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Jessica Cejnar Andrews / Wednesday, Jan. 26, 2022 @ 5:37 p.m.
Del Norte County Considers Reviving 'Defunct' JPA That Defaulted on a USDA Debt After a Revolving Loan Program Failed
Though she agreed Del Norte County shared an obligation to pay off an outstanding U.S. Department of Agriculture loan, Valerie Starkey alone expressed reservations about resurrecting the joint-powers authority that had defaulted on that debt.
Her colleagues on the Del Norte County Board of Supervisors argued Tuesday that the Tri-Agency Economic Development Authority had some success as an economic driver despite its history of making bad business loans.
But Starkey, who represents District 2, said she felt a request to contribute $70,000 toward hiring a director and pay the balance of that outstanding loan was “just another layer of wasted government money.”
“The Tri-Agency has had 50 years to prove that they are a worthwhile agency and they have fallen short,” she said. “Instead of a request to budget $70,000 from the general fund, I would rather see us hire a grant writer that could be utilized by the county and the city and perhaps even the harbor and turn that $70,000-a-year salary into potentially $70 million in grants.”
District 5 Supervisor Bob Berkowitz was absent Tuesday.
Consisting of representatives from Crescent City, the Crescent City Harbor District and Del Norte County, the Tri-Agency Economic Development Authority was created to help the community’s economic recovery following the 1964 tsunami.
The Tri-Agency brought two revolving loan programs to Del Norte County: One that was funded through the U.S. Department of Commerce and has been administered through the Del Norte Economic Development Corporation since 1976.
The Tri-Agency created its second revolving loan program in 1997 using $400,000 it borrowed from USDA Rural Development. Administering the program itself, the Tri-Agency’s USDA loan carried 1 percent interest per annum over a 30-year term, according to Deputy County Counsel Joel Campbell-Blair.
The Tri-Agency defaulted on the loan in 2011 and the USDA accelerated that debt in 2012, Campbell-Blair wrote in a report to supervisors Tuesday.
“At the time, the principal balance was $263,799.61 with unpaid interest of $4,603.84,” Campbell-Blair wrote. “As of Tri-Agency’s last settlement offer in October 2020, unpaid interest had risen to $20,966.29.”
According to Campbell-Blair, the Tri-Agency has had no involvement in the loan program administered through the DNEDC since its inception and hasn’t been formally responsible for it since 2018.
Other economic development ventures the Tri-Agency has been instrumental in include projects involving the sewer and the airport as well as the creation of the Del Norte Visitors Bureau, according to Campbell-Blair
The Tri-Agency was also involved with include efforts to bring high-speed broadband to Del Norte County, according to District 3 Supervisor Chris Howard.
“Small rural (communities) in Humboldt, Modoc, Siskiyou and other places in California do not have broadband. We do,” he said. “And it was because of the efforts of this community not only to allow bandwidth to occur, but also provided the redundancy we needed when backbone was secured on Pacific Power lines over to O’Brien.”
According to Campbell-Blair, the Tri-Agency’s USDA loan program was ultimately a failure. However, during the program’s early years, the business owners who took out the initial loans — with one exception — paid them back by 2006.
These businesses include Net Help Enterprises, Plaza Imports and Lighthouse Books, according to Campbell-Blair.
None are currently in business, Starkey pointed out.
The exception in that initial round of USDA loans is the City Center Motel, which went into receivership in 2008, still owing Tri-Agency about $54,000, according to Campbell-Blair’s report.
The receiver recorded a super-priority lien certificate and a deed of trust against the property. After a judge foreclosed on the deed of trust, the property was sold in 2017. The Tri-Agency’s loan was never repaid, according to Campbell-Blair’s report.
The Tri-Agency’s second round of loans was less successful.
Bistro Gardens at the Crescent City Harbor failed when the owner fell ill, according to Campbell-Blair. In an attempt to get a functioning restaurant into the building, the Harbor, which owned the building, and the Tri-Agency released the owner from the debt.
