99-626 Maine Rural Development Authority

Chapter 2: COMMERCIAL FACILITIES DEVELOPMENT PROGRAM

Summary: The Maine Rural Development Authority is responsible for administering the Commercial Facilities Development Program. This rule defines the application and approval process for financial assistance from the Program.

Basis Statement: The Commercial Facilities Development Program was established in Title 5 Chapter 383 Section IX to serve the following purposes:

A. Restore employment opportunities by serving as lender, principal, partner or investor in the acquisition and redevelopment of nonproductive commercial facilities for subsequent return to productive use through sale or lease; and

B. Create employment opportunities in areas of economic need that are underserved by private investors by serving as lender, principal, partner or investor in the acquisition of property and development of commercial facilities for subsequent sale or lease into private productive use.

The Authority is directed to make all reasonable and appropriate efforts to maximize the leverage of its funds through partnership and risk-sharing arrangements with public and private organizations. The Authority’s lending authority for this program is effective as of September 13, 2003.

In response to comments, changes were made in this rule to reflect the newly enacted changes in statute and to clarify Sections 5-H and Section 6C- 4 in regards to the intent of the Authority on refinancing debt and terms of financial assistance.

Section 1. Definitions.

1. Act: “Act” means 5 MRSA Chapter 383, Subchapter IX.

1. Applicant: “Applicant” means any municipality, any governmental entity, any corporation, any partnership, any limited liability company, any private, nonprofit or public entity, organization or association, any individual or any other person which applies for assistance from the Program.

1. Authority: “Authority” means the Maine Rural Development Authority, or as the context requires, any agent, employee or other representative of the Authority.

1. Carrying Costs: “Carrying Costs” means reasonable costs incurred for the maintenance, protection and security of a Project prior to its completion or its occupancy or control by the Owner, including, but not limited to, insurance, taxes and interest.

1. Commercial Facility: “Commercial Facility” shall mean real estate and improvements used principally for commercial purposes or suitable for commercial use as defined in 5 MRSA §13120-B (4). The term commercial facilities includes, but is not limited to:

1. Offices and office buildings;

1. Manufacturing, processing, assembly and other industrial buildings and related improvements;

1. Property used in connection with commercial fishing and other marine-related industries;

1. Property used in conjunction with agricultural production, storage, processing, packing and transportation;

1. Warehouses, transportation and distribution facilities;

1. Service and repair facilities;

1. Retail establishments; and

1. Lodging, restaurant and entertainment facilities.

1. Comprehensive Plan: “Comprehensive Plan” shall mean a plan that is determined by the Executive Department, State Planning Office to be consistent with 30-A MRSA §4326(1-4), and has been adopted by the city or town, as applicable.

1. Construction Costs: “Construction Costs” means any cost or expenditure with respect to a Project which is properly chargeable under the Internal Revenue Code of 1986, as amended, to the capital account of any person or state or local government. In no event shall “Construction Costs” include either “Carrying Costs” or the cost of providing and maintaining and plowing an adequate access road from a public highway to the Commercial Facility or maintaining water, sewer and power facilities or paying any service charge for water, sewer, power or other such services or utilities.

1. Development Project: “Development Project” means the acquisition of property and development of a Commercial Facility for subsequent sale or lease into private productive use.

1. Eligible Costs: “Eligible Costs” means Construction Costs.

1. Lease: “Lease”, as defined at 5 MRSA §13120-B (7), means a contract providing for the use of a Project or portions of a Project for a term of years for a designated or determinable rent. A lease may include an installment sales contract.

1. Local Growth Management Program: “Local Growth Management Program” shall mean the town has adopted a growth management program that certified by the Executive Department, State Planning Office, under 30-A MRSA §4347-A.

1. Local Development Corporation: “Local Development Corporation” shall have the meaning set forth in the Act, 5 MRSA §13120-B(9).

1. Municipality: “Municipality,” as defined in 5 MRSA §13120-B(10), means any county, city or town in the State.

1. Owner: “Owner” means the entity or association (a) designated by the Authority as the recipient of financial assistance for a Project pursuant to the Program and (b) in which the Authority may have an ownership interest.

1. Program: “Program” means the Commercial Facilities Development Program.

2. Project: “Project” means (a) a Redevelopment Project or (b) a Development Project.

3. Redevelopment Project: “Redevelopment Project” means the acquisition and redevelopment of a nonproductive Commercial Facility for subsequent return to productive use through sale or lease.

Section 2. Eligible Redevelopment Projects.

Except as provided in section 4, the Authority may undertake a Redevelopment Project, as owner or lender, for subsequent use and sale under the following conditions:

A. The Redevelopment Project has been previously and materially used as a Commercial Facility, or is suitable for commercial or industrial use.

B. The Redevelopment Project is currently not in productive commercial use or is expected to be taken out of productive use within the immediate future;

C. The Redevelopment Project has not been placed under a purchase option or contract;

D. The Authority, using due diligence, has determined that:

1. There is a reasonable expectation that the Redevelopment Project will become financially viable following its redevelopment; and

1. The economic benefits, including the restoration of employment opportunities, expected to result from the redevelopment justify the risks associated with the Authority’s equity interest in the Redevelopment Project; and

E. At least twenty-five percent (25%) of the total cost to acquire, redevelop and return the Redevelopment Project to productive commercial use will be borne by the Municipality or Local Development Corporation.

Section 3. Eligible Development Projects.

Except as provided in section 4, the Authority may undertake a Development Project, as owner or lender, for subsequent use and sale under the following conditions:

A. The Development Project consists of real estate that is zoned, sited or otherwise suitable for development as a Commercial Facility;

B. The Development Project is currently not in productive use;

C. The Development Project has not been placed under a purchase option or contract;

D. The Authority, using due diligence, has determined that:

1. There is a reasonable expectation that the Development Project will become financially viable following its development;

1. The Development Project will create employment opportunities and other economic benefits within the region; and

1. The economic benefits expected to result from the development justify the risks associated with the Authority’s equity interest in the Development Project; and

E. At least twenty-five percent (25%) of the total cost to acquire, develop and bring the Development Project to productive commercial use will be borne by the Municipality or Local Development Corporation.

Section 4. Exceptions to Public Contribution Requirement.

The Authority, with the advice of the Department of Economic and Community Development, the Department of Labor, the State Planning Office and such other agencies as the Authority determines are appropriate, may waive the requirements of section 2(E) or section 3(E), as the case may be, if the Municipality has experienced a historical lack of private investment and it is reasonably expected that private investment will not be available to assist with financing of a Project and one of the following conditions is met:

A. The Project is located in a Municipality that has experienced a sudden and severe economic dislocation, which may include but is not limited to:

1. The loss of a significant percentage of jobs within the Municipality due to the closure or downsizing of a business or other employer;

1. The loss of a significant percentage of the Municipality’s tax base due to the closure or downsizing of a business or other commercial taxpayer; or

1. The unanticipated loss of a significant percentage or component of a Municipality’s economic development infrastructure as a result of an accident, natural disaster or other catastrophe; or

B. The Project is located in a Municipality that has experienced long-term economic distress, as evidenced by factors that may include, but are not limited to:

1. An unemployment rate that is significantly greater than the average State unemployment rate;

1. The significant migration of workers or population out of the area; and

1. An average personal income that is significantly below the state average or considered to be at or below the poverty level as defined in 22 MRSA §5321.

Section 5. Additional Project Eligibility Requirements.

1. In order to be eligible for financial assistance from the Program, an Applicant must demonstrate that the Project will meet all the following criteria, as determined by the Authority:

1. Market need for the Project;

2. Economic need for the Project;

3. Financial commitment from the Municipality (consistent with Sections 2, 3 and 4, to the extent applicable) and the Applicant to develop a successful Project;

4. Financial capacity to provide the Authority with a return of and on its investment;

5. The Applicant has the right, title and interest in the property required to develop the Project; and

6. Capacity to market and manage the Project.

1. Within three years after the initial transfer of financial assistance from the Program, the Owner must begin providing the return on the Authority’s investment on the terms specified by the Authority.

2. Financial assistance from the Program will not exceed the total of the actual acquisition costs and the Construction Costs of a Project, as determined by the Authority. All other costs not properly chargeable to capital account, such as those associated with marketing and administration, are not eligible for financial assistance from the Program.

3. The Authority will not invest in, or commit to invest in, more than one (1) Project in any city, town or other minor civil division. With respect to any one city, town or other minor civil division, there shall not at any time be outstanding and to be repaid, in the aggregate, an amount of financial assistance from the Program and the community industrial building program in excess of five hundred thousand dollars ($500,000).

4. A Project must be located on a developable site in accordance with all State, federal and local regulations. Such site must have adequate utilities and services to support the intended use of the building and the use of the building for business and commercial purposes.

5. A Project which receives financial assistance from the Program must satisfy the requirements of 30 MRSA §4349-A(1), with respect to “state growth related capital investments.”

6. A Project must be consistent with a Local Growth Management Program or Comprehensive Plan, as defined in Section 1 F and K, or meet the requirements of 30-A MRSA section 4349-A(1) in order to be eligible for financial assistance from the Program.

