Sport Chrysler Debt Relief

Last month I wrote about the Fort Bragg City Council meeting of February 9^th, and how those who left after only listening to the comments about the Old Coast Hotel project had flunked their Civics lesson. Converting the Old Coast Hotel into a combination mental heath services center and the site of five transitional housing units would be made possible by a Community Development Block Grant (CDBG) worth about $1.2 million (approximately $900,000 of that going for the sale of the property to Mendocino Coast Hospitality Center, Inc., commonly referred to as Hospitality Center). The failure in Civics came into play when just a handful of citizens remained at that Feb. 9^th meeting to hear Fort Bragg City Manager Linda Ruffing enumerate another thirteen million dollars worth of CDBG plans the city is working on at present, funding more than thirty different projects.

The next day a Facebook post from one of those who left early ripped into the city government of Fort Bragg for any and all use of grants. That post was later removed; however, whether for or against the Coast Hotel project, readers better get a grasp on how grants work.

Number 9 on Linda Ruffing's list of grant activities might be the most overlooked. It is a Community Development Block Grant (CDBG) for $846,151 in funding to go to Sportz Investment Inc. Sportz Investment Inc. is better known as Sport Chrysler Jeep Dodge, or just plain Sport, at 200 Chestnut Street (corner of S. Franklin St.) in Fort Bragg. The $846,151 will go to Sport in the form of a loan. According to paperwork filed in the grant writing process the loan will be used to restructure debt and provide permanent working capital which will “result in retention of a business that employs 27 people.”

Quoting further from the CDBG report: “Sport expects to create two additional jobs as a result of the debt restructure. The CDBG loan will refinance and consolidate three loans into one proposed CDBG loan to be amortized over 20 years at 2.0% interest thereby significantly reducing debt service costs and eliminating two balloon payments due in 2015 that place the business in financial jeopardy. In addition, Savings Bank of Mendocino County has conditionally agreed to restructure other debt to further ensure adequate working capital for on-going operations. The loan proposal’s financial projections show that the debt restructuring will enable the business to build and maintain a solid net margin, enabling it to remain a viable business with new ability to expand operations and employment."

For this CDBG the City of Fort Bragg hired Jeff Lucas of Community Development Services (CDS) as a consultant (generally paid on an hourly rate). CDS essentially functions as a deal maker in what CDBG terms an Over-the-Counter (OTC) loans. The OTC program provides money (up to $3 million) for eligible counties and cities to lend to businesses. What makes a business eligible for a CDBG "Over the Counter" loan in Fort Bragg? The funding for Sport Chrysler fits the CDBG OTC criteria because it benefits a small business in a town where 51% of the population falls into the low to moderate income category established by the federal government. Under that set of rules, such a grant in Fort Bragg can receive funding of $350 per low/moderate income household for a maximum grant of $1.2 million. The Sport loan falls approximately $350,000 short of that high water mark.

The entire process for the Sport Chrysler OTC loan began more than two years ago. Believe it or not this process not only includes a formidable application, but a pre-application as well. In October, 2013, CDBG actually denied the initial pre-application. The loan was restructured to address concerns that are seemingly unknown to the public and a second pre-application was submitted. Whatever modifications were made to this second pre-application worked; the formal, final application process began in February, 2014. At that point a panel at the state level considered ultimate approval or denial. Not until February of this year, 2015, did the OTC loan gain that approval and go into action, helping Sport to avoid those two balloon payments due this month.

What is gained by a CDBG OTC loan like the one to Sport Chrysler. For one thing, the business continues to employ nearly thirty people, which in and of itself stimulates the local economy. In this case Sport plans to hire two additional employees. Sport Chrysler continues to be a significant contributor to sales taxes. In this particular grant the City of Fort Bragg receives tens of thousands of dollars which offsets the costs of grant writing and consultant fees. The loan money itself is going back to the city, not to a bank in some faraway locale.

Readers may be interested to know that a similar CDBG grant helped Granzella's rebuild the popular eatery in Williams after a fire ruined much of the restaurant in the autumn of 2007. Community Development Services (CDS) also prepared the loan proposal on that deal, which not only benefitted Granzella's, but the city of Williams to whom the loan debt is being paid.

What differentiates the Sport Chrysler deal from the CDBG money proposed for purchase of the Old Coast Hotel as a mental health services center and home to transitional housing units? All of the Sport loan must be paid back to the City of Fort Bragg because the loan was made to a for profit business. The CDBG deal for purchase of the Old Coast Hotel is a different type of grant, its debt may be deferred, meaning: that if the beneficiaries of the CDBG grant, the non-profit known as Mendocino Coast Hospitality Center Inc., meets all conditions placed on it by the City of Bragg over a period of time that could vary between five and twenty years, the entire debt could be forgiven.