HomeMy WebLinkAbout07/19/2011 06 2011 CDBG Annual Action Plan Amendment; Section 108; Set Final Public Meeting Date 0 BUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDA STATEMENT
Item No.
For Meeting of July 19, 2011
ITEM TITLE: Public Hearing to consider an amendment to the 2011 CDBG Annual Action Plan
to include $1,800,000 of Section 108 loan funding for economic development
and infrastructure and setting August 2, 2011, as the date for a final Public
Meeting.
SUBMITTED BY: Michael Morales, Interim City Manager
CONTACT PERSON: Michael Morales, 575 -6040
SUMMARY EXPLANATION: Attached is the draft of the Section 108 Loan Program application
that the City Council must approve prior to submittal to the U.S. Department of Housing and
Urban Development (HUD). The $1,800,000 million application will be used to establish an
Economic Development Loan Fund (EDLF). Prior to submittal, the City Council must also hold
two public meetings to approve an amendment to the 2011 CDBG Annual Action Plan.
Part of the CDBG program authorized by Congress is known as the Section 108 Loan Program.
This program authorizes cities to make funds borrowed from the US Treasury available to
CDBG eligible activities, including economic development and infrastructure. Security for such
loans come from three sources: 1) by real and personal property pledged as collateral by the
business and its owners; 2) by personal guarantees of the borrower(s); and 3) As a last resort,
0 the annual CDBG Entitlement funds received by the city. The City can authorize loans for up to
5 times the annual allocation. Based upon the 2010 allocation, the city is eligible for
$1,800,000. Staff is recommending that the city apply for this amount now because the 2011
allocation will be reduced 16.5 %, which will reduce our eligibility to $750,000. The 2011
allocation will not take effect until HUD contract documents are delivered to the city and
executed.
The Public Hearing will allow citizen comments on the proposed amendments to the City's 2011
Annual Action Plan. With Council approval, a final Public Meeting will be held at the City
Council business meeting on August 2, 2011, at 7:00 p.m.
Resolution Ordinance Contract Other (Specify)
Funding Source HOME
APPROVED FOR SUBMITTAL: -t'd -1 .. G lea r City Manager
STAFF RECOMMENDATION: Hold Public Hearing and set August 2, 2011, as the date for the
final Public Meeting.
BOARD /COMMISSION /COMMITTEE RECOMMENDATION: Recommended for full Council
consideration by the Council's Neighborhood Development Committee and Economic
Development Committee
0 COUNCIL ACTION:
a1,R
CITY OF YAKIMA
APPLICATION FOR LOAN GUARANTEE
FROM
U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
FOR AN
0 ECONOMIC AND COMMUNITY DEVELOPMENT LOAN FUND
IN THE AMOUNT. OF $1,800,000
JULY 2011
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
Project Description
The purpose of this Section 108 application is to assist with economic and community development activities in the
City of Yakima. The guaranteed loan funds will be used to create a loan pool targeted to projects that will have
positive economic and community development benefits within Yakima's former federally designated Renewal
Community. Individual projects will be evaluated by City of Yakima's staff, as well as by consultant experts in
financial underwriting.
The City has identified two projects that will likely make use of this fund. The first of these is the conversion of an
existing vacant downtown property into a boutique hotel containing approximately 35 rooms. The second is for
public infrastructure in association with a low income home ownership project supported with NSP funding.
Section 108 Submission Requirements
A. Community Development Objectives
The Section 108 loan fund will result in lending for economic and community, development in Yakima. In
doing so the loan fund will further the City of Yakima's Economic Development Goals as listed in the
City's 2010 — 2014 Consolidated Plan. Within the Consolidated Plan's Economic Goals and Policies under
Goal 4.1 are 5 key policies all of which are applicable.
Policies
4.1.1 The City will demonstrate its commitment to long -term economic growth by promoting a
diverse economic base, providing opportunity for all residents. Growth that helps raise the
average annual wage rate of community residents and preserves the environmental quality and
livability of the community is viable growth and will improve the lifestyle of residents.
4.1.2 Economic growth will be supported by master planned and mixed use developments in
existing nodes (such as downtown) and redevelopment opportunities (such as the Boise Cascade
lumber sawmill site, race track, etc.).
4.1.3 Stimulate economic development that will diversify and strengthen economic activity and
provide primary and secondary job opportunities for local residents.
4.1.4 Encourage redevelopment of key properties in the City through use of local, State and
federal funding opportunities and public /private partnerships to strengthen revitalization.
4.1.5 Create a long -term development program for the downtown business core.
Stated in the Strategic Plan is the expectation that the City of Yakima will directly assist businesses and
development projects with state and federal loan tools.
