Economic Development Finance

The Deal, The Players, The Results Thelma Adams Johnson, MBA, EDFP

TOPICS TO BE COVERED

What is Economic Development

Finance?

• The Players – Who are they?

• The Deal – How to structure

• Case Studies

ECONOMIC DEVELOPMENT

FINANCE?

ED financing is a combination of

public and private financial and

support to attract, retain, or

sustain a viable business.

ED Financing is one component of

Economic Development.

ED

Fin

an

cing

Goal of ED Financing

The Goal of ED financing is to create

an avenue for the Public Sector to

assist the Private Sector in creating

opportunities for its citizens.

– Job Creation

– Wealth Creation

– Return on Investment for both Private

Sector and Public Sector

ED

Fin

an

cing

ED Financing Capital – Sources

Sources of Public ED Financing:

1. Local Government

2. State Government

3. Federal Government

4. Development Authorities

5. Nonprofits

Reso

urces

Public Sector Resources

1. Revolving Loan Funds

2. Business Development Programs/Job Training

3. Tax Financing Programs

4. Tax Credit Programs

5. Bond Financing through Development Authorities

Reso

urces

Private Resources

1. Commercial Banks

2. Angel Investors

3. Credit Unions

4. Friends, Associates, Relatives

5. Private or Corporate Investors

6. Venture Capitalists

Reso

urces

Nonprofit Resources

1. Government-sponsored loan

funds

2. Revolving Loan Funds

3. Flexible loan funds

4. Bond Financing

Th

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The Key Players in an ED Deal

ED

Professional

Business

Private

Sector

Public Sector

Nonprofit

Th

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ED Professional Role – Key Liaison

1. Help the business identify the need

and support the need

2. To gather the players, assemble the

team to create the game plan.

3. Know what resources are available.

4. Work with both private and public

sector to identify incentives.

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ED Professional Role – Key Liaison

ED Professional must have a pulse on

the community he/she serves, must

be a keen analyst, understanding the

communities’ strengths and

weaknesses, its political climate, and

its economic makeup along with its

economic needs.

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The Business Role – Investor/Customer

1. Have a clear business plan and an

economic development strategy that can be supported by all players.

2. Understand their business operations and the contribution to be made to the community.

3. Identify the private sector to be involved

4. Identify the ask, know the need, and be able to articulate the need in dollars and cents.

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The Business Role –

Investor/Customer

5. Know the Investment being made

number of jobs, property values,

and project investment numbers.

6. Adhere to the terms of the deal –

make the investment.

7. Be committed to the project and

produce results and outcomes.

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The Private Sector Role – The

Lead Financial Provider

1. Works in partnership with the

Business to structure private

financing.

2. Provide favorable terms to get

the project done.

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Public Sector

Public Sector can be a

combination of Government

and The Nonprofit Community

Public Sector – Government - Role – The Facilitator

1. The Public Sector Role is to create an environment to facilitate the deal

2. Bridge capital gaps, if needed.

3. Work to get special abatements

4. Publically support the project

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It is not Government’s

responsibility to create jobs, but

it is Government’s

responsibility to create an

environment in which jobs can

be created – The driving force

behind Public Sector’s

involvement in ED Financing.

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Public Sector – Nonprofit – Role – The Binder

1. Serve as a conduit for local, state, and federal government to get involved financially.

2. Provide low-costs business services to the private sector to help facilitate the deal.

3. Provide “gap financing” if the need exist

Th

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Structuring The Deal

1. Match term of financing to life of assets purchased or constructed.

2. Identify available profits from assets to repay the debt.

3. Identify collateral to secure the debt, and identify collateral position for ALL lenders.

4. Determine available profits to repay the debt.

5. Review the Character of the Owners.

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Structuring the Deal – To Do or Not to Do

Should the Deal Move Forward?

Answer:

1. Is collateral sufficient to cover the debt?

2. Is the Company able to pay debt service from available or projected cash flow?

3. Is the company creditworthy?

4. Does the company have sufficient available capital to move the project forward?

5. Does the company manages its inventory?

6. Is the return on the investment greater than the investment – over a period of time?

Th

e Dea

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Deal Using Tax Credit Financing

ED Project: Construction of 55 affordable townhomes in a distressed community previously devastated by a natural disaster. The project will replace housing units lost in the area.

Need for Project: Neighborhood Revitalization and Stabilization

Th

e Dea

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The Structure: Mixed-finance development, consisting of conventional construction financing, equity from the sale of housing tax credits, and permanent financing from the local government (Community Development Block Grant) and various infrastructure improvements.

Th

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The Structure: Construction and

Permanent Financing

1. Low-Income Housing Tax

Credits

2. CDBG

3. Private Conventional

Mortgage

Th

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The Structure

Construction Financing Permanent Financing

Private Mortgage $ 3,554,398.00

LIHTC -

Federal $ 5,340,044.00

State $ 1,350,356.00

Equity $ 3,345,200.00

Local

Government $ 209,198.00

Total Construction

Cost $ 6,899,598.00

Total

Permanent

Financing $ 6,899,598.00

Th

e Dea

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Deal Using Section 108 HUD Financing

ED Project: Construction of Major Hotel Brand with support of local government to help revitalize downtown. 120-room major brand hotel with the creation of 50 full-time permanent jobs.

Total Project Costs: $16,949,744.00

Th

e Dea

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The Structure:

Major Hotel Brand Project Sources

SPLOST $4,361,460.00

Section 108 $5,500,000.00

One Georgia Loan $500,000.00

Equity Injection $1,488,284.00

Bond Financing $5,100,000.00

Total Project Costs $16,949,744.00

Th

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Deal Using Local & State Funding

Project: Expansion of existing 60 year-old manufacturer

Total Project Costs: $4,096.467

Funding Structure:

Private Loan: $3,096,467

Owner’s Equity Injection: $1,000,000

Public Funding: $400,000 – State Supported Program

Investment Results: 11:1 Public/Private Leverage Ratio

Jobs Created and/or Retain: Retained: 55 Created: 15

Cost per job: $26,600/job cost for every public dollars

used.

Q &

A

Questions & Answers

Contact Info:

Thelma Adams Johnson

Albany Community Together, Inc.

230 S Jackson St Ste 118

Albany, Georgia 31701

(229) 420-4600

Email: taact1@bellsouth.net

www.albanycommunitytogether.com