Public-Sector Loans to Private-Sector Businesses: An Assessment of HUD-Supported Local Economic Development Lending Activities
This report assesses the performance of the third party loans under principal programs that the Office of Community Planning and Development (CPD) of the Department of Housing and Urban Development (HUD) directs toward economic development: the Community Development Block Grant (CDBG) Program; the Section 108 Program; and the Economic Development Initiative (EDI). The research describes the CDBG, Section 108, and EDI programs, how they work, and what types of economic development they fund; estimates the size and quality of the loan portfolio; and appraises the success of these programs in terms of job creation, business success, loan pay back, leveraging, and cost per job created. Additionally, the study examines the reasons why communities have used Section 108, their experiences using Section 108, the effect of EDI money on that use, and the results of Section 108 projects. The concluding chapter assesses the feasibility of developing a secondary market for the economic development loans originating under the CPD programs.
The findings of this report demonstrate the scope and variety in the CPD programs and the range of locally- determined objectives served by third party loans. The more than $2.2 billion of HUD funds used for this purpose in the later half of the 1990s were examined. The nation’s most populated and most distressed cities and urban counties account for the preponderance of this spending. Examination of nearly 1,000 loan files maintained by the 51 most active community users of CDBG and Section 108 funds for third-party lending indicates that local loan programs create jobs and leverage investment at costs that are comparable to those of other federal government programs.
The report merits the attention of all those concerned with the economic development of distressed urban areas and potential innovative developments in its funding, such as the establishment of secondary markets for third-party economic development loans.
This report is based in part on a database of economic development activities; phone surveys of business owners and community development administrators; and review of loan files.