Another restaurant funded through a Tri-Agency loan, Ambrosia Grill, declared bankruptcy in 2010. The Tri-Agency received the fixtures, worth $25,000, and the remaining unsecured debt, for $42,000 was discharged.
A third restaurant, the Surfside Grill, failed. When the building that housed it was foreclosed upon, the Tri-Agency came away with $34,100. In 2020, Tri-Agency settled with the former restaurant owner for $115,000. The original debt was $115,706 not including interest, according to Campbell-Blair’s report.
The Tri-Agency has floundered since it defaulted on its USDA loan in 2011, according to Campbell-Blair.
“The member agencies stopped making annual contributions and a lawsuit between Tri-Agency and its then-executive director left the agency bereft of funds and staff support,” he wrote.
In his report, Campbell-Blair noted that between the DNEDC and the Tri-Agency, the Tri-Agency should be the coordinator of countywide economic development efforts because it’s a public agency that’s subject to the California Public Records Act and the Ralph M. Brown Act, which governs public meetings.
The DNEDC is a private entity that’s currently under a federal investigation in connection with its lending activities, Campbell-Blair wrote.
In his report, Campbell-Blair included a proposed budget for the Tri-Agency. This budget included contributions of $70,000 from the county, $30,000 from the city and $10,000 from the harbor.
The expenditures included in Campbell-Blair’s proposed budget for Tri-Agency includes $25,000 in professional services and $82,800 in annual loan payments to the USDA.
Howard and his colleagues on the Board of Supervisors, Gerry Hemmingsen and Darrin Short, wanted to see the Tri-Agency become viable again, though they wanted the joint-powers authority to stay away from a revolving loan program.
However Hemmingsen said he felt Crescent City and the harbor should be contributing more toward the Tri-Agency than Campbell-Blair’s proposed budget calls for. Using tourism as an example, Hemmingsen pointed out that because there are more hotels within city limits, Crescent City receives more transiency occupancy tax revenue than the county.
The Crescent City Harbor District also receives transiency occupancy tax revenue and should increase its contribution to the Tri-Agency, Hemmingsen said.
Hemmingsen also pointed out that if Tri-Agency owes $280,000 to the USDA, if the plan is to pay it off in five years, the county’s contribution for the loan repayment would be less than the proposed $70,000.
“We’re going to be paying significantly less than that if we pool all the agencies together and spread it out over five years. It’s not going to be as significant a hit,” Hemmingsen said, adding that he’d like to see a breakdown of other costs including the loan payment.
Howard pointed out that the decisions that led to Tri-Agency defaulting on its USDA loan weren’t made by the current representatives of its member agencies. He said he and others have spent “an inordinate” amount of time trying to correct errors of the past.
Del Norte County has also changed in the last 50 years, moving away from the resource-based economy it once was, Howard noted.
“Those sources of income we relied on, from those public lands, from those private timber industries, from that commercial fishing is pretty much gone and there’s very little of it coming back into our general fund,” he said. “We have to find ways to reinvent ourselves, and I do think this joint-powers authority, the Tri-Agency, will help drive these conversations.”
Short, who said he was frustrated as a Crescent City Councilor to sit on the Tri-Agency and learn from his colleagues that it lent money to people who wouldn’t ordinarily have qualified for a loan. But, he said he appreciated Campbell-Blair’s opinion that the Tri-Agency is best suited as an economic driver.
“I believe we need an economic driver in this community, and that’s why I’m here again trying to make the Tri-Agency a viable agency,” Short said. “To get us out of this defunct status. I don’t know any other way to do it.”
Starkey continued to be the sole voice of opposition to resurrecting the Tri-Agency. She said she talked to community members who also think revitalizing the JPA is a bad idea.
“We can all agree to disagree, but I feel pretty strongly about this,” she said. “And I’m not just speaking in a vacuum.”