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1. Rural Development Loan AgreementCity of Kalispell Post Office Box 1997 - Kali spell, Montana 59903-1997 -Telephone 1,406)758-7700 Fax (406)?58-7758 REPORT TO: The Honorable Mayor Pamela B. Kennedy and City Council FROM: Susan Moyer, Community Development Director Chris A. Kukulski, City Manager SUBJECT: Authorization For The City Manager MEETING DATE: August 9, 2004 BACKGROUND: On May 5, 2003, the City Council passed Resolution No. 4780 establishing an Economic Development Revolving Loan Fund (ED RLF) for small business retention and expansion. Additionally, the resolution created an Economic Development Loan Review Committee consisting of three bankers, a Certified Public Accountant, and an insurance broker to process all applications for assistance as appointed by the Mayor. Funding for this program can be comprised of: ➢ A Federal Grant funded through the Montana Board of Commerce's Community Development Block Grant Economic Development Program for up to $400,000. These grant funds may be used for start-up costs, capital expenditures, acquisition, design and construction/renovation of a structure, operating expenses and employee training. A $for$ match from any non-federal source is a requirement of the grant as well as 5 1 % of the employees assisted must be hired from individuals in the low -to -moderate income range. This funding source may be accessed once a year. The USDA Rural Development Agency has an intermediary Relending Program (IRP) that will provide funds up to $750,000 per year for projects in need of gap financing for small business retention and/or expansion. The City borrows the funds from Rural Development at 1% interest over a 30-year term and then re -loans the funds to applicants in an amount not to exceed $150,000 each at 5% to 7% over a terra to be decided by the Revolving Loan Committee. The IRP funds require a $for$ match from public/private sources and the end result must be the creation or retention of jobs — the higher the wage the better. The current loan agreement before you is in the amount of $520,000 to assist at least five projects in their gap financing needs. ➢ Existing Tax Increment Districts are eligible to use TIF funds as non-federal matching dollars for either of the above programs for projects within the respective districts. These funds too will be for "gap„ financing after the bank has determined the amount they will contribute to the project. The terms for the TIF funds will follow the criteria outlined above in the IRP description. ➢ Any other federal/state funding sources that staff is able to discover and apply for. RECOMMENDATION. Staff is recommending that the City Council authorize the City Manager to enter into a loan agreement with Rural Development and to instruct staff to meet the conditions as per the Letter of Conditions attached herein. FISCAL IMPACT: The immediate fiscal impact is that a pool of $820,000 is available to implement the ED RLF Program in the retention and expansion of small businesses and the creation of jobs. At the present time there are three very strong loan prospects The annual interest expense to the City on the IRP Loan for the first three years will be $5,131,66. The first gap financing loan is expected to be completed within the next sixty days and will provide $7,353.51 annually in interest only. The annual payment to Rural Development of principal and interest beginning in year four will be approximately $20,064. That debt amount will be covered by the $21,348 annual principal and interest payment alone from the first of the three loans. ALTERNATIVES: As suggested by Council. Respectfully submitted, Susan Moyer, Director Community Developm Chris Kukulski, City Manager USDA �11.1- []evelopmeri€ United States Department of Agriculture Rural Development Montana State Office June 29, 2004 CHRIS A. KUKULSKI, CITY MANAGER CITY OF KALISPELL PO BOX 1997 KALISPELL, MT 59903 RE: Letter of Conditions Intermediary Relending Program. $520,000 Loan Application Dear Mr. Kukulsi: This letter establishes conditions, which must be understood and agreed to by you before further consideration may be given to the application. Any changes in the project cost, source of funds, project scope, or any other significant changes in the project or Intermediary must be reported to and approved by the Business -Cooperative Programs by written amendment to this letter. Any changes not approved by our office shall be cause for discontinuing processing of the application. This letter is not to be considered as loan, approval or as representative to the availability of funds. The docket may be completed on the basis of an Intermediary Relending Program loan not to exceed $520,000. The loan will be considered approved on the date a signed copy (by Rural Development) of Form FmHA 1940-1, "Request for Obligation of Funds," is mailed to you. Please complete and return the following forms by August 27, 2004, if you desire further consideration be given to your application: Form RD I942-46, "Letter of Intent to Meet Conditions" Form F HA 1940-1, "Request for Obligation of Funds" If the conditions set forth in this letter are not met within 60 days from the date hereof, the Agency reserves the right to discontinue the processing of the application. You will be notified, in writing, by the Agency of any such discontinuance. The term "Intermediary" refers to the City of Kalispell, the applicant for the Intermediary Relending Program (IRP) loan. Business -Cooperative Programs is an agency under the United States Department of Agriculture/Rural Development, who administers this program. P.O. Box 850 • Bozeman, MT 59771 Voice (406) 585-2540 • Fax (406) 585-2565 • TDD (406) 585-2562 Committed to the future of rural communities Rural Development is an Equal Opportunity Lender, Provider, and Employer. Complaints of discrimination should he sent to USDA, Director, office of Civil Rights, Washington, D. C. 20250-9410 Amount The IRP loan will not exceed $520,000. 