EDIC loan

Falmouth small business owners spoke in support of the creation of a Falmouth recovery loan fund at the Monday, May 4, Board of Selectmen meeting.

Selectmen agree that a Falmouth recovery loan fund is needed, but pointed out Monday night, May 4, that a number of legal questions must be answered before it can be implemented.

The Economic Development and Industrial Corporation has proposed creating a $2 million loan fund that, through a line of credit with a bank, would make low-interest loans available to small businesses.

“Part of our goal with the lending program is to return our Main Street and other parts of our community to very active spots after the governor lifts all of the stay-at-home requirements,” EDIC member Michael B. Galasso told selectmen.

Projecting an average loan of $30,000 to $50,000, Mr. Galasso said a $2 million loan program could assist 30 to 40 Falmouth businesses and support 150 to 200 Falmouth employees.

In order to secure a line of credit, the EDIC asked selectmen to allocate the ground lease payments the town gets from Citizens Energy for the landfill solar development project to the corporation. The money would be used to pay the estimated $139,000 in debt service per year over a 20-year period of the program.

Town Counsel Frank K. Duffy said he has “no dispute whatsoever” with the “commendable purpose of the EDIC’s recovery loan program” but noted, “It is a good idea and I commend them for coming forward with it, but what it did, starting last week when I was listening to Michael Galasso’s questions, is it did raise a number of questions.”

First, he said, the town needs to determine if the EDIC has the authority to create and administer a recovery loan program.

“The fact that it is a laudable program does not necessarily answer any of the questions, because we have a program where public funds are being expended, therefore, it is absolutely essential all legal requirements and procedures be understood, identified and followed,” he said.

Per its enabling act, the EDIC has the authority to loan money. However, the loans must be secured by mortgages and must be within a defined economic development area.

“We have not defined an economic development area, as we have not developed an economic development program,” Mr. Duffy said, noting it requires a Town Meeting vote to do so.

Second, the town needs to determine whether the board of selectmen has the authority to allocate town funds to the recovery loan program. Amending the existing intergovernmental agreement between the town and the EDIC would likely require a Town Meeting vote.

The agreement relates to phase 1 of the EDIC’s solar array project at the landfill. Per the terms of the agreement, the EDIC collected all rent paid by Citizens Energy through the first three years of the solar array’s operation. Starting this year the rent will be split between the EDIC and the town, with each receiving half. An intergovernmental agreement related to phase 2 of the project is forthcoming.

“I think that phase 1 of the solar landfill is basically a done deal,” Mr. Duffy said. “That is documented in an intergovernmental agreement. Phase 2 has not been done yet, so I think you have a certain amount of latitude with phase 2 which I don’t you necessarily have in respect to phase 1 because, as I will comment later, I think that taking the stream of revenue that has been dedicated in the past for general purposes to go into the general fund and be appropriated by Town Meeting and diverting it to another cause may be tantamount to an appropriation and may require a Town Meeting vote.”

That vote alone may not be enough, as a town cannot loan money to a private entity for private business purposes without a special act of the Legislature.

“The Massachusetts Department of Revenue Division of Local Services weighed in with the information that perhaps a special act of the Legislature is necessary to permit a town to provide public funds to private parties for private business purposes,” Mr. Duffy said.

He said implementing the $2 million loan fund as the EDIC proposes could require at least three Town Meeting votes, on: the establishment of an economic development program, the creation of a special act enabling the town and EDIC to enter into a recovery loan program, and the appropriation of the money.

Mr. Galasso said he has advised state Representatives David T. Vieira (R-Falmouth) and Dylan A. Fernandes (D-Falmouth) about the potential need for legislation.

“If we need some help up at Beacon Hill, then that is where we have to go,” he said. “I think people will be very interested in trying to make something like this work. It could be a model, not that everything we do needs to be a model, but it could be a model for other communities. Maybe they see the merit in it and maybe we get something done quickly.”

Selectman Douglas C. Brown asked if modifying the lease agreement to provide the EDIC with the lease payments the town gets from Citizens Energy for phase 2 of the landfill solar development project would be enough to get the loan fund started.

EDIC director Michael DiGiano said it would make for a tight budget.

“The budget projections that I showed for our operations assumed, if we were able to retain all of the rent that we get paid from the developer, we are still running deficits of around $35,000 per year,” Mr. DiGiano said. “If we didn’t have the $35,000 from phase 1, that would mean our deficits would be more like $70,000. We’d be really cutting it close. We’d have to take a look at it.”

Mr. Galasso said it might reduce the size of the program.

