IDAs to the Rescue

A SUMMARY of BILL A10294 (THE IDA STATE DISASTER LOAN PROGRAM)

NYS Assembly Bill A10294A and its companion Senate Bill S8181a (the “Legislative Initiatives”) expand  the authority of an Industrial Development Agency (an “IDA”) to provide emergency loan and grant programs for certain businesses and not for profit entities. The Legislative Initiatives, if enacted into law in their current form, would expire and sunset on December 31, 2021. This ability to fund loans and grants is a for a potentially shorter period, as detailed below. 

Loan Program 

The parameters of the new Loan Program are as follows:

• Maximum amount of Loan: $25,000.
• Term of Loan: payment must be made  within  1 year after the date that occurs 60 days after the expiration of Executive Order 202-2020.
• Interest rate: 0.00%
• Prepayment Permitted: Yes, without fee or penalty
• Loan period: no loans shall be made after the end of the period in which Executive Order 202-2020 is in effect.

Eligible Borrower:

• Physically located in NYS
• Must conduct business within the area served by the IDA
• Must not have more than 50 employees
• May be for profit or not for profit

Lending Criteria. Prior to entering into the loan transaction, IDA must consider and/or determine:

•  Financial Viability of the Eligible Borrower prior to the period covered by Executive Order 202-2020.
• Creditworthiness of the Eligible Borrower prior to the period covered by Executive Order 202-2020.
• Level of negative impact on Eligible Borrower of the period covered by Executive Order 202-2020
• Proposed use of loan proceeds by Eligible Borrower 
• Eligible Borrower’s ties to the community
• Impact of Eligible Borrower’s work upon area served by IDA
• Efforts of Eligible Borrower to retain jobs during the period covered by Executive Order 202-2020.
• Other sources of funding available to the Eligible Borrower. 
• Priority shall be given to highly distressed areas, as such term is  defined by §854(18) of the General Municipal Law of the State of New York. As defined therein, a  “Highly distressed area” – shall mean (a) a census tract or   tracts or block numbering areas or areas or such census tract or block   numbering area contiguous thereto which, according to the most recent   census data available, has:

1. a poverty rate of at least twenty percent for the year to which   the data relates or at least twenty percent of households receiving   public assistance; and an unemployment rate of at least 1.25 times the statewide   unemployment rate for the year to which the data relates; or
2. a city, town, village or county within a city with a population of   one million or more for which: (i) the ratio of the full value property   wealth, as determined by the comptroller for the year nineteen hundred   ninety, per resident to the statewide average full value property wealth   per resident; and (ii) the ratio of the income per resident; as shown in   the  nineteen hundred ninety census to the statewide average income per   resident; are each fifty-five percent or less of the statewide average; or
3. an area which was designated an empire zone pursuant to article   eighteen-B of the General Municipal Law of the State of New York .

              In addition to the foregoing criteria, the Legislative Initiatives provide:

• No Eligible Borrower may receive more loans from more than one IDA. Furthermore.
• In areas that are served by more than one IDA, distribution of loans shall be coordinated by each such IDA in the overlapping jurisdiction. 
• Credit counseling services shall be offered by the IDA directly or by referral. 
• Reporting required by the IDA
•  No State income tax shall be charged on any imputed interest but there may be federal tax consequences.

Grant Program

The parameters of the new Grant  Program are as follows:

• Amount of Grant; up to $10,000.
• Purpose of grant: acquiring personal protective equipment or installing     11 fixtures necessary to prevent the spread of novel coronavirus, COVID-19, during the period in which Executive Order 202-2020 is in effect

Eligible Recipient:

• Physically located in NYS
• Must conduct business within the area served by the IDA
• Must not have more than 50 employees
• May be for profit or not for profit

 Grant criteria: IDA must consider and/or determine:

• Financial Viability of the Eligible Borrower prior to the period covered by Executive Order 202-2020.
•  Creditworthiness of the Eligible Borrower prior to the period covered by Executive Order 202-2020.
• Level of negative impact on Eligible Borrower of the period covered by Executive Order 202-2020
• Proposed use of loan proceeds by Eligible Borrower 
• Eligible Borrower’s ties to the community
• Impact of Eligible Borrower’s work upon area served by IDA
• Efforts of Eligible Borrower to retain jobs during the period covered by Executive Order 202-2020.
• Other sources of funding available to the Eligible Borrower. 
•  Priority shall be given to highly distressed areas, as such term is  defined by §854(18) of the General Municipal Law of the State of New York. As defined therein, a  “Highly distressed area” – shall mean (a) a census tract or   tracts or block numbering areas or areas or such census tract or block numbering area contiguous thereto which, according to the most recent census data available, has:

1. a poverty rate of at least twenty percent for the year to which   the data relates or at least twenty percent of households receiving   public assistance; and an unemployment rate of at least 1.25 times the statewide   unemployment rate for the year to which the data relates; or
2. a city, town, village or county within a city with a population of   one million or more for which: (i) the ratio of the full value property   wealth, as determined by the comptroller for the year nineteen hundred   ninety, per resident to the statewide average full value property wealth   per resident; and (ii) the ratio of the income per resident; as shown in   the  nineteen hundred ninety census to the statewide average income per   resident; are each fifty-five percent or less of the statewide average; or
3. an area that was designated an empire zone pursuant to article   eighteen-B of General Municipal Law of the State of New York .

ISSUES & QUESTIONS

           There are several questions raised by the Legislative Initiatives: 

1.      Do the programs apply to retail businesses? If so, then why not expand all services of an IDA to retail businesses?

2.     IDAs are not permitted to give financial assistance to Not for Profit entities (the Civic Facility Prohibition). The workaround has been the proliferation of LDC financings. DO the Legislative Initiatives overcome this prohibition? 

3.      Can a Local Development Company give loans or grants? We note that the governance documentation of an LDC may provide, by specifically enabling or by omission, the power to give grants or loans. The question is whether the Legislative Initiatives are meant to pre-empt the grants or loan making powers. 

4.     While a loan recipient can only apply one IDA and a maximum loan if $25M, there is an ambiguity about total aggregate loan principal. While §4(a) appears to address the issues, clarification is necessary. 

5.     The federal taxation of imputed interest in problematic as is the potential taxation of imputed interest by cities such as NYC and Yonkers. While the lender is the taxpayer, there could be tax liability visa shifting liability to the borrower or the imputation of gifts or ordinary income by the forgiveness of as liability. 

6.     Which revenues from the IDA are eligible for loan principal and grant funds? 

7.     Are loans able to be secured? 

8.    The mechanism for competing IDAs must be specified because political issues can impair compromise. 

9.     Can the IDA charge a fee for the loans or grant services? Is it based on size of the loan or grant? 

10. The criteria to be considered by the IDA under both programs are subjective and vague. 

11.  Can the proceeds of the loans be used for purposes that are ultra vires the IDA?

We, at Economic Development Strategies, applaud this effort, but have concerns with the Legislative Initiatives, some of which are memorialized herein. We would prefer a more comprehensive reworking of the IDA enabling legislation that would (i) allow and not for profit uses as of rights and eliminate the prohibition on civic facility financial assistance ; (ii) allow retail uses as of right for straight lease purposes and (iii) make the loan and grant provisions permanent.