Finally, businesses applying themselves

Jonathan Hayes can tell the Washington economy has picked up.

The executive director of the Washington Economic Development Finance Authority says he has already received three applications for the agency’s revenue bonds. In 2004, the first application was not filed until June. The authority issued bonds for only five projects during all of 2004.

“I’ve never seen this much activity this early,” Hayes says.

Particularly because the revenue bonds issued by WEDFA underwrite manufacturing projects that typically pay well, and create more jobs among suppliers. Since issuing its first bonds in 1996, the authority has backed 57 projects worth more than $430 million, creating or maintaining 3,865 jobs in the process. Of those 57 deals, only three have gone sour, including a $576,000 loan to the now-defunct Bayou Brewing Co. in Spokane.

Other Spokane beneficiaries include Cyrus O’Leary Pies and Scafco.

Spokane companies have not been aggressive applicants for WEDFA support. Of the $430 million in projects financed statewide, only $15.7 million worth was located in Spokane County. Two Grant County companies garnered $18.8 million in support, and the agency has approved five Yakima County projects worth $21.4 million.

No harm comes to the state when a borrower defaults, Hayes stresses. The financial institution that purchased the bonds from WEDFA is on the hook.

The agency also helps finance waste treatment projects, and development in “enterprise zones” designated by the federal government.

The bonds are attractive to borrowers because interest earned is exempt from federal income tax. In today’s bond market, Hayes estimates, that advantage shaves more than two percentage points off the rate of interest paid by the borrower.

But other costs and conditions can make the loan process a ticklish one.

Jan Romerdahl, a U.S. Bank vice president in Spokane, is also vice-chairman of the WEDFA board. Besides the usual bank fees, the borrower must also pay fees to WEDFA and the bond counsel, she says. That money is due up front, and would-be borrowers sometimes do not have it.

The other potential showstopper is a $10 million limit on total borrowing in the three years before and three years after WEDFA issues its bonds. If any one party owns more than 5 percent of the company, their borrowings are included in the calculation of that total. That condition has killed at least one deal, Hayes says.

Given the expenses and other limitations, Romerdahl says, the bonds rarely make sense for a loan of less than $2 million. The loan to Bayou Brewing was one of only two for less than $1 million.

Still, Romerdahl is enthusiastic about the program, the companies financed and jobs created. After listening to some company presentations, it’s all she can do not to approach owners about doing business with U.S. Bank, she says, adding “that would be unethical.”

Romerdahl, the bank’s manager of commercial loans in the Spokane region, says WEDFA hopes to increase use of the revenue bonds all over Washington by improving outreach to bankers.

Hayes says some legislative adjustments to the program at the federal and state level would help make the program more attractive.

Although Congress last fall raised the borrowing limit to $20 million from $10 million, the change does not take effect until 2009. The Treasury Department, in a spasm of concern about the budget deficit, red-flagged the effect on revenues earlier implementation might have. Hayes says the Council of Development Finance Agencies, a trade group, will ask Congress to move up the implementation date.

In Olympia, a Senate committee has already taken testimony on a bill that would increase WEDFA’s total borrowing authority to $1 billion from $750 million. Also, there was a provision in the law that created the agency calling for its termination in 2006. That “sunset” would be eliminated.

WEDFA, in its 2004 annual report, says applications could dry up this year because businesses will be reluctant to undertake the sometimes lengthy process if there is no assurance the agency and its bonding authority will be around to close the deal.

The agency is financed entirely by fees generated during the loan process. Hayes is the only full-time employee.

With interest rates rising, Hayes expects more businesses will seek WEDFA help, a prospect he calls “very exciting,” Hayes says.

Washington’s slowly recovering economy could use a little excitement.