“If the path to changing the existing agreement on phase 1 becomes very long, and we can do it just with the ground lease payments coming in from Citizens for phase 2, I think we take a hard look at that and see if we can negotiate some better terms with our lenders to get back up to that $2 million,” he said.

Selectman Douglas H. Jones said reducing the size of the program could allow the EDIC to move forward with the loan fund faster.

“If you change it to $1.5 million, then you can do it with the phase 2, make it all work and we can move forward more expeditiously than if we’re throwing the complications of phase 1 into it,” Mr. Jones said.

In addition to legal questions, Director of Finance Jennifer Mullen said, there are financial implications to consider.

“One of the questions I think needs to be answered is does the town want to commit future revenues for this purpose with the competing revenue stream that we have for basic town functions?” Ms. Mullen asked.

Selectmen chairwoman Megan E. English Braga said that while the town would be giving up revenue, the loss could be offset by the continued operation of local small businesses and contributing to the town’s coffers via the meals tax and room tax.

“I do see the potential good outweighs the potential small loss of revenue to the town,” Ms. English Braga said.

Ms. Mullen agreed that the recovery loan fund is a worthy program.

“I want to reiterate what Frank Duffy said: I don’t think anybody is in dispute that this is a needed program, and that small businesses are suffering right now, but we really want to do our due diligence and do this right, so that in the end, nothing comes back to haunt us,” she said.

She also asked about the proposed advisory board that would oversee the loan program. The EDIC asked selectmen to appoint a member to serve on the board.

“My concern is liability, particularly if there is a member of the board of selectmen sitting on this advisory committee,” Ms. Mullen said. “What liability does that hook the town into?”

She also noted the nature of the loan from the bank. The town typically engages in asset-based loans.

“When you think about the town, whenever we borrow money, it is for an asset,” Ms. Mullen said. “We can’t borrow money, and we ran into this with the wind turbine, we can’t borrow money to give to somebody else.”

She said that, as a separate entity, the EDIC has a little more latitude in borrowing money, but its loans must be backed by mortgages.

“There are a lot of lingering questions,” she said.

Several small business owners participated in the remote meeting and spoke in favor of creating the loan fund.

“I am one of those businesses that is just flabbergasted at what has happened,” said Deborah D. Maguire, owner of Liam Maguire’s Irish Pub. “Governor [Charles D.] Baker [Jr.] announced, the other day, that in the month of April, Massachusetts is going to lose $1.3 billion in restaurant revenue. If you multiply that by the sales tax, that’s $81 million. It’s going to happen again in May, because I don’t think we’re going to be open or just partially open. While I think this is a tough, tough time for businesses, I think municipalities, towns and governments are going to feel the effect of the loss of revenues next year, in the next fiscal budget.”

Sean Dailey, owner of Eat Your Heart Out Catering, thanked the EDIC for introducing the program. He described the fund as crucial.

“Between this COVID, the Main Street construction and other in-lying factors, I just think this proposal is crucial to myself and other small business owners in town,” Mr. Dailey said. “This will provide us with seasonal upstart costs, opening prep, inventory and working capital.”

Scott Ghelfi, owner of Ghelfi’s Candies of Cape Cod, said the fund will help ensure a vibrant Main Street.

“In my role as a small business owner, I know when Michael Galasso first called me on this, I thought of the restaurants,” Mr. Ghelfi said. “Our Main Street has really been thriving over the last few years because of all of the great restaurants we have that bring so many people out.”

He said that while he qualified for the Paycheck Protection Program, restaurants and seasonal businesses will need the support of a local fund.

Ms. English Braga agreed.

“Anyone who has lived here long enough knows what Main Street used to look like, and it has just been utterly transformed,” she said. “It is something we are so proud of. That is certainly something we hope to continue to support.”

Ms. English Braga noted that, while not all small businesses in Falmouth qualify for the Paycheck Protection Program, the loan fund does not duplicate the federal program.

“This is really for a different demographic,” she said. “This is for folks who cannot make use of those funds, for whatever reasons.”

Selectmen voted unanimously to have the EDIC develop a new intergovernmental agreement related to phase 2 of the landfill solar development project to facilitate the loan program. Mr. Jones said the new agreement should state clearly that the lease payments are for the loan fund.

“I would like to have the agreement for the nominal rent be during the duration of this loan program, and if the loan stops happening, we reconsider what the rent is,” he said. “I’m a little bit worried, because this is money the EDIC was seeking before this whole loan thing came in, so it feels a little bit like this is just another way of a money grab. I want it understood that the nominal rent is somehow tied to the loan program, and not just a way the EDIC can get some money they’ve been after, to be a little blunt.”

The EDIC previously requested a change to the intergovernmental agreement at the January 27 meeting of the board of selectmen.

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