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Rushford council okays $1 million in loans to non-flood businesses

Fri, Feb 29th, 2008
Posted in Government

RUSHFORD - Oh, the headlines. Nobody signed up to be front-page-news when the Feds-and-the-State tipped a dump truck full of disaster recovery funds on Rushford. Like-it-or-not, that money belongs to the taxpayers, the People. And exactly how the People's Money is being used is the People's Business. So ask yourself, is the People's Money helping the community-in-need?

Up Start The Start Ups

Somewhere past halfway in another 3-hour council meeting on Monday, February 25, after an exhaustive discussion about flood-recovery issues, policy clarification and outstanding liability, members voted 4-to-1 to approve disaster recovery loans, $500,000-each, to Hypersonic-LLC and Connaughty Industries. Voting For: Les Ladewig, Nancy Benson, Larry Johnson and Robert Dahl; Against: Laura Deering.

The approved 1.5-percent-interest loans must be repaid in-full to the City. What this means is that interest and principal payments will be deposited into a local EDA account for future development uses. The revolving fund will continue to be topped-off in years-to-come as businesses repay the 10-percent share of forgivable loans. Rough estimates put the future value of the development fund from repayment of C-1, C-1A and C-2 loans at well in excess of $2-million. [C-1 refers to direct flood damage. C-1A, indirect flood damage or expansion of flood-damaged businesses. And C-2, businesses not damaged by the flood.]

At numerous earlier meetings, the council balked when asked to approve a flood recovery loan to Hypersonic, in part because Hypersonic did not exist until 2-months after the flood.

Members in favor of the loan generally echoed City administrator Windy Block's mantra of jobs and growth. Other members, those not necessarily opposed to the loan, but asking for more time to consider the application, wanted answers to questions like the ones City attorney Terry Chiglo put into writing: business plan particulars and clarification of loan policy related to new enterprises.

Interestingly enough, Chiglo did not attend last Monday's meeting. According to Block, the City attorney recused himself because of an unspecified client-conflict. City prosecutor, Scott Springer, took Chiglo's place.

Whether by design or by accident, the vote on Connaughty's loan application appeared ahead of Hypersonic on the agenda, though Hypersonic was first in line to receive a C-2 loan. The consequences speak for themselves. In previous meetings, Hypersonic's representatives, Dan Fox and Kevin Klungtveldt, came off as-less-than-forthcoming with business details and a little surly for being asked. Ken Connaughty and M&M partners Michael Burns and Michael Messenger, came before the council hat-in-hand with a proposal that, frankly, sounded a lot less exotic than nanotech.

Connaughty-and-company asked for a loan to build a 25,000-square-foot building where they will manufacture steel products. They estimate their start-up will add at least 10-jobs to the economy in the first year. "Maybe 15," Messenger explained. "Labor, sales, accounting, secretarial jobs, hired-locally."

Without once ceding their right to apply for a C-2 loan under guidelines developed by the City and approved by the State, the applicants nevertheless apologized if their loan request offended "anyone who's been flooded," as Burns put it.

Messenger would add: "We aren't doing this to piss people off. We've gotten lots of calls from people upset about the flood disaster. We're doing this for the community."

Because the council considered and subsequently approved Connaughty ahead of Hypersonic, once the second application for a C-2 loan was approved, the first C-2 loan application from Hypersonic could not be denied in a similar context.

Both companies will have to satisfy a number of conditions precedent to disbursement. These relate to ownership, investor membership, collateral, provision of proof that the 50-50 matching funds requirement has been met and an environmental-health plan has been submitted to the State.


While approval of a-million-dollars worth of low-interest-loans to new businesses makes the news and rekindles sidewalk chatter, there is little fanfare now when another million-here, another million-there is approved to aid businesses and property-owners that actually suffered from the August rains.

Last Monday, the council unanimously approved more than $1.15-million in C1-and-1A loan applications from 6-businesses, bringing the night's grand-total-allocation from the disaster recovery fund to $2.15-million.

According to a spreadsheet provided to council members for the first time by administrator Block, nearly $9-million has been allocated to C1-and 1A loans to-date. Based on official damage surveys conducted right after the flood and revised figures from Feb-08, roughly $4.2-million remains outstanding. That is, the City expects to allocate that amount for pending C1-and-1A loans, as well as for appeals to previously-approved loans and for the second-round of loan applications targeted to meet first-round shortfalls.

Give-or-take a nickel, the total comes to about $13.2-million. Add to that then, $1-million approved on Monday to Connaughty and Hypersonic. Subtract the new total from $17-million - which is the amount legislators earmarked for Rushford business recovery at the Sept-07 special session - and you're left with a $2.8-million balance.

Still quite a bit of money 6-months after the flood. But not so fast. Even as winter's days grow noticeably longer, the elevator and grain bins at Rushford Farmer's Cooperative cast long, long shadows that reach all the way to City Hall.

At the start of Monday's meeting, before any business was conducted, Mark Schwanbeck, Co-op General Manager, addressed council members and the large audience spilling out into library, vestibule and clerk's office.

"On behalf of Farmer's Cooperative," he stated, "I want to remove our $950,000 loan request from the agenda." In effect, Schwanbeck, who was represented by counsel at the meeting, withdrew a sure-to-be-approved allocation from the docket and put it back-in-play on Block's landscape spreadsheet.