B. Description of how the Proposal meets one of the Criteria in 24 CFR 570.200(a)(2) - National
Objectives.
Section 570.200(a)(2) lists the National Objectives that must be met by all Community Development Block
Grants and therefore Section 108 projects. This section requires that all funded activities meet one of three
national objectives. These objectives are: 1) benefit to low and moderate income families; 2) aid in the
prevention or elimination of slums or blight; and 3) meeting other community development needs having a
particular urgency because existing conditions pose a serious and immediate threat to the health or welfare
of the community where other financial resources are not .available. Section 570.208 defines the criteria
under which an activity may meet the requirements of Section 570.200(a)(2). Each project funded through
the Section 108 loan fund will meet one of the National Objectives listed in Section 570.200(a)(2) as
detailed in Section 570.208.
The City of Yakima's Section 108 loan fund will create jobs for low and moderate income persons, provide
services to low income areas, provide infrastructure to create housing opportunities for low income
individuals and/or eliminate conditions of blight as defined in Section 570.208.
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
411 C. Community Development Block Grant Eligibility
In addition to furthering National Objectives, all Section 108 loans must also meet the eligibility
requirements of the Community Development Block Grant program. All activities funded through the City
of Yakima's Section 108 loan fund will meet the program eligibility requirements as set forth in Sections
570.201,.202,.203 or .204.
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The two projects currently identified meet the eligibility requirements of Section 570.203(b) and
570.201(c) Under 24 CFR 570.203 (b) the City can provide assistance to 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 appropriate to carry out an economic
development project, excluding those described as ineligible in Section 570.207(a). In addition, all
activities funded under Section 570.203 must meet the guidelines provided in Section 570.209 (Guidelines
for evaluation and selecting economic development projects). Under 570.201(c) the City can undertake
public facilities and improvements through: "Acquisition, construction, reconstruction, rehabilitation or
installation of public facilities and improvements, except as provided in Section 570.207(a).
Section 570.207(a) excludes: buildings or portions thereof, used for the general conduct of government,
general governmental expenses and political activities. None of the projects to be assisted with Section 108
proceeds will include buildings used for the general conduct of government, general governmental
expenses, nor for political activity.
Section 570.209 Guidelines
Guidelines and Objectives for Evaluating Project Costs and Financial Requirements.
410 All activities eligible under Section 570.203 must meet the requirements of Section 570.209. This section
outlines guidelines for ensuring that a proposed project carries out an economic development objective in
an appropriate manner. These guidelines under 570.209(a) are not mandatory but serve as a framework for
financially underwriting economic development projects.
In evaluating proposed projects eligible under Section 570.203 and to be funded from the Section 108
Economic and Community Development Loan Fund the City of Yakima will use the following criteria.
Project Management
The City of Yakima, Department of Community and Economic Development (DCED) will administer the
fund. DCED will underwrite all loans and will use the National Development Council (NDC) to advise on
project feasibility. NDC has a more than 40 -year track record of assisting local governments in structuring
and implementing economic development and housing projects.
Underwriting Standards for City of Yakima EDI / Section 108 Loan Fund
1. NationalObiective
All loans shall meet a national objective as specified in 24 CFR 570.208. No loan shall be
approved without verification of compliance with the national objective requirements, specified in
24 CFR 570.208, by the Washington State Office of the United States Department of Housing and
Urban Development.
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2. Eligibility
® In addition to meeting one of the program's National Objectives all projects assisted through the
loan fund must fall within one of the eligible activities listed in 570.703.
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
3. Guidelines for evaluating and selecting economic development projects
For all activities eligible under 570.703(i), economic development activities, the project will be
required to meet the guidelines listed under 570.209: Guidelines for evaluating and selecting
economic development projects. No loan shall be approved without verification of compliance
with the public benefit standards as specified in 24 CFR 570.209(b) by the Washington State
Office of the United States Department of Housing and Urban Development.
4. Financial Underwriting
In loan underwriting the City shall adhere to the following criteria.
a. Real Estate Loans
Real Estate Loans shall be evaluated based on:
Ability to Repay
Collateral
Development Team Capacity and Experience
Developer Commitment
Character of the Developer
Ability. to Repay
Projects to be funded will have at least a 1.1 projected debt coverage ratio. If
the project includes more than a small percentage of its rental income from start-
up or financially weak tenants then a higher debt coverage ratio shall be
required.
Collateral
Projects to be funded should have a loan to value ratio of not greater than 80
percent. This value must be supported by an appraisal prior to funding. If
greater than an 80 percent loan to value ratio is proposed, outside collateral
sufficient to provide an 80 percent loan to value shall be required. In certain
cases outside guarantees may suffice for additional collateral.
