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HomeMy WebLinkAboutIV.A - COVID 19 Financial Assistance HEDRA MEMORANDUM To: HEDRA Commissioners From: Rusty Fifield, Economic Development Coordinator John Hinzman, Community Development Director Date: April 2, 2020 Item: Financial Assistance for Local Businesses Action Requested Accept recommendations in this memo and direct staff to take actions to implement the recommendation (Motion/Simple majority). Background A critical issue for HEDRA in the coming weeks and months is evaluating the need determining a role for the City in providing financial assistance to local businesses to mitigate the impacts of the Coronavirus Pandemic. This memo outlines the issues for discussion at the April HEDRA meeting. On March 16, HEDRA Board participated in a joint workshop for City Council. The focus of the workshop was the economic impacts of the Pandemic on local businesses and the need for City assistance to local businesses. At the City Council meeting later that evening, the City Council created and COVID-19 Economic Development Task Force. Given the evolving nature of the pandemic, HEDRA now assumes the responsibility for addressing local economic development issues with the to the Pandemic. The Staff memo to the Task Force appears in Attachment A. This memo outlines the issues related to creating a financial assistance program. These issues will also apply to the use of HEDRA funds. HEDRA Resources HEDRA currently has approximately $700,000 in reserves. These monies are used defined the revolving fund loan and land acquisition programs. There are also other options for providing assistance, but those options are best discussed in context of a specific need. COVID-19 Assistance April 2, 2020 Page 2 Potential HEDRA Roles The financial implications for local businesses is an evolving situation. We are unable to predict the nature of restrictions on activities and the duration of this crisis. Based on our current understanding, we see three potential roles for HEDRA: 1. Address needs not met by State and Federal programs. 2. Provide post-Pandemic recovery assistance. 3. Take other actions to aid local economy. It is unlikely that HEDRA has sufficient funds to effectively fill multiple roles. If possible, we should identify the most effective role and take action accordingly. In making a decision, it is necessary to explore the potential roles in greater detail. Fill Gaps There are a variety of State and Federal small business assistance initiatives. Current information on business assistance programs can be found on the “COVID-19 Resources” page on our website. All of these initiatives have been created in the past four weeks. It is too early to know the impact of these programs and any local business needs that are left unmet. It is also likely that additional State and Federal assistance will be provided in the coming weeks. Using HEDRA resources to address unmet local needs requires time to evaluate the effectiveness of existing assistance programs. If needs become apparent, we must determine if HEDRA has the authority to help fill these gaps and eligibility for the assistance. Pandemic Recovery The post-Pandemic period is filled with uncertainty. We do not know when it happens or what state local economy is in at that time. We can be reasonably certain, however, that local businesses will require assistance in recovery. It is impossible to know the type of assistance that will be needed. Having the financial resources and the ability to respond to the future need would be an asset. Other Actions Providing financial assistance is not the only means of using financial resources to help the local economy. The Downtown Property Study will provide direction on the use of HEDRA property holdings in the Downtown area. HEDRA funds could be used to facilitate development on one or more of the sites. Such development positive impact on Downtown. Effects of the Pandemic may create opportunities to acquire land at key locations at desirable prices. This situation creates the opportunity for HEDRA to assemble redevelopment sites at strategic locations. COVID-19 Assistance April 2, 2020 Page 3 Recommendation Any of these roles are appropriate and provide benefit to the community. We do not currently believe, however, that there is enough information to determine the most effective role at this time. Our recommendation for a near-term strategy is as follows: 1. Suspend existing revolving fund loan and land acquisition programs to retain existing fund balances. 2. Work with the Chamber of Commerce, local banks and other parties to understand the effectiveness of State and Federal relief efforts. 3. Identify gaps in between Federal relief efforts and evaluate options for HEDRA to fill these gaps. 4. Monitor the local real estate market for strategic land acquisition opportunities particularly in Vermillion Street Corridor. 5. Complete the Downtown Property Study and recommend strategies for acting on development opportunities identified in the Study. COVID-19 Assistance April 2, 2020 Page 4 Attachment A To: COVID-19 Economic Development Task Force From: Rusty Fifield, Economic Development Coordinator John Hinzman, Community Development Director Date: March 19, 2020 Subject: Assistance to Local Business The purpose of this memo is to propose a framework for discussing the initial efforts of the Task Force to create a proposal for providing financial assistance to local businesses under stress from the Coronavirus Pandemic. The ability to provide this assistance is not as simple as one might assume. Solutions must combine legal authority, available funding and local need. We are still in the process of identifying options and evaluating the implications of each option. Our discussion on March 20 will focus on laying the foundation for immediate and ongoing assistance to local businesses. The guidance provided by the Task Force at this meeting is an essential part of this process. Framework It is important to remember that the resources available for this use are limited. Establishing criteria for evaluating options for providing financial assistance to local businesses helps to ensure that the monies will be used effectively. We need to establish the criteria at the outset of this process to guide the work of the Task Force. We propose using the following criteria: Authority • Is there legal authority of the proposed use of funds? • Does the use of funds serve a public purpose? Resources • What is the source of the money? • Are there any restrictions on the use of the money? • What are the implications