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HomeMy WebLinkAbout7B - TCCF Appointments 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 CITY EDA ANNUAL MEETING CITY OF PRIOR LAKE FIRE STATION 5:30 PM DATE: AGENDA #: PREPARED BY: SUBJECT: JAN UARY 18, 2005 7B JOHN SULLIVAN, COMMUNITY DEVELOPMENT DIRECTOR TWIN CITIES COMMUNITY CAPITAL FUND (TCCCF) APPOINTMENT OF COMMUNITY DEVELOPMENT STAFF TO INTERIM BOARD OF DIRECTORS Introduction: The purpose of this agenda item is twofold: 1. To provide the Economic Development Authority with an overview of the purpose, structure and operation of the proposed Twin Cities Community Capital Fund (TCCCF), and 2. To receive authorization to allow Community development Director John Sullivan to act as a member of the interim board of directors for information gathering purposes only. Scott Martin of the Northland Institute has asked John Sullivan, Community Development Director, to serve on the Interim Board of Directors for the newly proposed TCCCF. The summary of how the proposed TCCCF will operate is as follows: The Northland Institute, a Minnesota nonprofit organization, is in the process of establishing the Twin Cities Community Capital Fund (TCCCF), a new economic development financing resource for the Twin Cities Metropolitan Area. The purpose of the TCCCF is to leverage millions of dollars in Revolving Loan Funds (RLFs) and other economic development funds owned and managed by metro area local governments and development financing organizations. By pooling resources, TCCCF members will have the advantage of offering much larger loans than would be possible with limited local resources, greater gap-lending flexibility for financing local development projects, and significantly lower loan risk-all with the support and services of a professional fund manager and experienced loan officers at no cost to Fund members. h :\tc community capital fund\ 1-18-05 city eda work session report on tcccf interim board appointment.doc Page 1 www.cityofpriorlake.com Phone 952.447.4230 / Fax 952.447.4245 How will the Fund work? . We understand that the TCCCF is a Minnesota nonprofit membership corporation that will be governed by representatives of member organizations, although considerable clarification is needed in the articles of incorporation and bylaws on this subject. . Three membership levels are available. The minimum membership investment is $200,000 for Class A shares, $100,000 for Class B shares, and $50,000 for Class C shares. Each City would choose the membership level that best fits its needs. The Fund will begin operating once the initial $2 million capitalization goal has been reached. It is expected that other public entities will become members. . Members will be able to originate loans of up to ten times the amount they have on deposit with the Fund. For example, a Class B member who deposits $100,000 in the Fund can originate loans of up to $1 ,OOO,OOO--with no limit on the number of loans that any one member can originate. . The TCCCF will be a self-sustaining financing resource. Recapitalization of the Fund will be through the sale of pre- approved loans to a national secondary market, which ensures that the Twin Cities Community Capital Fund will always have money to lend. . Members will determine which projects they wish to support through the TCCCF Loan Fund, which can be used as a gap- financing source for nearly any local economic development project. . The Fund's loan officers will work closely with members, prospective borrowers, and other participating lenders in analyzing and structuring financing deals that best meet the needs of all parties. The interest rate and terms of all TCCCF loans are negotiable, with most loans subordinate to the lead lender in the financing package. TCCCF staff will prepare all documents for loan closings and will negotiate the sale of all loans to the secondary market, without any cost to members. . By selling all TCCCF loans to secondary capital markets on an advance commitment basis, the originating member significantly reduces their loan loss risk. . TCCCF members will be able to take advantage of the New Markets Tax Credit program, which provides for below market rate loans to eligible borrowers, without having to handle all of the paperwork associated with participation in this new Federal economic development initiative. h:\tc community capital fund\1-18-05 city eda work session report on tcccf interim board appointment.doc Page 2 · Membership in the TCCCF comes with a money back guarantee. Ninety percent of the funds received from members will be deposited in the TCCCF Loan Fund escrow account, which will be managed by an independent Escrow Agent. These funds will remain the property of each respective member and may only be used to fund TCCCF loans. Ten percent of each member's funds will be in the form of a loan to the TCCCF for start-up operating capital. Members may withdraw their money from the Loan Fund escrow account anytime after three years from the date of deposit, or reduce their position in the Fund down to the $50,000 level---for any reason whatsoever. The bylaws and articles of incorporation are not clear about the fate of each member's initial investment upon termination of membership. . The Fund will contract with the Northland Institute for professional management services in order to keep operational costs down. The fund manager and loan officers are experienced in business financing, deal structuring, portfolio management, and administration. All TCCCF operating expenses will be paid from portfolio interest earnings and loan origination fees paid by borrowers. The bylaws and articles of incorporation are not clear regarding the accountability of the fund manager and loan officers to the members and board of directors. . Final Fund development work is currently underway. Formal member solicitation began in January 2005, when TCCF detailed Membership Disclosure Statement is released to all interested metro area economic development organizations. The Fund will be launched once the $2 million initial capitalization goal is reached, which is estimated to be June 2005. Issues: As indicated in the above summary, there are numerous questions which are not adequately answered in the existing bylaws and articles of incorporation. Additional time is needed for the city attorney's office to review and evaluate these documents. We have also invited Mr. Scott Martin, Fund Manager, to make a presentation to the City Council at the February 7, 2005 Work Session. Accordingly, we are asking that the EDA authorize John Sullivan to become a member of the TCCCF interim Board of Directors recognizing that this action in no way obligates the city to become a member of this organization. Assuming that the answers to our questions are satisfactory, this item could be placed upon a future EDA agenda to authorize participation and contribution in the organization. Alternatives: 1. Adopt a motion authorizing John Sullivan to serve on the TCCCF Interim Board of Directors recognizing that such action is not tantamount to authorizing the city's membership in the organization. h:\tc community capital fund\ 1-18-05 city eda work session report on tcccf interim board appointment.doc Page 3 2. Take no action and direct staff to prepare additional information as the EDA may desire. Recommended Motion: Alternative 1. REVIEWED BY: h:\tc community capital fund\ 1-18-05 city eda work session report on teed interim board appointment.doc Page 4