The City of Yakima has applied for and received approval of a competitive Economic Development Initiative (EDI) grant for $1 million. The U.S. Department of Housing and Urban Development (HUD) requires all applicants for EDI grants to utilize the HUD Section 108 loan program as part of the financing package for EDI funded projects. At the time of application for the $1 million EDI grant, the City of Yakima made a commitment to apply for a minimum $4 million Section 108 loan and leverage $3 million in private investment.

The City’s Section 108 application consists of a loan from HUD to the City of Yakima which must be repaid (principal and interest) over 20 years. The City must pledge its future Community Development Block Grant (CDBG) entitlements to HUD as a contingent funding source if the assisted project is unable to require the 108 debt service. HUD also requires additional security and a reasonable project cash flow in addition to the City’s CDBG pledge.

Fiscal Considerations of the Project

Terms: Generally 20 years on a project of this size.

Interest Rates: The interest rate to the grantee is based on one of two rates:

1. For interim borrowing, The LIBOR, or London Prime Rate, plus 25 to 50 basis points.

2. For a permanent note sale, Treasury Notes are used to estimate the cost of interest., plus 35 to 50 basis points.

Cash Flow Net operating income must generate cash flow 1.15 to 1.2 greater than the debt service requirement.

Security and Collateral:

HUD requires collateral equivalent to 120% of the loan amount.

Security that may be pledged for this project includes:

· 80% of appraised as-built market value of project facilities.

· Assignment of leases and rent.

A Limited Liability Corporation may also be formed for the project, which would control all assets related to the project.

Job Creation and Retention

Job creation and retention are two of several public benefits that result from a successful 108 program. The original application submitted for the EDI grant stated that 145 jobs would be created by the project.

Eligible Activities

• Acquisition of Real Property
• Rehabilitation of Real Property
• Relocation Activities
• Clearance, Demolition, and Removal
• Site Preparation
• Financing Costs
• Housing Rehabilitation
• Construction of New Housing
• Debt Service Reserve