HomeMy WebLinkAboutIR 7870 INFORMAL REPORT TO CITY COLINCIL MEMBERS Na. 7870
�,,RT Ep to To the Mayor and Members of the City Council October 11, 1994
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XP, Subject: Section 108 Loan Program
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On September 13, 1994, the City Council approved M&C G-10810 authorizing the City Manager to
apply to the United States Department of Housing and Urban Development (HUD) for an Economic
Development Initiative (EDI) grant in the amount of$990,000. The City Council was briefed during
Pre-Council that the grant, if awarded, would be contingent upon the City applying for a Section 108
loan in the amount of $6.6 million from HUD. On October 3, 1994, the City received notification
from HUD that it had been awarded a EDI grant of $660,000 contingent upon the City applying for
$6.6 million in Section 108 loan guarantees. Staff had scheduled a joint meeting of the City Council
Expanding Economic Opportunities Committee and the Safety and Community Development
Committee to discuss the policy question of using Section 108 loan guarantees. A staff presentation
was made to the Joint Committee on October 6, 1994 that outlined the following information about
the Section 108 Loan Program:
Section 108 Loan Program is a loan program administered by the Department of Housing and Urban
Development. It is a provision of the Community Development Block Grant (CDBG) program and
requires that a national objective be met. A national objective is met if the activities benefit
low/moderate income persons, aid in the prevention or elimination of slums and blight, or are
01110* activities designed to meet community development needs having particular urgency. HUD encourages
the use of Section 108 loan guarantees as a source of financing for economic development, housing
rehabilitation and large scale physical development projects.
HUD makes Section 108 loans available to CDBG entitlement cities Re Fort Worth. The loan
amount is limited to up to five times the city's CDBG entitlement or a maximum of $35,000,000.
Fort Worth's current CDBG entitlement is $7.8 million so its Section 108 loan limit is $35,000,000.
HUD, however, has discretion to limit the loan amount a city can request. The Section 108 loans
are provided at just above Treasury interest rates. Currently, Treasury interest rates range between
6 1/2% and 8 1/2%. The loan repayment schedule can be negotiated to be over a 20 year period.
HUD does require a city to pledge future CDBG entitlements as security in the event of non-payment.
Although future CDBG entitlements are used as collateral, this does not obligate a city to escrow
CDBG funds for loan repayment. In other words, a city is permitted to spend its existing allocation
for other CDBG eligible purposes. In the event of loan non-payment or default, HUD will require
payment from CDBG if a city does not have other sources available or prefers to use CDBG. HUD
will not require lump sum repayment of any outstanding Section 108 loan. A city will only be
required to repay the current year's loan repayment obligations for a Section 108 loan each year until
the loan is repaid.
As a policy, Section 108 loans are not financed by HUD with federal funds. Section 108 Loan
er� Program funds are generated by HUD's sale of bonds or notes. The bonds or notes are attractive to
investors because they are backed by the full faith and credit of federal government.
- ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
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INFORMAL REPORT TO CITY COLINCIL MEMBERS No. 7870
FIT F heo fop), To the Mayor and Members of the City Council October 11,1994
0 Page 2 of 2
TEXAS*
p�C, Subject:
r3 Section 108 Loan Program
HUD, in approving a city's request for loan guarantees, establishes a line of credit or reservation of
funds. Section 108 Loan Program funds may be drawn down all at once or in increments of not less
than $100,000. Principal and interest only accrue on the Section 108 Loan funds drawn down. In
determining repayment, as mentioned previously, the schedule is negotiated for a certain period of
time not to exceed 20 years. Draw downs occurring over a multi-year period are rolled into the total
Section 108 Loan debt obligation and a single repayment schedule is maintained.
The information presented by staff on the Section 108 Loan Program was discussed by the Joint
Committee. As a general policy, the Joint Committee, with all six members present, agreed
unanimously that the City should consider the use of Section 108 Loan Program funds as a source of
financing for the "right" projects. Discussion was conducted on the EDI/Section 108 project proposed
in the grant application approved by the City Council on September 13, 1994. The Joint Committee
agreed that the City should pursue a Section 108 loan in conjunction with the EDI grant proposal.
The EDI proposal entails attracting a housing manufacturing firm to the "Weed and Seed" target area
through the offering of incentives. The manufacturing firm will be asked to hire residents from the
target area and build housing units for placement on city-owned lots in the target area. Construction
financing using Section 108 loans funds will be offered to the manufacturer by the City. If HUD
approves the Section 108 loan, staff is directed not to release any funds until final details of the project
are approved by the City Council. It was suggested by the Joint Committee that a review team be
established including outside experts to review-proposals submitted by manufacturers interested in this
economic development opportunity.
The City staff will bring forward to the City Council at its October 18, 1994 meeting, an application
for Section 108 Loan Program funds. In order to qualify for the EDI grant of $660,000, the City
must submit an application for Section 108 loan funds by October 30, 1994. The Section 108 Loan
application will be subject to HUD review and approval.
Shou you need additional information, please let me know.
Bob Te 11�)
City Manager
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-ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS