tj6-1'- -THf A GUIDE FOR LOCAL DEVELOPERS t>0<^ financing your economic development under the area redevelopment act jniversity Library tSITY August 1961 U. S. DEPARTMENT OF COMMERCE Luther H. Hodges, Secretary AREA REDEVELOPMENT ADMINISTRATION William L. Batt, Jr., Administrator Table of Contents Page I. What Is ARA Financing 3 II. What Are ARA' s Financial Resources 3 III. Who Makes the Loans and Grants 3 IV. Requirements for ARA Financing 3 V. Other Financing Sources 4 VI. Eligible Enterprises 4 VII. Private Investment 4 VIII. Operations Not Eligible for ARA Financing 5 IX. Terms and Conditions 5 X. How To Apply 6 XI. Some Typical Projects 6 XII. Processing of Proposals 8 XIII. After a Loan or Grant Is Approved 8 For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C. Price 10 cents. (2) FINANCING YOUR ECONOMIC DEVELOPMENT UNDER THE AREA REDEVELOPMENT ACT I. WHAT IS ARA FINANCING? *■ In essence, the Area Redevelopment Act of 1961 provides an addi- tional source of financing for local projects that will create new and permanent employment opportunities in certain designated areas with chronic problems of unemployment, underemployment, or low family income. II. WHAT ARE ARA'S FINANCIAL RESOURCES? • A $200 million revolving fund for loans to finance new industrial and commercial projects. • A $100 million revolving fund for loans to finance new public facili- ties that are needed to spark industrial and commercial growth. • A $75 million fund for grants to finance such new public facilities in whole or in part. • Additional funds of $4.5 million for retraining and $10 million for retraining subsistance allowances have been authorized under the Act, the Secretary of Labor and the Secretary of Health, Education and Welfare will administer these programs. III. WHO MAKES THE LOANS AND GRANTS? The Secretary of Commerce is responsible for administering the Area Redevelopment Act (Public Law 87-27). To carry out the pro- gram required by the Act, the Secretary has established within the Department of Commerce a new agency, called the Area Redevelop- ment Administration. The Administrator of ARA has been delegated various responsibilities and authority given to the Secretary in the Act, including the right to make loans and grants. The ARA is assisted in carrying out the Act by the Department of Labor, Agriculture, In- terior, and Health, Education and Welfare; the Small Business Ad- ministration; and the Housing and Home Finance Agency. IV. REQUIREMENTS FOR ARA FINANCING To be eligible for an ARA loan or grant, a project must be located in a redevelopment area designated by the ARA; and must serve to advance the overall economic program approved for that area by ARA; and must be certified by the local development agency and by the State as being consistent with the overall economic development program. There must be reasonable prospect that a loan will be repaid. A pro- posed project should meet the following tests: 1. It will contribute to the long-range economic growth of the area in which it is located. 2. It will result in permanent new employment opportunities. 3. Financing from sources other than ARA is not available on rea- sonable terms. 4. The project will be financed by local or State funds to the maxi- mum extent possible, but by at least 15 percent. 5. The project is economically and technically sound. 