Consideration and approval of the City of Flagstaff, Revolving Loan Fund Administrative Plan. The administrative plan has been approved by the Economic Development Administration (EDA) and will guide the administration of the revolving loan fund program, an economic development financing tool. 

In June 2011, based on discussions between NACOG staff and City staff, NACOG requested a one-year extension from EDA to transfer the ownership of the RLF to the City of Flagstaff in an effort to better maximize the benefits and utilization of the RLF.  City Council unanimously approved the transfer of the portfolio  of the U.S Department of Commerce Economic Development Administration from NACOG to the City of Flagstaff in May of 2012. NACOG approved the transfer in February 2013. Signed agreements and application for transfer were sent to the EDA in August 2013. Application documents were resubmitted in September 2014. The plan was recently approved.

The City of Flagstaff will make the funds available through a website developed collaboratively with ECoNA, NACET, the Greater Flagstaff Chamber of Commerce, and Coconino County: www.nazfunds.com. While the funds are not co-mingled, access to the funds is centralized and shared in order to better serve the community. The EDA funds made available by the City of Flagstaff will serve businesses seeking loans in the range of $25,000 -$75,000.  Borrowers must demonstrate that credit is not otherwise available but that they are credit worthy. The geography served by the EDA funds is the four county NACOG region of Apache, Coconino, Mojave, and Navajo counties.

Target Industries of the RLF are the following:

• Healthcare/Biotechnology
• Software and Systems Design/Engineering/Development
• Aviation Related Businesses
• Transportation/Logistics
• Research and Testing
• Medical Device Manufacturers
• Renewable/Clean Technology
• Workforce Development/Education
• Agriculture
• Tourism/Entertainment/Destination Experience

There are minimal financial implications for administering the program. The money originated from the EDA and is transferred  to the City of Flagstaff which will administer the program with the assistance of a future review committee/board.

COUNCIL GOALS:

7) Address key issues and processes related to the implementation of the Regional Plan
9) Foster relationships and maintain economic development commitment to partners
10) Decrease the number of working poor

REGIONAL PLAN:

Goal ED.3. Regional economic development partners support the start-up, retention and expansion of existing business enterprises.

Council unanimously approved the transfer of the EDA portfolio from NACOG to the City of Flagstaff on May 1, 2012 with the expectation that staff would present the administrative plan when appropriate per EDA standards and city protocols.

• Approve the administrative plan allowing staff to prepare an RFP for lending services. Pros: City staff will move forward with the approved plan and contract with a financial lending institution to administer the loans. Cons:  increase in cost as staff time.
• Table the matter for the further discussion. Pros: Provides additional time to review the plan and consider the administration of the program. Cons: Temporarily delays the implementation and community benefit.
• Do not approve the administrative plan and de-obligate the Revolving Loan Fund monies back to the EDA.  Pros:  staff will either prepare a new administrative plan that is agreeable with Council or de-obligate funds which prevents the continued over-extension of staff; Cons: De-obligation of funds back to the EDA may place the City of Flagstaff in a negative light to the EDA, a valued partner.

The City of Flagstaff has been working with NACOG and the EDA to transfer the Economic Development Administration Revolving Loan Fund portfolio and program since 2011. During that period, staff has ensured processes have been followed according to NACOG and EDA as applicable. Once the transfer was approved in 2013, staff began to draft a new administrative plan. Staff worked with the EDA to learn of good examples of plans that the EDA has approved, then staff sought to merge the exemplary plans to the existing NACOG Administrative Plan.
One critical change has been made relative to the geographic boundary served by the RLF. Originally, the RLF served all Arizona Counties except for Maricopa and Pima. As presented, the new geographic area served is the four county region served by NACOG which is comprised of Apache, Coconino, Mohave, and Yavapai Counties.

Another change relates to the servicing of the loans. The presented plan calls for the City of Flagstaff to contract with a financial lending institution to service the loans. The incentive for a financial lending institution to contract is primarily future business development or to satisfy federal banking regulations.  It is anticipated the compensation paid to the financial lending institution will be nominal.  The borrower will pay a 1% loan fee plus pay interest on the loan (prime interest rate plus 2% per federal regulations).  The interest may be used for administration of the RLF or to grow the program.

The plan as presented supports the Comprehensive Economic Development Strategy (CEDS) which was developed by NACOG. The CEDS typically is intended to guide economic development efforts in the four county NACOG region for five years and is intended to be complemented by an annual action plan. As such, the target industries represent activities and industries that are important to the same broad and unique geographies.

The EDA has found the plan to adhere to the proven principles and requirements for assisting economic development districts across the nation.

Now that the plan is in place the administration of the plan is not anticipated to require a great amount of staff time. Staff will work with representatives of the financial lending institution to review applications as received. Loan requests that meet the criteria listed in the plan will be forwarded to the financial lending institution to service the loan.

Defaulted loans present a challenge as a financial lending institution may be less likely to collect on defaulted loans. Similarly, the City may find collecting on defaulted loans to be challenging with public opinion and perception being an impediment to collection. Additionally, a default rate of 15% or greater will trigger a federal audit.  The City will endeavor to minimize risk by requiring collateral for loans.

The region has need of increased access to capital. The revolving loan fund program seeks to provide that increased access.  NACOG, as the administrator of the EDA and other revolving loan fund programs, has ceased their participation in such programs. NACOG's RLF has been dormant for over a decade. Consideration should be given to the fact that during the recession, the monies were not used by businesses in the region. The RLF serves small businesses that otherwise cannot qualify for loans, but who are credit worthy and meet other loan criteria.

Involve
Collaborate
Empower
 

 

Other than approving the plan as presented, options include redrafting the plan through a more extensive process which would require continued review by the EDA.