The Sussex County Council declared almost the entire county a “recovery zone” this week, as part of its participation in a new federal program that will lend millions of dollars in bonds to businesses expanding or adding jobs, all in the hope of stimulating the local economy.
The Council, at its Tuesday, July 21, meeting, approved a resolution to participate in the federal government’s Recovery Zone bond program and designated the entire county – with the exception of state- and federally-owned property – as a Recovery Zone. The County will not actually lend the money, but will instead review and approve applications for the funding.
“It’s a nice incentive for businesses considering capital expansion,” said County Administrator David Baker on Tuesday. “It will enable them borrow money at less expensive rates.”
Baker noted that a “recovery zone” was defined as a “stressed-type area,” and emphasized that it was up to the council to decide what areas constitute a recovery zone in Sussex County.
The recommendation from county staff, he noted, was to declare virtually the entire county to be a recovery zone.
“County residents have the lowest median income in the state,” he noted, at $68,000 per household. He said the county’s unemployment rate has nearly doubled, and emphasized that the Sussex salary/housing gap is the largest in state. The entire county qualifies for assistance under Economic Development Administration eligibility guidelines, he noted.
“It made sense to include all of the county except federal- and state-owned lands,” Baker concluded.
“It’s depressing to think that the whole county is in need of recovery,” commented Councilman George Cole.
“In the east, there are certainly areas of the county we would not consider distressed,” Baker replied. “But if there is a project in those areas that would employ people not only from those areas but also from Georgetown or Seaford, there would be a benefit to the county overall.”
Baker said that, while he had been told that New Castle County officials were considering eliminating agricultural areas from their designated recovery zone, Sussex County staff had felt they needed to include such areas, since the program would benefit agricultural businesses, as well.
“We had to include the towns to make the towns eligible for funding,” he added.
Finally, he noted, “Tourism is important, and we wanted to make sure the eastern side of the county would be eligible for some of this funding, as well.”
Under the American Reinvestment and Recovery Act of 2009 (ARRA), also known as the “stimulus package,” $15 billion in federal funds was set aside for Recovery Zone Facility Bonds for businesses, and another $10 billion in Recovery Zone Economic Development Bonds for local governments. Together, the mix of tax-exempt and federally subsidized, taxable bonds are intended to keep down borrowing costs on private and government construction projects.
“The federal government recognizes that one important way to improving the economy starts right here, at the local level,” County Council President Vance Phillips said. “With these funds, Sussex County and its businesses will receive a much-needed economic shot in the arm.”
States, extending down to municipalities and counties with populations greater than 100,000, are allocated a percentage of the funds based on unemployment trends, so areas hit hardest by the national economic downturn are given the greatest share. The U.S. Treasury Department has allocated $135 million to Delaware, with approximately $25 million in Recovery Zone Facility Bonds for Sussex County businesses.
Eligible businesses can apply to the County now, and all bonds must be issued by Dec. 31, 2010. While the County will lend its name on the bonds, those borrowing the money, not local taxpayers, would be responsible for re-payment of the debt.
Businesses will apply in a similar process to past applications for industrial development bonds offered through the county. There will be an application form with financial information required, followed by a bond committee review, a public hearing, consultations with a bond attorney and, finally, a recommendation to the council, which would have to approve successful applicants.
The bond rating for each loan would depend on the credit of the business taking out the loan.
“We would encourage businesses to consider this type of funding as a way to reduce costs and make their projects more feasible,” County Administrator David B. Baker said. “In the long run, we believe this can add jobs and strengthen our overall economy.”
Councilman Sam Wilson was more cautious about the program.
“There are some drawbacks,” he warned. “Some years ago, the state started loaning money at very low interest rates,” he related, saying that he knew people who already had poultry houses who were paying 7 percent interest on loans taken out privately for new or expanded houses.
When competitors were loaned money at 5 percent, he said, “that 2 percent just about drove out the other people. It was such a lousy deal that I rode to Dover, and they decided it was a bad idea.”
Wilson advised that the county must watch competitive factors in participating in such a program and be careful of loaning funds to people with competitors who have taken out private loans at higher rates. He cast the lone council vote against the program.
Cole voted in favor of the program, commenting, “Nobody will ever use it, but it feels good.”
For more details on the program or to submit an application, contact the Sussex County Economic Development Office at (302) 855-7770.