7. The Authority will not provide financial assistance from the Program to refinance existing debt. The Authority will not approve an application for financial assistance from the Program where, in the Authority’s judgment, the Authority’s financial assistance would supplant financial assistance from other state or federal programs (e.g., Rural Development, CDBG, EDA, HUD) or from revenue bonds already approved by the city or town or by any agency or instrumentality of the State of Maine, or private sector lenders. The authority will consider restructuring existing debt, if that restructuring makes the project feasible.

Section 6. Application Procedures.

A. Phase I – Application

1. An Applicant shall submit an application complying with the requirements of this rule on forms developed by the Authority as may be specified with supporting information as required by this rule and additional information as requested by the Authority.

2. The Authority shall be responsible for making application forms available.

3. In its evaluation of an application, the Authority will consider the following, in addition to other requirements of this Rule: problem, solution, commitment and citizen participation.

a. Problem Statement:

Scope of Problems – Identification and description of the nature and magnitude of the identified problems to be addressed with financial assistance from the Program, including the requirements of Section 2 or 3 of this Rule as applicable.

b. Solution:

(i) Project Description – Describe how financial assistance from the Program will be used. Include a Project capital budget.

(ii) Comprehensive Nature of Solution – Description of how the activities relate to the Municipality’s total economic development effort. Include a description of how the Project will address the requirements of Section 2 or 3 of this Rule as applicable. The application must detail how the Project will address the problems identified and must include a plan to market and manage the facility, including an operating budget and pro forma cash flow projections.

(iii) Feasibility – Identification of tasks, timetables and the responsible parties to implement the proposed solution. Application must also identify the market need for the project.

(iv) Right to develop – Evidence of the Applicant’s right, title and interest.

c. Citizen Participation – Identification and description of the process, descriptions of public meetings, hearings and other methods to solicit the involvement of residents, developers, local organizations and public officials, and how the involvement contributed to the application.

d. Commitment/Match – Identify and describe how the Municipality, consistent with sections 2, 3 and 4 of this Rule, as applicable, and other organizations including private developers will contribute financial and/or technical resources to the Project and the status of those commitments which must be in writing.

1. No application will be considered complete unless all questions are answered and all supporting information is provided.

2. Upon approval of an application by the Authority, a commitment shall be issued at the successful conclusion of Phase I, setting forth the terms and conditions under which the financial assistance from the Program will be provided. The commitment shall include a requirement that the Phase II conditions be satisfactorily met and may specify special requirements applicable to the Project and requiring the submission in final form within a time specified of all appropriate documents, drawings, plans, specifications, appraisals, bonds, guarantees, permits, approvals, surveys, title insurance, opinions, financial statements, cost, other certifications and other instruments evidencing full compliance with the Authority’s requirements and in form and content satisfactory to the Authority.

3. No commitment shall become effective until the Applicant has signed it and the Applicant has agreed to pay to the Authority the fees specified in the program application, and other applicable fees. Authority fees, excluding the Authority’s costs in connection with the financial assistance, will not exceed 2% of the total financial assistance.

4. If, upon examination of the application and supporting information, the Authority rejects an application, the Applicant shall be informed of the rejection and the reasons. Rejection of a Project may occur at any time during Phase I or prior to Phase II.

B. Phase II – Project Planning

1. An Applicant which has received a commitment at the conclusion of Phase I will be invited to participate in Phase II. Emphasis during Phase II will be on developing the best Project to meet the Municipality’s needs. The Authority will work with the Applicant in evaluating the proposed site and building conceptualization and more fully planning the Project. During Phase II the Applicant will, to the extent specified in a commitment from the Authority, complete the following activities at its own expense:

1. Develop site plans, including plans for landscaping and lighting the building, surface water runoff control, utilities connections, and all other non-eligible costs.

2. Develop a building design, including the foundation, structure and architectural design.

3. Determine the suitability of the proposed site, including soil analysis and municipal services.

4. Provide evidence of insurance against loss or damage to the building as well as fire protection for and maintenance of the building.

5. Ensure that an adequate access road exists from public highway to project.

6. Secure licenses and permits to construct, operate and occupy the building.

7. Ensure the site is consistent with all applicable ordinances and requirements.

8. Ensure that the Applicant has right, title and interest to the Project.

1. Submissions and Review: The Applicant shall submit plans and specifications for the proposed Project, prepared by a registered Architect and Engineer in Maine, to the Authority for review. The plans and specifications shall clearly outline the scope of work for the Project including the following:

1. Site plan showing a boundary survey indicating property lines, all utilities including water, sewer and power, building foot print, landscaping, surface water runoff control and associated parking.

2. Floor plans, elevations wall sections, foundation plan, structural system, mechanical and electrical systems and details indicating the size, height and overall scope of the proposed building.

