State not funding revolving loan program for small business

Local officials are antsy over $1 million being held up in Montgomery which was earmarked in 2007 for the Alabama Revolving Loan Fund to benefit small businesses in the Wiregrass.

Those funds, administered through 12 regional planning and development districts throughout the state, play a key part in business development and growth in the economy of the Wiregrass, said Dothan Area Chamber of Commerce President Matt Parker.

“Sometimes businesses and manufacturers that need to expand or grow, due to the financing matrix, they can’t get funding. This program helps but it doesn’t work without private lending activity,” Parker said.

June 2007 legislation signed by the governor allows for $24 million in grant funds statewide to be distributed to the planning districts. These dollars are used for “gap financing,” whereby a small amount of the Revolving Loan Fund dollars are used to leverage both business owner equity and other capital from lending institutions, enabling projects and expansions that might never be funded otherwise.

The law allows for up to $2 million in funding per region, which is badly needed because lending funds are near depletion.

State Finance Director Bill Newton blames the lack of funding on the recession. “The national economy started having major difficulties a year ago or more, that in effect led to problems with the municipal bond market. That froze bond issues,” he said.

But these bonds are premium bonds which carry very little risk, Parker said. And both the city and county have let major bond issues during 2009.

“I didn’t say we hadn’t been to the bond market,” Newton said. “We have gone. We started about two months ago. We have a number of bond issues we have plans to take to the market sometime in 2010. This was just not the first one.”

Newton maintains the Revolving Loan Fund is a priority for next year, but did not elaborate on why it’s not been funded.

Dothan City Commissioner John Craig wrote a letter to the governor in May inquiring about the status of the funding. Gov. Bob Riley wrote back in July.

“I got one of those letters back saying ‘thank you for your letter,’” Craig said.

“This program helps new and existing small business and as we all know, small business is the backbone of the economy here in the Wiregrass. Small business creates more jobs than any other entity does. It is important for our people to have job opportunities. It helps the banks lend money. I don’t understand why the governor is holding onto this money.”

The funding mechanism for the program is a strong one — the Mobile Telecommunications Services Tax paid by all cell phone users. Revenues increased from $22.7 million in 1998 to over $101.1 million in 2007. Currently the fund generates about $120 million annually.

The monies are currently split 60-40 between the general fund and the Education Trust Fund. In the past the split had always been 65-34-1, with one percent of these funds going to the Revolving Loan Fund.

The Mobile Telecommunications Services Tax has become a major revenue source for a state that desperately needs funds. Earlier this week David Bronner, chief executive officer of the Retirement Systems of Alabama, told the Dothan-Houston County Rotary Club not to be fooled by politicians who say they will cut spending. The state has nothing to cut, he said, and is in dire straights financially.