BY COUNCILOR GILBERT:
RESOLVED, that the proper city officials are hereby authorized to enter into a community development block grant agreement, substantially in the form of that on file in the office of the city clerk as Public Document No. ____________, with Ma & Pops 4th Street Market, Inc. (agency), pursuant to which the city agrees to purchase a certificate of deposit in an amount not to exceed $80,000, payable from Community Development Program Fund 262-community Development - Agency 020, Project Account Number CD05CD-ECDV-05E1, and the agency agrees to operate a grocery market and create one full-time job equivalent for every $20,000 of community development block grant funds deposited into the certificate of deposit with Members Cooperative Credit Union (MCCU) as a loan guaranty.
FURTHER RESOLVED, that the proper city officials are hereby authorized to enter into a third party pledge agreement, substantially in the form of that on file in the office of the city clerk as Public Document No. ____________, with MCCU pursuant to which the city agrees to pledge the certificate of deposit referenced above as collateral for the agency’s bank loan with MCCU.
STATEMENT OF PURPOSE: The Hillside Business Association (HBA) has coordinated efforts to ensure the ongoing presence of a neighborhood grocery market in the Central Hillside. The 4th Street Market is one of only two neighborhood groceries left within the city; its owners are retiring and selling their business assets. Over the past year the HBA has been working with the owners and several prospective owner/operators to identify an ownership structure that will maintain the market’s operation. The result of that effort is the purchase by the HBA of the building and business (equipment, fixtures, etc.) and the purchase of the inventory by the selected operator, Ma and Pops 4th Street Market, Inc., a Minnesota “S” corporation (borrower).
The borrower has secured a commercial loan from Members Cooperative Credit Union (MCCU) for the purchase of the inventory. However, due to the low collateral value of food inventory--some of which is perishable--MCCU’s loan is contingent upon the borrower securing a credit enhancement that will meet MCCU’s loan underwriting requirements.
This resolution authorizes the city CDBG program to purchase a five year certificate of deposit at MCCU in an amount that will meet those underwriting requirements when combined with the value of the inventory. Such inventory value will be based upon an independent appraisal conducted at the time of closing. A loan guaranty agreement between the city and MCCU will link the borrower’s loan performance with the certificate of deposit. The city shall earn interest on its deposit and will receive such interest income annually. The city will have a subordinated mortgage in the same amount as the certificate of deposit on the borrower’s home in the event that the borrower is in default of the loan and MCCU utilizes the CDBG loan guaranty.
This resolution further establishes an agreement between the borrower and the city’s CDBG program in which the Borrower shall be required to create one full-time job equivalent per $20,000 of the certificate of deposit. Other CDBG objectives, including wage and HUD hiring standards, are included in that agreement. In the event that the job creation goal is not achieved (anticipated to be in the range of 3-4 FTE new jobs), the borrower will be required to pay the CDBG program a penalty as defined in their CDBG agreement.
By providing this linked deposit as a loan guaranty for the borrower, the city’s CDBG program will have provided the necessary enhancement to the project—a project that creates jobs for low-moderate income individuals and at the same time, maintains a critical grocery resource for this neighborhood.