Agenda - Council - 10/25/1983 - Laserfiche WebLink

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i i I I I i I I I I I I I I I I I I IMPLEMENTATION FINANCING PROGRAMS: DESCRIPTION AND GUIDELINES PURPOSE Generally, local governments use economic development programs to pursue increased tax base, jobs and the general well-being (measured by per capita income) of the citizens in their community. The Metropolitan Council is proposing to develop programs for the Region based on essentially the same principles--to encourage the development of more jobs, more tax base and a higher standard of living for the Region (see "Economic Goals" for a complete list). Business financing was identified as a problem by the Council's Economic Technical Advisory Committee. The Council examined this issue in a report titled Availability of Investment Capital in the Twin Cities Area, concluding: Capital availability is primarily a national problem related to high interest rates, economic uncertainty and structural gaps in the financial system; and Across the United States unsecured and long-term loans and equity capital are the most difficult forms of capital for small, financially §ound businesses to obtain. Financing assistance is one of the most direct incentives government can provide to encourage economic growth. The Council believes it is important to use this tool as well as others in striving to achieve the goals referenced above. Local governments already have authority and are using a number of programs to provide financing assistance to the private sector° The Council is proposing the use of similar programs for the Region. In particular, the programs discussed here are a regional 503 program certified by the Small Business Administration (SBA) and a regional industrial revenue bond (IRB) program. The Council°s aim is to make these tools available for all communities within the Metropolitan Urban Service Area (MUSA) and Freestanding Growth Centers. Not everyone agrees that government financing should be used as an economic development tool. Critics argue that, in providing financial assistance, government props up marginal businesses, assumes risks the private sector should bear and sometimes even finances businesses that do not need it. They also argue that increased use of tax-exempt bonds (one of the major financing techniques used) has significantly reduced federal revenues and driven up interest rates on general obligation bonds. If the capital markets were perfectly competitive, then those arguments are quite valid. The markets, however, are not perfect and, thus, credit-worthy businesses can have difficulties with financing. The Council believes it is a legitimate role of government to take some risks for the purposes of improving the community. The nation's capital markets might be more efficient and the federal treasury might be fuller without the use of any tax-exempt financing. However, no one locality is going to be able to change that without putting itself at a 17