Local partners explore new vision for revolving loan fundWritten by Lisa Renee Ward | | firstname.lastname@example.org
Toledo Councilman Adam Martinez is working on a proposal to change how Section 108 loans are handled in the Toledo area. He has organized meetings with for-profit and nonprofit executives discussing such goals as a $100 million revolving loan fund.
Section 108 is a loan guarantee system within the Community Development Block Grant (CDBG) program funded through the U.S. Department of Housing and Urban Development (HUD). It allows local governments to use a portion of CDBG funds for federally guaranteed loans with the requirement the project benefit low- to moderate-income persons, or to aid in the prevention of blight.
At a Feb. 4 meeting, representatives from Toledo’s Department of Neighborhood and Department of Economic Development, LISC, ABLE, LCIC, Toledo-Lucas County Port Authority, LMHA, several Community Development Corporations, Martinez and Councilman Rob Ludeman met to discuss a plan in which the Port Authority might be able to leverage the $20 million Toledo receives to increase it to $100 million in a revolving loan fund.
The vision set forth by Martinez and those he met with is to, “Create a multi-million dollar revolving loan pool that may be accessed by for-profit and nonprofit organizations for the express use of development as defined by governing body.” And to “Allow for creative financing with fiscally responsible underwriting criteria to ensure beneficial development within the City of Toledo.”
Carla Firestone Nowak, director of communications of the Port Authority, said via e-mail on Feb. 15, “The Toledo-Lucas County Port Authority continually works with various partners to investigate methods to fund development projects in our community. Investment of public funds demands a thorough review process and we have been exploring ways in which the Port Authority can work with the City of Toledo to begin this process.”
Martinez said this is an opportunity to create public/private partnerships to leverage investment opportunities and increase economic development.
“We called HUD [in Washington, D.C.] about the loan guarantee and debt reserve to ask if we can work with the Port to leverage $20 million. HUD said there is some criteria that would have to be followed, but it’s a creative idea,” Martinez said.
Each group that participated in the meetings was invited for its own area of expertise, Martinez said. Notes from the most recent meeting, obtained by Toledo Free Press, outlined these areas:
- Department of Neighborhood — Expertise in HUD rules and regulations
- Department of Econ. Development — Business Development & relationships
- CDC Community — Complex real estate transactions & public interest
- LISC — Public policy and access to financial resources
- ABLE — Public policy, social equity and access
- LCIC — Business development, regional approach to economic development with emphasis on cooperation
- Port Authority — planning and opportunity meetings, creative financial resources, promotion for economic development on a regional level.
- LMHA — HUD expert in affordable housing, experience with complex lending projects. Multi-million public developer.
Martinez said in addition to creating a larger pool of available dollars, underwriting criteria would be established. Bonding, personal guarantees, a letter of commitment from a lender or the equivalent, a 5 to 10 percent cash equity requirement and a yet-to-be-determined debt coverage ratio have been discussed.
This money is not risk-free. Funds guaranteed by Section 108 require the local government to pledge current and future CDBG allocations to cover the loan amount as security for the loan. The lack of underwriting criteria has been cited as a concern during previous discussions on proposed Section 108 loans.
The forming of a seven-member independent underwriting review committee made up of economic development professionals, CDCs, community members and real estate professionals is in the works.
The initial discussions also included preliminary plans for how profits from the revolving loan fund would be handled. While that is not finalized, the meeting notes suggest that 80 percent return to the revolving loan fund with the remaining 20 percent split among areas such as historic preservation, CDBG recipients and Department of Neighborhood for compliance and staffing costs.