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HUD OKs $3 million loan fund to spark Federal Way’s economic development
The U.S. Department of Housing and Urban Development has approved a $3.03 million loan guarantee the city of Federal Way sought to establish a loan fund to assist catalytic projects that spark business growth, job creation and affordable housing opportunities.
The $3.03 million could be put towards a variety of projects in Federal Way, including the Performing Arts and Conference Center, according to city officials.
The loan guarantee is provided under HUD’s Section 108 Loan Guarantee Assistance program, which enables local governments to borrow money from private investors at reduced interest rates.
In return, the local government pledges current and future Community Development Block Grant allocations it receives annually from HUD to cover the loan amount as security for the loan.
This is the first time that Federal Way, an entitlement community under HUD’s Community Development Block Grant program, has decided to use the Section 108 program.
The Federal Way Council was split on using the program last year, as some Council members feared the city would pick up extra debt to finance projects.
Federal Way now has 12 months to identify what projects the loan will fund. The city is currently working with the National Development Council to vet and review those projects.
This process includes a public hearing and final Council approval, said Jay Bennett, community services manager for the city, in a story the Mirror published in March.
“I am pleased to see HUD’s approval of the Section 108 loan guarantee sought by the city of Federal Way,” said Congressman Adam Smith. “By allowing cities to leverage their Community Development Block Grant dollars to invest in economic development initiatives that benefit low and moderate-income communities, the Section 108 Loan Guarantee Assistance Program has had inspiring success in many areas throughout the Puget Sound. I look forward to seeing Federal Way engage in this important public-private partnership, and I will continue supporting the program in Congress.”
A number of other communities in Washington state have made use of the program – the city of Seattle to launch a capital access fund for small businesses; King County to develop the White Center commercial center; Mt. Vernon to protect its downtown from Skagit River flooding; Tacoma to help finance the LeMay Museum of the American Car; Olympia, Yakima and Lakewood to start economic development loan funds.
Nationwide, the Section 108 program has generated $4 of private investment for every $1 in Section 108 guarantee.
“A Section 108 loan guarantee is a tool that significantly increases the financial capacity of local governments to access private capital that can be put to work revitalizing commercial districts, transforming historic properties, upgrading the housing stock, boosting business and creating jobs,” said Bill Block, HUD Northwest regional administrator. “We look forward to working with Federal Way as it develops and makes use of this fund.”
The Section 108 loan guarantee program permits Community Development Block Grant entitlement communities to borrow up to five times their latest block grant allocation for projects that either principally benefit low- and moderate-income persons or aid in the elimination or prevention of slums and blight.
In recent years, Federal Way’s Community Development Block Grant allocation was approximately $600,000. The city will divert $175,000 of that amount towards the loan fund.
The funds generated by a Section 108 loan guarantee may be used for:
• Economic development activities eligible under the block grant
• Acquisition of real property
• Rehabilitation of publicly-owned real property
• Housing rehabilitation eligible under the block grant
• Construction, reconstruction, or installation of public facilities (including street, sidewalk, and other site improvements)
• Related relocation, clearance, and site improvements
• Payment of interest on the guaranteed loan and issuance costs of public offerings
• Debt service reserves
• Public works and site improvements in colonias
• In limited circumstances, housing construction as part of community economic development, Housing Development Grant, or Nehemiah Housing Opportunity Grant programs.