The needler in the haystack.

Thursday, July 15, 2010

Proposed UEZ loan fund: Promises and pitfalls


A group from Plainfield investigated

successful Vineland UEZ programs in 2002.


The proposed revolving loan fund (RLF) for Plainfield's Urban Enterprise Zone is a good idea which should have been implemented a long time ago, but is fraught with pitfalls that could leave it nothing more than another trough for the politically juiced to slurp at.

Sensing that the state's Urban Enterprise Zone program may be facing its demise, the communities served by them, Plainfield included, are scrambling to make the best of a not-totally-friendly situation (see a recent story about Vineland's UEZ here).

In Plainfield's case, it means the Council endorsing two requests of the state: 1) $1,000,000 to capitalize a revolving loan fund for local businesses, and 2) $800,000 for 'phase 3' of the City's proposed cable surveillance system for the business district.

In January 2002, a group from Plainfield was sent to Vineland to get an overview of its Urban Enterprise Zone programs and report back to Mayor Al McWilliams and the City Council.

The group consisted of Councilors Malcolm R. Dunn, Adrian Mapp and Liz Urquhart; as well as
Deputy City Administrator and Director of Economic Development Pat Ballard Fox, UEZ coordinator Jacques Howard, Wayne Awald from the ED office, and myself.

The daylong trip netted useful information on two of the Vineland UEZ's programs: its revolving loan fund and its medical enterprise zone initiative.

I was very impressed with both programs and wrote up a report for Mayor McWilliams on both aspects, strongly urging that Plainfield explore implementing them in some form here.

The revolving loan fund proposal never took root as there was not enough support on the Council at the time. The Medical Enterprise Zone made more progress: Plainfield petitioned the state to expand the UEZ to include the 'doctor's row' Park Avenue corridor (which was granted) and began conversations with Muhlenberg on the advantages of an MEZ.


Initially embraced warmly by Muhlenberg leaders as an opportunity to market the hospital more strongly among the medical and associated businesses community, the program eventually died of neglect when the new administration of Mayor Sharon Robinson-Briggs in 2006 declined to pursue the program or devote resources to it. Whether or not it could have saved the hospital may be debatable, but the Robinson-Briggs administration's decision not to pursue it certainly hastened Muhlenberg's demise.




THE RLF PROMISE

At the time of our 2002 visit, we were told that Vineland's RLF, under the leadership of ex-banker Jim Melli, had built up reserves of $50 million from its initial startup in the 1980s.

The loans were set up to draw on UEZ funds held by the state for the local programs, but the neat trick was that the repayment of the loans allowed monies to be transferred into the RLF which was controlled by the local board and which held the funds separately from the UEZ and the state.

The program benefited from three special circumstances --

  • An independent, nonpolitical board of well-qualified stakeholders;

  • Talented leadership by a local, well-seasoned banking professional with a local community lending background; and

  • Strict, industry-standard underwriting practices and repayment monitoring for all loans.
With these as the three legs of a stool, the local program avoiding the traps of becoming captive to arm twisting by politically juiced pols and business people, and extending credit where there was not a high probability the loans would be repaid.

The program was a resounding success at the time and seems to have continued to be so, as witness its 2008 presentation to the Council of Finance Development Agencies (see here, PDF).

RLF PITFALLS

Melli was very firm with our visiting delegation that the key to the program's success was having a strong mission focused on business development, and an independent board committed to it, the sidetracking of all political intrusion and hanky-panky, and management by a qualified, dedicated, local banking professional to the highest possible standards (modesty did not prevent him from identifying himself).

So, for Plainfield, while the idea of establishing -- even belatedly -- a revolving loan fund is a good thing, the city has to face and deal with the pitfalls Melli identified.

Even if Plainfield is granted the $1 million seed money (which is a minimal amount to start with), it is fair to ask if Plainfield has anyone with the skill sets and experience needed to manage the program, and if the political establishment has the will to invest in a program whose real value and return may only be realized a decade or more down the road.

While it is possible we may actually harbor someone with the experience needed, there is not much evidence of that kind of planning or long-term commitment to such a project by pols who face re-election at far shorter intervals.

It is an enticing but worrisome project.



-- Dan Damon [follow]

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