2. Purpose The proposed loan funds will be used for a relending program in accordance with the application package as submitted or as amended and approved, in writing, by the Business -Cooperative Programs. Certification. You must certify at loan closing that since the issuance of the letter of conditions there has been no material change in your financial condition or any other material change in the Intermediary. 4. Rate and Terms The loan will be scheduled for repayment over a term of 30 years at I -percent interest per a.nnum. During the first 3 years, interest will be paid annually and principal repayment will be deferred. Amortized annual installments of principal and interest will be required with the first amortized installment due 4 years from the date of the mote. Security Initial security will include a lien on the Intermediary Relending Program (IRP) funds, which includes a contribution of $100,000 from the Interrmediary. You should provide our office with, the account number, type of account, and institution of the IRP account. The account should be fully protected by Federal and State insurance. Your attorney will need to .provide an opinion, satisfactory to our office, that Business -Cooperative .Programs has a first lien position on the City of Kalispell's depository bank account. The C Business-ooperative Programs will obtain assignments from the Intermediary of its security interest in collateral pledged to the Intermediary by ultimate recipients, including an assignment of the promissory notes. Additional security may be required at any time during the term of the loan to the Intermediary if Business -Cooperative Programs determines it is needed to protect the Government's interest. b. Loan Agreement The Intermediary will execute at loan closing, Form RD 4274-4, Intermediary Relending Program Loan Agreement. A copy is enclosed for your review. 7. Office of General Counsel The United States Department of Agriculture, Regional Office of the General Counsel will review and approve the loan agreement, promissory note and any other necessary loan closing documents, and will issue loan closing instructions. The Regional Attorney will also review the City of Kalispell's organizational documents for eligibility determination. As part of this process; the Regional Attorney has requested that all Intermediaries submit evidence of legal existence, along with an Attorney Opinion, from the Intermediary, that the City of Kalispell is a legal entity, 8. Insurance and Bonding The Intermediary will provide fidelity bond coverage for persons who have access to the funds of the Intermediary. The fidelity bond coverage must approximate the total annual debt service requirements for the Business -Cooperative Program loans. The coverage at the time of loan closing should not be less than $22,074. Form FmHA 440-24, `Position Fidelity Schedule Bond Declarations," may be used for this purpose. 9. Intermediary Compliance with RD Instruction 4274-D and 1951-R The Intermediary will comply with RD Instruction 4274-D and 1951-R, which govern the making and servicing of loans both to Intermediaries and to Ultimate Recipients. Copies of both RD Instructions are enclosed. 10. Accounts Records, Audits and Reports It will be necessary for the Intermediary to establish and maintain complete records of the administration of the IRP revolving fund, and keep the IRP fund separate from other funds, money or accounts unless the Business -Cooperative Program approves the placing of certain funds into the IRP revolving fund. The Intermediary will provide to the Business -Cooperative Programs, quarterly reports, annual audits and budgets, and other reports as the Agency may require, in accordance with RD Instruction 4274-D, Section 4274.338(b)(4)(i), and RD Instruction 1951-R, Section 1951.883(a)-(b). 11, Loan Commitments to Ultimate Recipients No commitment of loan funds to an ultimate recipient may be made by the Intermediary until and affirmative decision on proceeding with funding to the ultimate recipient is rendered by the Business -Cooperative Programs; RD Instruction 4274-D, Section 4274.338(b)(2). 12. Forms and Relending Policies Before advancing of IRP funds to the ultimate recipient, written approval from our office will be obtained on all forms and security policies in accordance with RD Instruction 4274-D, Section 4274.338(b)(5). 13. Equal Opportunity. and Nondiscrimination Requirements The Intermediary will comply with P.L. 93-495, Equal Credit Opportunity Act, and Title VI of the Civil Rights Act of 1964, Nondiscrimination in Federally Assisted Programs, 42, U.S.C. 2000d-2000d4. This loan is subject to the requirements of Title VI of the Civil Rights Act of 1.964, the requirements of the Age Discrimination Act of 1975, and Title III of the Americans with Disabilities Act, Pub. L 101-336. ► Title VI of the Civil Rights Act of 1964, which states that no person shall on the grounds of race, color or national origin, be excluded from participation in, be denied the benefits of or be subjected to discrimination under any program or activity receiving Federal Financial assistance. ►USDA Form RD 400-4. Assurance Agreement: The Business -Cooperative Programs is required to conduct a compliance review of all Recipients who receive Federal financial assistance in order to assure compliance with the Civil Rights requirements. The Intermediary must sign and agree to keep such records and submit to the Business - Cooperative Programs accurate information so that our office can ascertain that the Intermediary is in compliance with this agreement under the Civil Rights