Loading...
HomeMy WebLinkAboutCouncil Provided Information - 2/18/2025CITY COUNCIL OF SALT LAKE CITY 451 SOUTH STATE STREET, ROOM 304 P.O. BOX 145476, SALT LAKE CITY, UTAH 84114-5476 SLCCOUNCIL.COM TEL 801-535-7600 FAX 801-535-7651 COUNCIL STAFF REPORT CITY COUNCIL of SALT LAKE CITY TO:City Council Members FROM: Austin Kimmel Public Policy Analyst DATE:February 18, 2025 RE: ORDINANCE: ECONOMIC DEVELOPMENT LOAN FUND LOAN TO POLICY KINGS BREWERY, LLC, AT 79 WEST 900 SOUTH ISSUE AT-A-GLANCE The Council will consider approving a loan from the City’s Economic Development Loan Fund (EDLF) to a business called Policy Kings Brewery, LLC, at 79 West 900 South, for an existing brewery relocating from Cedar City to Salt Lake City. The City’s Economic Development Loan Committee recommends the Council approve a $75,000 loan at an 8% interest rate over seven years. This loan is the second loan to Policy Kings and will assist in creating 15 new jobs in the next year and the retention of 15 existing jobs. Funds will also pay for building renovation, leasehold improvements, machinery and equipment, furniture and fixtures, working capital, and contingencies. The interest rate reflects the 8% prime rate at the time of the application (September 23, 2024) plus the standard EDLF four percentage points. The project qualified for a four-percentage-point reduction based on location within a priority area (State Street RDA Project Area), ownership by a socially and economically disadvantaged individual, low to moderate income, and sustainability (see section B below). Goal of the briefing: Review a proposed $75,000 loan from the Economic Development Loan Fund to Policy Kings Brewery, LLC, before taking action during the Feb. 18 formal meeting. POLICY QUESTIONS 1. The Council may wish to have a policy discussion with the Administration about interest rates charged by the City from this and other loan funds and whether it makes sense to reevaluate how interest rates are determined for lenders, especially since the City typically offers loans as a lender-of-last-resort. Item Schedule: Briefing: February 18, 2025 Public Hearing: N/A Potential Action: February 18, 2025 Page | 2 2. The Council may wish to ask the Administration whether the EDLF Committee considered any other unique information about this business that would help Council Members evaluate how this application compares to others. For example, are risk factors evaluated for each company, like outstanding loans, years in business, etc.? 3.What outreach does the Department do to ensure a diverse pool of businesses successfully applies to the EDLF? Are applications from diverse owners, particularly those whose businesses are located on the Westside, offered additional support through the application process? Does EDLF staff have ideas for improving access that would benefit from program changes or additional funding? 4. The Council may wish to request a more general update on EDLF use and processes. This could include the number of applications, review criteria used, loan program goals, etc. ADDITIONAL AND BACKGROUND INFORMATION Council Members will recall approving a $75,000 EDLF loan for this business on August 13, 2024. The business is now requesting a second loan primarily because the original location at 925 South Jefferson Street did not work out in the end, and the new location at 79 West 900 South requires a more expensive buildout. The Department of Economic Development and the City's Building Services visited the new location and expressed confidence in the additional costs necessary for code compliance. The business had a minor change in its ownership structure, resulting in only one of the two owners listed as the personal guarantor for the 2025 loan. In contrast, both owners were listed as personal guarantors for the 2024 loan. According to Economic Development guidelines, owners with a 20% or higher stake must be listed as guarantors; however, one owner's current stake is only 14%. A.Interest Rates. For context, the nationwide median rates for urban small business commercial and industrial loans in the second quarter of 2024 (the most recent data available) were 7.77% for fixed-rate loans and 8.88% for variable rate loans, according to the most recent U.S. Federal Reserve Small Business Lending Survey*. In the second quarter of 2022, these rates were 4.50% and 5.55% respectively. Interest rates for EDLF loans consider an assessment of the risk level of different applicants, among other factors, and include potential interest rate reductions. Interest rates have ranged from 7.25% for nearly all 2022 EDLF loans to an average of 9.55% in 2023 and 2024. *Source: Small Business Lending Survey, New Small Business Lending Declines as Credit Standards Continue to Tighten. Consulted on January 27, 2025, at https://www.kansascityfed.org/surveys/small-business-lending-survey/new-small-business-lending- declines-as-credit-standards-continue-to-tighten/. B.Interest Rate Reductions. The bases for potential reductions are as follows: 1.Location within a priority area: RDA Project Area; Opportunity Zone; West of I-15; or Neighborhood Business Improvement Program (NBIP, previously known as Façade Improvement) target area. 2.Socially and Economically Disadvantaged Individuals (SEDI)-Owned Businesses: 51% of the business is owned by at least one SEDI individual. 3.Low Income Business Owner: Income does not exceed 80% of Salt Lake County average median income (AMI) as defined by the U.S. Department of Housing and Urban Development (HUD). 4.Sustainability: Either, a. Membership in SLC Green’s E2 Business Program; or Page | 3 b. Loan proceeds will be used for the purchase of electric vehicles, electric vehicle charging stations and infrastructure, renewable energy including but not limited to wind and solar, heat pumps, high efficiency equipment, and/or energy efficiency. Page | 4 The interest rate reductions applied to this application are detailed below: Policy Kings Brewery, LLC 8.0% prime rate + 4% ELDF charge – 1% for location within a priority area – 1% for owned by a socially and economically disadvantaged individual – 1% for low to moderate income – 1% for sustainability ___________________________ 8.0% final interest rate C.Program. The EDLF is administered by the Department of Economic Development, which is charged with maintaining the corpus of the EDLF in a manner sufficient to perpetuate the program's goals. Each loan application is pre-screened, and an underwriting analysis and economic impact statement are completed before an application may be recommended for Loan Committee (see below) review. Information on successful applications is transmitted to the Council to consider for final approval. D.Available balance and amount of outstanding loans. The Department reported that the Fund’s available balance was approximately $8,300,000 on January 21, 2025, and outstanding loans totaled $4,758,116.35 on January 29, 2025. E.EDLF Committee Membership. The Department of Economic Development lists nine members of the EDLF Committee as follows: City Employees Community Volunteers 1. Finance Director, Community and Neighborhoods Department 2. Salt Lake City Business Advisory Board (BAB) member 3. Representative of the Mayor’s Office 4. Banker 5. Salt Lake City employee at large 6. Community lender 7. Representative of the Division of Housing Stability 8. Business mentor 9. Director, Department of Economic Development 10.