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Tim Moerman, Ankeny’s economic development director, seems as excited as a craftsman who just got some brand-new tools. In his case, though, the tools are three new economic development programs for Ankeny, and $1 million to fund them.

On May 8, Ankeny officials announced they had created a self-sustaining economic development fund the city will use to provide gap financing through revolving loans. The fund also will be used to provide incentive grants to qualified businesses that create new jobs, as well as to pay for special projects the city may need to fast-track a funding decision for a business.

“As we see businesses looking at Ankeny, we want to make sure they have all the tools to be successful,” Moerman said. “We offer the tax abatement and (tax increment financing) rebates in the city code, but there are other businesses that have more unique requirements. It allows us to tailor our financial incentives more specifically to the needs of the business.”

As the name implies, a revolving loan fund is set up so that payments on current loans provide a continuing source of money for additional loans.

Increased demand

Ankeny is the first Greater Des Moines community in at least 10 years to establish a new revolving loan program, and it has added a new twist by offering cash incentives to companies linked to job creation. In addition to applying for loans, businesses in four targeted industries – advanced manufacturing, biosciences, business and financial services and logistics – may qualify for grants ranging from $750 to $1,500 for each new job they create.

Only three other Greater Des Moines cities – Des Moines, Grimes and Urbandale – currently operate revolving loan funds. However, some economic development officials believe that a policy change made in December by the Iowa Economic Development Board that requires cities to provide a larger share of local matching dollars will spur more cities to create funds. And Urbandale is now considering adding to its 10-year-old revolving fund as increased demands begin to drain its balance.

“I think a lot of cities, large and small, have put together revolving loan funds for various reasons, whether it’s for economic development, housing or for downtown development,” said Alan Kemp, executive director of the Iowa League of Cities. “There are cities that have done similar funds (to Ankeny’s), with much smaller amounts of money, maybe $10,000, and that’s enough for a Main Street business to make improvements to their storefront. ” Though state economic development incentive programs have led to bidding wars among states to land major projects, Moerman and other local officials say they don’t think revolving loan funds have that effect among cities.

“If it’s a company moving to Ankeny from another metro community, unless they expand, there’s no incentive for them,” Moerman said. “It’s only for incremental growth; not for companies that relocate to Ankeny.”

Ankeny created its fund by transferring

$1 million from its special assessments fund, which held approximately $1.8 million collected from developers. In addition to using the fund to make loans, the city also will be able to draw from the fund to pay for special projects related to landing a new business, such as soil testing or a traffic study.

Approximately 25 cities across the state, among them Grimes and Urbandale, have established revolving loan funds as a result of Economic Development Set Aside (EDSA) loans made by the state to businesses in those communities. The state sets aside 20 percent of its Community Development Block Grant funds, about $5 million per year, for EDSA loans. The businesses repay the loans to the cities in which they’re located, which can use the funds to create a revolving loan fund.

Two regional revolving loan funds have also operated in Greater Des Moines for a number of years.

The Mid-Iowa Development Fund dates back to federal recovery efforts following the Floods of ’93. The fund is available to businesses in Boone, Dallas, Jasper, Marion, Polk, Story and Warren counties, and currently has five loans outstanding in three of those counties. Dallas County also administers a revolving loan fund that offers low-interest loans of up to $50,000.

Des Moines’ fund, which currently has 31 loans outstanding totaling approximately $662,000, was originally established using federal Community Development Block Grants (CDBG) available to cities with populations above 50,000.

The city of Des Moines offers three revolving loan programs: the Microloan Program, the Revolving Loan Fund and the Des Moines Action Loan Fund. The programs offer loans as small as $10,000 and as much as $200,000. The fund received about $225,000 in repayments in 2007 and had a year-end balance of approximately $100,000.

Because they use CDBG funds, each program must meet U.S. Housing and Urban Development rules for

providing job opportunities for low-income residents. A loan review committee of the Corporation for Economic Development in Des Moines last year reviewed 19 projects, approved eight of those and actually funded five, said Terry Vorbrich, economic development coordinator for the city of Des Moines.

“Some of those we introduced to area banks and were able to get them financing,” he said.

A new twist

Moerman said Ankeny’s fund is structured to be sustainable, both from loan repayments and recapturing grants that are made.

Ankeny will contract with each company to receive the grant money back through the increase in value from the tax increment finance (TIF) district in which each company is located, Moerman said. Each company receiving a grant will sign a minimum property assessment agreement to ensure that the property will generate enough revenue, with payments to be taken out in the sixth and seventh years of the project to repay the fund.

Urbandale recently approved commitments of $100,000 to Continental Western Group and $60,000 to Worldwide Integrated Supply Chain Solutions from its revolving loan fund for those companies’ expansion projects. The city will conduct a study this summer to gauge future demand for revolving loans and determine how it might beef up its fund, said Urbandale City Manager Bob Layton. One option may be to use revenues from the city’s TIF districts, he said.

“We’ve traditionally had a balance between $100,000 and $150,000, but we’re getting down to about $30,000 (of available funds),” Layton said.

The state’s requirement that cities increase their share of matching funds is one of the reasons Urbandale’s revolving fund is dwindling, he said. For instance, two programs that formerly had no match required now require local governments to match either 10 or 20 percent of the state’s award. The IDED has also asked Urbandale to extend forgivable loans to match what the state has provided, but “we just haven’t had the ability to do that,” Layton said. Instead, the city as a compromise has extended longer loan terms and lower interest rates.

Layton said Ankeny’s approach to providing grants to businesses that are later repaid with TIF revenues represents “a different way of packaging” what Urbandale offers through upfront TIF rebates.

“Under our way, a business could potentially get more from the straight-out rebate,” he said. “A smaller project may benefit more from the grant than the TIF rebate.”

Linda Schaut, executive director of the Greater Dallas County Development Alliance, said she believes more cities will establish revolving loan funds to respond to the state’s increased state matching-fund requirements. Schaut also administers the Mid-Iowa Development Fund.

“And if there is new taxable valuation and the company is asking for tax credits, the state is asking the city to add more incentives,” she said. “A lot of cities are providing infrastructure (as part of the match), because that’s needed for the project.”

The state attempted to spur more cities to create revolving loan funds when it established the Grow Iowa Values Fund in 2003. The legislation authorized a 20 percent tax credit for individuals, businesses or nonprofit organizations that contribute to revolving loan funds in the state. However, no cities have ever applied to qualify for the program and no contributions have been made, according to the Iowa Department of Revenue.

Schaut said she believes revolving loan funds enable Iowa communities to better compete with cities outside the state for companies considering expansion.

“I think that’s what these revolving loan funds are about,” she said. “It certainly isn’t about competing against each other in the metro.”