- people on the move
EDC can help finance projects
Businesses like Clipper Belt Lacer and Ideal Printing, along with nonprofits such as Holland Home and the Dominican Sisters, have financed their projects through the Grand Rapids Economic Development Corp.
Although not truly a capital source in the strictest sense of the term, the EDC has issued tax-exempt bonds on behalf of applicants worth $277 million just over the last 10 years. The EDC, which has been around since 1976, offers this financing tool to industrial companies and nonprofit organizations. The financing also is known as Industrial Development Revenue Bonds.
At one time, the financing was available to any type of business that was making a fairly sizable investment, like when the Amway Corp. converted the former Pantlind Hotel into the Grand Plaza. But changes to the 1974 state law that empowered the EDC limited the availability to manufacturers and nonprofits.
“It’s not really capital. It’s a way to finance a project with tax-exempt bonds, thereby saving the borrower funds. We don’t have money, per se, to offer. It’s a way for industrial users that make large investments, as well as nonprofit organizations, to utilize a tax-exempt bond financing tool,” said Kara Wood, city economic development director and EDC executive director.
“So in the past, we’ve done tax-exempt financing for Clipper Belt Lacer when they made significant investments in equipment,” she added, as an example.
On the nonprofit side, the Dominican Sisters came to the EDC for $12 million worth of financing for its renovation of Aquinata Hall at 2025 E. Fulton St. The Sisters of the Order of St. Dominic have turned the residential building into an assisted living facility and the conversion should be done this fall. PNC Bank has purchased the bonds, which secured the financing, and the Sisters make bonds payments to PNC.
There was a window of time recently when this type of financing was extended, when the American Recovery and Reinvestment Act was approved in 2009. The EDC and Kent County combined to provide financing for the renovation of the old Federal Building, now home to Kendall College of Art and Design.
“That was a $25 million issue where each of us did $12.5 million,” said Wood. “So when we did the Federal Building, the ARRA legislation allowed us to open it up to more users, and it wasn’t restricted to nonprofits or industrial users.” That window has since closed.
Wood said someone interested in this type of financing should probably have a minimum investment of $2 million in mind to make the numbers work. She said there are several “soft” costs associated with processing the bonds. If an investment isn’t at least $2 million, the savings that come with a tax-exempt bond won’t cover those costs, which include legal and review fees plus publication charges.
But if someone is interested, Wood said they should contact the office and schedule a meeting to determine whether going through the EDC would be a viable way to finance their project. “Then they’ll have to secure bank financing for the project. Usually, there is a bank involved so we don’t have to hold the letter of credit that secures the bonds,” she said.
The costs for the EDC to become involved mostly revolve around the legal and processing charges. Dick Wendt, a partner at Dickinson Wright and a financial expert who counsels many municipal agencies, does the legal work for the EDC. Then the EDC and the city commission process the bonds.
“Our fee is one-fifth of 1 percent of the total bond issue. We utilize that fee to cover those expenses,” said Wood. “We have to publish notices, and those have costs with them, as well.”
The EDC gets an up-front fee of $1,000 to get the process started. But the remainder doesn’t come its way until the bonds close. The terms of these tax-exempt bonds vary, depending on the size of an investment.
“Just within the last 10 years, it looks like we’ve done $277 million of bond issues,” said Wood. Recent bond issues have ranged from $5.1 million to $65 million.
The EDC’s budget this year is $135,000.
Wood said The Grand Rapids EDC isn’t the only source for this financing. The state can issue tax-exempt bonds through the Michigan Economic Development Corp. So can other local EDCs, such as the one in Kentwood. In fact, the Grand Rapids and Kentwood EDCs recently got together to help Holland Home refinance a bond package.
Holland Home had a $10.8 million bond issued through the GR EDC in 2000. Two years later, the company issued a $21 million bond through the Kentwood EDC. Holland Home used the proceeds to build and equip Raybrook Homes and renovate and equip Fulton Manor, which turned 100 years old earlier this year, and Raybrook Manor. The two EDCs helped the company refinance the 2000 bond issue through the Kentwood EDC.
“It was a unique partnership, but a good one. We split the fee. We shared in helping Holland Home do that refinancing. So we worked together to accomplish that,” said Wood.
“We prefer that projects utilize the local EDCs as their tax-exempt bond financing entity as opposed to the state, because if it’s done at the state level, the fees and the resources all go to the state. If they do it locally, then the resources are kept here and that helps to sustain the program.”