Consideration and Approval of Amendment to Financial Assistance Award: From the U.S. Department of Commerce Economic Development Administration (EDA) for the Revolving Loan Fund (RLF) Program as a financing tool to support economic development.

The City of Flagstaff is seeking to improve access to capital for businesses. The City has partnered with ECoNA, NACET, the Greater Flagstaff Chamber of Commerce, and SEDI to create one point of access for such monies with the development of the Northern Arizona Business Capital Fund.  Information on this program may be found at www.nazfunds.com. The City of Flagstaff will contract with a financial lending institution through standard procurement open bid process so that the financial lending institution will service the loans. Staff time will be kept to a minimum as a result of contracting with a financial lending institution. 
 
The RLF will contribute directly to the achievement of each of the following:

1. Enhancement of capital availability.
2. Entrepreneurial and small business vitalization.
3. Improvement of education and training capabilities.
4. Promotion of cooperative development efforts through partnerships among public and private entities.
5. Optimization of the economic potential of the above mentioned four distressed counties.
6. Maximum leveraging of private investment and public resources.

Partnering agencies complement each other by serving different lending needs: SEDI loans range from $0-$5,000; NACET loans range from $5,000-$35,000; ECoNA loans range from $5,000- $35,000; the City loans will range from $25,000-$75,000. Given the anticipated range of City loans, the City anticipates no more than eight active loans at any given time.
 
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

Financial impacts will be minimal. The EDA has honored the previous match of NACOG thereby eliminating the requirement that the City raise a match. There will be some staff time associated with the management of the program; however, as staff plans to contract with a financial lending institution that will service the loans, staff time will be kept to a minimum.

COUNCIL GOALS:
7) Address key issues and processes related to the implementation of the Regional Plan
8) Improve effectiveness of notification, communication, and engagement with residents, neighborhoods and businesses and about City services, programs, policies, projects and developments
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.

The City of Flagstaff City Council unanimously accepted the transfer of the portfolio from NACOG to the City of Flagstaff on May 1, 2012. There has been no further action.

Approve and accept the award of $217,000 from the EDA to fund the revolving loan fund program. Pro: Approval allows $217,000 to be accessed by businesses that need funding. Con: Approval also results in the City getting into the banking business.

Table the award for further discussion. Pro: Allows more time for further council consideration of acceptance of the EDA funds. Cons: none.

Not approve the award and de-obligate the funds back to the EDA. Pro: Prevents overextension of City staff. Cons: May negatively impact the relationship with the EDA.
 

 

The Economic Development Administration awards funding for revolving loan funds. This particular grant was originally awarded to the Arizona Department of Commerce but eventually was transferred to NACOG in the late 1990's. The monies were intended to assist business across the state in all counties except Maricopa and Pima Counties. In 2012 after a long dormant period, NACOG and the City  discussed a possible transfer allowing the City an opportunity to administer the program. In May of 2013, City Council unanimously approved the transfer of the portfolio. In 2015, the EDA approved the transfer of the Grant to the City of Flagstaff and the Administrative Plan. On key point in the Administrative Plan is a change of the geographic bounds of the target are for the funds. The new boundary will only serve the four counties that comprise NACOG's range: Apache, Coconino, Navajo, and Yavapai Counties.

NACOG has determined it no longer has the capacity to operate the RLF due to lack of staffing capacity and suspended all lending activities.  In turn it approved transferring the RLF and match to the City of Flagstaff.  The City will dedicate a strong organizational leadership to manage the EDA RLF award as well as oversee the bid and contract award to a financial lending institution to operate the RLF.

EDA has honored the matching funds from NACOG which were required so that the City does not need to provide the match from City accounts.

Per the EDA Guidelines, if 15% of the RLF balance defaults, a federal audit will be required.  Loan criteria and collateral requirements will help reduce risk of default.

A small portion of the interest from the loans may be used to pay for administrative fees which will go to the pay the financial lending institution for servicing the loans. An equal portion of the interest may be rolled into the balance in order to grow the fund.

The City may also apply to the EDA for more funding in order to grow the program.

The Revolving Loan Fund program complements the existing NACOG Comprehensive Economic Development Strategy (CEDS) which describes the economic challenges in the NACOG Territory or Economic Development District (EDD). The document is updated every five years and is complemented by an annual action plan. The CEDS and annual action plans are developed by NACOG leadership which provides community input from across the region. By providing a means to implement aspects of the CEDS, community benefit primarily exists as one more opportunity for funding for businesses.

Lending is quite tight at present creating hardship for businesses within the region. Providing another opportunity for businesses to access capital is a great community benefit.

Involve
Collaborate
Empower
 

 

Approval of the award translates to the City entering into the banking business. While staff has developed the approved plan in a manner that minimizes risk and staff time, the program will both increase risk and require more staff time in Economic Vitality Division, Management Services Division, and Legal. Increasing access to capital is a worthy desire. The long dormant periods and the subsequent exit of NACOG from the revolving loan fund activity including EDA and USDA funded programs are actions that may give pause for consideration.

Alternatives include the following: directing staff to work on the development of a community bank to meet the gap funding needs of businesses in the community; directing staff to enter into the banking business cautiously knowing the risks.