TO: Mayor and Members of City Council
THRU: Kelly Olivera, Assistant City Manager
FROM: Christopher Cauley, MPA, Economic and Community Development Director
Derrick McArthur, Economic Development Manager
DATE: December 9, 2024
RE:
Title
Adoption of a Policy Establishing the City’s Participation in the Department of Housing and Urban Development’s Section 108 Loan Guarantee Program
end
COUNCIL DISTRICT(S):
Council District(s)
All
b
Relationship To Strategic Plan:
GOAL II: The City of Fayetteville will have a Responsive City Government supporting a diverse and viable economy.
GOAL III: The City of Fayetteville will be a city invested in Today and Tomorrow.
GOAL IV: The City of Fayetteville will be a highly desirable place to live, work and recreate.
Executive Summary:
The City of Fayetteville is committed to encouraging redevelopment by establishing a strong set of development incentives to engage with neighborhoods, community partners, and the private sector to build a strong economy and community for all residents. The City has contracted with the Bank’s Law Firm to ensure judicious and professional application of public private partnerships to achieve enhanced redevelopment goals in areas identified by City Council. Council is asked to approve the policy presented.
Background:
City Council has instructed staff to develop tools that promote larger-scale economic development, housing, public facilities, infrastructure, and other physical development projects. The City of Fayetteville may consider projects with greater funding needs for financing based on the City’s participation in the Department of HUD’s Section 108 Loan Guarantee Program. The Section 108 Program enables the City to leverage portions of its CDBG funding to obtain federally subsidized loans of up to five times the City’s annual CDBG allocation. The City may then use those funds to assist with the financing of economic development projects which enhance the City’s tax base, revitalize its business district, increase housing options, and offer greater employment opportunities.
Issues/Analysis:
Local governments must pledge their current and future CDBG allocations as security, however, additional security is sometimes required such as local cash contributions to a sinking fund or legal interest in the property. The City would always secure investment with a mortgage loan agreement, deed of trust, and promissory note at a minimum. Projects should provide sufficient cash flow to repay the loan without any need for current or future CDBG contributions, but public projects can be fully funded with CDBG revenues (i.e. public park or infrastructure). Any project receiving financing under the Section 108 Loan Program must include elements that principally benefit low- and moderate-income persons, aid in the prevention or elimination of slums or blight, or address conditions that pose a serious and immediate threat to the health and safety of City residents.
Issuance of section 108 financing is subject to review by the Local Government Commission and HUD. Projects can accomplish a variety of City goals but are typically led by a private developer. Goals such as:
• Economic Development: Supports projects that stimulate job creation and economic growth. Construction or rehabilitation of commercial or industrial buildings, infrastructure improvements, and microenterprise assistance.
• Housing: Funds rehabilitation and infrastructure development of low- and moderate-income housing.
• Public Facilities or Large-Scale Projects: Enables the development or improvement of public facilities, such as utilities, streets, sidewalks, community centers, libraries, and parks.
Budget Impact:
The current Fiscal Year 2025 loan authority for the City is five times its annual allocation which amounts to $8,544,340. According to HUD, every $1 of Section 108 financing can attract up to $4.62 in other funding. Financing can be combined with other public/private financing sources such as New Market Tax Credits, Historic Preservation Tax Credits, Low Income Housing Tax Credits, Private Activity Bonds, Opportunity Zone Tax Credits, traditional bank financing, and other sources of funds.
Options:
• Approve the Section 108 Policy and direct staff to begin utilizing in appropriate development opportunities.
• Do not approve the Section 108 Policy and do not direct staff to begin utilizing in appropriate development opportunities.
• Direct Staff to some other course of action.
Recommended Action:
Approve the Section 108 Policy and direct staff to begin utilizing in appropriate development opportunities.
Attachments:
Section 108 Policy and Application