HomeMy WebLinkAboutMINUTES - 07071997 - C134 C.134
THE BOARD OF SUPERVISORS OF
CONTRA COSTA COUNTY, CALIFORNIA
Adopted this Order on August 5, 1997 by the following vote:
AYES: Supervisors Rogers, Gerber, Canciamilla, and DeSaulnier
NOES: None
ABSENT: Supervisor Uilkema
ABSTAIN: None
SUBJECT: Correspondence
C.134 LETTER, dated July 16, 1997, from Greg Lemler, President of the Board, Contra Costa
Software Business Incubator, Inc., Pacific Gas& Electric Company, Diablo Division,
1030 Detroit Avenue, Concord, CA 94518-2487, advising that their Board had voted not
to utilize Community Development Block Grant Funds and to pursue alternative sources
of funding from the public agencies.
*****REFERRED TO DEPUTY DIRECTOR-COMMUNITY DEVELOPMENT
IT IS BY THE BOARD ORDERED that the above recommendations as noted (*****) are
APPROVED.
I HEREBY CERTIFY THAT THIS IS A TRUE AND
CORRECT COPY OF AN ACTION TAKEN AND
ENTERED ON THE MINUTES OF THE BOARD OF
SUPERVISORS ON THE DATE SHOWN.
ATTESTED
Phil Batchel Clerk of the Board o
SupervisorsedCounty Administrator
By Deputy
c.c.Correspondents (1)
Deputy Director-Community Development
Pacific Sas and Electvic Company Diablo Division Gregg L. Lemler
1030 Detroit Avenue Manager
Concord,CA 94518-2487
July 16, 1997 " RECEIVED
FJn. z z
Mr. Mark DeSaulnier, Chair CLERK BOARD OF SUPERVISORS
o Board of Supervisors
° Contra Costa County
651 Pine Street
Martinez, CA 94553
Re: Contra Costa Software Business Incubator
Dear Supervisor DeSaulnier:
On Tuesday, June 17 the Board approved a $50,000 Community Development Block Grant
(CDBG) allocation to the Contra Costa Software Incubator, Inc. As we were working toward
finalizing the contract to utilize the grant, it became apparent to the Software Incubator
Board that there were several conditions required by HUD and the local jurisdiction that
would put undue burden and risk on the start-up companies we were looking to attract. We
retained a consultant with expertise in HUD regulations and CDBG grant implementation to
verify our concerns and recommend a course of action. Attached is his evaluation and
recommendations. /
On Tuesday, July 1 the Software Business Incubator Board of Directors voted to not utilize
CDBG funds based on the consultants report and to pursue alternative sources of funding
from the public agencies. At this time, we are pursuing utilization of Redevelopment funds
with the City of Concord and would like to investigate this option, or any other options, with
you and your staff to allow this project to move forward. We have already identified tenants
to occupy 30% of the space, without ever advertising the Incubator, and we don't want to
turn them away.
We appreciate the efforts staff members have made to help us move this project forward
and look forward to working with you to pursue alternative sources of funding.
Sincerely,
Gregg L. Lemler
President of the Board,
Contra Costa Software Business Incubator, Inc.
GLL:ih
Pc: Phil Batchelor
Belinda Smith
Manny Ungson
Attachment
Claggett
Wolfe
Associates
. .
June 29, 1997
N,
Mr. Gregg L. Lemler
(+ ' President, Board of Directors
Contra Costa Software Incubator
' c/o Pacific Gas and Electric Company
i
I Diablo Division
1030 Detroit Avenue
Concord, CA 94518-2487
�r
y
Dear Mr. Lemler:
. Based on an initial review of the regulations in Phase I of this project, I determined that the efforts
V'T k associated with the Contra Costa Software Incubator (COSI) contained sufficient components to
support Department of Housing and Urban Development (HUD) Community Development Block
d Grant (CDBG) eligibility requirements. Upon further investigation in Phase II of the project, a
number of more detailed findings were made—as outlined below—that have both confirmed the
t initial findings and shed some light on the challenges you have faced with this effort. This
additional information--combined with specific input received from the San Francisco Office of
Community Planning and Development (CPD) of HUD—have led me to make the recommendation
dIS. presented at the end of this document.
0,
Program Findings
Sall
The program findings are based on the project objective of meeting the CDBG National Objective
Vj
�`Tof assistance to low- and moderate individuals. The subsequent items address the CCSI approach
to meeting this requirement.
!+ 1. Reaulatory Interpretation: CDBG funds can be used to support an incubator for purposes
of acquiring, developing or improving real ,property (570.208(a)(4)(vi)). The principal
benefit derived from this use is the ability to aggregate job creation for the entire project
,n rather than treating each individual business separately.
` 1 Finding: The CCSI is not usingCDBG funds for these purposes and cannot benefit from
PrP
the aggregation of jobs for the incubator project. Consequently, the primary focus of the
„r CCSI must be on the delivery of specific services to eligible businesses, not the operation
of an incubator facility. In addition, costs associated with the operation of the incubator are
not CDBG eligible.
lit ` 2. Regulatory Interpretation: CDBG funds can be used to provide assistance to micro-
' enterprises (businesses with 1 to 5 employees) where 100%r ownership is held by a low-
, a N' and moderate income individual(s) (570.201(0)). This assistance can consist of providing
jj credit, technical assistance, general support (e.g., peer support program, transportation, etc.)
t� r or training. Services provided under' this section are not subject to the
t z 607 North First Street
s - San Jose, CA 95112
v Tel: 408.88 .8610
' Fax: 408.286.4064
restrictions of public services, restrictions to the amount of direct assistance that can be provided
to a for-profit business,or the CDBG financial underwriting justification.
