require
indication of support from a lending institution.
Z'
2. If applicant gains initial support from lending institution
and if the preliminary loan application is approved, applicant
is then asked to complete a formal application. If the
preliminary loan application is not approved by staff, the
applicant may request that the EDA consider approval of the
preliminary application at the next regularly scheduled
meeting of the EDA.
If the preliminary loan application is approved, applicant
shall complete a formal application. Formal application shall
include a business plan which will include its management
structure, market analysis, and financial statement. Like
documentation necessary for obtaining the bank loan associated
with the proposal is acceptable. Attached with each formal
application is a written release of information executed by
the loan applicant.
City staff will moot with applicant and other participating
londor(s) to refine the plan for financing the proposed
enterprise.
GMEF GUIDELINES: 11/1/90 Page 5
5. City staff shall analyze the formal application and financial
statements contained therein to determine if the proposed
business and finance plan is viable. Staff may, at its
discretion, accept the findings of a banking institution
regarding applicant credit and financial viability of the
project. After analysis is complete, City staff shall submit
a written recommendation to the EDA. A decision regarding the
application shall be made by the EDA within 60 days of the
submittal of a completed formal application.
6. The EDA shall have authority to approve or deny loans;
however, within 21 days of EUA approval, the City Council may
reverse a decision by the EDA to approve a loan if it is
determined by Council that such loan was issued in violation
of GMEF guidelines.
7. Prior to issuance of an approved loan, the City Attorney shall
review and/or prepare all contracts, legal documents, and
intercreditor agreements. After such review is complete, the
City shall issue said loan.
ORIGINAL REVOLVING LOAN FUNDING
"LETTER OF CREDIT" FROM MONTICELLO CITY COUNCIL - $200,000
SOURCE - City Liquor Store Fund
City shall transfer needed loan amount from existing accounts at
such time that individual loans are approved. Revenue created
through this program shall be under the control of the EDA and
shall not be transferred to City funds unless the City Council
determines that reserves generated are not necessary for the
successful operation of the Authority. If such is the case, such
funds must be transferred to the debt service funds of the City to
be used solely to reduce tax levies for bonded indebtedness of the
City (see Section 5 B of the ordinance establishing the Monticello
EDA).
REPORTING
1. Staff shall submit quarterly summaries and/or annual report
detailing the status of the Monticello Enterprise Fund.
FUND GUIDELINES MODIFICATION
1. At a minimum, the EDA shall review the Fund Guidelines on an
annual basis. No changes to the GMEF guidelines shall be
instituted without prior approval of the City Council.
LOAN ADMINISTRATION
1. City staff shall service City loan, shall monitor City
position with regard to the loan, and shall assure City
compliance with intercreditor agreement.
GMEF GUIDELINES: 11/1/90 Pago 6
2. All loan documents shall include an intercreditor agreement
which must include the following:
A. Definition of loan default, agreements regarding
notification of default.
B. Agreements between lending institution and City regarding
reproduction of pertinent information regarding the loan.
3. All loan documentation shall include agreements between
borrower and lenders regarding release of privacy regarding
the status of the loan.
GMEF GUIDELINES: 11/1/90 Pago 7