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Stimulus bonds curbed by lack of credit
OTTAWA COUNTY — Federal stimulus bonds allocated to Michigan counties and seven large cities for distribution last year aren't exactly flying off the shelf, seemingly due to a lack of credit commitments from financial institutions.
The situation is particularly acute in Ottawa County, where four applications for use of American Recovery and Reinvestment Act-backed bonds are apparently stalled.
"At this point, I believe that none of the four have been able to produce a letter of credit," said County Administrator Alan G. Vanderberg last week.
Ottawa County officials originally had planned to decide in late January which of the applicants would receive ARRA bond financing. By mid-January, that decision was postponed indefinitely because none could produce a firm letter of credit from a financial institution.
Vanderberg said he has heard from officials in other Michigan counties that the letters of credit are difficult to obtain, but it is a requirement "that our financial advisers recommend that we use and I think it's the same with all the other counties."
He noted that there is competition for the ARRA-backed bond capacity each county has. The letter of credit is basically a tool that helps county officials determine that a bond actually will be issued for a proposed project. In Ottawa County, four projects are requesting a total of well over $50 million in ARRA-backed bonds, while Ottawa County has only been allocated $31 million in ARRA Recovery Zone Facility bonds, which are for private business ventures that create jobs.
"Certainly, you would hate to see a worthwhile project sit by the sidelines and then have a project that you've granted the (bond) capacity to not happen," said Vanderberg, which is why the letter of credit is required as part of the application process.
The counties do not actually have federal money to loan; rather, the ARRA act funds partial reimbursement of the bond interest, which theoretically should make financial institutions more willing to float the bonds in the first place.
Mark Knudsen is director of Ottawa County Planning & Grants, the department administering the facility bond applications. He said the letters of credit are a "point of contention" between the applicants and county officials around the state who must determine who gets the bonds.
"The financial institutions, as everyone knows, are being very tight with any credit that they have available," said Knudsen. "As a result of the economic conditions in the market today, it has become extremely difficult to obtain a letter of credit."
Knudsen said his department did some checking with other counties. "We've only been able to discover six projects total that have been issued (bonds) in the entire state,” counting both government and private projects.
John Barton, a finance specialist with the Michigan Department of Treasury, said that number "sounds about right," but he noted that there are no reporting requirements by the state. The Michigan Municipal Bond Authority may assist local units in issuing the bonds but is not in charge of the federal ARRA bond allocation process.
Knudsen there are two more applicants in Oakland County that have produced letters of credit, although those bonds have not actually been issued.
He said four of the six bonds issued statewide are economic development bonds for government projects — including one issued in August for Grand Haven's major ongoing project, the reconstruction of Washington Avenue.
The other two were issued for private projects, including a movie production campus being built in a former General Motors site in southeast Michigan, and major expansion of the Newaygo County Jail. Although the jail expansion would seem to be a government project, Knudsen said there is apparently a technicality that allows a private venture ARRA facility bond to be issued for it.
Knudsen said his department's understanding is that some counties — "especially smaller counties" — may not be using their ARRA bond allocations at all, and will notify the federal government of that. The fed can then redistribute those bond allocations to other counties.
Any ARRA bonds must be issued before the end of 2010 or the allocations will expire.
In Ottawa County, the following applications were submitted:
- Sundance Capital Group LLC is requesting up to $1.7 million in bonds to build Alden Place in Spring Lake, a "medical/rehab campus" that would employ about 21 people.
- Beachtree Commons in Grand Haven is a 140,000-square-foot mixed-use complex at the former Challenge Machinery factory site that would house manufacturing, post-secondary educational institutions and office space, and would create about 50 jobs. The application was for $7.6 million in bonds.
- Continental Dairy Products, supported by Coopersville city officials, is going to invest $100 million in a powdered milk processing plant there. Continental has requested the entire Ottawa County ARRA facility bond allocation of $31.1 million. It previously indicated to Ottawa officials that it will have a letter of credit in early February.
- The Hilton Garden Inn & Conference Center in Grand Haven is requesting $22 million in ARRA bonds, a project endorsed by the city of Grand Haven. Grand Landing LLC and its partner, Legacy Hospitality LLC of Avila Beach, Calif., have been stalled by the recession, although Grand Landing has completed its first phase — condominiums and retail space. The hotel/conference center would employ about 75 people.
Vanderberg noted that Upjohn Institute economist George Erickcek made a presentation to the Holland Area Chamber of Commerce a couple of weeks ago, in which he said that American banks have about a trillion dollars in funds they could lend, but are not doing so.
"Credit is not being extended at this time," said Vanderberg, "so I think there is a legitimate problem in getting the letter of credit (by bond applicants), but it has been done in Oakland County."
Vanderberg said county officials may have to "put our heads together with the state at some point" to see if there is an alternative to the letters-of-credit requirement in the ARRA bond issuance process.