Development Team Capacity and Experience
Projects funded shall have a development team that has both the capacity and
experience to complete the project as demonstrated by past projects and
financial strength.
Developer Commitment
Developer commitment can take many forms. While each project is likely to be
different, the forms of developer commitment that can be expected include:
adequate equity, guarantees of completion, guarantees to fund shortfalls or
guarantees of minimum cash flow.
Character
Projects to be funded should have developers with good credit histories,
demonstrated integrity, and quality references.
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
b. Business Loans
Business Loans shall be evaluated based on:
Ability to Repay
Collateral
Guarantees
Financial Strength
Management Experience
Character of the Principals
Ability to Repay
All businesses funded with the program shall have existing cash flow (profits
after tax, plus depreciation, plus excess officers income, plus rent savings if
applicable) sufficient to repay the loan. Projections must be supported by strong
evidence that they will materialize.
Collateral
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All business loans must be supported by collateral. Real Estate must be
supported by an appraisal and will be generally accepted up to 80 percent of its
value. Machinery and equipment, depending on its nature, will be accepted
from 40 percent to 60 percent of its fair market value. Accounts receivable and
inventory will normally be used to secure operating debt and will generally not
be taken as collateral. Outside collateral, such as personal residences, shall be
411 valued up to 80" percent of their fair market value net of existing debt.
Guarantees
All principals with 20 percent or more or a controlling interest, if less than 20
percent, shall provide personal guarantees.
Financial Strength
Three years of financial statements on the business plus a personal financial
statement on all principals of the business shall be analyzed to determine if the
company is well run and has the ability to manage its accounts and pay its
obligations.
Management Experience
'The management must have experience in the business or in a similar business,
be able to demonstrate an ability to manage and have the depth in management
to withstand unforeseen transitions.
Character of the Principals
The personal financial statements and credit history of the principals must
demonstrate honesty and trustworthiness.
D. Eligibility under 24 CFR 570.703
® Each of the projects to be assisted with Section 108 guaranteed loan funds and Economic Development
Incentive grant funds must meet one of the eligibility requirements listed in 24 CFR 570.703. The initial
two projects detailed in this application are eligible under 570.703(i), - economic development activities
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
eligible under Section 570.203 and Section 570.703(0 and (1), - Site preparation, including construction,
reconstruction, or installation of public and other site improvement, utilities, or facilities (other than
buildings) or — acquisition, construction, reconstruction, rehabilitation, or installation of public facilities
(except for buildings for the general conduct of government), public streets, sidewalks, and other site
improvements and public utilities. Other projects to be funded under the program may also qualify under
5 70.703 (a)(b)(c)(d)(e)(O(h) &(I).
c. Substitution of CDBG funds for Private Sources.
City staff assisted by consultants will review all projects to insure that each loan
minimizes the use of CDBG funds. It is in the City of Yakima's self interest to insure that
there be no substitution of CDBG funding for non - federal funding. Given the limited
availability of federal funds, the city staff will work diligently to maximize the use of
private, non - federal funding in all projects.
All projects will be reviewed to insure that private sources of financing have been
maximized and that the rate of return on equity is reasonable and within general
standards.
E. A Description of the Pledge of CDBG Guarantee
The City of Yakima understands that if the participants in this Section 108 loan fund fail to make timely
payments and the City of Yakima therefore fails to make a required payment on its notes, HUD will deduct
that payment from the City of Yakima's CDBG Letter of Credit and in accepting this loan guarantee, the
City of Yakima has pledged its CDBG funds and all other applicable grants as security for the guarantee.
(Please refer to Attachment A - Certifications.)
F. Schedule for Repayment of the Loan
In requesting approval of this loan guarantee fund the City of Yakima is requesting a commitment for a 20-
year term. Please use the following principal repayment schedule.
Year Principal Repayment
August 2012 $ 0
August 2013 $ 59,000
August 2014 $ 62,000
August 2015 $ 65,000
August 2016 $ 68,000
August 2017 $ 71,000
August 2018 $ 75,000
August 2019 $ 79,000
August 2020 $ 83,000
August 2021 $ 87,000
August 2022 $ 91,000
August 2023 $ 96,000
August 2024 - • $ 101,000
August 2025 $ 106,000
August 2026 $ 111,000
August 2027 $ 117,000
August 2028 $ 123,000
August 2029 $ 129,000
August 2030 $ 135,000
August 2031 $ 142,000
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ECONOMIC DEVELOPMENT LOAN FUND
YAKIMA, WASHINGTON
® G. Certifications
The City of Yakima will comply with all certification required under 570.704
Please see Attachment A - Certifications.
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