6. The project will not reduce employment in other areas. V. OTHER FINANCING SOURCES The Act requires that applicants must show that they have been un- able to locate other sources of financing on reasonable terms. Evi- dence of unavailability may be established in letters from two private banking sources normally engaged in lending for similar projects, and large enough to handle the proposed project. (Where a bank does not wish to make a loan for the entire project, some expression of its in- terest or lack of interest in a partial loan should be secured.) Evi- dence of unavailability of alternate financing will also include advice from responsible state or local officials stating there is no program within their jurisdiction designated to lend money or make grants for such projects; where appropriate, advice from a broker or investment banker that the project cannot be financed under the circumstances; and advice from Small Business Administration or Housing and Home Finance Agency or other federal agencies that the project does not qualify for assistance. VI. ELIGIBLE ENTERPRISES "" Both industrial and commercial business enterprises are eligible for financing provided that they will create employment and contribute to the overall economic development of the area. These loans will generally be for land and construction or rehabilitation of industrial buildings. Loans for machinery and equipment will be made only in exceptional circumstances. - Basic developmental activities frequently carried on by local gov- ernmental entities (such as water supply or sewage disposal) are eligible for financing. Proposals must show that this type of project has a direct and immediate relation to an existing or proposed indus- trial project or will result in the establishment or expansion of in- dustrial or commercial firms in the area. VII. PRIVATE INVESTMENT Those seeking financing from ARA must give evidence that the con- tribution out of their own resources represents as large a share of the total project cost as may be reasonably expected. In addition, it is the 4 policy of ARA to stimulate and encourage applicants to obtain as much of the project cost as possible from customary banking and other fi- nancial sources. Local banks and other private lending institutions will be urged to participate in project loans to the fullest extent. ARA may subordinate its security on a loan in order to encourage private participation. Under the law private financing is essential for indus- trial and commercial projects, as assistance from ARA may not ex- ceed 65% of the total project cost. VIII. OPERATIONS NOT ELIGIBLE FOR ARA FINANCING Certain projects, like the following, will not be considered for fi- nancing by ARA: 1. Working capital loans. (SB A can make working capital loans, and ARA and SB A can work together to supply financing for a proposed commercial or industrial activity). 2. Projects to relocate establishments from one area to another. 3. Projects which involve funds for re- financing, payment of cred- itors, distribution or payment of any nature to an owner, partner or shareholder of the applicant or the industrial or commercial occupant of the project. IX. TERMS AND CONDITIONS ARA financing operations will be kept flexible with respect to loan terms and conditions. However, for each type of assistance the Act establishes criteria which must be observed. - Maximum interest rates are established on the basis of average yield on U. S. Treasury obligations. Currently this means a maximum rate of 4-3/8% on loans for industrial and commercial projects (Sec- tion 6 of P. L. 87-27) and 3-3/8% on loans for public facilities (Sec- tion 7 of P. L. 87-27). The term (maturity) may not be in excess of twenty-five (25) on business loans and forty (40) years on public fa- cility loans. The types of collateral (security), maturities, terms under which funds may be disbursed, terms of repayment and amortization will be handled on a negotiated, case-by-case basis. The period and terms of a loan will be related to the project's abil- ity to pay from earnings and to its useful life. Since ARA funds for loans have been established on a revolving basis, the amounts of loan repayments will make a substantial contribution to ARA's ability to assist in financing