City’s loan plan blasted

March 22, 2013 01:04 pm

by Bill Rautenstrauch/For The Observer

The City of La Grande’s proposed Small Business Development Loan Program came in for some scrutiny — and criticism — during a city council work session Monday night.

If enacted in the next fiscal year as planned, the program will provide short-term, small-to-mid scale loans for entrepreneurs looking to establish businesses within the city’s urban renewal district. Some $250,000 in urban renewal funds would be budgeted one time for the program. As money is paid back, it would be placed in a fund for future loans.

Some councilors and Urban Renewal Advisory Committee members present at the Monday session voiced support for the program, which was recently added to the Urban Renewal Plan by amendment. One councilor, though, expressed some strong reservations in a written statement.

“It seems to me to commit to an additional financial obligation no matter where the sources of funds and is an untimely and inappropriate expenditure we cannot afford,” John Lackey, a first-term city councilor, wrote.

Lackey argued in his statement that the money for the program would be tax revenue from all citizens of the city, while the loan funds would only be lent to businesses within the urban renewal district.

And councilor Jerry Sebestyen, while not speaking against the proposed loan program, said he hears complaints from the public that tax money from businesses outside the district is spent on businesses in the district.

City Manager Robert Strope refuted the idea, saying the statement that property owners outside the district pay urban renewal taxes in his opinion is not valid.

Strope said in a talk after the meeting that most property in the city limits is taxed by Union County at a rate of $17 per $1,000. Total tax value in the city this fiscal year is $614 million. Ten percent of that total, representing the increase of value of properties within the urban renewal district, is allocated to urban renewal. Urban renewal shares a pot of money with other districts in a certain tax code.

Urban renewal taxes are based on incremental increases on value of property within the district. The resulting funds are used for improvements within the district. They are placed in the urban renewal fund and cannot, by law, be used for other purposes.

As one example of a business property generating revenue for the district, Strope cited the Safeway store on east Adams Avenue, a building that has seen many improvements since it was built.

“Safeway is in the district, so the increase in value is going to the district,” Strope said.

As proposed, applicants for the business loans would be required to have one-third of his or her startup costs in hand, and another third from an investor. The city would loan the money to make up the remaining third.

A loan committee consisting of banking professionals and others with expertise in business lending would review the applications and would be the approving authority.

Lackey also said in his statement that he questions whether the city should be getting into the loan business, and whether it should be making start-up loans that are high risk in nature.

Even though there are some safeguards built into the proposed policy — including requirements for a business plan, commitments from property owners, participation in a business mentorship program — Strope said the program definitely carries risk.

“Make no mistake, these will be high-risk loans. Some will be successful and some will not,” Strope said.

Also speaking to the risk issue, Community and Economic Development Director Charlie Mitchell said he thinks losses would be justified if the program creates successful businesses and jobs in the community.

”If we do 10 and even five of them are successful, I think we can consider we’ve done a pretty good job,” he said.

Lackey also said he objects to proposed fees that would be charged for the loans. In addition to interest, those could include a $100 origination fee, and a $100 per month service fee.

People voicing support for the proposed program included La Grande Mayor Daniel Pokorney.

 “To me, whether we ever make a loan or not, having it there is good,” he said. “If we never make a loan out of it, it’s still worth doing.

Doyle Slater, a member of the city’s Urban Renewal Advisory Committee, was another who said he believes in the program.

“Personally I’m in favor of it. It shows government taking an interest,” Slater said.