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EDA proposal tweaked for DEED acceptance

Fri, Oct 5th, 2007
Posted in Government

RUSHFORD - "As to the question, 'is the business community satisfied with this (proposal)?', I think I can answer that-No!" said Rushford mayor Les Ladewig in the special meeting of the city council last Tuesday, Oct. 2.

Ladewig continued, "But are we at the point of the limit of what we can get, without risking alienation from the state? I think we are."

Shortly after Ladewig's comments, the council voted unanimously to propose a plan to DEED (Department of Employment and Economic Development) that allows for a maximum disaster relief per business of 75% forgivable loans, and 25% loans.

The proposal came from a recommendation made by the local EDA that morning-a proposal that was then significantly "tweaked" after a phone conversation with DEED officials Tuesday afternoon.

Many local businesses were represented in council chambers during the approximately ninety minute discussion that preceded the vote.

A phone conversation with state officials that afternoon seemed to reveal that a number of the EDA's stipulations would be rejected by the state. On this end of the conversation were local DEED disaster representative, Kevin Kelleher and consultant Chuck Pettipiece.

Some of the major "tweaks" of the proposal included the following:

• EDA proposed a maximum of 80% forgivable loans to 20% loans: DEED indicated they would agree to nothing higher than 75/25.

• EDA asked for all flood-damaged businesses to have the opportunity to use disaster relief funds to refinance existing debt: DEED indicated this was "unacceptable".

• EDA recommended that, depending on the level of the loan, that the city recapture into the revolving business loan fund varying percentages of the monies paid back while zero went back to the state: DEED indicated that it will only accept a proposal where a share of the money is paid back to the state.

• EDA asked for no participation from the Small Business Administration (SBA): DEED indicated that prior approval, or at least application, for a loan to Small Business Administration was a requirement for participation in disaster relief.

• EDA proposed a three-tier program of varying requirements where column A included 50-50% forgivable debt to loans, column B was 75-25%, and column C was 80-20%: DEED shot back a two tier proposal with an A column of 50-50% and a B column of 75-25%.

Early in the meeting Kelleher had pressured the group to act by announcing his opinion that, "it's time to fish or cut bait."

Kelleher went on to caution the group with the now-familiar concept that it's a "fairness issue"-the state doesn't want to seem to be giving Rushford a "sweeter" deal than what they've given out for past disasters, or what they're willing to give out in the future.

Mike Hammell of Hammell Equipment pointed out that one significant difference with the Rushford flood from other disasters was that businesses did not carry flood insurance (and many feel they were discouraged from carrying it as it was deemed unnecessary because of the security of the dike system).

Tom Witt of Witt Pharmacy agreed that the lack of insurance in this case "is huge."

But Chuck Pettipiece reinforced Kelleher's point by saying he'd been told by "associates" he knows within DEED that the state is being cautioned that legislators in other parts of the state are carefully scrutinizing what kind of deal Rushford gets.

Jim Hoiness of Rushford Foods expressed his displeasure at the phrase "being made whole" as he's heard it from Kelleher, Pettipiece, and others. He said the business community is being told repeatedly that they shouldn't expect to "be made whole" by disaster relief.

"Nobody in this room is looking to 'be made whole,' and I'm getting tired of that comment," Hoiness said.

Hoiness and others also expressed a frustration with the loan application process to the Small Business Administration. He said that he recently got loan approval from SBA, but that as collateral, they are requiring his other two grocery stores, his home, and two of his sons' homes.

Hoiness said he was willing to share some of his personal situation to show the reality of "what it's like out there."

"It's not lucrative," Hoiness said. "Nobody is getting 'enriched'."

Witt agreed, reporting that his SBA phone representative told him he needed collateral for his loan, "What percentage (collateral) do I have to go to?" Witt asked the representative. "Dollar for dollar," he said he was told.

"What real estate do you have?" Witt says he was asked. When he started giving assessed values, the representative wasn't interested.

"Just give me a number to get this done," Witt says he was told.

"I would be one hundred percent collateralized," Witt said. "One glitch in my business, and if I went asking for help, my balance sheet would scare any lender away."

Hammell chimed in on the subject. "Why are we so stuck on SBA? In thirty years, we've had several years where our income has fluctuated by forty percent. Now, a local banker would understand that, but SBA doesn't."

Dr. Gary Marcoux added that in his situation, where he quite recently took over an existing dental business from Dr. Nelson, his debt to asset ratio was too much for the SBA, who denied him a loan.

"So for me to try to go 75-25% (on disaster relief) would be a challenge," Marcoux concluded.

Pettipiece said, "If you don't want to deal with SBA, I don't care. But you have to apply with them. Just don't use them. Go ahead and use local banks."

This comment seemed to provide a bit of tentative reassurance.

"But why would MIF (Minnesota Investment Fund) approve what SBA hasn't?" asked banker Dwayne Ostrem.

"Because this money goes at high risk, and we know it," said Pettipiece.

Council member Laura Deering asked a number of questions of Pettipiece before the vote. She wondered what would be wrong with at least asking for the 80-20% split, or even the 90-10% first suggested by EDA. Pettipiece again indicated that DEED wouldn't go for it.

Deering asked whether there was data to prove (from surveys Pettipiece distributed) exactly what kind of deal was necessary in Rushford to assure businesses would be able to survive here. Pettipiece answered that there wasn't time to gather such data.

However, Deering was successful in having two amendments made to DEED's counter proposal: the percentage of state to local monies paid back through loans was changed to favor the local city fund in both option "A" and option "B", rather than the two entities splitting the funds equally in option "A", as DEED proposed.

Deering also asked to have SBDC of Rochester added as an option for loan processor/reviewer to option "B", rather than having Minnesota Department of Commerce listed as the only option.

Both Deering and Ladewig emphasized the importance of a "maximum waiver" for businesses with extreme need, requiring more than the set maximum of $750,000 or $600,000, respectively, for options "A" and "B".

Proposed options for disaster relief distribution are due from local entities to DEED by Friday, Oct. 5.

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