other projects. A business loan under Section 6 of the Act requires as a minimum that an investment of 10% of aggregate project costs be supplied by State or local public or semi-public body (such as a State or local economic development agency) and at least 5% by private sources. ARA's loan must be repayable before and its lien superior to these -amounts. The ARA loan cannot exceed 65% of aggregate project cost. A loan for a public facility under Section 7 does not require that there be a participation in project cost by the applicant or by a State or local development agency. The applicant is expected to provide the maximum possible amount from its funds and from sources other than ARA. Request for a grant under Section 8 must be justified on the basis that other sources or future revenues are not sufficient to make the project feasible. X. HOW TO APPLY To assist in evaluating original project proposals, certain minimum information is needed. If this information shows that the proposal merits further consideration additional information will be required on the financial, engineering, and legal aspects. This supplemental information will be obtained by the Small Busi- ness Administration (on business loans) and the Housing and Home Finance Agency (on public facility loans and grants), since these agen- cies have been designated to process and service loans for ARA. Project Proposals requesting ARA financing shall be submitted on ARA Form No. 1. This form is available by writing to or calling any of the offices listed on pages through . State economic develop- ment agencies also have a supply of forms, as do State Agricultural Extension Service Directors. Assistance in completing forms will be provided by State economic development agencies, by ARA field representatives, by local offices of SBA (on business loans) and HHFA (on public facility loans). For projects in rural areas or projects associated with agricultural prod- ucts, the agencies of the Department of Agriculture particularly the Rural Electrification Administration will also supply technical assist- ance and information. For projects in Indian areas and territories, or projects associated with minerals, fisheries, recreational develop- ments or public lands, the Department of the Interior will also provide assistance. All of the applicable information requested on ARA Form No. 1 should be given. Project Proposals (original and 2 copies) should be addressed di- rectly to: Area Redevelopment Administration Department of Commerce Washington 25, D. C. after obtaining an endorsement from State and local public agencies. XI. SOME TYPICAL PROJECTS A. Ajax Company wishes to build a furniture plant in Middletown, a redevelopment area. The total cost of the plant would be $100,000. Assume that a local bank or other local agency is willing to par- ticipate to a substantial extent in providing the necessary funds. The desirable financial arrangement would be as follows: Aggregate Cost $100,000 First Mortgage (Participation Loan) Local bank in participation with ARA $42,500 ARA in participation with bank 42,500 Second Mortgage or Equity State or Middletown economic develop- ment agency 10,000 Equity or Third Mortgage Applicant or Middletown economic de- velopment agency 5,000 100,000 B. The same situation as in Example 1 except that the local banks and other local lending organizations are not willing to join with ARA in financing the project, but the local bank would finance part of the project if it had an exclusive first mortgage. Aggregate Cost $100,000 First Mortgage Local bank or other private source $50;000 Second Mortgage ARA 35,000 Third Mortgage State or Middletown economic develop- ment agency 10,000 Equity Applicant or Middletown economic de- velopment agency 5,000 100,000 C. The same situation as in Example A