Item D: Downtown Development Update - ORI

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ATTACHMENT A ORI Financing Options 1. Downtown Revitalization Loan Program (DRLP): This existing financing tool is available for projects within the Downtown Urban Renewal District. The program is designed to encourage investments within the Downtown District that contribute to the economic vibrancy and density goals for downtown. The DRLP was capitalized with non-tax increment URA revenue (ex. rental income, property sale proceeds). There is approximately $2 million currently available in the DRLP. The ORI project would be eligible for financing under this program. 2.Urban Renewal Tax Increment : There are legal restrictions regarding the lending of funds collected as tax increment revenue. However, the Downtown Urban Renewal Plan would allow a direct contribution of tax increment funds to the project. Historically, direct contributions of tax increment funds have not been used as a source for financing private development projects. 3. CDBG Business Development Fund (BDF): The BDF is a Community Development Block Grant (CDBG) revolving loan program that is available for projects that create new jobs. The provision of financing for the ORI project appears to be eligible for BDF financing based on the project meeting the CDBG national objective related to the creation of jobs that benefit low- and moderate-income persons. The ORI project is located in a CDBG income-eligible area; therefore, all new jobs created would meet the income eligibility requirement. There is approximately $500,000 forecasted to be available in the BDF revolving loan fund 4. Section 108/BEDI Grant: Brownfield Economic Development Initiative (BEDI) grant funds in the amount of $2 million have been awarded, and this grant must be used in conjunction with a CDBG Section 108 loan guarantee. An application for a Section 108 loan of approximately $7.9 million is currently being drafted. It will likely take at least four months to receive Section 108 approval. There have been preliminary discussions with HUD/CDBG representatives regarding the Section 108 project underwriting standards and the ORI project. Because Section 108 borrowings would require a collateral pledge of the City’s future CDBG allocations, projects funded under Section 108 would be expected to provide collateral sufficient to offset the risk to the local CDBG program. Because the ORI project is in a severe negative equity position, it would be difficult for the project to meet Section 108 collateral requirements. In projects where project equity is not sufficient, it may be possible to consider other sources of collateral, such as urban renewal tax increment. However, a sizable pledge of urban renewal funds would breach the maximum indebtedness in the Downtown urban renewal district and require a plan amendment. Such plan amendment would void a grandfathering of tax increment collections, and result in the loss of tax increment revenue of approximately $2 million per year. 5. SDC Financing: The City currently offers financing of System Development Charges (SDCs) for up to 10 years. ORI has estimated SDCs of approximately $500,000. The City does not currently have a policy for waiving all project SDCs. 6. General Fund: The City’s General Fund has not traditionally been used as a source of direct lending for a private development project, although it could be considered. Given the negative equity in the ORI project, there would be no collateral value to support a General Fund loan to the project. In the event that ORI experienced severe reductions in their federal grant income, the General Fund dollars would be at risk. L:\CMO\2006 Council Agendas\M060213\S060213D.doc