economic development finance overview · pdf filepublic and private financial and support to...
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Economic Development Finance
The Deal, The Players, The Results Thelma Adams Johnson, MBA, EDFP
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TOPICS TO BE COVERED
What is Economic Development
Finance?
• The Players – Who are they?
• The Deal – How to structure
• Case Studies
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ECONOMIC DEVELOPMENT
FINANCE?
ED financing is a combination of
public and private financial and
support to attract, retain, or
sustain a viable business.
ED Financing is one component of
Economic Development.
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ED
Fin
an
cing
Goal of ED Financing
The Goal of ED financing is to create
an avenue for the Public Sector to
assist the Private Sector in creating
opportunities for its citizens.
– Job Creation
– Wealth Creation
– Return on Investment for both Private
Sector and Public Sector
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ED
Fin
an
cing
ED Financing Capital – Sources
Sources of Public ED Financing:
1. Local Government
2. State Government
3. Federal Government
4. Development Authorities
5. Nonprofits
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Reso
urces
Public Sector Resources
1. Revolving Loan Funds
2. Business Development Programs/Job Training
3. Tax Financing Programs
4. Tax Credit Programs
5. Bond Financing through Development Authorities
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Reso
urces
Private Resources
1. Commercial Banks
2. Angel Investors
3. Credit Unions
4. Friends, Associates, Relatives
5. Private or Corporate Investors
6. Venture Capitalists
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Reso
urces
Nonprofit Resources
1. Government-sponsored loan
funds
2. Revolving Loan Funds
3. Flexible loan funds
4. Bond Financing
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The Key Players in an ED Deal
ED
Professional
Business
Private
Sector
Public Sector
Nonprofit
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ED Professional Role – Key Liaison
1. Help the business identify the need
and support the need
2. To gather the players, assemble the
team to create the game plan.
3. Know what resources are available.
4. Work with both private and public
sector to identify incentives.
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ED Professional Role – Key Liaison
ED Professional must have a pulse on
the community he/she serves, must
be a keen analyst, understanding the
communities’ strengths and
weaknesses, its political climate, and
its economic makeup along with its
economic needs.
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The Business Role – Investor/Customer
1. Have a clear business plan and an
economic development strategy that can be supported by all players.
2. Understand their business operations and the contribution to be made to the community.
3. Identify the private sector to be involved
4. Identify the ask, know the need, and be able to articulate the need in dollars and cents.
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The Business Role –
Investor/Customer
5. Know the Investment being made
number of jobs, property values,
and project investment numbers.
6. Adhere to the terms of the deal –
make the investment.
7. Be committed to the project and
produce results and outcomes.
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The Private Sector Role – The
Lead Financial Provider
1. Works in partnership with the
Business to structure private
financing.
2. Provide favorable terms to get
the project done.
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Public Sector
Public Sector can be a
combination of Government
and The Nonprofit Community
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Public Sector – Government - Role – The Facilitator
1. The Public Sector Role is to create an environment to facilitate the deal
2. Bridge capital gaps, if needed.
3. Work to get special abatements
4. Publically support the project
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It is not Government’s
responsibility to create jobs, but
it is Government’s
responsibility to create an
environment in which jobs can
be created – The driving force
behind Public Sector’s
involvement in ED Financing.
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Public Sector – Nonprofit – Role – The Binder
1. Serve as a conduit for local, state, and federal government to get involved financially.
2. Provide low-costs business services to the private sector to help facilitate the deal.
3. Provide “gap financing” if the need exist
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Structuring The Deal
1. Match term of financing to life of assets purchased or constructed.
2. Identify available profits from assets to repay the debt.
3. Identify collateral to secure the debt, and identify collateral position for ALL lenders.
4. Determine available profits to repay the debt.
5. Review the Character of the Owners.
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Structuring the Deal – To Do or Not to Do
Should the Deal Move Forward?
Answer:
1. Is collateral sufficient to cover the debt?
2. Is the Company able to pay debt service from available or projected cash flow?
3. Is the company creditworthy?
4. Does the company have sufficient available capital to move the project forward?
5. Does the company manages its inventory?
6. Is the return on the investment greater than the investment – over a period of time?
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Deal Using Tax Credit Financing
ED Project: Construction of 55 affordable townhomes in a distressed community previously devastated by a natural disaster. The project will replace housing units lost in the area.
Need for Project: Neighborhood Revitalization and Stabilization
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The Structure: Mixed-finance development, consisting of conventional construction financing, equity from the sale of housing tax credits, and permanent financing from the local government (Community Development Block Grant) and various infrastructure improvements.
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The Structure: Construction and
Permanent Financing
1. Low-Income Housing Tax
Credits
2. CDBG
3. Private Conventional
Mortgage
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The Structure
Construction Financing Permanent Financing
Private Mortgage $ 3,554,398.00
LIHTC -
Federal $ 5,340,044.00
State $ 1,350,356.00
Equity $ 3,345,200.00
Local
Government $ 209,198.00
Total Construction
Cost $ 6,899,598.00
Total
Permanent
Financing $ 6,899,598.00
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Deal Using Section 108 HUD Financing
ED Project: Construction of Major Hotel Brand with support of local government to help revitalize downtown. 120-room major brand hotel with the creation of 50 full-time permanent jobs.
Total Project Costs: $16,949,744.00
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The Structure:
Major Hotel Brand Project Sources
SPLOST $4,361,460.00
Section 108 $5,500,000.00
One Georgia Loan $500,000.00
Equity Injection $1,488,284.00
Bond Financing $5,100,000.00
Total Project Costs $16,949,744.00
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Deal Using Local & State Funding
Project: Expansion of existing 60 year-old manufacturer
Total Project Costs: $4,096.467
Funding Structure:
Private Loan: $3,096,467
Owner’s Equity Injection: $1,000,000
Public Funding: $400,000 – State Supported Program
Investment Results: 11:1 Public/Private Leverage Ratio
Jobs Created and/or Retain: Retained: 55 Created: 15
Cost per job: $26,600/job cost for every public dollars
used.
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Q &
A
Questions & Answers
Contact Info:
Thelma Adams Johnson
Albany Community Together, Inc.
230 S Jackson St Ste 118
Albany, Georgia 31701
(229) 420-4600
Email: [email protected]
www.albanycommunitytogether.com