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HomeMy WebLinkAbout02/03/2004 Special Meeting 2 133 SPECIAL MEETING FEBRUARY 3, 2004 - 7:00 P.M. COUNCIL CHAMBERS - CITY HALL 1. RoII CaII Present: Council: Mayor Paul George, presiding, Council Members Ron Bonlender, Dave Edler, Neil McClure, Mary Place, Bernard Sims, and Susan Whitman Staff: City Manager Zais and City Clerk Roberts 2. Public Hearing on the 2004 Annual Action Plan Amendment for Section 108 Loan Funds Mayor George pointed out that this public hearing is to receive public comment on the proposal to amend the amount available for Section 108 loans to assist economic development. It is not to discuss any particular projects. Bill Cook, Community and Economic Development Director, confirmed this is to be a discussion of a proposal to amend the Community Development Block Grant 2004 budget. The U.S. Department of Housing and Urban Development (HUD) is the agency that provides these funds at the federal level. They are also the agency that makes community Section 108 loan dollars available. Cities borrow funds from U.S. HUD and in turn, make loans to entities for economic development activities. The developer must pay the loans back to the City who then repays HUD. • Proposed budget amendment The City has access to approximately $7 million to make Section 108 loans. To date we have accessed approximately $4 million. Each time we access funds, we have amended the CDBG budget and placed the program into the budget. There is $3 million available that the City could apply for to add to the economic incentive tool box. We would have to amend the 2004, or some future year, CDBG budget and to agree to put the additional $3 million into the fund. In this case it wouldn't be identified for a particular project. This amendment requires a 30 -day comment period. • Loan repayment For a typical loan the first source of repayment would be the borrower's monthly payments. JP Morgan Chase is the agent that we have a contract with as does HUD. They collect funds for all Section108 loans across the country and make the payments back to HUD. Failing receipt of those payments from the borrower as scheduled, the City has a $1 million loan Toss reserve fund. This was developed with our initial grant dollars. It stands behind the first three loans and will also be spread across any future loans. It will provide funds to the city for any and all loans that might be troubled. Simultaneously, if there was any failure on the part of the borrower, we would also initiate a lawsuit to enforce personal guarantees for the loans and move to foreclose on any property provided as' 134 SPECIAL MEETING — SECTION 108 LOAN FUNDS FEBRUARY 3, 2004 legs moving simultaneously; the guarantees, the property itself, and the loan Toss reserve until exhausted. An important note, there is a requirement that payments be timely and if they are not, HUD would directly access the City's letter of credit and we wouldn't even know it. They would not take away funds in our community or that are under contract, but any funds that are not contracted would be available to HUD as well as any future funds would be available to HUD. They do not foreclose on the loan. Instead, they would monthly or semi- annually draw down any dollars to make any payments on their bond issue over the life of that loan. Therefore, there is a relationship between CDBG funds and any 108 dollars that we may loan out. The CDBG funds are the last -resort source that HUD will access to pay back a default or late payment on the loans. We stand behind these loans to the extent of CDBG funds accessible by HUD but no other dollars are available to HUD. • Timing of fund use In response to Council Member Sims' question about when the new funds would have to actually be put to use, Mr. Cook responded that is not known yet. As a result, they are recommending a two -step process; first to make the $3 million available to our budget and then, in the future, amend the current contract agreement between the City and HUD to add the $3 million into that agreement. That would provide certain opportunity to spread our guarantee loan over the total pool of $7 million but it may also trigger the deadline tied to the earlier funds. • Financial conduit City Manager Zais explained how this type of funding came about. Approximately thirty years ago, Fred Andrews of the City of Yakima, laid the foundation for the conduit theory of federal funding which enabled us to qualify for the lending of federal dollars as a federal credit. That became the template for the state of Washington for all federal funding that flows through the state. It is not a lending of the credit of the City's general government revenues, but is the conduit of federal funds. Up to that point in time it was not permissible. • General discussion The question was asked, if we don't place the