Supporting Entrepreneurial Risk versus Protecting Public Resources

marthastewart.jpgThis morning I sat through a rather extended discussion at the Economic Development Authority (EDA) meeting. The specific subject was the Clem Shearer Micro Grant but the resulting exchange of opinions explored a much larger topic, one that is close to the heart, in my opinion, of how the public sector might support private sector efforts to produce economic development.

The Clem Shearer Grant program (named for a beloved Carleton Professor and Member of the EDA) awards grants of, now, up to $10,000 for growing, or even start-up, Northfield businesses. This morning’s discussion, as I understood it, was initiated by a recommendation by the Shearer Grant Committee to expand the accepted uses of the funds to include furniture, fixtures, and working capital, and to require a match of the grant funds. From these small details, the big issues flowed.

Some of the EDA members appeared to be concerned that furniture, fixtures and working capital were, in my words, softer or less substantial uses of the funds than, let’s say, equipment or build-out. There was also a feeling among some of the members that responsible stewardship of city resources would perhaps call for an equal commitment of funds by the grant recipient.

Other EDA members took a different view. They suggested that if the purpose of the grant is to stimulate economic growth, increase the tax base, and generate new jobs, the uses of the funds should have the flexibility to meet a wide variety of business needs. Several members also argued that sweat equity and previous investments could be considered as a match.

This balance between supporting entrepreneurial risk and protecting public resources is, in my experience, a crucial component in shaping, at least the perception of, business-friendliness. In some ways, at least in my mind, it’s closely related to the balance between flexible interpretations of ordinances and a rigid enforcement of rules. Ultimately, it will be up to the EDA (in my sincere belief made up of some of the sharpest minds in Northfield) to make this decision. However, I’m interested in hearing the opinion of the LG community on this topic.

14 thoughts on “Supporting Entrepreneurial Risk versus Protecting Public Resources”

  1. All these philosophical discussions are great, but if you don’t know what businesses are out there and what they need, the discussions seem kind of disconnected from reality. And the mindset that the city needs to give incentives to attract business seems strange when other cities focus on businesses that are strong enough to succeed on their own.
    Is there any timeline on when the EDA and city officials will really nail down a list of existing businesses they think might work here and how to get them? I’m asking because the timing of this post is perfect.
    All the major property management/developmet companies in the state (and the nation) put out detailed reports over the next few weeks, spotlighting the deals of 2007 and forecasting the regional outlook for 2008. The reports are free and give a great look at what kinds of businesses are building, leasing and getting ready to move, how much rents are on hundreds of properties of all types and what cities are landing the deals.
    The companies also usually have people who make presentations in the cities or who will drive here to brief a large group.
    It seems that a group of people can do the research, talk to brokers and really see what’s going on, then tailor recruiting and incentives to meet the market needs.

  2. Come on, Anne, get a grip. The economy, big or little, is driven by by the entrepreneur, not by studies done interminably by government bodies or consultants at great cost in the hope of finding or recruiting big or little fishes out there somewhere. Your approach reminds me of the USSR and their five-year plans, the planned-economy of wherever top down, highly regulated, authoritarian or even dictatorial regime thinks best. Give me a break, a gap, allow me a sneak peak at the possibilities, let me pursue them. Don’t tell me what I should do or should not be allowed to do which, in your or their opinion, is in the best interests of the economy, the community and the public good. I have wings. Let me fly. If you cannot, just get out of my way and let me fail (or not).

  3. Ross, great post. You touched on so many issues here that I think I can only deal with a couple of them in my initial comment. I’m happy to hear that there’s been a renewed interest in the micro-grant program. During my time on the EDA, it was very experimental, and the criteria for qualification changed at least twice. The initial vision was to provide small grants that would help entrepreneurs move “out of the garage” and take the next step. Unfortunately, it seemed that for every applicant who had a solid business plan and the moxie and means to make something happen, there were four other flaky “grandpa’s gourmet dog biscuits” ideas or crafters making sock dolls with button eyes to sell on eBay. I wish the dog biscuits and sock dolls all the best, but it’s tough to justify spending tax dollars to gamble on someone’s hobby just to prove we’re “business friendly”. Rethinking the criteria for applicants and an increase in the dollar amount are both a step in the right direction to support young first-stage businesses that have genuine growth potential (i.e., need for increased commercial space, and demonstrated need for employees).

