HUD’s Section 108 Loan Guarantee Program:

Financing Infrastructure for Community Resilience

Part 1 of 2

August 2016

!bout the Section 108 Program…

• Provides loan guarantees, not grants

• Employs the framework of the Community Development Block Grant (CDBG) Program

• Offers recipients (states, cities and counties, and insular areas) a means of accessing the capital markets

Schmidt’s Piazza, Philadelphia, PA

!bout the Section 108 Program…

The program enables HUD to guarantee loans in three basic areas:

• Economic Development

• Public Facilities

• Housing Rehabilitation

Philadelphia Wholesale Produce Market, Philadelphia, PA

For More Information on Eligible Activities, see 24 CFR 570.703.

Using Section 108 maximizes the impact of grant funds

States and local governments may borrow up to five times their most recent annual CDBG award, enabling them to maximize impact of available public funds by leveraging grant resources into loans

Paseo Real de la Marina, Aguadilla, PR

Using Section 108 maximizes the

Average Annual CDBG Allocation (Section 108 Borrowers) over the last 20 years

< $4 million

impact of grant funds

Using Section 108 maximizes the

> $10 million

Combined CDBG + 108 Funding for Projects

Average Annual CDBG Allocation (Section 108 Borrowers) over the last 20 years

< $4 million

impact of grant funds

Section 108 Program Statistics

Since the Initiation of Section 108:

1,900+ Commitments

$9.4 Billion in Commitments

$1.7 Billion Portfolio of

Loans

• 119,000 Jobs Created or Retained

What makes Section 108 an attractive financing tool for resilience projects?

Range of Eligible

Activities and Uses

Cheap Money with

Flexible Terms

Acceptable Sources of Repayment + Collateral

Availability of Funds

-

Range of Eligible Activities and Uses

• Funds can be used:

for a wide range of eligible activities

for higher risk project components (e.g. pre-development costs), projects in high risk areas where conventional lenders might not lend, or as gap financing

At a regional scale (through consortium model or State-supported effort)

Pre development for Affordable Housing, High Point, NC

Range of Eligible Activities and Uses (Continued)

• One loan guarantee commitment can be used:

To fund several project components (infrastructure, housing rehab, and commercial development) or

To finance several project phases over several years or

To finance a loan fund targeting specific neighborhoods, communities (for States), or certain types of activities

Cheap Money with Flexible Repayment Terms

• Gives States and local governments access to the capital market while also:

Providing a Federal loan guarantee to attract long-term (up to 20 years), reasonably-priced debt.

Saving them the transaction costs (e.g. bond counsel, administrative costs) associated with going to the market directly.

Eliminating the need for a general obligation debt that could affect their bond rating.

Enabling them to structure their repayment terms to meet project-specific needs. (e.g. delaying principal repayments until Year 3 when the project will begin to generate revenue or front-loading cost of essential project to be repaid over extended term with annual grant funds)

Cheap Money with Flexible Repayment Terms (Continued)

• Interim financing is available at 3-month LIBOR + 20 basis points

Current: Based on 8/22/16 LIBOR, 0.82 + 0.2 = 1.02% interest rate

• Permanent rates are determined through public offering

Typically occurs every 12- to 18-months

For most recent public offering (May 2015), all-in interest rate for a 20-year loan with equal installments was 2.85%

• Option exists to pre-pay/defease and refinance loan, with certain restrictions

Availability of Funds

• Non-competitive

• Rolling application process

• Funds can be accessed based on project or program needs.

Advances can occur on a weekly basis.

Unlike grant funds, there are no restrictions on drawing down funds in advance of need.

• Conserves limited grant funds, to ensure that those funds will be available for non-revenue generating uses (e.g. public services)

Acceptable Sources of Repayment + Collateral

• Applicants can elect to repay the loan with CDBG funds or with other sources.

