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Rushford City Council Report: Hypersonic loan application on hold


Fri, Feb 1st, 2008
Posted in Government

Late on the agenda, at Monday's, January 28 council meeting, the council tackled an issue that was reviewed by the flood recovery loan committee and the EDA in recent weeks: Does a start-up business qualify for disaster recovery funds? Case in point the application for a $500,000 business start-up loan from Rushford Hypersonic LLC, represented by Dan Fox.

At present, Hypersonic is essentially a nanotech idea in search of venture capital. Promising to create 40-60 jobs, Hypersonic has no plant, warehouse or manufacturing office in-or-outside of the City.

City administrator Windy Block asked the council: "Does this fit our loan policy?" volunteering for the benefit of City attorney Chiglo, who he'd tussled with earlier, "I know Terry and I don't agree on this."

"We agree on the question," Chiglo replied before elaborating, "Under the flood legislation, Category-2 loans are permitted for businesses that were not damaged by the flood. This business was not damaged. But it could not have been damaged. It didn't exist before the flood. My recommendation," he concluded, "consider this business under the old EDA rules."

"Old" EDA rules apply to every EDA across the State, providing cities with business incentive options that range from JOBZ and SEED programs to bonding.

Fox addressed the council. "Last time I was here you told me to go out and raise $300,000. I've done that. We'll have $600,000, probably within 60-days, when the fundraising's done. I've done my thing." Fox sounded impatient. "Does the City want us to come here or not?"

Block explained, "They [Hypersonic] have worked their way up through the system. They've been understanding and fully compliant. The bottom line is, in these kinds of ventures, are we on board or not? Are they eligible or not?"

"Are we voting on this?" asked Deering, who went on to express concern that disaster recovery funds should be provided to all businesses affected by the flood before approving any Category-2 loans. She continued, "We hear about all these jobs. I haven't even seen a business plan."

"I've presented everything to the City," Fox would exclaim. "Business plan, sales figures. The U-of-M has looked it. Windy has a copy. I have secured $25,000 in cash and a $300,000 line of credit."

"Why can't you start-up with $325,000?" asked Chiglo.

Fox replied, "Because I'm using it for operating capital."

"Are we going to do this or not?" asked Block tersely. "We can't just give people the run-around. Not good business."

Mayor Ladewig addressed Fox. "Make no doubt, we want this business. The issue is, how do we make it happen."

Ladewig then said in no uncertain terms, "Give us more time, Mr. Fox, or accept a flat No."

Deering stated that she would feel "more comfortable" giving her support to the application knowing that DEED had first approved the application. She also asked Block to provide an accounting update on the status of flood recovery funds, a request she has made at previous council meetings.

Of an estimated 70 flood damaged businesses, fewer than 40 have been awarded C-1 forgivable loans to date. Farmer's Elevator Co-op, soon expected to apply for $1.5-million recovery loan, will take a big bite out of remaining funds.

Chiglo asked Block point-blank, "What if we don't have enough to cover Category-1 businesses?"

Block replied, "That's the way it is."

EDA member Brad Woxland spoke up from the audience to say that both Chiglo and Block were "right", the former expressing legal reservation over use of recovery funds for a start-up, the latter for supporting new business. "But this is the heart of why the EDA is here," Woxland said.

Clearly frustrated, Woxland said he didn't believe that the folks in the Cities [DEED] would "tar and feather us" for approving a C-2 flood recovery loan to aid Hypersonic.

"This needs to be a policy decision by the council," said Chiglo.

Block stated the policy question, "Do we give this type of loan?"

"Are we opening Pandora's Box?" asked Benson.

"There's another Rushford business," Block interjected, "with a new name, new ID, ready to apply."

Rushford resident Kevin Klungtveldt addressed the council. A nanotech proponent, RINTek founder and collaborator in the Hypersonic business plan that wants to use a proprietary formula to coat drill bits with a super-hard nano-particle cutting edge, Klungtveldt said, "I've been working on this for 7-years. RINTek owns 5-percent of the patent the U-of-M has donated to Hypersonic." Making no attempt to hide his aggravation, he stated, "If you want to turn the page sideways, like we're doing here, we can do that."

Klungtveldt, whose RINTek organization received at least $15,000 from the City in an unsuccessful effort to attract nanotech start-up to Rushford a few years ago, and most recently, for lack of capital, backed-out of a $600,000 State matching grant to open a research lab and nano-business incubator in Rushford., a Fox made a final appeal. "I'm living up to my end of what the City has asked of me. I've done that. Now you hold up your end."

Block reminded the council that it was his duty to bring economic development to Rushford. He said State lawmakers waived many statutes to craft the disaster recovery bill, and alluded to pressure brought to bear on DEED administrators by a coalition of local businesses and elected officials that resulted in changing the spirit of the law. Extrapolating forward from the bill's history, Block argued that a start-up business loan using disaster recovery funds would be a valid interpretation of the law.

Earlier, when asked if DEED had offered any opinion about Hypersonic application, Block said that DEED officials rejected the idea when it was first presented. "They said, 'Caution. Be careful. Everybody's watching.'"

Deering repeated her earlier statement, "I want a reading from DEED first. And I'd like to see a breakdown of the flood funds."

"Is that a motion?" asked Ladewig?

Deering repeated it. So moved and seconded, the council voted unanimously to postpone a vote on the Hypersonic loan request until DEED provided an opinion on acceptability and the City administrator provided an up-to-date accounting of disaster recovery funds.

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