    Anne, as I mentioned in the post , Why Businesses Leave Northfield,
    the EDA’s economic development plan, which has been endorsed by both the EDA and the City Council, is very clear about which industry sectors (even down to SIC and NAICS classification) they believe should be targeted by Northfield’s recruitment and support efforts.

    The following list presents Northfield with immediate opportunities for economic growth. It is also designed to withstand the fundamental shift in the nation’s economy toward consumer services.

    * Logistics
    * Specialty manufacturing
    * Environmental technologies
    * Healthcare/medical
    * Professional/technical services
    * Information technology

    – TIP Strategies Economic Development Plan for Northfield, p. 60

    This is a pullquote; the plan has full details.

    Norman, I believe that the downtown retail and hospitality businesses are the heart and soul of this community, and provide a lot of community identity. However, in the EDA world (defined strictly in terms of number of jobs, and commercial tax base), they really aren’t on the radar. I love entrepreneurs, but in the world the EDA is forced to inhabit, not all are created equal. I don’t think that will change until and unless the EDA’s mission and measure of success is broadened.

    Anyway, I’m looking forward to this discussion, and thank you, Ross, for kicking it off.

  4. Norm, I’m not trying to clip your wings at all. I understand your frustration. I grew up in a family of contractors, and I was a paid firefighter in my hometown in Indiana, a town very similar to Northfield. I helped with inspections. I know the difficulty of making building codes work with old buildings, but I also was there when a man died, and my captain and I nearly died, when apartments over an old downtown store caught fire and there weren’t adequate exits or enough protection to keep the fire from sneaking through remodeled walls without being seen until it was too late. We nearly lost an entire block of Main Street that night.
    And you misunderstood my comments about the research data. I’m not talking about hiring consultants. These are brokers who scour lease deals and building permits and create data bases that are amazing — and free, right on their websites. I have talked to some of them and they would come out for a look around and a discusson and a few tips.
    Northfield is at a disadvantage in the market, but it has potential. My point was that with a little effort it’s easy to spot the entrepreneurs whose leases are coming due and who are looking for new space to grow. Also, the research reports indicate that competitive industrial land is a little hard to find these days, so getting good sites ready and letting people know about them could pay off nicely.
    But we can just keep speculating…I’m fine with that.

  5. For the record:

    When guidelines are created to describe a program, grant, loan, incentive or otherwise, they are done for a few basic reasons.

    1: to Understand (hopefully) the intent of the program
    both for staff and the applicant.

    They are not set in stone, nor are they not open for discussion. This is why there is a committee review and a board meeting. (which takes it through the process)

    Based on the historyof the program as well as the needs of the community, the intent of these small changes were simply to bring a few items to the table to help improve the understanding and open the door to new opportunites.

    These three small changes have the opportunity to generate over 7 million dollars into the community., add over 78 jobs to Northfield and bring three new businesses to Northfield. ( two buildings to be purchased with one leased)

    The intent was never to create a formalized discussion on the right and wrong of this one particular program or as I call it, “housekeeping” item.

    A match “preffered” does not change anything
    good or bad, it was just something placed on the table as an option to secure a little investment and risk with us.

    The other items were created more as an administrative opportunity and as one of many quidelines. These added lines are no different than the basics a “lender” looks at when they determine if they will fund a project and what the rate would be.

    Surely one would choose a long standing business client with a match and sweat equity over one walking through the door looking for a handout.

    The committee and the EDA have the opportunity to make choices and approve or deny the proposal. Staff is there to assist and bring deals to the table. Hopefully good deals which add more value than what is being asked for.

    How long someone has been on the job is one great example of a guideline used by a lending insitution. If someone just started a new position, but has been in the field for 20 years, do they get rejected for a loan? No! They just “prefer” you have been working with a steady job history.

    The bank is just looking for stability and repayment.

    again., the intent of the small changes were not to hurt or change anything drastic. Just a continued effort to improve/expand some of the guidelines.

    Again, my reccomended changes were brought to the table to address current needs that have been out there for over three years. I simply was just taking it to the next level.

    For those who have applauded my efforts…I thank you and the clients thank you. You are my strength and help me to keep trying.

    For those who have better ideas, thoughts or concerns for the community, please feel free to call my office and leave your suggestions or send me an email. If you feel blogs are the only way you can share your opinion, then so be it.