except that it is impossible to get any local bank or other lending institution to assume any of the financing of the project. Aggregate Cost $100,000 First Mortgage ARA $65,000 Second Mortgage State/ community economic development agency 10,000 Third Mortgage or equity Applicant or Middletown economic de- velopment agency 25,000 100,000 D. Middletown has to extend its water supply system in order to serv- ice a new industrial plant site. Assume that the financial status of Middletown is such that it can liquidate a long term low interest loan for 1/2 of the total $100,000 cost of the project. A possible method of financing would be as follows: Aggregate Cost $100,000 Middletown Capacity Appropriation $10,000 ARA Loan 50,000 ARA Grant 40,000 100.000 7 E. Facts the same as Example D except Middletown is already oper- ating at its maximum tax rate and with its maximum bonded in- debtedness and could not liquidate any part of a long term interest loan. Aggregate Cost $100,000 Middletown Community economic develop- ment agency or State Grant $15,000 ARA Grant 85,000 100,000 XII. PROCESSING OF PROPOSALS The length of time involved in the processing of a project proposal will vary depending upon its type and circumstances. All proposals will be acknowledged as they are received by ARA and processed as rapidly as possible. Projects will be reviewed to determine those that are within the terms of the Area Redevelopment Act and will con- tribute to the economic development of the area. Projects meeting these tests will be referred promptly to Small Business Administra- tion or Housing and Home Finance Agency (Community Facilities Ad- ministration) by the Administrator of ARA to prepare a complete re- port and recommendation on the financial, engineering, and legal as- pects. At this point ARA cannot approve or give assurance of federal assistance. Where a potential new industry needs a fast answer to complete its plans for a new plant, every effort will be made to process the application speedily. The regional office of SB A or HHFA nearest the applicant, will promptly arrange to obtain all of the supplementary information re- quired for a report and recommendation to ARA. Upon receipt of this report, ARA will take final action and, if approved, will issue a certi- fication to SB A or HHFA authorizing consummation of the loan or grant. XIII. AFTER A LOAN OR GRANT IS APPROVED Upon advice of ARA approval, the regional office of SB A or HHFA will provide the documents to be executed and attend to all matters incident to the formal consummation of the transaction. Ordinarily the entire amount of the loan or grant will not be dis- bursed upon the signing of the loan or grant agreement. Instead, ar- rangements will be made to disburse, under proper safeguards as the project progresses, funds for the approved specific purposes. Disbursement of funds, supervision and servicing will be performed by the SB A or HHFA office which closed the transaction. U.S. Department of Commerce Field Offices Albuquerque, New Mexico U. S. Courthouse CHapel 7-0311 Ext. 386 Atlanta 3, Georgia 604 Volunteer Building 66 Luckie Street, N. W. JAckson 2-4121 Ext. 6000 Cleveland 14, Ohio Fourth Floor Federal Reserve Bank Building East 6th Street & Superior Avenue CHerry 1-7900 Dallas 1, Texas 3-104 Merchandise Mart 500 South Ervay Street Riverside 8-5611 Boston 10, Massachusetts Room 230 80 Federal Street CApitol 3-2312 Buffalo 3, New York 504 Federal Building 117 Ellicott Street TL 3-4216 Charleston 4, South Carolina Area 2, Sergeant Jasper Building West End Broad Street RAymond 2-7771 Cheyenne, Wyoming 207 Majestic Building 16th and Capitol Avenue 634-2731 Chicago 6, Illinois Room 1 ,02 226 West Jackson Blvd. ANdover 3-3600 Ext. 743 Cincinnati 2, Ohio 809 Fifth Third Bank Building 36 East Fourth Street DUnbar 