Farmer's Co-op had 870-members in Aug-06. After the flood, rumors began circulating about the millions-in-damages to Co-op inventory and facilities in Rushford, both the elevator downtown and the warehouse west of the old trailer park. The council has waited with interest in recent weeks for the Co-op to conclude negotiation of its loan application with the loan-committee and EDA, knowing that the Co-op asked for loans at or in excess of disaster fund guidelines. In fact, until Monday night, the Co-op stood to receive approval for 2-loans, a $750,000 C-1 loan, and a hybrid, zero-interest, fully-repayable $950,000 loan that required no matching funds from the borrower. The council voted unanimously to approve the first loan. Schwanbeck withdrew the second loan - nearly $1-million - from consideration.

Why? Long-story-short: the Co-op did not like the 100-percent loan repayment terms. According to Block, the Co-op believed they qualified for a standard C-1, 90-10-forgivable-loan. Schwanbeck made a point of saying that Farmer's Co-op would reapply in Round-2, "so all businesses can be treated fairly." His words.

Deering asked Schwanbeck to estimate the Co-op's Round-2 loan request. Schwanbeck replied, "It could be as much as $2.5-million." Round-1 ended and Round-2 began on 29-February.

Wade back into the flood of numbers: the disaster recovery fund balance, after approving Hypersonic and Connaughty, totaled about $2.8-million. If the Co-op requests $2.5-million, the balance would drop down to $300,000. Assuming appeals and shortfalls amount to anything approaching $0.3-million, the Co-op's Round-2 request would leave the fund short of resources.

However, the Co-op turned down a $950,000 allocation, so the balance grows back to $1.25-million. So, how much more exactly is needed to fully-fund disaster recovery costs?

As council and staff led the audience back-and-forth through the labyrinth of ciphers, member Johnson asked pointedly, "Don't we have enough figures now?"

Block referred everyone to the spreadsheet. "Turn to page-3. Now take off $950,000."

Deering shot back, "They [Co-op GM Schwanbeck] just told us $2.6-million."

Block: "We have no guarantee those are verified losses. We have to use these figures."

Deering repeatedly questioned Block's spreadsheet. "It disturbs me," she said. "I don't find that amount [the Co-op's estimated flood loss] anticipated in the pipeline. It's confusing. There is a huge discrepancy."

"You want me to put rumors in [the spreadsheet]?" Block responded. "People can feel they have something to be reimbursed for," he elaborated. "It comes down to this. Was it a loss? Was it caused by the flood? I don't have anything that says it [the Co-op's $2.5-million estimate] was a verified loss."


Headlines don't capture how a small chamber feels smaller when its full. Hard white lights bright enough to see by burn the eyes dry easy in 3-hours. Cellphones go off. Distracting conversations fall hush. Bulky coats rumple off, then back on. A cold gust pushes a warm, moist sneeze through the audience when the door opens. All the antsy bodies. The physical lexicon of small town politics writ large.

Despite considerable effort, councilmember Deering failed to stall an inevitable vote on the C-2 loans. As a policy matter, Deering has publicly opposed new-business-loans largely on the grounds that priority should be accorded to the businesses that suffered direct flood damage. She has gone on the record at nearly every meeting since August to argue against draining-down the disaster aid reservoir until long-term flood recovery issues: damages, problems, needs, etc., have been identified and funds are committed to mitigation or repair. The fact that Farmer's Co-op withdrew its $950,000 loan application in lieu of reapplying for an estimated $2.5-million loan in Round-2, hoping for better terms, appears to validate her fundamental concern about the need to monitor the financial pipeline.

Deering noted repeatedly Monday night that, "we're getting close to the end of the money." Hers is not a recent conversion after a quick look at the spreadsheet she's been asking Block to deliver since at least last December. From the outset last September, Deering has argued in favor of retaining a 10-percent balance in the disaster fund - $1.7-million - to meet contingencies and long term needs.

Mayor Ladewig confided that Senator Sharon Ropes - without making any promises - recently told him that additional recovery dollars may be available by shifting funds from un-depleted disaster bill line items to Rushford coffers. It wasn't clear whether the legislator meant she would lobby her colleagues to cover non-flood-related allocations to C-2 new-business-loans.

"We should keep a bird in the hand now," Deering said, referring to existing Rushford businesses, "before worrying about two-in-the-bush." Agree with Deering or not, she has consistently demonstrated the courage of her convictions. And not to suggest that the rest of the council lacks backbone, but Deering has literally set herself apart from her distinguished colleagues around the table by sticking to her guns.

"What we decided months ago ..." Deering said early in the proceedings - a reference to council approval of creating the C-2 loan category back during heated negotiations between DEED and Rushford's insubordinate business community, "Maybe we want to change that." She would struggle for the better part of the evening to find the words to bring forward a motion consecrating C-1 loans for flood-damaged businesses as the first priority. "C-1 loans first. Then C-1A. Then C-2."

Acting attorney Springer explained prior to the council vote on Connaughty and Hypersonic that State guidelines require the City to "give priority consideration, to extend disaster recovery funds to those primarily hurt by the flood." Seeming at first to concur with Deering, Springer went on to state that the City had satisfied that "priority consideration" requirement when it sent a letter to affected businesses on 21-Dec. No one asked, so it was never really clear whether-or-not C-2 applications negotiated and-or approved before the letter was sent conformed to the spirit of "priority consideration".

Springer further advised the council that, "going forward," it could prioritize C-1, 1A and C-2 loans, in that order, but that it should not make the priority "retroactive". In reference to Deering's suggestion to require full-funding of all C-1 loans before C-2 loans could be considered, Springer stated, "The council is under no obligation to fully fund any applicant."

Deering's trial balloon was flattened.

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