Community Development Assistance Program Economic Development Components By JAY HEDGES, Director Illinois Department of Commerce and Community Affairs

Community Development Assistance Program (CDAP) economic development loans and grants are cornerstones of the economic development strategy implemented by the State of Illinois in the early 1980's. The CDAP program is a federally funded program administered by the Department of Commerce and Community Affairs (DCCA). Units of local government — municipalities, townships, or counties — that have 50,000 or less population and do not receive "entitlement" funds directly from the U.S. Department of Housing and Urban Development are eligible for CDAP funds.

The Marketing Division of DCCA works with units of local government to identify community economic development needs. They assist local governments in identifying economic development opportunities and in coordinating financial packages to facilitate start-up, location, expansion or retention of businesses and industries. When eligible communities have identified an economic development project, they may apply for funds from one of the CDAP economic development program components.

The 1988 CDAP Economic Development Program has two primary economic development components: General Economic Development and the Small Business Financing Fund. All the economic development program components require that applications include commitments by the assisted business or industry for job creation or retention and resource leveraging. At least 51 percent of the created or retained jobs must benefit low and moderate-income persons. Applications for funds from the program will be accepted by DCCA and awards will be made on a continuous basis throughout the year.

The General Economic Development component is funded at $12,592,580 in 1988. The individual grant ceiling is $400,000. Projects must demonstrate financial feasibility and the need for CDAP funds. DCCA requires a minimum of a 2:1 ratio of private investment to CDAP funds and one job created/retained per $5,000 of CDAP funds. A community may apply for funds either for loans to businesses or for infrastructure that will result directly in job creation/retention. CDAP funds are normally loaned at an interest rate of three percent. Businesses may use loan funds for a variety of activities, including purchase of machinery and equipment, working capital, and building construction or renovation. Funds may not be used for debt refinancing. Loan funds are repaid to the unit of local government. The local government uses the recaptured dollars to establish a revolving loan fund to provide loans for future economic development projects in the community.

The Small Business Financing Fund provides small businesses access to fixed rate financing below the market rate. The funding level in 1988 is $2,000,000. The individual grant ceiling is $100,000. The Small Business Financing Fund loans are often combined with SBA guaranteed loans. Small Business Financing Funds can comprise up to 20 percent of the total project cost. As with loans through the General Economic Development component, the project should create one job per $5,000 of CDAP dollars, and loan repayment to the community will finance a revolving loan fund for future economic development projects.

Since 1982, many companies have located or expanded in the state because CDAP assistance has made the projects possible. Economic development projects have increased employment in Illinois and have contributed to improved productivity through modernization of plants and equipment. On a local level, CDAP-

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assisted start-up, relocation or expansion projects have expanded the local tax bases.

An example of a CDAP economic development project is the expansion of the Radiac Abrasives plant, a grinding wheel manufacturing operation, in Salem. The city received $308,000 of CDAP funds which it loaned to Radiac Abrasives for ten years at three percent interest. The company invested $1,192,466 of combined conventional loan funds and cash equity into the project. Project activities included new construction, renovation, purchase of equipment, and working capital. As a result of the project, the company diversified the range of its grinding wheel production, increased productivity, and created 89 jobs, of which 78 benefited low to moderate-income persons.

An example of an economic development infrastructure project is the Mitek Group project in Winslow. The Mitek Group, a speaker manufacturing firm, lost its existing fire insurance because the village water system could not provide adequate supply of flow and pressure for the company's sprinkler system. Without fire protection or affordable insurance, the Mitek Group could not remain in the state. The village received $266,400 of CDAP funds and contributed $50,000 of bond funds to the project. The company retained their operations in Winslow and spent $367,876 on installing additional equipment and retooling at the plant site. The project retained 100 jobs. In addition, the company subsequently expanded and now employs 167 persons.

An example of a Small Business Financing Fund project is the loan to the Chillicothe Metal Company (CMCO) in rural Peoria County. CMCO had been operated since 1963 by its current owner and president. The company produced fabricated steel housings and special tools and installed engines and engine driven generators. In early 1986, sales began to decline and the company was forced to reduce employment. With a Small Business Financing Fund Program loan of $87,000 and an SBA 7(a) loan of $450,000, CMCO renovated and modernized its operations. The project restored the company's competitive position in the marketplace. As a result, the employment was stabilized and twenty-five new jobs were created. All the newly created jobs were for low and moderate-income persons, including some JTPA referrals.

All Illinois communities have the potential for economic development. DCCA staff can assist communities in planning to achieve that potential.

For further information on this Community Development Assistance Program component, contact Ms. Eileen Denham, Department of Commerce and Community Affairs at (217) 785-6142. •

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