of not using money for its intended purpose? Uses • Is the use a loan or a grant? • How will the money be used? • How will the recipient benefit? • Who is eligible to receive the financial assistance? COVID-19 Assistance April 2, 2020 Page 5 Process • What is the process for applying? • How can the review and approval process be expedited? The answers to these questions will shape the evaluation and structure of assistance alternatives. Potential Funding Sources Before discussing specific sources, it is important to understand two basic factors that control the ability of the City to provide financial assistance. (1) The use of funds must serve a public purpose. (2) The City must have legal authority from State Law or City Charter to make the expenditure. In practical terms, these factors go hand-in-hand. Public purpose, by itself, is not sufficient to provide financial assistance. The public purpose for use of funds is typically derived from the statutory authority for making the expenditure. For example, the State laws that allow cities to create tax increment financing districts make the eligible expenditure of tax increment revenues a public purpose. These requirements apply to the expenditure of public monies held by the City. Some of the potential funding options are not direct expenditures, but the reduction in future revenues to be collected. We have identified a set of potential funding sources. Each of these sources has potential benefits and limitations. At this point, we have not completed our evaluation. The list below provides a basic explanation of each source. The table in Attachment A applies the criteria described previously to each of the funding sources. We hope that this information helps Task Force members to think about future steps to provide financial assistance. Our initial list of initial funding sources includes the following: • Unrestricted Reserves. The City has cash reserves for a variety of purposes. Some reserves are restricted, held for a specific purpose such as the repayment of bonds. Other reserve funds are not restricted but are earmarked for a specific purpose such as future capital improvements. The use of unrestricted reserves to provide financial assistance requires a clear understanding of the alternative use of the funds. • HEDRA Reserves. HEDRA has established reserve funds for revolving fund loans and land acquisition. Some or all of these monies could be used. There are two obvious “costs” of using these funds. Any money used is not available for its intended purpose. COVID-19 assistance is not likely to be paid back to HEDRA. We are evaluating how much of these reserves is reasonable to allocate to COVID-19 financial assistance. • Utility Rates. The only meaningful and immediate means of financial relief is in a reduction in water, sanitary sewer and/or storm sewer utility rates. A rate reduction can be used to benefit both businesses and residents. The assistance could be across the board or targeted. The impact of using this approach would be additional future rate increases and meaningful changes in capital improvement plans. Analysis will be needed to understand the impact on COVID-19 Assistance April 2, 2020 Page 6 the utilities from rate reduction alternatives. Ehlers is currently conducting an update of the 2017 utility rate study. Ehlers should soon be in a position to analyze the impacts of any rate change. • SAC/WAC. These charges are collected from new development to defray the cost of future improvements to the municipal sanitary sewer and water systems. A separate SAC charge is collected by the Metropolitan Council. Reducing these charges would be a way of encouraging new investment. It may also be possible to “rebate” charges paid to assist recently started businesses. • CDBG. The City receives an annual allocation of Community Development Block Grant funds. Federal regulations control the use of CDBG. These funds must only be used to remove blight or to benefit low-income persons. Traditionally, the City is used these monies to reduce assessments for infrastructure reconstruction projects. We are reviewing information recently distributed by the Dakota County CDA on opportunities to allocate CDBG funds. • Tax Abatement. State Law allows cities to levy a property tax that can be used to abate property taxes on specified parcels. This tool provides an option for conveying financial assistance to commercial property in Hastings. Typically, tax abatement relates to future property tax payments. We are investigating the ability to abate 2020 property taxes. We are also working to match the potential uses with the requirements imposed by State Law. The sources are only intended to be the basis of initial staff investigations. We are exploring other options and monitoring State and Federal actions. We will have additional information to provide the Task Force at future meetings. Uses There is no simple option for providing financial assistance. Where existing funds are available, we have yet to establish clear statutory authority for using these monies to provide financial assistance to local businesses. For options not impaired by statutory authority, there are practical considerations to address. In light of these constraints, the most important immediate task for the Task Force is the identification of needs. • What type of financial assistance is most needed by local businesses? • Should assistance be targeted at specific categories of local business? • What other factors should be considered in designing financial assistance programs? The answers to these questions are critical to managing the need with the available funding options. Process We should try to create programs that have specific enough criteria that they can be approved by the City Council or HEDRA Board and then administered by Staff. We should avoid, if possible, programs were every use requires a meeting for approval. COVID-19 Assistance April 2, 2020 Page 7 It seems likely that the uses we create will require an application. All application from must be simple and available online. The challenge becomes letting people know that the funds are available. Next Steps 1. Incorporate the guidance provided Task Force into our efforts to create financial assistance options. 2. Complete our evaluation of the funding sources defined in this memo. 3. Work with other Staff to determine if other funding sources are available and, if available, determine any limitations on these sources. 4. Prepare specific funding options for consideration by the Task Force. 5. Present findings and recommendations to the Task Force.