    I will continue to keep my head high and do my job as best as I can.

    Charlene.

  6. Ooohhhkkeehhh…

    Anne took us on a empirical turn into further market analysis, Norman lifted us up in a poetic liberation of entrepreneurs, Tracy put the issue into the context of the Comprehensive Economic Development Plan, and Charlene brought us deep into the details of the specific deal. All are wonderful contributions to the discussion of economic development in Northfield.

    Howwwwwever…

    I’m still interested in hearing citizens’ opinions on the right balance between keeping the money safe in a bank account, earning a little interest, and putting it out, and at risk, by investing in a start-up or expanding business. Most of us want to create new jobs, strengthen our existing businesses, and grow the commercial tax base, but how much risk are we willing to take with the few hundred thousands of grant and loan funds that we currently have available in our economic development chest?

    Thanks much.

  7. Personally, I love the idea that there are small grants available for already established businesses that might want to expand or move in a different direction to capture a new market. And using the money for fixtures or buildout doesn’t really matter to me–it’s all money. Requiring that they match the money shows that they are ready and able to reinvest in their business. Someone with a track record is a solid investment and helping them grow in Northfield is a great use of the grant money. I am also fiscally conservative and the matching requirement feels really very responsible. I had always thought the Sheer grants were for start-ups in the past. Is this a change or was I ill-informed?

  8. OK, Ross … since you asked again … I am all for any support program that the city can DEVELOP to support retail ,specifically in the downtown, because I feel the entrepreneurs who WANT to be in the downtown need help with the out-of-balance costs, due to the level of real estate taxes.
    Before everyone jumps on me for always wanting too much for the downtown, let me point out that the downtown is where the entrepreneurial types want to be, and the franchise associates want to be on the highway, feeding off the big boxes. Obviously, these are two very different economic models; we don’t need to go through all that once again.

    But I am strongly opposed to using the DRLF (downtown revolving loan fund) for other than its stated purpose, on the basis of fairness. Currently the guidelines for that loan state:”The DRLF is aimed at providing a financial incentive to BUILDING OWNERS ( caps are my emphasis) to improve the overall condition of existing downtown structures”.

    This is clearly a program for the owners of physical real estate, not rental business owners.

    That said, any building owner could help a retail business owner by taking a loan to improve a physical structure need that would benefit the business owner. And I would hope building owners would consider doing that; I know it has been a part of several discussions we have had with potential renters.

    The second part of the DRLF issue, and the use of those $$, has to do with the fitting out of the business space. Paragraph 7 INELIGIBLE COSTS (of the DRLF application) states: “Ineligible costs include …furniture, equipment, and removable fixtures …”. I think that is more than clear.

    Now, the problem remains how to get new businesses started in the DT?
    There must be adequate money for both the business and building owners, and then adequate revenues, (and customers) from that business, to pay both the business and building owners. This should not have to be about “philanthropy”.

    I would suggest that the NDDC and the Chamber, as contract subs for the EDA, work on a source of funds to help start-up businesses; that these funds come from a source other than those currently supporting the DRLF,
    and that this be a priority, otherwise we are going to have no retail left in the downtown except for our few long-term, very experienced , successful retailers.
    KS.

    P.S. I do not believe in sitting on pots of money, unused, either… but having experienced a business tenant’s bankruptcy , and the 18-24 month problems it caused while the IRS decided what THEY wanted to do, I as a building owner do not feel secure about “personal guarantees” or uncollateralized loans.

  9. The intent of my post was simply to be sure the facts were stated correctly.

    Unfortunately, again they are still NOT being accurately debated.

    No one suggested to take funds out of the “DRLF”

    I am done blogging.

    I give up!

  10. Char. Please don’t let the discussion – here or at the EDA frustrate you into dropping out of it. I realize your efforts were to make life better for a start-up business – and we who are devoted to the DT realize how difficult for the start-up that might be. Still making it too easy for entrepreneurs who are not very securely funded, might be folly.

    The Shearer Micro Grant has had a sloppy history in recent years (IMHO) Too often grant’s were give because the committee didn’t know how to say no. Saying NO to an acquaintance or a friend who’s standing before you hat in hand isn’t easy. That’s why the guidelines exist. Otherwise put the Halloween Candy on the porch and go to bed let the kids dig in, See how long it lasts.