3. Specifications indicating the type and quality of the systems and material that will be used in the construction of the building.

1. Final bid documents shall be submitted to the Authority for review and approval prior to the closing of financial assistance. Prior to the start of the construction the Applicant will provide the Authority a set of construction documents for the Project.

C. Phase III – Project Implementation

Applicants that successfully complete Phase I and Phase II will close with the Authority on financial assistance from the Program for all or a portion of the acquisition and Construction Costs and begin Project implementation.

1. Financial assistance will be provided in an amount that corresponds with the funds available to the Authority and is reasonable to develop or redevelop a Project as demonstrated by a contractor’s bid package.

2. Financial assistance must provide a return to the Authority on such terms as will be acceptable to the Authority. Interest on any loan shall be up to 2% over High Wall Street Prime Rate as published in the Wall Street Journal on the date of the financial assistance commitment.

3. When the Authority is acting as principal, partner or investor, the Authority must be provided with title to the Development Project, or with stock or other equity interest in the Owner, on such terms as will be acceptable to the Authority. When the Authority is acting as lender, a loan must be secured by collateral having a fair market value sufficient to provide adequate security for the loan, and/or such guarantees and/or other financial support, or incentives from the municipality in which the Project is located. The Authority shall require a first lien on collateral.

4. The term of the financial assistance shall be based on the Applicant’s circumstances and the useful life of the Project but it is the intent of the Authority not to exceed (5) years.

5. The financial assistance will be used only for acquisition costs and Construction Costs.

6. Periodic payments shall be established in accordance with the Applicant’s individual needs. The Authority may defer up to three (3) years the collection of a return from the Applicant for a Project which remains unoccupied following completion of the development or redevelopment. The Authority may provide that such deferred return is not payable until sale of the Project or the maturity of the financial assistance, whichever occurs first, and in appropriate circumstances at the discretion of the Authority, interest due may be abated in whole or in part.

7. The Authority may limit its disbursements so that the undisbursed portion of the financial assistance shall be sufficient at all times to cover the Project costs.

8. In the event of default, the financial assistance may be declared immediately due and payable.

9. The Applicant will agree to the following terms and conditions in the documentation, as may be applicable:

1. The Applicant will comply with all applicable planning, zoning, sanitary, building and environmental laws, ordinances and regulations of the federal, state and local governments.

2. The Applicant will agree not to convey, lease or transfer any collateral for the financial assistance without the prior written consent of the Authority.

3. The Applicant will expend no portion of the financial assistance directly or indirectly for purposes other than those approved by the Authority.

4. While the Project remains unoccupied and is owned by the Authority, it is declared by the Act to be property held for a legitimate public use and benefit and to be exempt from all taxes and special assessments of the State or any of its political subdivisions.

5. The Applicant will keep insured to the satisfaction of the Authority all insurable property constituting the Project and will maintain the Project in good condition and repair.

6. The Applicant will not materially alter or relocate collateral without the prior written consent of the Authority.

7. The Applicant will comply with such other covenants as the Authority impose or establish in order to protect the Authority’s interests. Any such other covenants shall be expressly set forth in the financial assistance commitment or exhibits or attachments.

1. Use of Financial Assistance Proceeds. The Applicant shall use financial assistance proceeds for the purposes stated in the commitment and the Applicant’s rights under the commitment shall not be assignable, except to the Owner.

2. Inspection. The Applicant will allow the Authority access to the Project at any reasonable time to inspect the construction, redevelopment or operation of the Project.

3. Certification of Payments. The Applicant shall provide to the Authority a certificate of payment from the architect or engineer of record based on the architect’s or engineer’s evaluation of the work and on the data comprising the contractor’s application for payment, that the work has progressed to the point indicated and, that to the best of the architect’s or engineer’s knowledge, information and belief, the quality and quantity of the work is in accordance with applicable agreements.

Section 7. Commercial Facilities Development Program Administration.

1. Operating expenses of the Authority must be charged to the Program and all repayments of financial assistance must be credited to the Program. Expenses of the Authority that arise out of financial assistance to Municipalities and Applicants under the Program may be charged against any proceeds of the sale or lease of Projects.

2. In order to protect the integrity of the Program, the Authority may charge Applicants such administration, servicing and document preparation fees as the Authority deems reasonable.

Section 8. Lending Power.

The Authority may not, pursuant to the Program, make any commitment to lend, or lend, money with respect to a Project prior to the effective date of an act permitting the Authority to do so.

Section 9. Waiver of Rule.

The Authority may waive any requirement of this rule, except to the extent that the requirement is mandated by the Act, in cases where deviation from the rule is insubstantial. Any requests for waiver of the rule shall be made prior to the execution of a financial assistance commitment.