money in a project and it goes back to HUD for reallocation, would we be ineligible to request it at a future time? Michael Morales, Grants Writer, responded that we are requesting an amendment to expand the pool and the timelines outlined in the existing contract with HUD Section 108 would apply. The conservative estimate is we would be expanding the pool and keeping the same contract terms and deadlines. That means it would have to be obligated toward a project by the year 2006. The 108 monies are not on a competitive basis, we would have to talk to HUD about what that does to our loan loss reserve which is funded by the grant itself. Typically the recommendation is you go forward with at least a project or multiple projects that are ready to go so the money is processed quickly and we don't end up with a large amount of money with no project in sight. Timing wise, we have at least a year, until September 2005. 2 135 SPECIAL MEETING — SECTION 108 LOAN FUNDS FEBRUARY 3, 2004 Mayor George asked what happens if congress doesn't reauthorize HUD dollars? Mr. Cook said we would then have no money beyond the CDBG dollars. Council Member McClure asked if the City had ever put forward a request for funds without a project attached. Mr. Cook said that since we have a track record that shouldn't be any problem, however, it doesn't make a lot of sense to bring the dollars in without a project. It was estimated that once action was taken at a future Council meeting, we could expect HUD to authorize the additional $3 million in approximately 60 days. Mayor George opened the public hearing Lisa Smith, 420 Wiseacre Road, claimed that Yakima is not the proper market for the type of hotel Mr. Morrier is proposing. She suggested that Yakima's needs are new high schools, a port district, more businesses, and more secondary education. She would rather see the money used to buy land to attract businesses or to upgrade the existing hotels. City Manager Zais clarified that this hearing is not on any one project but on the proposed amendment to seek additional funds. He also commented that the developer involved in submitting the hotel proposal has done a market study of what the demands are in the area. Also to be considered is that this is a significant private investment from a partnership that has done research. The downtown has to start somewhere to begin to rejuvenate and rebuild. Glenn Campbell, 8909 Summitview Avenue, agreed with Ms. Smith and would rather see the money spent to attract jobs. Lynne Kittelson, 305 North 9 Street, asked questions that resulted in a discussion on the size of businesses and loan requests. Because of collateral requirements and the time, effort, legal documentation, appraisals, etc. required for Section 108 loans, the rule of thumb is loan requests for less than $100,000 are probably cost prohibitive. Mrs. Kittelson spoke in favor of accessing the additional money but expressed concern about the timeline. Luz Gutierrez, 1424 South 31 Avenue, said she supports the proposal but expressed concern about the lack of employment for the people that live in the target area. She also spoke about needing support for the smaller businesses and opportunities for minorities. Joe Mann, 6 North 3 Street, commented about the negative remarks made about a hotel not being able to make it in Yakima. He said if Hilton is willing to put their name on it, it will probably succeed as they know a whole lot more about it than we do. If there is a project that wants the funds and it looks like it is going to work, we should be behind it and not try to second guess it or try to figure out what is going to go wrong. Bev Luby Bartz, North 2nd Street, spoke in favor of a new hotel in the downtown area. Angie Dirk, Selah, spoke about the quality of jobs versus the quantity of jobs supported by these funds. She suggested raising awareness and education on how to apply for these funds and that there could be steps taken to attract mid- range businesses to Yakima. 3 136 SPECIAL MEETING — SECTION 108 LOAN FUNDS FEBRUARY 3, 2004 Discussion followed on the steps the City currently takes to raise awareness of the program. Although we have a project we are looking at, we are continuing to encourage people to apply. Mayor George closed the public hearing It was noted that the next step in the process is to bring the proposal before the City Council after the comment period closes. That will be the March 2, 2004 Council business meeting. 3. Adjournment SIMS MOVED AND EDLER SECONDED TO ADJOURN. The motion carried by unanimous voice vote. The meeting ad'ourned at 8:15.p.m. READ AND CERTIFIED ACCURATE BY loci COUNCIL MEMBER DATE de / !,/ / COUNCIL MEMB R DATE ATTEST: i<v-uz,„,., ,z) /2.6_,/,‘.4.4, CITY CLERK A UL GEORGE, MAYOR Minutes prepared by Linda Watkins. An audio and video tape of this meeting are available in the City Clerk's Office 1 4