    In any event, the 15 K loan in question is from the DRLF… and apply, per the guidelines as Kiffi wrote in # 8.

    Claiming the funds need to be used… to show the success of the program is a little confusing to me. I certainly don’t think we can look at the number of Micro Grants given as a significant measure of the EDA’s success.

    Making major changes in the physical structure of existing historic DT buildings is a dicy game. Helping out there with DRLFunds is more significant. Making physical changes in historic buildings opens the door for code upgrades that may be a Pandora’s box. Having the funds available for significant uses, providing help while meeting the guidelines, doesn’t sound too conservative to me.

    These particular EDA funds, Micro grant and DRL, are not major tools to implement the EDA primary charge. They are small financial shots in the arm or gap financing for major changes involving a few hundred thousand or so.

    Little potatoes when looking at the big EDA picture.

    Big potatoes when you’re a small DT property owner.

    Your initiatives to make these programs more user friendly and to encourage needed upgrades in DT structures… in larger amounts and at lesser interest rates is great. That’s what the EDA ER Team advocated for in the past, that and fewer “strings”. Ironically, it was staff at that time who put back more stringent requirements.

    Welcome to Northfield, home of colleges, cows, and confusion.

  11. Oops! Obviously Ross has been out playing in the snow with John T and his children… otherwise, he’d have been all over my most recent ongoing next propensity for error.

    Previously i wrote, the “EDA ER Team” in my remark (in #10) about changing the DRLF.

    Should have been: the NDDC ER team. In cow town’s such as this’en them letters are fightin’ letters.

    The ER team did a lot of good thoughtful work in offering (unsolicited) revisions to the DRLF – word smithing an re-wordsmithing … consulting with bankers and property owners etc. Not a shoot from the hip kind of change.

    Had to post that… otherwise Ross’d ban me from the DT and the LG.

  12. Victor,

    Thanks…(I think) smile….for asking me not to give up.
    What does IMHO mean? In my humble opinion?

    as for “using” funds on the DRLF, it was my understanding that after a period of time they do expire. Providing a few “shots in the arm” to help businesses and landlords rent space is an opportunity for additional growth downtown.

    If loan funds “sit” they do not earn dollars like they do when they are borrowed out. It is not uncommon to have restrictions like that on Tif or Federal dollars.

    My first ED job, (back in the 80’s) was using only Federal CDBG (community development block grant funds) issued by the FEDS to entice economic development, to build a community and create jobs.

    The town was economically distressed. In less than 8 years I built a fund worth over two million dollars. Sinply using small loans to start with, (25,000 or less) as the funds were limited in the sense that if you don’t use them, you loose them in 5 years.

    One of the first loans I did took a small guy out of his garage. He was building commercial air filters. When I left that community his company had 120 employees and four divisions Nationwide.

    Never underestimate the power behind an idea or the simplistic value of a $5,000.00 grant, or a small loan for that matter.

    Sometimes a business just needs to know a community wants them to be there and that they care.

    Thanks for writing Victor.

    Char

  13. Alas Victor, my children are beyond playing in the snow age. I was out shoveling my driveway, being watched by my totally unhelpful dog, who just wanted me to finish up quickly so she could go back inside where it was warm.

    Yes Charlene, there is a Clem Shearer Micro Grant (CSMG) and yes Victor, there is a Downtown Revolving Loan Fund (DRLF). Perhaps I was wrong or foolish to try to keep this discussion in the realm of broad principles instead of real details.

    I suppose I could be sipping some lemonade right and say that Charlene’s initiative to expand the program(s) to cover furniture, fixtures and working capital would be advocating for doing more for entrepreneurs and taking greater risks with the funds and that Victor’s argument that the DRLF money should remain restricted to building owners and not be made available to business owners and that the CSMG funds should require that an applicant have at least a year in business and not be a start-up would perhaps better preserve the funds but not increasing the risk.

    But I don’t really feel like lemonade right now and am going to hold out for some well-spiked eggnog. So, going back up to Mary’s comments, I’ll say that she seems to favor at least a year in business for a recipient, thinks a match is not a bad requirement (would you consider sweat equity or previous investments sufficient?) and supports expanding the uses from equipment and build-out to also include furniture, fixtures and working-capital.

  14. Now see… we’ve really chewed on this – and i’d venture if the same conversation were held at a meeting – in real time – everyone would be rolling their eyes.

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