State funds in local revolving loan funds could temporary lift of restrictions

Local governments could be given a one-time chance to more flexibly use uncommitted money from revolving loan funds seeded by the Minnesota Investment Fund’s loan program.

HF1781, sponsored by Rep. Tim Mahoney (DFL-St. Paul), would continue an initiative started in 2017 to give cities more options when it comes to pursuing economic development opportunities.

The bill was approved by the House Jobs and Economic Development Finance Division Tuesday and referred to the House Ways and Means Committee.

Rep. Tim Mahoney

A companion sponsored by Sen. Eric Pratt (R-Prior Lake), SF1815, awaits action by the Senate Finance Committee.

To participate, local governments would need to send 20 percent of the loan back to the state, but could use the remaining 80 percent without the usual restrictions for usage. Anyone that chooses to participate would have to report back to the Legislature on how they used the funds by Feb. 15, 2021.

“We are not forcing them to use this at all. It’s up to them,” Mahoney said. “What we have found is, oftentimes, there’s not enough money in their accounts to really effectively bring a different type (of) business into their community.”

Normally, these local revolving loan funds are limited in how they can be used. Loans cannot be made to retail businesses, casinos, or sports facilities, for example.

The remaining restrictions simply prohibit the funds from being used for any purposes forbidden by other laws.

The 2017 legislature passed a similar provision, which drew participation from about 37 percent of eligible local governments, representing 44 percent of eligible funds. According to the bill’s fiscal note, similar levels of participating could recoup $1.63 million for the state while freeing up the remaining funds for city use.

For example, a town facing steep costs to replace its aging sewer and water infrastructure systems could use the funds to make a down payment and cut the cost of the project to residents, Mahoney said.

“Better to use the money than let it sit in a bank account,” he said.