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HomeMy WebLinkAboutMINUTES - 07132004 - C.128 Contra q. Costa TO: BOARD OF SUPERVISORS .y County FROM: Dennis M. Barry, AICP Community Development Director DATE: July 13, 2004 SUBJECT: REQUEST FROM RUBICON, INC. TO AMEND THE TERMS OF THE EXISTING CDBG LOAN FOR PURCHASE OF BAKERY EQUIPMENT SPECIFIC REQUEST(S) OR RECOMMENDATIONS(S) &. BACKGROUND AND JUSTIFICATION RECOMMENDATIONS 1. AUTHORIZE the Deputy Director, Redevelopment or his designee to execute an amended Deed of Trust between the County and Rubicon, Inc. amending the loan terms for purchase of equipment forthe Rubicon Bakery operation by providing for phased forgiveness of the obligation in exchange for continued employment and training benefits to lower income persons. CONTINUED ON ATTACHMENT: —X_YES SIGNATURE: lal�� 'RECOMMENDATION OF COUNTY ADMINISTRATOR RECOM NDATION OF ARD COMMITTEE ---APPROVE OTHER SIGNATURE(S):' _ Y ACTION OF BOA �!' ,-: APPROVED AS RECOMMENDED OTHER VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A UNANIMOUS (ABSENT TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. Source: Bob Calkins, CDBG Program Manager (925) 335-1260 ATTESTEDR? Orig. Dept. CommunityDevelopment - CDBG JOHN SWEETEN, K OF _ cc: County Administrator THE BOARD OF SUPERVISORS County Counsel Auditor-Controller AND COUNTY ADMINISTRATOR via Community Development ® Rubicon Programs, Inc. B ,,4 DEPUTY 6j FISCAL IMPACT All CDBG funds are provided to the County on a formula basis through the U.S. Department of Housing and Urban Development. Forgiving the remaining portion of Rubicon's loan in exchange for job training and placement requirements will result in the County receiving less CDBG program income that could be reprogrammed to other programs or projects. BACKGROUND/REASONS FOR RECOMMENDATIONS Background: Rubicon is a nonprofit community-service agency that utilizes business ventures to train and employ economically disadvantaged individuals. In March 1998, the Board of Supervisors approved the allocation of $150,000 in CDBG funds(under the economic development category)to assist Rubicon expand the capacity of its wholesale bakery located in Richmond. In March 2002,the Board of Supervisors approved an additional loan of $80,000 to further expand bakery production. In both cases, CDBG funds were used to purchase and install several pieces of bakery equipment. The bakery expansion allowed Rubicon to increase production and expand its training program. The bakery training program has been in operation since 1993 and targets homeless, disabled, and very-low income persons, and consists of at least three-months of structured on-site training that teaches work skills and baking fundamentals. Bakery products produced by staff and trainees are distributed to grocery stores, hotels, restaurants and other retail outlets with proceeds supporting the bakery and training programs. Both CDBG loans, totaling $230,000, were secured by a Deed of Trust and Promissory Note. According to the loan documents, a total of$90,000 is be forgiven provided Rubicon met the following training and job placement goals by the end of the loan term (October 30, 2004): 1. train forty (40) very low income, homeless or disabled Urban County residents, and place 30 persons into full-time jobs. 2. create fifteen (15) new jobs within the bakery over the term of the loan. In November, 2003 Rubicon submitted documentation to the County indicating it had met the above training and job placement/creation goals, and requested the County forgive $90,000 of the CDBG loan as permitted in the loan documents. In December 2003, the County confirmed that Rubicon had met its obligations under the terms of the agreement and formally forgave $90,000 of the CDBG loan. Rubicon's Request for Additional Loan Forgiveness. In March 2004, Rubicon submitted a letter requesting that the County forgive the remaining balance of the CDBG loan ($140,000). According to Rubicon, "while the bakery has grown dramatically since the County's CDBG investment in the social enterprise, unfortunately, its business operations have not generated enough capital to repay its upcoming ballon payment." Two factors, according to Rubicon, have caused a plateau in sales figures — (1) the significant downturn in the Bay Area economy which has had a dramatic effect on reducing sales in the grocery/high end consumer goods market place, and (2) the very significant competition from Just Desserts, a San Francisco based bakery that switched from a retail store to a wholesale strategy to directly compete with Rubicon. Although Just Desserts declared bankruptcy last summer and now operates on a smaller scale by a cookie company, Rubicon has just begun to reclaim some of its lost market share. During the past year, Rubicon has implemented a strategy to recalibrate the business to succeed at a smaller scale than originally planned. Rubicon is increasing its sales efforts, introducing several new products, and seeking additional manufacturing opportunities. Rubicon has developed and submitted a detailed "Action Plan"that identifies key strategic and operational goals for the bakery and a template for achieving sustainability. As part of the Action Plan, Rubicon established a budget and financial forecasts to reflect and measure the areas of improvement outlined in the Plan. Cost reductions were implemented in the first half of FY 2003/04 and are better aligned with both industry standards and lower sales volumes. The County CDBG staff has confirmed that through the first nine months of FY 2003/04, the bakery's financial results are ahead of all targets outlined in the Action Plan, and it has made great strides to put the bakery on sound financial footing. Rubicon indicates that by the County forgiving the balance of its CDBG loan in exchange for additional job training and placement requirements, the bakery will continue on a path of financial stability and be able to continue its very successful integration of training programs and job placement activities into its business operations. Conclusion: Staff recommends that Rubicon's request to forgive the balance of the CDBG loan be approved with the following terms: 1. $35,000 to be forgiven immediately 2. an additional $35,000 to be forgiven in October 2006 provided Rubicon train at least 22 lower income persons in the bakery and place at least 17 lower income persons into permanent full-time jobs between October 2004 and October 2006. 3. The remaining $70,000 to be forgiven in October 2008 provided Rubicon train at least an additional 22 lower income persons in the bakery and place at least an additional 17 lower income persons into permanent full- time jobs between October 2006 and October 2008.