laws. This means that the Intermediary must collect and keep records for reporting to the Business - Cooperative Programs on the racial/ethnic, gender, and national origin and any such records, accounts, and other sources of information and facilities as may be pertinent for our office to determine whether the Intermediary has complied or is complying with the Civil Rights laws. If the recipient has an application or use permit process, the application must include the following paragraph, after the signature and date block, to collect voluntary data for Civil Rights reporting requirements: "The following information is requested by the Federal Government in order to monitor compliance with Federal laws prohibiting discrimination against applicants seeking to participate in this program. You are not required to furnish this information, but are encouraged to do so. This information will not be used in evaluating your application or to discriminate against you in any way. However, if you choose not to furnish it, we are required to note the racial/national origin of the individual applicants on the basis of visual observation or surname." Ethnicity: Hispanic or Latino Not Hispanic or Latino Race: (Mark one or more) White Black or African American American Indian/Alaska Native Asian Native Hawaiian or Other Pacific Islander Gender: Male Female The Intermediary is required to have accessible facilities and services or reasonable accommodations in place. In addition the recipients are required to have a TDD phone number on their letterhead and public information disseminated or reasonable accommodations in place. Also, all printed material, including letterhead used, describing the program or facility must include the following non-discrimination statement: "This is an Equal Opportunity Program. Discrimination is prohibited by Federal Law. Complaints of discrimination may be filed with USDA, Director, Office of Civil Rights, Room 326-W, Whitten Bldg., 1400 Independence Ave, SW, Washington, DC 20250-9410" 4 ► Posters: The recipient during use of the facility will post in a public place the USDA poster "And Justice for All." A poster is enclosed. ► Section 504 of the Rehabilitation Act of 1973 as amended 29 U.S,C. 794 and USDA 7 CFR: No handicapped individual, solely by reason of their Handicap, may be excluded from the use of any facility receiving USDA Rural Development assistance. As the Recipient of USDA financial assistance, the Intermediary must comply with this Act. Accessibility compliance for programs and activities is required by the primary Recipient, Ultimate Recipient or Sub -recipient. ► Other Equal Opportunity and Nondiscrimination Requirements: The Recipient must comply, as applicable to the service or program required, with all Federal civil rights laws and requirements. These include but are not limited to: 1. Age Discrimination Act: Prohibits discrimination based upon age. 2. Title IX of the Education Amendments Act of 1972: Prohibits discrimination on the basis of sex in education programs and activities receiving Federal financial assistance. 3. Americans with Disabilities Act of 1990: Protects qualified individuals with disabilities from discrimination on the basis of disability in the services, programs or activities that the provider administers regardless of whether the provider is the Recipient of Federal assistance. 4. Title VIII of the Civil Ri hts Act of 1968 as amended: Prohibits discrimination in any housing related activity including; long term care, retirement homes, group homes and nursing homes. 5. Equal Credit Opportunity Act (ECOA): Prohibits considering in any manner, the race, color, religion, or national origin of a credit applicant in any system of evaluating creditworthiness. If the Intermediary, as Recipient of Federal financial assistance, is administering programs where credit decisions are made regarding Ultimate Recipients or sub -recipients, the Recipient will be subject to the requirements of ECOA in the administering of these programs. 14. Employment of Low Income Families The Intermediary will require the ultimate recipient to certify, as a condition of the loan and as stated in the Work Plan, that the ultimate recipient would employ at least 20 percent of the workforce from individuals with income below the poverty level. 15. Participation Projects funded by the Intermediary with IRP funds will average 70 percent participation from. nonfederal sources. The funding includes, on average, a 1.0% equity contribution form the ultimate recipient. 16. Environmental For each proposed loan from an intermediary to an ultimate recipient using Agency IRP loan funds, the Agency will complete the applicable environmental review required by RD Instruction 1940-G, including public notification requirements. The Agency will prepare an Environmental Impact Statement for any application for a loan from. Agency IRP loan funds determined to have a significant effect on the quality of the human environment. 17. Disbursement Procedures The Intermediary may draw down only such fiends as are necessary to cover a 30-day period. Advances will be requested in writing. Funds will be disbursed from Business - Cooperative Programs to the Intermediary using electronic funds transfer (EFT). Please complete the enclosed Form SF-3881. Electronic Funds Transfer Payment Enrollment Form and return to our office. If you have any questions, please feel free to contact our office at (406) 585-2540. Sincerely, f JOF IN D. , THMILLER Progra irector Business -Cooperative Programs cc: Robert S. Leigland, Acting State Director John Ellison, Area Director, Kalispell, MT Enclosures: Form RD 1942-46 Form FzxaHll. 1940-1 Form RD 4274-4 Form FmHA 440-24 RD Instruction 4274-D RD Instruction 1951-R Form RD 400-4 Form SF-3881 Poster: And Justice For All jrh 6