• HUD can accept less conventional sources of repayment and collateral

• Section 108 funds guaranteed funds could be used as the upfront capital used to launch Pay-for-Success projects (e.g. agreed upon outcome = long-term reduction in flood insurance premiums due from LMI households)

Acceptable Sources of Repayment + Collateral (Continued)

• Current and future CDBG funds are required to be pledged as collateral.

• While additional collateral is also required, HUD will work closely with applicant to determine and underwrite potential sources.

• HUD is able to accept sources of repayment and collateral that may not be accepted by conventional lenders, such as:

Unlike most conventional lenders, HUD can often accept a subordinate position.

Revenues generated by special taxing districts (e.g. TIFs and single purpose districts)

Repayment of 3rd party loans financed with Section 108 loan (or other loan portfolios)

Liens on other types of revenue available (e.g. parking or casino revenues)

So, how much can grantees actually borrow?

Annual CDBG Allocation Max available borrowing capacity Outstanding 108 commitments Outstanding 108 loan balance Available borrowing capacity

$3,000,000 x 5 = $15,000,000

- $800,000 - $2,000,000 = $12,200,000

Please contact HUD for assistance in figuring out your state’s or community’s available borrowing capacity.

Examples of Existing Section 108 Loan Funds

• State of Illinois – Economic Development Loan Fund, $40M available until Sept. 2018

• Cook County, IL – Broadening Urban Infrastructure Investment to Leverage Transportation (BUILT) Loan Fund, $30M available until Sept. 2018

• State of Iowa – Community Revitalization Loan Fund, $30M available until Sept. 2020

• Tucson, AZ – Economic and Community Development Loan Pool, $20M available until Sept. 2017

• State of New Mexico – Economic Development Loan Fund , $42.2M available until Sept. 2018

• Atlantic City and Atlantic County – Business Loan Program, $2M (City) and $3.35M (County) available until Sept. 2020

Section 108 Available Borrowing Capacity for Participants (based on FY15 grant amounts)

• State of Massachusetts – $140M

• State of Tennessee – $124M

• State of Louisiana – $99M

• State of California – $142M

• State of Iowa – $77M

• State of Missouri – $102M

• State of North Dakota – $18M

• City of Springfield, MA – $7.7M

• Dauphin Co., PA – $4M

• St. Tammany Parish, LA – $4.6M

• Cook County, IL – $15.2M

• Denver, CO – $15.2M

• Phoenix, AZ – $72.6M

• Augusta, GA – $8.4M

• Oklahoma City, OK - $10.7M

Application & Approval Process

Notify HUD Field Office (& HQ)

Submit Application Concurrent review

HUD FO and HQ

Revise Application as needed

HUD approves commitment to issue a Federal

guarantee

Meriden, CT

• Projects: Factory H site (demolition and public improvements) and 116 Cook Ave. rehabilitation

• Section 108 Assistance: $1.5 million

• Approved in September 2010

• National Objective: Benefit to low- and moderate-income persons on an area basis

• Eligible Activity: Public Improvements

• Terms of Guaranteed Loan: 15-year term, level repayment

Using Section 108 for Resiliency & Development Juliet Burdelski Director of Economic Development City of Meriden, CT jburdelski@meridenct.gov (203) 630 4152

21

Economic Development and Revitalization of a Low/Mod Income Area

• Economic Disinvestment

• High poverty, low incomes

• High concentration of minority residents

• Lack of job opportunities

• 140 Distressed Public Housing Units • “Choice Neighborhood” planning grantee

(2013)

• 35+ Brownfield Sites identified (silver manufacturing)

• History of Flooding

Harbor Brook Flood Control Plan

• Harbor Brook watershed comprises 12.3 square miles & approximately 50% of Meriden’s total land area

• 3.5-mile Harbor Brook is subject to chronic flooding

• FEMA 100-year floodplain comprises 225 acres including over 300 properties and structures

• Harbor Brook runs through the historic City Center, Hub and Factory H brownfield sites

Harbor Brook Flood Control Plan

City has experienced numerous 100-year storm events that have led to significant financial harm to the City and disinvestment

