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HomeMy WebLinkAboutIR 7953 INFORMAL REPORT TO CITY COUNCIL MEMBERS NO. 795a To the Mayor and Members of the City Council October 3, 1995 41 Subject: GRANT APPLICATION TO DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR ECONOMIC DEVELOPMENT PROJECT 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 on September 13, 1994 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 13, 1994, the City received notification from HUD that it had been awarded a EDI grant of $660,000 contingent upon the City applying for a $6.6 million Section 108 guaranteed loan by October 30, 1994. Information on the Section 108 Loan Program was discussed before a joint meeting of the Expanding Economic Opportunities Committee and the Safety and Community Development Committee on October 6, 1994 and presented to City Council by.staff in an Informal Report 7870 dated October 11, 1994. The Joint Committee, with all members present, agreed unanimously that the City, as a general policy, 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 EDI proposal which is the grant component in the amount of $6601,000 from HUD .of the proposed EDI/Section 108 project entails attracting a housing manufacturing firm, to the "Weed and Seed" target area through the offering of incentives. The manufacturing firm selected would be asked to hire residents of the target area and build housing units for placement on city-owned lots in the target area. A portion of the EDI grant would be used to establish a debt service reserve for the Section 108 Guaranteed Loan. On October 18, 1994, the City Council approved M&C G-10847 authorizing the City Manager to submit a $6.6 million Section 108 loan application to HUD in conjunction with the $660,000 EDI grant. M&C G-10847 stipulated that the $6.6 million in Section 108 loan funds would be offered to the manufacturer by the City as construction financing as needed by the manufacturer and only as market activity is evident. Program income from the sale of homes by the manufacturer would be used by the manufacturer to pay outstanding loan obligations to the City. The City would in turn use the loan repayments to pay back the Section 108 loan obligations. If HUD approved the Section 108 loan, staff was directed not to release any funds until details of the project were approved by City Council; to establish a review team, including outside experts, to review proposals submitted by manufacturers interested in this economic development opportunity; and, to evaluate proposal -S'ub" manufacturers from a business perspective. 0 F F I LCI AV 1870' f 'C CRI r1Y SECREIARY ff FT . WORTH, TIX. ISSUED BY THE CITY MANAGER ............ INFORMAL REPORT TO CITY COUNCIL MEMBERS No- :Z953 TE To the Mayor and Members of the City Council October 3, 1 995 4 Page 2 of 3 X Subject: 18r3 GRANT APPLICATION TO DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR ECONOMIC DEVELOPMENT PROJECT In February 1995, HUD notified the City that its $6.6 million Section 108 loan application had been approved and the City developed and distributed a Request for Proposals (RFP) to over 150 homebuilders and associations of homebuilders. Four proposals were submitted in response to the RFP. A Selection Committee consisting of bankers, an architect and City staff was organized and charged with evaluating the business viability of the RFP responses. Because the RFP did not clearly request financial information, all four proposers were asked during the first phase of review, to clarify their financials. However, none of the respondents provided adequate financial information. In the second phase, two respondents were eliminated. Pastusek Industries, Inc. was eliminated as a result of a recent delinquent tax foreclosure, a statement in the proposal that there is no market for this product and lack of a marketing plan. The Norris Company was eliminated because the quality of its product was unacceptable to the Selection Committee. The two finalists, BDI Systems Inc. and JAC/MC of Texas, LC, made personal AN presentations before the Selection Committee in June. At that time, clarification of financials was again requested but finalists were not forthcoming with information.. Both companies were eliminated in the final review phase. BDI Systems was rejected based on lack of responsiveness regarding appropriate financial information and a low number of jobs proposed in exchange for investment. JAC/MC of Texas, LC was rejected based on lack of responsiveness regarding appropriate financial information, concern about compatibility of the product in established neighborhoods and high cost per square foot. On August 30, 1995, at a joint meeting of the Expanding Economic Opportunities Committee and Safety and Community Development Committee the review team reported it was unable to recommend any proposals. The Joint Committees and review team discussed the problems associated with the dual nature of the project (jobs vs. housing) and the resulting difficulty in evaluating proposals; the innovative nature of and need for the project; the importance of making a decision on selection of a housing manufacturer from a business standpoint