By Tom Steward | Watchdog Minnesota Bureau
ST. PAUL, Minn. — Good luck applying for a 0-percent “forgivable loan” from a bank — unless your lender happens to be Twin Cities taxpayers.
They recently advanced nearly $4 million free and clear to businesses riding out the economic havoc from building a new light rail line nearing completion. But even that amount might not be enough to offset the losses those businesses experienced during construction.
“Nobody knew how this program was going to work and so there was always the possibility that someone would take a loan and show up the next day in Puerto Rico with $20,000, close down the business and leave,” said Nancy Homans, policy director for St. Paul.
The Central Corridor Ready for Rail Small Business Forgivable Loan Program was instituted “to provide a modest safety net for businesses that show a loss in sales” due to disruption caused by construction of the 11-mile green line connecting Minneapolis and St. Paul. More than 1,200 businesses line the busy Central Corridor thoroughfare that was torn up for the $957-million light rail extension.
“It helped us through the slow times when we should’ve been busy, but business was slow,” said Andy Nguyen, owner of Thu’s Salon and recipient of an $8,335 forgivable loan. “So it helped us pay the rent and stuff.”
Enterprises with less than $2 million in annual sales and documented losses due to the project were eligible to receive up to a $20,000 one-time check to help pay the bills. Ten businesses with extenuating circumstances got $30,000 loans later in the program. While applicants were required to open up their books and provide collateral, the city didn’t want their money back — unless the business moved or folded within five years. Even then, owners can apply for forgiveness.
“Distributions will be structured as 0 (percent) loans that will be forgiven at the rate of 20 (percent) for each year the business stays on the Central Corridor Light Rail Line,” according to the forgivable loan terms listed online for the “one-of-a-kind” free taxpayer “loans.” The loans were subsidized largely by taxpayers through the Metropolitan Council and City of St. Paul.
“We wanted to have a hook that said this is public money and you need to use it for the purposes for which it was intended, which was to stay in business and maintain the vitality of University Avenue or Cedar Riverside,” Homans said.
The free loans went to 208 companies that received about $3.8 million, part of a more than $13-million campaign to offset the impact of construction that began in late 2009. Yet businesses experienced anything but a free ride during the construction of the Green Line.
“Devastating is what it was to my business,” said Al Loth, owner of Midway Pro Bowl. “Yes, I did get the $20,000 forgivable loan, which was gone in 10 days. It wasn’t near enough. It was nice, but not near enough.”
While only a handful of subsidized loan recipients went out of business, on average retailers took about a 30-percent hit in revenue due to construction. Monthly sales losses ran from 2 percent to 84 percent, according to a court-ordered report on the project’s impact on business.
Due to a loss of on-street parking and accessibility for his bowlers, Loth said he cut the equivalent of five full-time positions in the past two years. The 62-year-old said he often now works the front desk himself at the neighborhood bowling alley he’s owned for 32 years.
“No chance my business will recover and the light rail will provide virtually nothing for me, in my opinion. My customers are not going to lug bowling balls on the train to come bowling,” Loth said. ”Nobody really knows how the stops are going to work yet, but I don’t think it’s going to be a plus for me at all. I don’t see it.”
Small businesses generally suffered the greatest percentage of lost income. So the infusion of up to $20,000 in forgivable loan made the biggest difference with dozens of storefront shops, according to a summary by St. Paul.
“For the very small businesses I think we were able to do that and compensate them for virtually all of their losses,” Homans said. ”Those were some of the more fragile businesses, often owned by people of color, immigrant businesses, and many of them are very small with small receipts.”
Yet the free funds went nowhere near as far in locations like Love Doctor Adult Boutique. The proprietor estimates annual revenue declined from about $700,000 to $500,000. Despite receiving a $20,000 forgivable loan, owner Troy Decorsey said he will never forgive the city for the light rail line out front.
“I could show you numbers that would blow your mind and you’d be like you have got to be kidding me,” Decorsey said. “I mean we took a bath. We lost all our parking, we lost all that. Now people have got to park in the back with CVS and a restaurant and they get towed.”
Officials say the grand opening of the Green Line in June means the end of the line for Ready for Rail loans and the tough times incurred by businesses. Some owners, however, remain wary about their business’ readiness for rail and whether the Green Line will deliver or customers will keep on going as light rail gets up and running.
“Businesses are there, they’re strong, they’re seeing opportunity in the future,” Homans said. “So I think we did what we were hoping would happen and as far as I know we don’t have anybody that showed up in Puerto Rico.”
Contact Tom Steward at email@example.com.