As Luzerne County officials seek 2018 budget cuts, their community development office is sitting on a $13 million business development loan fund that is no longer in high demand.
The kicker: under federal regulations, this fund cannot be tapped for county general fund operating budget expenses or even capital needs.
But allowing the entire $13 million to remain in the bank may no longer be an option, county Community Development Director Andrew Reilly told council during his recent 2018 budget presentation.
Concerned about large pools of unused funds, the U.S. Department of Housing and Urban Development, or HUD, has encouraged other community development offices that are carrying sizable economic development accounts to divert a portion of that money for other purposes that meet the agency’s guidelines, Reilly said.
Anticipating the same directive here in 2018, Reilly said he budgeted the removal of $5 million from the fund next year.
Reilly proposes offering the $5 million to provide shovel-ready infrastructure projects, such as sewer repairs or playground work, in income-eligible municipalities.
Set up in 1982, the fund has provided more than 669 loans to economic development agencies and for-profit businesses since its creation, Reilly has said. The fund steadily grew through interest earnings and repayments.
However, Reilly said Monday he believes there was only one loan requested from the fund last year and none in 2017.
Fund borrowers can obtain loans at 1.5 percent, and they must meet federal requirements for job creation and economic benefits, Reilly said.
“Because of the way the economy has been and the Federal Reserve keeping interest rates so low, our economic development funds have not been as attractive as they were in the 1980s and 1990s when interest rates were much higher,” Reilly said.
Businesses can “go elsewhere” and not have to worry about complying with federal regulations or HUD “breathing down their neck” if they haven’t created jobs within a set period, he told council.
Councilwoman Kathy Dobash asked if reducing the fund to approximately $8 million would jeopardize the availability of loans if interest in the fund is revived.
Reilly said the deduction would still leave a “considerable amount.”
The availability of funds for municipalities is “pretty exciting,” said Councilman Rick Williams, questioning how they will be able to apply.
Reilly said his office would issue a public notice seeking applications, but he stressed he can’t proceed until he reviews the matter with HUD, which does not “move quickly.”
While the county is contemplating removing money from the fund, it may be forced to put millions of dollars back into the fund for another reason.
In April 2014, HUD issued a directive for the county to put millions of dollars into the loan fund because seven loan-funded projects had not created jobs, including $6 million for the former Hotel Sterling project in downtown Wilkes-Barre that ended up with the structure’s condemnation and demolition.
The county contested the order, arguing the projects eventually should create jobs and that HUD regulations don’t specify a time limit for the job creation.
HUD continues to monitor the situation but has not issued a final payment order, Reilly said.
The original directive required the county to pay the fund $10 million, but the potential amount has been reduced to under $7 million because some of the loans have been repaid by borrowers, Reilly said.
If the county is forced to replenish the fund, Reilly said his office has approximately $5 million available to cover the expense from a defunct urban development initiative program. The county could not count money already in the fund as credit toward the debt, he said.
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.