1-2200 Ext. 345 Denver 2, Colorado 142 New Custom House 19th & Stout Street KEystone 4-4151 Ext. 598 Detroit 26, Michigan 438 Federal Building 230 West Fort Street WOodward 3-9330 Ext. 510 Greensboro, North Carolina 407 U. S. Post Office Bldg. BRoadway 3-8234 Houston 2, Texas 610 Scanlan Building 405 Main Street CApitol 2-7201 Jacksonville 1, Florida 425 Federal Building 311 West Monroe Street ELgin 4-7111 Kansas City, Missouri Room 2011 911 Walnut Street BAltimore 1-7000 Los Angeles 15, California 450 Western Pacific Building 1031 South Broadway Richmond 9-4711 Ext. 1261 Pittsburgh 22, Pennsylvania 835 Fulton Building 107 Sixth Street GRant 1-5370 Ext. 390 Memphis 3, Tennessee 212 Falls Building 22 North Front Street JAckson 6-3426 Portland 4, Oregon 217 Old U. S. Courthouse 520 S. W. Morrison Street CApitol 6-3361 Ext. 421 Miami 32, Florida 408 Ainsley Building 14 N. E. First Avenue FRanklin 7-2581 Minneapolis 1, Minnesota 304 Federal Building 110 South Fourth Street FEderal 2-3211 New Orleans 12, Louisiana 333 St. Charles Avenue 529-2411 Ext. 6117 New York 1, New York 61st Floor Empire State Building 350 Fifth Avenue LOngacre 3-3377 Reno, Nevada 1479 Wells Avenue 2-7133 Richmond 19, Virginia 309 Parcel Post Building 11th & Main Streets Milton 4-9471 St. Louis 1, Missouri 910 New Federal Building 1114 Market Street MAin 1-8100 Salt Lake City 1, Utah 222 S. W. Temple Street DAvis 8-2911 Ext. 341 San Francisco 11, California Room 419, Customhouse 555 Battery Street YUkon 6-3111 Philadelphia 7, Pennsylvania Jefferson Building 1015 Chestnut Street WAlnut 3-2400 Ext. 591 Savannah, Georgia 235 U. S. Courthouse and Post Office Bldg. 125-29 Bull Street ADams 2-4755 Phoenix, Arizona 419 Ellis Building 137 North Second Avenue ALpine 8-5851 Ext. 285 Seattle 4, Washington 809 Federal Office Building 909 First Avenue MUtual 2-3300 Ext. 496 10 HHFA Regional Offices Atlanta 23, Georgia Room 645 Peachtree -Seventh Building 50 7th Street, N. E. TRinity 6-3311 Chicago 3, Illinois 2000 Bankers Building 105 West Adams Street HArrison 7-4700 Ext. 567 Fort Worth 4, Texas 2000 Federal Center 300 West Vickery Blvd. EDison 5-5341 Philadelphia 7, Pennsylvania 1004 Widener Building Chestnut and Juniper Streets LOcust 8-0400 San Francisco 3, California 3rd Floor 989 Market Street KLondike 2-2350 Santurce 17, Puerto Rico P. O. Box 9093 4th Floor, Garraton Bldg. 1608 Ponce de Leon Avenue San Juan 3-6280 New York 13, New York Room 906 346 Broadway REctor 2-8000 Small Business Administration Field Offices Albuquerque, New Mexico 102 U. S. Court House Building 5th and Gold Avenue, S. W. CHapel 7-0311 Ext. 2545 Anchorage, Alaska Room 206 620 C Street P. O. Box 1253 BRoadway 5-7234 or BR 5-7155 ♦Atlanta 3, Georgia 90 Fairlie Street, N. W. JAckson 2-4121 Ext. 6331 Augusta, Maine 116 State Street MAyfair 3-9472 Baltimore 2, Maryland 611 Calvert Building Fayette and Saint Paul Sts. PLaza 2-8460 Ext. 566 Birmingham, Alabama 206 Exchange Building 2109 Fifth Avenue North FAirfax 3-8011 Ext. 200 'Represents regional offices. 11 Boise, Idaho 214 Sonna Building 910 Main Street P. O. Box 933 BOise 2-0803 ♦Dallas 2, Texas Fidelity Building 1000 Main Street Riverside 8-5611 Ext. 2056 ♦Boston, Massachusetts Sheraton Building 470 Atlantic Avenue Liberty 2-3975 Charleston, West Virginia Embleton Building 922 Quarrier Street Dickens 4-1631 Ext. 2 Charlotte, North Carolina 1116 Independence Building 102 West Trade Street EDison 3-8629 ♦Denver 2, Colorado Railway Exchange Building 909 17th Street KEystone 4-4151 Ext. 551 Des Moines, Iowa 850 Insurance Exchange Building Fifth and Grand Avenue CHerry 3-2171 Ext. 479 ♦Detroit 26, Michigan 232 West Grand River Avenue 962-6080 ♦Chicago 3, Illinois 430 Bankers Building 105 West Adams Street ANdover 3-3600 Ext. 487 Clarksburg, West Virginia Old Post Office Building 227 West Pike