Both Ottawa and Muskegon counties are preparing to take applications from private businesses for project financing through federal Recovery Zone bond programs enacted under the American Recovery and Reinvestment Act. Ottawa already sees some potential projects on the horizon; Muskegon isn’t so sure yet.
Ottawa County was the first in Michigan to avail itself of a Recovery Zone Economic Development Bond for government projects. The other type of ARRA bond is designated Recovery Zone Facility Bonds-Private Development, and two major on-going projects in Ottawa County are interested.
The ARRA bonds offer tax advantages to lenders that, theoretically, should stimulate lenders to offer more capital at lower interest rates.
The federal stimulus package allows Ottawa County to approve up to $31 million in Recovery Zone Facility bonds and $20.5 million in Recovery Zone Economic Development bonds. Muskegon County is authorized to approve up to $20.8 million in Facility bonds and $13.8 million in Economic Development bonds. All of both counties have been designated Recovery Zones under the ARRA.
The city of Grand Haven has already sold a $5.6 million ARRA bond to pay for reconstruction of Washington Street.
“We were the first” in Michigan to use an ARRA bond, said Grand Haven City Manager Pat McGinnis. He said the ARRA bond, compared to traditional tax-exempt bond financing, will save the city about $1.4 million in interest over the 25-year life of the bond.
“We’ve asked the county to set aside part of their Facility bond allocation for Grand Landing to build a hotel/conference center,” said McGinnis. The amount requested is $24 million.
The Grand Landing development on a once-blighted industrial site just off U.S. 31 near the Grand River began a couple of years ago and would represent an investment of more than $70 million in condos, retail space and the hotel/conference center. The recession stalled the project after it was about one-third completed, according to McGinnis, and there has been no progress on the proposed hotel. It would have more than 100 rooms and an attached 20,000 square foot conference center.
“We’re still very optimistic and continue to work with the private development team at Grand Landing to pull this off,” said McGinnis, adding he has heard there is interest from other businesses that may locate at or near the development if the hotel/conference center is built.
The Grand Landing development is “ready for the next phase,” said McGinnis, and “will be very profitable for somebody. … We’re hopeful a private (bond) issue could go forward with that county allocation” from ARRA.
Grand Landing has competition for ARRA-supported financing.
In Coopersville, Continental Dairy, a privately held multi-state operation, is leasing the former GM/Delphi plant and, in the spring, will begin renovation of part of it — plus construction of a major addition — to produce powdered milk. According to Ken Rizzio, director of Ottawa County Economic Development, Continental Dairy has asked to use part of the ARRA Facility bonds allocated to the county to finance new equipment for the powdered milk plant and its construction.
Steve Patrick, city manager of Coopersville, said city officials have been told the entire powdered milk plant investment is about $110 million, and the plant will eventually employ about 70 people.
The auto parts plant, originally built by General Motors in 1980, closed about three years ago. At one point it employed about 680.
Last week the Ottawa County Commission approved a scoring system to help determine which private projects should qualify for an ARRA bond. According to Mark Knudsen, director of Ottawa County Planning and Grants, the scoring system includes factors such as the number of jobs that would be created, the average starting wage and the proposed product or service. Knudsen said the highest ranked product or service is technology and research, followed in descending order by food processing/manufacturing, alternative energy manufacturing, general manufacturing, and service/tourism/hospitality.
Knudsen said food processing is ranked second in importance because Ottawa County is “one of the largest agricultural producers (among all counties in Michigan). It makes sense to support food processing.”
Knudsen said that based on what county officials have already heard from the private sector, Ottawa County “could use probably twice the (ARRA Facility) allocation we received.” In fact, the county has already advised the state government that if there are other Michigan counties that don’t use up their allocation for ARRA Facility bonds, Ottawa County would like to have those allocations.
“Money is in such short supply for businesses at this point that these (ARRA) bonds are actually, in certain cases, providing financing that may be either very difficult or expensive to get if they have to go to a bank and try to obtain that financing,” said Knudsen.
Applications for the ARRA Ottawa County bonds must be made by Nov. 12 and would then be approved or rejected by mid-December.
In Muskegon County, a meeting was held in early October by Muskegon Area First, which will be taking the ARRA bond applications. Karen Benson, Business Development manager at MAF, said there was “a lot of interest, but I think time will tell” how many applications will be received.
She said “the catch” is “they are going to have to be good-sized projects that are fairly ready to go and have the backing of a bank” that would actually loan the money under the ARRA bond program.
Even though an ARRA bond approval will help lower the interest rate, the fees entailed would probably still make that financing impractical for any project costing less than $2 million, according to Benson.
“The lenders are really still shy,” she said. “If (a proposed project) wasn’t credit worthy before, this (ARRA bond) tool won’t work for you either.”
Dick Wendt, a longtime bond attorney with Dickinson Wright, explained the ARRA Facility bonds at the Muskegon meeting. When asked by the Business Journal if he expects the ARRA Facility bonds to stimulate more loans from banks, he expressed some doubt.
“I don’t think this will loosen up the credit markets, or at least I haven’t seen that. I think other things have to happen in the economy before that happens.”
“Unless you have solid credit and good net worth yourself, people are going to have difficulty getting bank financing. The banks have been so beat up so much lately, they’re being super cautious.”
“We’re probably in for another surge here of troubled banks,” added Wendt. “When these commercial short-term loans come due in the next 18 months or so, I think you’re going to see another whole set of crises.”