Finding: The CCSI can use CDBG funds to cover the cost of providing services to both tenant
and non-tenant, eligible micro-enterprises. These costs can include the portion of staff salaries
used to pay for direct services to these business (e.g., technical assistance, accounting support,
telephone answering, etc.), the portion of the fees charged by outside providers—such as the
SBDC—to assist the eligible micro-enterprise, and the portion of the fees charged by outside
providers to manage specific eligible programs (e.g., mentoring programs) for eligible micro-
enterprises. In addition, CCSI can use CDBG funds to pay an outside party for the portion of its
efforts that apply to building CCSI's capacity to carry out eligible program activities. Assistance
to eligible micro-enterprises is the least complicated approach CCSI can take for utilizing CDBG
funds.
3. Remflatory Intemretation: CDBG funds can be used to cover the administration costs associated
with supporting the program outlined in item 2 above.
Finding: The CCSI can use CDBG funds to cover the portion of staff salaries used to screen
micro-enterprises for CDBG eligibility and administer service offerings (e.g., training, technical
assistance, loans) for eligible micro-enterprises. CDBG funds can also be used to cover the cost
of rent and leased equipment that can be directly linked to the support services provided to
eligible micro-enterprises.
4. Re ug latory Interpretation: CDBG funds can be used to assist for-profit businesses (e.g. technical
assistance, training, loans, etc.) that will create jobs that are made available to, or filled, by low-
and moderate income individual (570.203). Programs supported under this section must conform
to public benefit and financial underwriting requirements.
Finding: The CCSI can use CDBG funds for a program designed to assist businesses that will be
creating jobs for low- and moderate income individuals. It is difficult to mix this approach with
assistance to micro-enterprises due to issues related to the accounting of staff time, the level of
service provided to non-eligible businesses, etc. In addition, the level of support to any specific
business is limited.
5. Re ug lato[y Interpretation: Jurisdiction can choose to provide funds for the purpose of supporting
the eligible programs outlined above in the form of grant, loan or some combination of the two.
The jurisdiction also has the capacity to contract for these services.
Finding: The City of Concord and the County of Contra Costa have chosen to provide funding
in the fonn a forgivable loan, based on the program's ability to meet CDBG requirements. This
position is supported by HUD CPD staff in San Francisco, and is well within the authority of the
jurisdictions when dealing with an untested program. However, this approach does not project
the level of confidence one would expect from a results oriented collaborative relationship
between the CCSI and the jurisdictions. In addition, this approach creates a level of uncertainty
and risk for the CCSI in terms of its financial commitments relative to rent and salaries in a
situation where the organization—though focused on complying with the proposed CDBG
requirements—is dealing with the unpredictability related to the success of start-up businesses
(Note: This risk is negated if the entire program serves eligible micro-enterprises under
570.201(o) and is not dependent on job creation by non-eligible micro-enterprises 570.203).
6. Regulatory Interpretation: Jurisdiction can be required to repay CDBG funds to HUD if an
activity approved by the jurisdiction does not comply with the CDBG regulation.
Finding: Repayment is a concern for any jurisdiction, and the HUD CPD office in San Francisco
recommends that programs focus on creating jobs that are filled by low- and moderate income
individuals rather than on those made available to low- and moderate individuals. This
recommendation is intended to protect jurisdictions, and to weed out programs that seek to use
CDBG funds without fully intending to meet the objectives of the program. On the other hand,
this recommendation also creates a level of uncertainty and risk for the CCSI should it—for some
reason—be unable to meet this requirement,.even though it has fully intended to do so.
Recommendations
The findings outlined above suggest that CDBG funds—though somewhat restrictive--can be used to
support the programs offered to eligible tenant and non-tenant businesses of the CCSI. However, I
hesitate to recommend that the CCSI pursue the use of CDBG funds, and commit to.a lease based on the
use of these funds for the following reasons.
1. It is unlikely that all the tenants of the CCSI will be eligible micro-enterprises (i.e., 100% owned
by a low- and moderate income individual(s)). Consequently, two separate programs will have
to be established—one to support eligible micro-enterprises and one to support for-profit
businesses that will create jobs for low- and moderate income individuals—creating an extremely
complicated accounting and administrative situation and limiting the level of support that can be
provided to some businesses.
2. The specific dollar amount associated with eligible uses has not been determined at this time.
3. The risks associated with non-compliance (e.g., repayment or termination of funding) are real,
and the concern expressed by some of the participating jurisdictions—though well founded due
to the untested nature of the project—indicates that the level of scrutiny many not offset the
value of the CDBG funds.
4. It is possible that the participating jurisdictions can provide less restrictive funds (e.g.,
redevelopment or general funds) for the CCSI effort, and seek to use CDBG to support other
eligible projects that are currently funded by these sources. This approach would be simpler for
all involved and would alleviate the concerns of the jurisdiction due to the untested nature of the
CCSI.
Establishing and operating a successful incubator requires high levels of support for tenant recruitment
and screening, on-going service to tenants, network development and support, and facility operation.
This is more than a full time job for any operator, and is critical to the overall success of the project. It is
my opinion that the use of CDBG funds will complicate the effort (i.e., continued negotiation, on-going
scrutiny, and compliance reporting) and reduce staff's capacity to focus on the success of the CCSI.
Consequently, I would recommend that the CCSI Board of Directors refrain from taking any further
action until a more clearly defined and collaborative CDBG funding program can established, or an
alternate source of funds can be identified.
Sincerely,
Chuck Wolfe
Principal
cc: Ila Homsher
Gary Craft