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HomeMy WebLinkAboutIR 7786 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 77gfi To the Mayor and Members of the City Council January 4, 1994 Subject: 1K! CITY OF FORT WORTH ECONOMIC DEVELOPMENT REVOLVING LOAN FUND PROGRAM TITLE ER ECONOMIC ADJUSTMENT GRANT On September 30, 1980, the Economic Development Administration (EDA) awarded a $1 million Title IX Economic Adjustment Grant to the City of Fort Worth, to establish a Revolving Loan Fund (RLF). The purpose of the fund was to strengthen the economic base of four Coordinated Neighborhood Revitalization (CNR) areas (Mid-South, Near Southeast, Northside, and Riverside) within the City of Fort Worth, by providing a source of financing to qualified public and private entities. The grant required that the City provide a$490,000 matching share, which was provided through Community Development Block Grant(CDBG) funds from the City of Fort Worth Department of Housing and Human Services, bringing the total authorized budget for the project to $1,490,000. The grant mandated that the Fund be administered by an independent, not-for-profit corporation composed of a board of directors and staff separate from the City of Fort Worth. This requirement was initially satisfied by contracting with the Fort Worth Economic Development Corporation (FWEDC) to administer the RLF Program. FWEDC operated the fund from its inception through May 31, 1991, when its contract expired and was not renewed based on directions of the U.S. Housing and Urban Development Department (HUD). HUD's direction was based on its finding that FWEDC had shown a low achievement of goals over a significant period of time. In October of 1991, Request-For-Proposals (RFPs) were mailed soliciting qualified agencies to administer the RLF Program. A subsequent evaluation performed by a panel comprised of City staff and bankers determined that none of the four proposals received were acceptable because the proposers either lacked the necessary experience in loan servicing and collection, or the cost for their services was in excess of what was available for this contract. The panel's recommendation was for the City to perform the loan servicing function in-house. The City has operated the RLF in a loan servicing function since termination of the FWEDC contract. During this time, the City was actively seeking EDA approval to expand the four CNR areas to ten CDBG target areas in order to provide a larger economic base for making new loans and benefitting more low to moderate income persons. In April, 1993, the Office of Inspector General/Office of Audits, Department of Commerce audited the City's RLF Program for the period of September, 1991, through March, 1993, to review the City's stewardship of the fund and the fund's status. The auditors disclosed no findings associated with the City's servicing of the RLF loans. However, there were three findings pertaining to the grant terms and conditions. ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7786 To the Mayor and Members of the City Council op, January 4, 1"4 Subject: Page 2 of 3 Ian CITY OF FORT WORTH ECONOMIC DEVELOPMENT REVOLVING LOAN FUND PROGRAM TITTE IEK ECONOMIC ADJUSTMENT GRANT On October 18, 1993, as a result of those three findings, EDA informed the City Manager that: The City will not be permitted to expand the boundaries to make loans in additional The RLF must be administered by an independent, not-for-profit corporation having a board of directors and staff that is separate from the City of Fort Worth. The City will have until January 31, 1994, to contract with an independent, not-for-profit corporation to administer the RLF or lose the RLF grant. The City must reduce the excessive cash balance held in the RLF from 50 percent of the base capital to no more than 35 percent by March 31, 1994, and to 25 percent by September 30, 1994. The City of Fort Worth must bring the RLF into compliance with its terms and conditions by the deadlines listed above or EDA will proceed with deabligation of the project funds. As of September 30, 1993, the amount of RLF capital available for small business loans was $770,615.32. Although RLF loans would only be available to small disadvantaged businesses in the four CNR areas, these loans could create or retain jobs available to low and moderate income persons throughout the City. Termination of the grant would be detrimental not only to the four CNR areas, but to the City as a whole. Therefore, City staff has been worldrig with HUD and EDA to address specific problems and bring the RLF Program into compliance. FWEDC has been identified as the most qualified non-profit to administer the RLF Program. HUD and EDA support the proposal for FWEDC to resume administration of the City's RLF Program based on several factors: 1. Board of Directors has been restructured 2. New Acting Director has been designated 3. New Board President has been elected 4. FWEDC is successfully administering the City's Business Assistance Program and the Small Business Administration 504 Loan Program Additionally, HUD officials have pledged to provide technical assistance to FWEDC to improve future administration of the RLP Program. ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS INFORMAL.REPORT TO CITY COUNCIL MEMBERS No. 36 To the Mayor and Members of the City Council Janusu 4, 1994 Subject: Page 3 of 3 srs CITY OF FORT WORTH ECONOMIC DEVELOPMENT REVOLVING LOAN FUND PROGRAM TITLE 11K ECONOMIC ADJUSTMENT GRANT Administration costs for the RLF Program are funded solely by program income: interest earned on outstanding loan principal and interest-earned on accounts holding RLF funds. It is projected that $88,000 in program income will be available to administer the RLF Program for the period from January 31, 1994 to January 30, 1995. FWEDCs cost for administering the RLF has not been established; however, costs in administering the RLF will comply with Program guidelines. In order to keep the RLF grant, the City must contract with FWEDC to administer the RLF Program by January 31, 1994. Therefore, it is recommended that the City Council act to authorize a contract with FWEDC to administer the RLF Program. In order to meet the time constraints imposed by EDA, City Council will be asked to consider an M&C, including administrative cost, for execution of a contract with FWEDC for administration of the RLF opi Program on January 11, 1994. The Community Development Council concurred with this recommendation at their meeting on December 13, 1993. If you would like additional information, please contact me or Assistant City Manager.Libby Watson. b Te rZ,-City Manager ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS