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Economic Development: Section 3 - General Economic Development Component

Economic Development: Section 1- General Applicant Information
Economic Development: Section 2 - Program Information and Policies
Economic Development: Section 4 - Application Preparation and Forms
Economic Development: Section 5 - Attachments

GENERAL ECONOMIC DEVELOPMENT COMPONENT

A. APPLICATION REQUIREMENTS

The department has allocated $8,000,000 in block grant funds to this program component and established a grant ceiling of $750,000.  The general Economic Development Component funds are available on an as-needed basis throughout the year to all eligible applicants meeting program component requirements until all funds allocated to this component have been distributed.  All awards in this category are predicated upon project feasibility and a demonstrated need for funds.  This will include a review of all sources and uses of funds, an analysis of the recipients ability to comply with the terms of the Financial Assistance Agreement, and a determination that CDAP participation is necessary or appropriate.

Only projects which create and/or retain permanent jobs in the industrial and commercial sectors will be funded.  Projects should attract sizable private investment, have solid commitments to create or retain permanent jobs and demonstrate financial feasibility and benefit to low-to-moderate income persons.  Further, there must be evidence that the project and related investment would not occur without CDAP involvement.

CDAP Economic Development funds may be used to assist private for-profit and not-for-profit businesses to carry out economic development projects.  Generally, CDAP grant funds are granted to communities to be provided as financial assistance to a private profit or not-for-profit entity who must document the need for grant and/or financial assistance.  The recipient may use the funds for land acquisition;  construction, reconstruction, installation or rehabilitation of commercial or industrial buildings, structures and other real property; equipment and improvements; and working capital.  Working capital is defined as inventory, employee salaries, general operating expenses and advertising/marketing expenses.  The refinancing of existing debt is not an eligible activity.

The department will negotiate the relevant terms and conditions for financial assistance.  These terms will be flexible and consistent with the risk involved, and consistent with  the terms of comparable private market instrument.  Where financial assistance is provided through a debt instrument, the department may match, but not exceed the terms and conditions of the participating lender and take a subordinate collateral position.  The minimum interest rate on loans under the economic development component is three percent to be computed on the unpaid balance and amortized monthly.  The CDAP loan rate will be established at the time of  loan commitment.

In addition to using CDAP funds for financial assistance to businesses, units of local government may use CDAP funds for public facilities improvements in support of economic development, such as a water main extension to serve a new business.

B. LOW-TO-MODERATE INCOME BENEFIT REQUIREMENTS

The following is a requirement of all applicants under this component.  An application must document at least a 51.0 percent benefit to low-to-moderate income persons or it will not be reviewed further.

Low-to-moderate income status is based upon a determination of family size and family income using the median family income for the county in which the project is located.  See ATTACHMENT B for the HUD Section 8 Income Guidelines.

If a project involves job creation, evidence of benefit can be documented in one of two ways.  The business must agree to:

• Document the family  income of each individual hired through the completion of the Employee Income Certification  Form; and/or

• Accept employment referrals through the local service provider under the Workforce Investment Act (WIA).

• Document the family income of each existing employee retained through the completion of the Employee Income Certification

C. SPECIAL REQUIREMENTS FOR ECONOMIC DEVELOPMENT 

1. Grant Funds Provided as Financial Assistance to a Business in Support of Economic Development

The following requirements, in addition to those listed in Section II, apply to applications submitted for consideration under the Economic Development Component requesting grant funds in providing financial assistance to a business in support of economic development.

a. All projects are reviewed to determine whether CDAP funding is appropriate.  The following elements are included in the department's  determination of  "appropriate":

The department will review each project cost element to determine that the cost is reasonable and consistent with third-party, fair-market prices for that cost element.

The department will review all projected sources of funds necessary to complete the project.  The applicant must verify that all sources (in particular private debt  and equity financing) have been firmly committed and are available to be invested in the project.

A financial review will be conducted to ensure that CDAP funds  are not  being substituted for available private debt financing or equity capital.  The amount of  CDAP assistance provided to a business will be limited to the  amount, with appropriate terms and conditions, sufficient to allow the project to go forward without substituting   CDAP funds for available private debt or cash equity.  Terms will be  structured so that the business is allowed a reasonable rate  of return on invested equity, considering the level of risk of the project.  The minimum interest rate for a CDAP loan is three percent (3%).  In completing the financial analysis, the department reserves the right to set a higher rate of interest. Factors influencing the department's pricing evaluation include, but are not limited to, profitability, cash flow, collateral coverage and use of funds.

b. The participating business must meet one of the following to justify CDAP assistance:

Financing Gap - This argument will demonstrate that a business can raise only a portion  of  the financing necessary to complete a project.

Locational - This argument is used when a firm or business is considering multi-state location options.  CDAP funds are needed to equalize cost factor variations between sites.  This requires cost disclosures for each site under consideration.

Rate of Return - This agreement is traditionally used for developer projects.  It assumes that full financing is available, but the rate of return is insufficient to induce development to proceed.

c. For successful applicants,  the department will issue a written agreement or grant award document which will contain among other things, the conditions attendant to the grant.   In addition, the department will participate in the drafting of the loan agreement and/or other relevant Financial Intermediary Agreements.

If the department's evaluation of the liquidation value of the collateral or other forms of secured interest offered indicates  that it is insufficient, the department reserves the right to deny the application or require additional security interests.  Applicants should note that “additional security interests” may include guarantees from a spouse and/or a subordinate mortgage against a personal residence, royalties, and convertible debt.

d. The following  are examples of what will generally be required of all businesses as a condition of a CDAP financial assistance closing:

Written evidence of finalization of all sources of financing (copies of promissory notes, commitment letters);

Finalization and documentation of all project costs (a detailed narrative for all  non-CDAP activities with corresponding costs) and independent vendor cost  estimates which verify expenditures associated with CDAP activities;

Written evidence of lease or sale between the owner of the real property and the company;

Business interruption insurance;

Assignment of life insurance on the principal(s) in the amount of the financial assistance which will be  a decreasing term unless equivalent dollar amounts for existing permanent type insurance are substituted;

Subordination of all existing and future officer and director’s notes payables for the term of the  loan in favor of the local government. If there is no such subordinated debt, the company must attest that there are not such subordinate note holders, and its Board must resolve that no loans to officers and directors will be made by the company for the duration of the CDAP financial assistance;

Certification of Insurance evidencing coverage for general liability, workers compensation/employer's liability and all business personal and/or real property designating the unit of local government as loss payee and/or mortgagee; and

Preliminary mortgage title commitment policies; and

Certificate of Good Standing from the Illinois Secretary of State and the Illinois Department of Revenue.

e. Payments, which may include principal and interest, generated from financial assistance may be recaptured by the local government provided an approved recapture strategy is formulated and approved by the department.  Recaptured funds must be used to capitalize a revolving loan fund for further economic development.  All recipients who will be providing financial assistance to businesses must submit a recapture strategy.  Use of the recapture payments are subject to the recapture statement submitted to the department and will be monitored.

f. In addition, all economic development grant applications for financial assistance must meet the  requirements in Part D, paragraphs 1 - 6.

2. Grant Funds for Public Infrastructure in Support of Economic Development

The following requirements, in addition to the requirements listed in Section II, apply to applications requesting grant funds for public infrastructure in support of  economic development.

a. All projects are reviewed to determine whether CDAP funds are appropriate.  The following elements are included in the department's  determination of "appropriate":

The department will review each project cost element to determine that the cost is reasonable and consistent with third-party, fair-market prices for that cost element.

The department will review all projected sources of funds necessary to complete the project.  The applicant must verify that all sources (in particular private debt  and equity financing) have been firmly committed and are available to be invested in the project.

A financial review of the unit of local government will be conducted to  ensure that it does not have the capacity to fund infrastructure improvements  without CDAP assistance.

b. For infrastructure-related projects, the unit of local government must demonstrate  the financial gap argument as the sole rationale for funding.  This rationale will be determined through the review of the unit of local government's audit to ensure that it does not have the capacity to fund infrastructure improvements without CDAP assistance.

c. For successful applicants, the department will issue a written agreement or grant  award document and Participation Agreement which will contain among other things, the conditions attendant to the grant.

d. The following are examples of what will generally be required of all businesses as a condition of a CDAP grant closing:

Written evidence of finalization of all financing (copies of promissory notes and commitment letters);

Finalization and documentation of all project costs (a detailed narrative for all  non-CDAP activities with corresponding costs) and independent vendor cost estimates which verifies expenditures associated with CDAP activities;

Written evidence of lease or sale between the owner of the real property and the company; and

Confirmation by the appropriate legal authority that all infrastructure related activities will take place on publicly-owned property.

e. Applicants or the entity that will own the improvement, e.g., water or sanitary district must also provide their most recent certified local government audit and complete the  Local Government Financial Checklist.

f. As a condition of the award of a grant for the construction of public infrastructure in  support of economic development, the grantee will be required to enter into a "Participation Agreement" with the business regarding the specific CDAP project objectives, e.g., investment, jobs, low-to-moderate income benefit, and the applicable sanctions that  may be applied if those objectives are not satisfied.  The department will issue this  agreement at the time the grant agreement is issued and its execution will be a condition of award.

g. In addition, all economic development grant applications for public infrastructure  must meet the requirements in Part D, paragraphs 1 - 6 below.

D. ADDITIONAL PROGRAM INFORMATION AND REQUIREMENTS FOR ALL ECONOMIC DEVELOPMENT GRANT  APPLICATIONS

1. If a start-up project is proposed, leveraging must include an equity injection of at least 20 percent of the total eligible non-CDAP financing.  The Director may waive this requirement for good cause.  Good cause may include, but is not limited to, cases where CDAP funds are used for the construction or rehabilitation of public infrastructure, where the equity requirement would create an unreasonable hardship for the applicant, where financial assistance is sought by a minority enterprise, where other conditions of the loan are so firmly supported that the equity requirement is not necessary or where the need for job creation in the geographical area far exceeds the relative security offered by the 20 percent equity requirement.

2. As of January 1, 1999, CDAP Economic Development grant funds may not be used to assist directly in the relocation of any industrial or commercial plant, facility, or operation, from one area to another area, if the relocation is likely to result in a significant loss of employment in the labor market area from which the relocation occurs.

Priority will be given to export-oriented jobs.  Export jobs are defined as jobs which  are created or retained by a company where the final user of its product or service is not a resident of the state.|

3. Projects involving the retail sale of goods and services are generally considered of lower priority.  The department will target assistance for retail/commercial projects toward either minority or female owned businesses or businesses that are located in a Tax Increment Financing District, Illinois State Enterprise Zone, federal empowerment zone/enterprise community, areas of high unemployment, or a business which addresses a void in the local retail and/or service economy.

4. The following activities are ineligible under the Economic Development Component.

(a)   Assistance to professional sports teams;
(b)   Assistance to privately-owned recreational facilities that serve a predominantly higher-income clientele where the benefit to such clientele clearly outweighs  employment or other benefits to low-to-moderate income persons;
(c) Acquisition of land for which no specific proposed use has yet been identified;  
(d) Additional assistance to a for-profit business while that business is the subject of unresolved findings of noncompliance relating to previous CDAP assistance; and
(e) CDAP funds will not be approved in direct support of projects for gambling or  construction of facilities that have gambling as their principal purpose.

5. Each applicant must show evidence that initial contact has been made with concerned state agencies in accordance with federal NEPA requirements described on page 8 of this application guide.  At a minimum, the applicant must submit evidence that they have contacted the following state agencies:  Illinois Environmental Protection Agency, Illinois Department of Agriculture, Illinois Department of Natural Resources and the Illinois Historic Preservation Agency. 

6. To assist applicants in the preparation of applications, certain terms are defined below:

Resource Leveraging - a financial contribution which includes other sources of private and public financing (e.g., U.S. Department of Commerce, Economic Development Administration, U.S. Small Business Administration, Illinois Environmental Protection Agency, and USDA Rural Development).  Leveraging may include cash equity infusion by either the owner(s) of the company or by the corporation itself.  Machinery and equipment brought into the state from another state are an additional source of leverage.  (The value will be determined based upon depreciated book value.)  Under-utilized land and/or buildings will also be considered when the appraised value qualifies them as under-utilized.  There are exclusions to the leveraging definition, and the following exceptions apply:

Costs incurred prior to date of grant award will not count as leverage;

Locally held CDAP recapture funds will not be considered as leverage, nor will funds  from other department funded programs, e.g., Weatherization,  although they may be used to further the project;

Generally, the Illinois Department of Transportation (IDOT) will not recognize CDAP funds as leverage against their program funds.  Please check with IDOT staff in determining their eligibility requirements prior to submitting the CDAP application.

Existing in-state equipment, land, buildings, furnishings, inventory, etc., already  owned and paid for and being utilized will not be considered leveraging (not  including under-utilized land/buildings).  Inventory brought into the state from  another state is not considered leverage;

Lines of credit will not be counted as leverage;

Contracts for Deed without a due and payable clause or which are an apparent substitution for simple rent will not be counted as leverage; and

Post project costs such as operational expenses will not be considered.

Full-Time Equivalent (FTE) job - 1,950 hours of employment in a 12 month period.  (Permanent employees only)

Term Loan - an amortizing loan of a defined duration of at least one year.  The term of a CDAP loan shall not exceed the term of the other lenders or investors in the project when funds are used for the same purpose.

Equity - tangible assets such as cash, under-utilized land and/or buildings and machinery/equipment located out of state which is unencumbered and available to be put into the project.  Cash must be immediately available and unencumbered at the time CDAP funds are disbursed.  Machinery and equipment will be accepted at their depreciated book value.  Land and buildings will be accepted at their fair market value.

Post Operating Expenses - necessary business costs incurred after completion of the "project" as defined, which are funded from future internally generated sources of cash.  Typical situations which constitute post-operational costs are:  1) future retained earnings to finance project activities;  2) the future sale of excess equipment; and 3) the recognition of future increases in operating costs from the completion of the cash-to-cash inventory and accounts receivable cycles.

E. EARLY WARNING ENVIRONMENTAL REVIEW INSTRUCTIONS FOR ECONOMIC DEVELOPMENT PROJECTS

The National Environmental Policy Act (NEPA) requires grantees to conduct a review of the environmental effect of a proposed project.  As part of this environmental review, applicants must afford the following four state agencies the opportunity to comment on proposed projects prior to the formal environmental review:

1. Illinois Environmental Protection Agency
2. Illinois Department of Agriculture
3. Illinois Historic Preservation Agency
4. Illinois Department of Natural Resources

For purposes of submitting a CDAP application, each applicant must attach a copy of the initial letter of notification to each of the four primary agencies.

Described below is the information each agency requires to complete its review.  These items, as appropriate, are to be included in a brief letter explaining the purpose and scope of the project.  The letter should also include a contact person, other than the mayor, who is familiar with the project, and can supply additional project information.  For purposes of the formal environmental review, these agencies must "sign-off" or respond in writing to the results of their findings prior to publication of the required notice.  However, this response is not required as part of the application package.  The department encourages applicants to initiate the early warning process at the time of application.

Some projects, depending on activities undertaken, may be exempt from agency review.  Refer to Attachment D for a listing of exempt activities, by agency.

Illinois Environmental Protection Agency (IEPA)

The IEPA reviews CDAP economic development projects to evaluate the need for permits and necessary environmental controls.  If the IEPA is provided with the following information on manufacturing operations and water management plans, the IEPA review can be expedited.

1. Identification of the materials, production processes and products;
2. Anticipated production rates;
3. Anticipated water use and wastewater discharge;
4. Anticipated quality of wastewater (characteristics);
5. Volume and types of hazardous or solid waste generated;
6. Air emission sources and control equipment;
7. Determination of whether sewer or water main extensions will be required;
8. Name and telephone number of manufacturer's representative (plant manager or environmental engineer).

A letter addressing each of the above factors as applicable should be addressed and mailed to the following location:
 
Illinois Environmental Protection Agency
1021 North Grand Avenue East
P.O. Box 19276
Springfield, Illinois  62794-9276

Illinois Historic Preservation Agency

Applicants involved with activities that include federal involvement at any phase of a project must take into account how their undertakings could affect historic properties (properties listed in or eligible for listing in the National Register of Historic Places).  The Illinois Historic Preservation Agency (IHPA) has been designated to act as the review body for these projects.  Prior to publication of the notices, a letter must be issued by the IHPA stating that the grantee has complied with all historic preservation requirements.

To facilitate this review, the letter to IHPA should be accompanied by their form, "Illinois Historic Preservation Agency Project Review for Community Development Assistance Program -- Public Facilities Grants" which is included in this application guidebook (Attachment C).

All letters should be addressed to:

Illinois Historic Preservation Agency
Preservation Services Division
Old State Capitol
Springfield, Illinois  62701

Illinois Department of Agriculture (IDOA)

The Illinois Department of Agriculture reviews the agricultural impacts associated with each project proposal.  To facilitate this review, the letter to IDOA should be accompanied by their form, "Agricultural Review Information" which is included in this application guidebook (Attachment C).

All letters should be addressed to:

Illinois Department of Agriculture
Bureau of Farmland Protection
State Fairgrounds
P.O. Box 1928
Springfield, Illinois  62794

Illinois Department of Natural Resources (IDNR)

Any construction, land management, or other activity authorized, funded or performed by a state agency or unit of local government that will result in a change to the existing environmental conditions and/or may have a direct or indirect adverse impact on a listed species or its essential habitat or that otherwise jeopardizes the survival of that species requires Illinois Department of Natural Resources review.  This will include rezoning requests for lands currently zoned as agricultural or "open space" designation to one that would allow development and includes the approval of Planned Unit Developments, conditional or special use permits and preliminary and final subdivision plans.

Rezoning request for lands currently zoned, developed and used in its entirety for commercial, industrial or residential purposes and the issuance of building and zoning use permits, and other non-discretionary decisions by administrative officials are exempt.

When a unit of local government proposes an action that requires review, a Department of Natural Resources Endangered Species Consultation Agency Action Report form (or equivalent information) must be completed and submitted to the Department of Natural Resources.  The Department of Natural Resources will review for the presence of listed species.  Additional information will be requested.

To facilitate the review, the letter to IDNR should be accompanied by their form, "Endangered Species Consultation Program & Interagency Wetlands Act Agency Action Report" which is included in this application guidebook (Attachment C).

All requests for reviews should be addressed to:

Illinois Department of Natural Resources
Division of Natural Heritage
One Natural Resource Way
Springfield, Illinois  62702-1271


F. APPLICATION EVALUATION

Each application for funding under the general economic development component will be considered using the four categories which are listed below:

Project Benefit
Benefit to Low-to-Moderate Income Persons
CDAP Dollars to Jobs Ratio
Resource Leveraging

1. Project Benefit

Five factors will be considered under this criterion:

a. Project Need - Describe in sufficient detail the need for the project and the specific role of CDAP in the project, including any other options which have been pursued.  Evidence of project need is demonstrated through a well-developed justification for public financing, either locational, financial or rate of return.  The discussion should also address why other financing options could not be obtained or are not feasible.  Additional supporting documentation of need would include high unemployment levels, or other factors demonstrating public benefit.

b.  Project Design - Describe the activities that will be undertaken for this project with an emphasis upon project specifics, the reasonableness of activities, their timelines and how the needs, activities and projected impact will interrelate.

c. Financial Commitments - Provide evidence of firm commitments from all lenders and investors for the non-CDAP portion of the project. 

d. Financial Feasibility - Provide adequate documentation of project feasibility and the company's ability to bring the project to fruition. 

e. Commitments for Job Creation/Retention - Provide firm assurances from the borrower (employer) regarding the number of permanent jobs to be created or retained for low-to-moderate income persons, types of positions and the time frame for job creation, not to exceed 24 months.

2. Benefit to Low-to-Moderate Income Persons

Applicant projects must benefit at least 51 percent low-to-moderate income persons.  All applicants must identify the methodology used to determine the percentage of  project benefit to low-to-moderate income persons.  The Analysis of Benefit to Low-to-Moderate Income Persons Form in Part III of this Guide will be used to determine benefit.  At the time of closeout of the project, 51.0 percent of the total number of actual jobs created and/or retained must benefit low-to-moderate income persons.

3. CDAP Dollars to Full-Time Equivalent (FTE) Jobs Ratio

This factor considers the number of permanent FTE jobs to be created or retained with CDAP dollars within a specified period, with a maximum period of 24 months from the date funds are awarded based upon the written commitment of the borrower (employer).  Projects must demonstrate at least one FTE job will be created and/or retained for each $15,000 of CDAP funds.  (No credit will be given for temporary construction jobs or other temporary jobs that are created for the duration of the project.)

4. Resource Leveraging

This considers the ratio of other (non-CDAP) funds to total CDAP funds being invested in the project.  The evaluation threshold is a 1.5:1 ratio; however, the department will consider a lower level of leverage if necessary to make the project feasible.  In no instance will this level be less than a 1:1 ratio.  Only those funds firmly documented will be accepted as leverage.

For applicants that are not funded, denial reasons often include the following:

  • No justification of the need for funds;
  • Insufficient collateral;
  • Project commenced, e.g., leverage/CDAP funds committed prior to department approval;
  • Projected financial data, particularly sales growth, not documented; and/or
  • Revenues insufficient to cover debt service.

Potential applicants are cautioned that costs incurred against any funds used as leverage prior to the award of a grant and completion of the formal environmental review will not count as leverage and may jeopardize project funding.