Street MAin 3-2481 ♦Cleveland 13, Ohio Standard Building 1370 Ontario Street CHerry 1-7900 Ext. 581 Columbia, South Carolina 109 Universal Building 1745 Sumter Street POplar 5-1903 Concord, New Hampshire Du Bois Building 72 North Main Street CApitol 4-4041 Fargo, North Dakota 300 American Life Building 207 North Fifth Street ADams 2-2401 Hartford, Connecticut 44 Gillett Street JAckson 4-8311 Ext. 40 Helena, Montana 412 Power Block Main and 6th Avenue Hickory 2-0095 Honolulu, Hawaii Finance Factors Building 195 South King Street Honolulu 5-8831 Ext. 571 Houston 2, Texas Veterans Administration Bldg. 1424 Hadley Street CApitol 2-7201 Ext. 044 ♦Represents regional offices. 12 Indianapolis 4, Indiana 721 Farm Bureau Insurance Bldg. 130 East Washington Street Mllrose 2-1551 Ext. 323 Madison, Wisconsin Commercial State Bank Building 114 North Carroll Street ALpine 6-2696 or AL 6-2697 Jackson, Mississippi 511 East Yazoo Street FLeetwood 5-2466 Jacksonville 2, Florida 1102 Barnett National Bank Bldg. 112 West Adams Street ELgin 4-7111 Ext. 293 * Kansas City 6, Missouri Fifth floor Home Savings Building 1006 Grand Avenue BAltimore 1-7000 Ext. 765 Knoxville 3, Tennessee 417 Fidelity Bankers Trust Co. 502 South Gay Street 525-8811 Little Rock, Arkansas 620 Rector Building 405 West 3rd Street FRanklin 2-4361 Ext. 372 * Los Angeles 13, California 1101 Ohrbach Building 312 West 5th Street Richmond 9-4711 Ext. 668 Louisville 2, Kentucky 1900 Commonwealth Building Fourth and Broadway JUniper 4-1361 Ext. 372 Lubbock, Texas 212 Veterans Administration Building 1616 19th Street POrter 3-9370 or PO 3-9379 Miami 32, Florida 301 Huntington Building 168 Southeast First Street FRanklin 7-4528 * Minneapolis 2, Minnesota Lewis Building 603 Second Avenue South FEderal 2-3211 Ext. 341 Montpelier, Vermont 79 Main Street CApitol 3-7472 Nashville 3, Tennessee 410 Sudekum Building 6th Avenue at Church Street Bldg. CHapel 2-9651 Ext. 325 New Orleans 12, Louisiana 303 Federal Office Building 610 South Street EXpress 2411 Ext. 6111 * New York 4, New York 42 Broadway WHitehall 3-8000 Ext. 240 Oklahoma City 2, Oklahoma 312 Bankers Service Life Building 114 North Broadway CEntral 6-5601 Ext. 226 Omaha 2, Nebraska 7425 Federal Building 215 North 17th Street 221-4691 *Represents regional offices. 13 ♦Phildelphia 7, Pennsylvania Jefferson Building 1015 Chestnut Street WAlnut 3-2400 Ext. 540 Phoenix, Arizona Central Towers Building 2727 North Central Avenue ALpine 8-5851 Pittsburgh 22, Pennsylvania Fulton Building 107 6th Street GRant 1-5370 Ext. 398 Portland 4, Oregon 600 Lincoln Building 208 S. W. Fifth Street CApitol 6-3361 Ext. 467 Providence, Rhode Island 310 Smith Building 57 Eddy Street GAspee 1-5986 ♦Richmond 20, Virginia 900 North Lombardy Street ELgin 8-7051 Ext. 192 Santurce, Puerto Rico San Albert Condominto Bldg. 1200 Ponce de Leon Avenue 3-4422 or 3-5580 ♦Seattle 4, Washington 1206 Smith Tower 506 Second Avenue MUtual 2-3300 Ext. 1281 Sioux Falls , South Dakota Leaders Building 109 1/2 North Main Avenue EDison 4-9767 St. Louis 1, Missouri 318 U. S. Customs House 815 Olive Street MAin 1-8100 Ext. 2191 Syracuse 2, New York 1206, 1208 Chimes Building 500 South Salina Street GRanite 4-1561 Ext. 66 Tulsa, Oklahoma 519 Mayo Building 420 South Main Street LUther 4-7161 Salt Lake City, Utah 412 Kearns Building 136 South Main Street DA vis 8-2911 Ext. 331 San Antonio, Texas 412 Kallison Building 434 South Main Avenue CApitol 6-4281 Ext. 318 Washington, D. C. 405 First Federal Building 608 13th Street, N. W. DUdley 2-3541 Wichita, Kansas 215 Board of Trade Building 120 South Market Street AMherst 7-0211 Ext. 243 *San Francisco 5, California 525 Market Street YUkon 6-3111 Ext. 2422 ♦Represents regional offices. 14 U.S. GOVERNMENT PRINTING OFFICE: 1961 O - 606584 PENN STATE UNIVERSITY LIBRARIES ADDDD7DimflD7 m si