in order to protect future Community Development Block Grant funds which would be pledged as collateral for the Section 108 loan; and, the loss of the $660,000 EDI grant. Representatives from BDI Systems Inc. and JAC/MC of Texas, LC were allowed to make comments during the meeting and expressed an interest in further negotiations with the City on this proposal. The BDI Systems Inc. representative indicated BDI recently went public (NASDAQ) and auditors and accountants are assembling a financial history. The JAC/MC of Texas, LC represenative reiterated they had not been in Texas long enough ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS .. ....................... .................. INFORMAL REPORT TO CITY COUNCIL MEMBERS NO.. 7953 ot=tb To the Mayor and Members of the City Council &.4 October 3, 1995 Page 3 of 3 Subject: GRANT APPLICATION TO DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR ECONOMIC DEVELOPMENT PROJECT to provide a financial history but would like to discuss the issue further. City staff reported that HUD would allow the City until February 1996 to make a decision on accepting the grant/loan and might allow restructuring the project within the theme of economic development to create housing . The Joint Committee agreed that staff should report the review committee's recommendation to the full City Council, outline future options and seek guidance for which option to pursue, Options available are: • Refund the $660,000 EDI grant and decline the $6.6 million Section 108 loan • Go out with another Request for Proposals • Go out with another Request for Proposals to selected developers • Negotiate further with either (or both) finalist(s) Should you wish additional information, please let me know or contact Libby Watson, Assisn.nt City Manager. f,Bob T err I City Manager Attachment ........... OFFICK RECORD r CR SECRUARY ff., TIC ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS ..................... ECONOMIC DEVELOPMENT SECTION 108 LOAN INITIATIVE GRANT (EDI) S19 MILLION AVAILABLE(GRANT) $2.054 BILLION FISCAL 1994(LOAN) APPLICATION IS DUE SEPTEMBER 16,1994 DUE I MONTH AFTER EDI NOTIFICATION AWARD CONTINGENT ON SECTION 108 LOAN PROGRAM APPROVAL PUBLIC HEARING(S)AND COUNCIL APPROVAL REQUIRED TO SUBr UT EDI GRANT TO CITY LIMITED TO 15%OF SECTION 108 LOAN SECTION 108 LOAN TO CITY LIMITED TO$35 MILLION. NO REPAYMENT INTEREST RATE ABOVE TREASURY NO REPAYMENT PAYBACK TERMS UP TO 20 YEARS NO COLLATERAL COMMUNITY DEVELOPMENT BLOCK GRANT(CDBG) AND EDI FUNDS USED AS COLLATERAL AWARD NOTIFICATION EXPECTED FIRST WEEK IN OCTOBER 1994 CAN BE USED FOR: CAN BE USED FOR: I. FINANCING TO FOR-PROFIT BUSINESSES AT BELOW MARKET I. ACQUISITION OF IMPROVED OR UNIMPROVED REAL RATES PROPERTY FOR ECONOMIC DEVELOPMENT PURPOSES 2. PROVIDING ENHANCED SECURITY TO PROTECT CITY'S 2. REHABILITATION OF CITY-OWNED REAL PROPERTY FUTURE CDBG FUNDS 3. RELOCATION PAYMENTS AND ASSISTANCE 3. ESTABLISHING FUNDING RESERVES 4. CLEARANCE,DEMOLITION,AND REMOVAL OF BUILDINGS 4. OVER-COLLATERA.LIZ.ING THE SECTION 108 LOAN SO CASH AND IMPROVEMENTS ON REAL PROPERTY ACQUIRED OR FLOW WILL BE SUFFICIENT TO COVER DEBT SERVICE REHABILITATED 5. FUNDING CDBG-ELIGIBLE ECONOMIC DEVELOPMENT 5. SITE PREPARATION RELATED TO THE REDEVELOPMENT OF PROJECTS ALLOWED UNDER THE SECTION 108 LOAN REAL PROPERTY ACQUIRED OR REHABILITATED PROGRAM: 6. PAYMENT OF ISSUANCE,UNDERWRITING,SERVICING,AND OTHER COSTS ASSOCIATED WITH FINANCING OF NOTES OR (a) ACQUISITION OF"ROVED OR UNIMPROVED REAL OBLIGATIONS UNDER SECTION 108 LOAN PROGRAM PROPERTY FOR ECONOMIC DEVELOPMENT PURPOSES 7 HOUSING REHABILITATION (b) REHABILITATION OF CITY-OWNED REAL PROPERTY 8. ECONOMIC DEVELOPMENT ACTIVITIES-PROVISION OF (c) RELOCATION PAYMENTS AND ASSISTANCE LOANS/GRANTS/LOAN GUARANTEES/INTEREST SUPPLEMENTS/TECHNICAL ASSISTANCE AND/OR (d) CLEARANCE,DEMOLITION,AND REMOVAL OF BUILDINGS ACQUISITION/CONSTRUCTION/REHABfLITATION/INSTALL- AND IMPROVEMENTS ON REAL PROPERTY ACQUIRED OR ATION OF COMMERCIAL OR INDUSTRIAL STRUCTURES, REHABILITATED BUILDINGS OR REAL PROPERTY (e) SITE PREPARATION RELATED TO THE REDEVELOPMENT OF 9. CONSTRUCTION OF HOUSING BY NON-PROFIT REAL PROPERTY ACQUIRED OR REHABILITATED ORGANIZATIONS FOR HOMEOWNERSHIP (Q PAYMENT OF ISSUANCE,UNDERWRITING,SERVICING,AND 10, DEBT SERVICE RESERVE FOR THE SECTION 108 LOAN OTHER COSTS ASSOCIATED WITH FINANCING OF NOTES OR PROGRAM OBLIGATIONS UNDER SECTION 108 LOAN PROGRAM 11. PAYMENT OF INTEREST ON SECTION 108 LOAN PROGRAMS (g) HOUSING REHABILITATION (h) ECONOMIC DEVELOPMENT ACTIVITIES-PROVISION OF LOANS/GRAMS/LOAN GUARANTEES/INTEREST SUPPLEMENTS/TECHNICAL ASSISTANCE AND/OR ACQUISITION/CONSTRUCTION/REHABILITATION/INSTALL- ATION OF COMMERCIAL OR INDUSTRIAL STRUCTURES, BUILDINGS OR REAL PROPERTY 0) CONSTRUCTION OF HOUSING BY NON-PROFIT ORGANIZATIONS FOR HOMEOWNERSHIP (j) DEBT SERVICE RESERVE FOR THE SECTION 108 LOAN PROGRAM (k) PAYAfENT OF INTEREST ON SECTION 108 LOAN PROGRAMS PROPOSED PROPOSED I. $500,000 GRANT TO ACQUIRE MANUFACTURING SITE/ I. LOANS FOR WORKING CAPITAL AT BELOW MARKET RATES FACILITY AND PROVIDE INITIAL OPERATING COST 2. $490,000 GRANT TO ESTABLISH DEBT SERVICE RESERVE TO COVER PRINCIPAL AND INTEREST PAYMENTS FOR THE FIRST 3.YEARS