11 major flooding incidents have occurred since late 1800’s

$26 million in damage in 1992 & 1996 led to development of local Flood Control Implementation Agency (FCIA) & Harbor Brook Flood Control & Linear Trail Master Plan

Key Projects-Harbor Brook Flood Control Plan

Flood water

brownfield site

6 Bridge Replacements etention at Hub d

Harbor Brook Channel

Property acquisition,

downtown and 1 Bridge Improvements demolition and

upstream Removal 2 Relief flood proofing Culverts

$35 million committed City/state/federal investment 2013-2018 Flood Control Plan was permitted and approved in 2013 by CT

DEEP, FEMA, Army Corps of Engineers

2016

• Reduce 100-year floodplain from 225 to 95 acres

• Remove over 150 properties from 100-year floodplain

• Reduce cost of flood insurance to property owners

• Allows for new commercial and housing development without risk of flooding and economic impacts in an economically distressed area

1996

2016

Reduces downtown flooding

Public Housing

Key Benefit: Allows for New Downtown Transit Oriented Development

• Development of City-owned, underutilized parcels and vacant lots can be pursued

• Downtown can be developed without risk of economic damage from future floods

• Development in the heart of downtown is now located outside the 100-year floodplain

Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue

• 10 acre former silver manufacturing

located along Harbor Brook

• $2.4 million cleanup/ demo

• $1.5 million Section 108

• $600,000 USEPA

• $300,000 CT DECD

• Community engagement

Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-Before

Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-Before

Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue-After

Section 108 Loan for Site Improvement-Factory H & 116 Cook Avenue

• Demo of Factory building completed 2012

• Cleanup at 116 Cook Ave in process. Removal of selective hazardous materials from inside building prior to redevelopment (asbestos, PCBs, lead)

• Future redevelopment by POKO Partners-mixed use residential (20% affordable, 80% market rate)

Future Plans-Mixed Use Development POKO Partners

Conventional Debt

CHAMP Funds

DECO Brownf ield Funds

DECO Urban Act Funds

HTC Equity

Deferred Developer Fee

0 ·-----------------------··-----------------------··-----------------------··-----------------------··-----------------------··-----------------------1

18,988,908

3,132,354

2,594,194

24,715,456

2,981,290

5,000,000

3,000,000

3,750,000

9,267,139

717,027

22,792,517

3,893,744

2,587,018

29,273,278

10,362,357

15,000,000

41,781,426

7,026,097

5,181,212

53,988,735

13,343,648

20,000,000

3,000,000

3.750,000

9,267,139

717,027

Redevelopment of Factory H & 116 Cook Ave.

Takeaways

•

•

•

•

•

Provided needed capital with 15-year repayment schedule: $1.5 m Section 108 Loan (15 year repayment) provided needed capital to advance critical demolition/remediation project --part of citywide flood control.

Allowed us to take on an “all or nothing” project: Section 108 Loan leveraged other state & federal funds ($600,000 USEPA Brownfields Assessment and Cleanup, $300,000 CTDECD Brownfields) that allowed City to complete project that could not be completed incrementally

Addressed community needs: Demolition of blighted structure in low income area addressed critical community need and improved the neighborhood.

HUD allowed us to reprogram unspent funds: Project ended up being under budget, but HUD allowed us to reprogram balance of Section 108 funds to advance cleanup at adjacent 116 Cook Avenue.

Project advanced development of blighted/abandoned property: Developer selected to redevelop Factory H and 116 Cook Ave. site with reduced pre-development costs due to City’s use of Section 108 loan and other grants.

Thank you! For additional information, please contact:

Juliet Burdelski Director of Economic Development, jburdelski@meridenct.gov (203) 630 4152

36

Mount Vernon, WA

• Project: Phase II Downtown Flood Control Protection Project

• Section 108 Assistance: $1 million

• Approved in November 2012

• National Objective: Benefit to low- and moderate-income persons on an area basis

• Eligible Activity: public improvements

• Terms of Guaranteed Loan: 10-year term, level repayment