Flood victims question loan conditions

Rushford business owners say terms could bury them

in debt

By Matthew Stolle

ST. PAUL — Prompted by complaints from Rushford business owners, state lawmakers from both the House and Senate grilled a state commissioner Wednesday on why he insisted on attaching conditions to flood relief money in apparent defiance of the Legislature’s intent.


Business leaders warned that those loan conditions could ultimately doom their efforts at flood recovery by burying them under mounds of debt.

"While the Legislature gave us a life raft, I believe DEED threw us an anchor," said Ted Roberton, president of the Rushford State Bank, in reference to the Department of Employment and Economic Development, the state agency responsible for administering the flood relief money for businesses.

Repeatedly, House and Senate lawmakers sought to elicit a commitment from DEED commissioner Dan McElroy that he follow what they described as the legislative intent of the flood relief package: That the money flow in grants and forgivable loans to stricken businesses with as few strings attached as possible.

But McElroy, while promising to continue to work with Rushford leaders, declined to make that commitment. He defended the policies pursued by his department as being consistent with how the state handled previous floods. He argued that those policies had worked effectively in past floods and that Rushford businesses leaders were seeking terms and conditions well beyond any previous precedent.

"What we agree to will become the base for the next flood, and we have to prepare for that," McElroy said.

The hearing comes more than a month after the Legislature passed and Gov. Tim Pawlenty signed a historic $157 million flood relief package during a one-day special session. At the time, the package was hailed as a life-saver for cities and communities in southeastern Minnesota ravaged by the Aug. 19 flooding.

In a series of tense exchanges with McElroy, lawmakers said there was a reason why waivers were put into legislation giving local communities greater say in how the relief money was to be spent.

"We wanted to clear the deck, so we could get funds down to southeastern Minnesota without all the trappings and requirements of the past. Those past practices are being applied and it’s road-blocking the money," said Sen. Sharon Erickson Ropes, a Winona Democrat whose district encompasses many of the hardest-hit communities.


But McElroy challenged that interpretation as being incomplete. While giving deference to local communities, the legislation also requires local plans to be subject to the approval of the DEED commissioner, McElroy said.

Wednesday’s hearing involved state senators from the economic development budget division. But it was unique in that it permitted the participation of representatives from the House.

Legislators from southeastern Minnesota were heavily represented. They included Ropes, DFL Sen. Ann Lynch of Rochester and DFL Rep. Ken Tschumper of La Crescent, all of whom peppered McElroy with questions about what they clearly viewed as a wrong-headed position.

Rushford business leaders say the loan conditions and terms proposed by DEED would consign some city businesses to a slow death. With its future so uncertain, every business is needed to help in the recovery.

At the heart of the conflict is a dispute over how the $35 million designated for business recovery should be disbursed. What percentage should be in the form of grants and forgivable loans and what part in regular loans requiring repayment? Rushford business leaders argue that the uniquely devastating nature of the flood should weight the recovery assistance largely in the form of grants and forgivable loans.

DEED representatives had originally proposed a formula of one-thirds: One-third would be forgivable, another third would have be repaid to the state’s Minnesota Investment Fund for future flood disasters and the last third would go to a city-run revolving loan program that would recycle dollars back to businesses.

DEED officials say they have shown flexibility. Responding to complaints, DEED moved to a plan with a higher proportion of forgivable loans: 50 percent under one scenario and 75 percent under another, with more stringent terms for the higher amount.

Ted Roberton, president of the Rushford State Bank, said DEED’s proposal essentially layers businesses, many of which were already in debt before the flood, in more debt.


DEED’s plan requires not only repayment of a part of the state loan. But because DEED is insisting that businesses take out a Small Business Agency loan, it tacks on a third tier of debt as well.

Critics say the SBA requirement also means that business owners will be getting less money in grants and loans as a percentage of their overall assistance.

Lawmakers also objected to DEED’s requirement that a portion of the flood relief money be paid back to the state MIF account. Ropes called it "stuffing the state piggy bank with dollars that should be going to flood victims." But DEED officials say it makes sense to prepare for future disasters.

DEED officials say they put together their proposal in consultation with the Rushford mayor, city administrator and other city officials. And Rushford city Administrator Windy Block said he believed the policies proposed by DEED move the city in the direction of long-term recovery.

Legislators said they were conscious how other city officials might be reluctant to criticize DEED, fearful that they would be seen as ungrateful in light of the record amount of money appropriated by the state.

For the most part, business leaders vented their frustration. They said that DEED’s plan was put together without the benefit of a needs assessment study. And they said that DEED essentially bullied the city into accepting its terms by taking a take-it-or-leave-it attitude.

Gary Marcoux, a Rushford dentist whose business was destroyed by the flood, said "minimizing the debt is vital" to the community’s recovery. He said the extra debt he is being asked to take on will force him to work well into his 60s and beyond.

"We need to have our community vibrant again. We don’t need to be so burdened with debt that it takes away hope and enjoyment of our lives," he said.

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