Pass Through Organizations as a Method of Securing Development

In the past couple of months, I have had the opportunity to chat with many communities, as I have attempted to secure clients. I have spoken to communities small and large and many face the same problems— lack of institutional understanding of the development process.

One item that is very important to a community is the ability to act as a pass though agency to provide a grant to a developer. The communities that understand this process are light years ahead of the other communities. Although everyone is created equal, in the case of economic development, it is almost like an “Animal Farm” scenario where some are “more equal” than others.

One or two people who do not understand the process can have a detrimental affect on the eventual outcome. Members who “do not believe in grants,” or who “hate developers,” or development in general—  all can create roadblocks to success.

A grant is going to be given to a community whether or not it is given to your community. There is a certain amount of dollars allotted in the Commonwealth budget and most times, it is all given out. These dollars are a recapture of tax dollars that local citizens pay to the state. Sometimes the money is used for public improvements and sometimes it can be passed through to private entities (developers).

Here are some examples on how a community can act as a pass through and help a developer. In all cases, it took a good explanation to the council to help them understand their role in the process. Good people make good decisions when they are provided with good information.

In Downingtown, when I was the Keystone Opportunity Zone (KOZ) Coordinator, I put many of the downtown properties in the KOZ (Keystone Opportunity Zone) including the Minquas Fire House. There was the thought that some day the firehouse building would be inadequate for the fire company, and it would be prudent to have an incentive plan to market the building. Years went by, and while I was working in Phoenixville, I got a call from my friend who was the fire chief who asked if I could help find a tenant for the building.

I was able to find them an Irish Pub that I had worked with in Phoenixville as a potential buyer. Days and days of negotiation brought forth a letter of intent, an appraisal and finally an agreement of sale. The final agreement was worked out in July of 2008. After the real estate collapse of September 2008 the market would not support a mortgage at the agreed upon price of $1.2 million. 

I was able to work with the Borough to get a grant to provide a loan of $500,000 to enable the project to happen. To accomplish this, the borough had to act as a pass-through for the money and act as the lender for to the Irish Pub. This took a little bit of education and negotiation but it happened and the project is moving forward.

The Fire Company got their money and the Borough got the kind of development that they wanted. It was a win/win situation. 

In Phoenixville, the long-standing project of the Phoenixville Steel Foundry was so expensive to accomplish that public sector financing was needed to help the developer.  Similar to what happened in Downingtown, I was able to write the cost down by $500,000. Again, it was brought to council and they were given the correct information and moved forward.

In all fairness to the Phoenixville Council, this was just something that they were replicating from the $250,000 grant that we obtained for the Colonial Theatre. That was the same kind of grant, but it was from a different pot of money. Therefore, they were familiar with the process. It was a different cast of characters, but the commitment to the betterment of the borough was there. The council, like the council in Downingtown, did not know much about doing something like being a lender, but they wanted to succeed and they wanted economic development to succeed.

Another example, not quite the same, is the development of the O’Brien Machinery/Main Street Village development in Downingtown. I packaged in a $1 million grant to do the remediation. That was a pass through by the borough. The Chester County Economic Development Corp. took title to the property as a custodian and then flipped it back to the developer at the end of the remediation. Again, a borough council wanted to help a developer any way that was possible.

I have been to some places where I had people on local council who were not as receptive to the grant process; let alone lending money to a developer. Gap financing is tricky, and it is important to secure it when you can.

Borough councils need to be aware of the incentives and how to apply them. They do not have to be the originator of the idea, but they must understand what is being asked of them, weigh the risk, and act accordingly.