How to "Float" Your CDBG Boat!

COMMUNITY DEVELOPMENT COMMISSIONOF THE COUNTY OF LOS ANGELES2 Coral Circle, Monterey Park, CA 91755 (323) 890-7001 www.lacdc.org How to "Float" Your CDBG Boat!

What is a float-funded activity? A grantee may use undisbursed funds in the line of credit and its CDBG program account that are budgeted in action plans for one or more other activities that do not need the funds immediately. Such funds are referred to as the “float.”

Why undertake a float-funded activity? • Loan repayment is program income that allows increases to current administration cap and the future year’s public service cap. • The float-funded activity may assist your entitlement with meeting its annual drawdown requirement of 150% of the annual grant. • You can maximize the use of program funds and generate program income.

Some Stats on L.A. County’s Use of the Float Loan • Ten float loans have been processed through the L.A. County program since 1987. • Total amount of Program Income generated to date - $86,125,000 • Translates to $17,225,000 in additional administrative authority and $12,918,750 in additional public service authority • 3,202 jobs created • Four of the loans made to entitlement cities outside of the Urban County

County of L.A Float Program • Program - The County Float Loan Program (CFLP) provides short-term, interim, interest only financing for projects that promote economic development and job creation projects in Los Angeles County. • Use of Funds - Loan proceeds may be used for equipment/machinery, property acquisition, construction or renovation, tenant improvements, and working capital. • Loan Amounts - Loan amounts range from $1 million to $10 million.

County of L.A Float Program (cont’d) • Loan Fee -The loan fee is (.50%) point, plus any third party cost. • Interest Rate - Attractively priced usually one point below prime below . • Term - Short term, repayable in two and one-half years. • Expenses - All third party costs to be paid by borrower. • Collateral - AA rated, direct pay, irrevocable, callable on demand, letter of credit. • Eligibility Loans are available to businesses, real estate development firms and jurisdictions to stimulate economic growth and development in Los Angeles County.

What to consider with a float-funded activity: 1)Security or Collateral; • Letter of Credit from a commercial lender; or • Cash that is unencumbered. • Look at your CDBG Cash Flow; 3) Administrative and public service program income needs;

What to consider with a float-funded activity (cont’d): • Identify projects needing short-term bridge funding; and • Offer competitive financing. For more info look at 24 CFR 570.301

Some caveats from the regs (24 CFR 570.301) • Be mindful of 30 month loan term to generate program income equal to the amount of the loan • Any extension would be considered a new activity (float loan) subject to a new set of accomplishments. • Don’t draw down funds unless you’re ready to obligate – same Treasury rules apply.

Have written float loan polices and procedures and follow them • Some of L.A. County’s include…. • Performance standards for subsequent loans to the same borrower • Methodology for establishing interest rates • Underwriting and any equity requirements • Cash flow and minimum line of credit need • Loan approval process and policy waiver procedures

Some of L.A. County’s Float Loans • $11M to City of Norwalk for development of a 24-screen theater complex and parking structure – area benefit, goods and services to LM area • $2M to Oh Boy! Corporation, a frozen pizza and prepared foods company to refinance of existing debt and working capital – 150 jobs retained • $4M to Qual Pro Corp, an electronics manufacturing company with customers including U.S. Army and Boeing. Rapid expansion requires cash flow – 155 jobs created, 49 jobs retained

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How to "Float" Your CDBG Boat!