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• Small Business Access to Capital (Part III): Loan-Loss Reserve Fund

  This is the third in a series of blog posts on tools available to local governments to assist small businesses. Previous posts have covered revolving loan funds (parts I and II). A second option is a loan-loss reserve fund.

  What is a loan-loss reserve fund?

  A loan-loss reserve fund (LLRF) involves a partnership between a non-financial institution, such as a local government, and a financial institution. The non-financial institution deposits money in a financial institution for the purpose of creating a loan loss reserve for loans made to small businesses associated with the non-financial institution.

  Whenever a financial institution makes a loan, it has to set aside a certain percentage of that loan to cover any potential losses from a default. Financial institutions prefer to set aside as little funding as possible because these funds sit idle. This set aside is called a loan-loss reserve. Read more »

• Role of Community Development Financial Institutions in North Carolina

  The main purpose of Community Development Financial Institutions (CDFIs) is to expand access to capital in low-wealth and underserved communities in order to foster economic development and revitalization. Many of these communities have been left out of the financial mainstream, unable to access financial services and capital from traditional banks. In recent years, particularly after the Great Recession, the credit market tightened even further. Large banks pulled back from small business lending and enacted tighter lending criteria. As a result, many entrepreneurs—even those that were previously able to secure small business loans—were left struggling to access the credit they needed to startup or expand their businesses. That is where CDFIs come into play.

  CDFIs are typically smaller institutions that are able to evaluate businesses on a broad range of criteria—not just credit scores— and benefit from a close relationship with their borrowers Read more »

• Program-related investments (PRIs): A potential funding source for community economic development?

  Program-related investments (PRIs) are a tool that many foundations use to achieve philanthropic goals and financial returns. In contrast to traditional grants, PRIs include loans, equity investments, loan guarantees, or other investments from foundations. Common program areas funded by PRIs include affordable housing, community economic development, and education.

  Both for-profit and not-for-profit entities that advance the mission of the foundation are eligible to receive PRIs. However, the IRS dictates that foundations cannot use PRIs for political campaigning or lobbying.

  Traditionally, foundations have sought to address community issues primarily through the distribution of grants. The IRS dictates foundations must make annual distributions of at least five percent of the average fair market value of the foundation’s assets. For the most part, these charitable contributions are delivered primarily through grants. The remaining 95 percent of assets are kept in an endowment and invested in order to maintain or increase its value. Read more »

• Try using “yes, and” in your next economic development strategy session

  You are meeting with members of your economic development board and trying to make decisions about infrastructure investment to promote growth. One member wants to focus the discussion on the need to construct a new shell building, while another member wants to talk about water and sewer infrastructure. The proponent of constructing a shell building just finishes her point about the need to have space available for new companies, when the water and sewer proponent cuts in. “Yes, but….” Immediately the shell building proponent knows that the water and sewer proponent is trying to take the conversation in a different direction and likely feels she is not being heard.  On the other hand, if the water and sewer proponent had said, “Yes, I hear your point about the need to have space available for new companies, and I am hoping we can also find a way to think about to explore expanding the water and sewer infrastructure,” there is a greater chance to build a mutual and productive conversation. This latter approach provides the start to creatively finding new strategies together that the “yes, but…” does not allow for. Read more »

• Small Business Access to Capital (Part II): Revolving Loan Funds

  Small business success is one of the cornerstones to the vitality of our communities. A variety of tools are available to local governments interested in supporting their small businesses. In this continuing series of blog posts about how local governments can assist small businesses, we will review common tools used to offer financing, how to capitalize these finance tools, methods to promote entrepreneurship, and new trends such as crowdfunding.

  Across North Carolina, multiple local governments operate some type of loan fund to support their local businesses. These programs operate with several common goals including business recruitment/expansion, job creation, and increase in quality of life. The majority of these loan funds are operated as revolving loan funds. Read more »

• Is North Carolina a “Low Tax” State for Business?

  State policymakers are considering a major reform of the tax code in North Carolina that could include a reduction in the corporate income tax rate.  One rationale for doing so is the sense that the state’s competitiveness for economic development is being hampered by a corporate income tax rate that is too high relative to other states.  An important question that arises is the extent to which the corporate income tax rate alone makes a big difference in business location and investment decisions?  Or do businesses ultimately care about the total amount of taxes they will have to pay in a particular state?  With respect to the latter, a soon to be released report suggests that the overall tax burden for businesses in North Carolina may actually be fairly low compared to other states. Read more »

• Measuring quality of life or “livability” within a community

  What draws and retains residents to a specific community?  Are there characteristics that make a local jurisdiction a particularly livable place, and can this concept be measured?  As many local jurisdictions seek strategies to encourage economic development, some are giving equal attention to the concept of livability to ensure the benefits of their communities are preserved or flourish as a result of such efforts.   While there are limitations and challenges to measuring livability or quality of life, jurisdictions in the United States and abroad have embarked on efforts to capture and measure it through comprehensive indices.  Such a comprehensive index attempts to measure the tangible and intangible variables of quality of life through a collection of indicators organized around topical areas (e.g., health, education, transportation), possibly producing a composite score.

  Historically, measuring society’s position and progress has focused on economic indicators.  In fact, The Consumer Price Index and Dow Jones Industrial Average are two such examples of commonly-used indices.  However, such economic measures provide a very narrow view of well-being, neglecting to evaluate other important aspects of life.  Additionally, while national indexes are useful, they may not translate to the local level.   As such, interest in developing and applying indices for the local level have grown as community leaders look for measures that reflect the daily experiences of its residents, as well as approaches to guide projects and policy decisions. Read more »

• What is a Synthetic Project Development Financing (aka Synthetic TIF)?

  Merriam-Webster’s online dictionary defines “synthetic,” among other things, as “devised, arranged, or fabricated for special situations to imitate or replace usual realities.” As the definition suggests, a “synthetic project development financing” (more commonly referred to as a “synthetic tax increment financing” or “synthetic TIF”) is a local government borrowing scheme that is “fabricated” to “imitate” a real TIF. If that does not totally clear things up for you read on…. Read more »

• What @sog_ced is reading on the web: April 2013

  The following are articles and reports on the web that the Community and Economic Development Program at the UNC School of Government shared through social media over the past month. Follow us on twitter or facebook to receive regular updates.

  The New Markets Tax Credits (NMTC) program is an important financing tool for redevelopment in distressed areas. U.S. Treasury CDFI Fund announced its most recent allocations of NMTC credits. Several awardees are based in North Carolina. 1.usa.gov/11UiNul

  The School of Government’s Development Finance Initiative (DFI) set to evaluate redevelopment & finance options for Water Street parking facility in Wilmington, North Carolina: bit.ly/10m3Nv6. Redevelopment ideas abound for the site. bit.ly/10nenlI

  Report: North Carolina will face a shortage of 46,000 workers over the next decade due to technical skills gap. bit.ly/12j1wxc

  Will South Carolina be able to compete with North Carolina for “beer tourism”? Read more »

• Clean Water State Revolving Loan Fund Has Money

  Jeff Hughes is a Director of the School of Government’s Environmental Finance Center and a School of Government Faculty Member

  The Infrastructure Finance Section (IFS) of the North Carolina Department of the Environment and Natural Resources announced the release of their draft Intended Use Plan for the state’s Clean Water State Revolving Fund Program (CWSRF) last week. The CWSRF is one of two revolving loan programs that that the state manages in partnership with the United States Environmental Protection Agency (USEPA). Read more »