County drops revolving loan program

McCOOK, Nebraska -- Red Willow County, Nebraska, is out of the loan business.

After commissioners' action Monday morning, about $267,500 -- the balance of the county's revolving loan fund -- will be turned over to the Nebraska Department of Economic Development.

The county started its revolving loan program in the mid-1990s, funding it with the payments made by the two McCook-area dairies built with loans from the federal government's Housing and Urban Development (HUD) Community Development Block Grant (CDBG) Program. As the dairies made payments to the county, the county made low-interest loans to existing local businesses or to new small businesses promising to create jobs.

Loan management has become a speciality, Rex Nelson of McCook, who oversees the county's loan project, told commissioners Monday morning. The lending and monitoring of what is ultimately federal money has become much more complicated over the years, Nelson said, and compliance with federal regulations has become a much bigger issue. "We used to have a fair amount of flexibility," Nelson said. "We no longer have that flexibility."

Nelson and commissioners agreed that the CDBG loan process is requiring more scrutiny, compliance, paperwork and cost. Nelson estimated administrative costs at 9 percent of each loan. "The cost of compliance is getting completely out of hand," he said.

The state's Department of Economic Development has given each county the option of continuing its loan program with much more monitoring and audits or returning the money to the DED. It seems that the DED does not want locals managing this CDBG program now, Nelson said.

If the counties send their money back, it will be put into "regional funds" across the state. Nelson is guessing that Red Willow County's would be put into a fund administered by the West Central Nebraska Development District in Ogallala. In October 2011, the WCNDD offered to have its new "Nonprofit Development Organization (NDO)" assume administration and monitoring of Red Willow County's CDBG funds and revolving loan program. The NDO would then offer loans to businesses within the WCNDD 18-county region. Red Willow County would not have lost all control of its loan funds because Red Willow County is a member of the WCNDD and Red Willow County commission chairman Earl McNutt of McCook is a WCNDD board member.

At that time, commissioners decided to hang onto the county's loan fund program. Nelson said then that he had concerns about splitting Red Willow County's funds over 18 counties, and commissioner Steve Downer said that putting Red Willow County's funds into the NDO would "dilute" it over 18 counties.

Nelson said that now, the DED has made no definite decisions about who will manage the loan funds if/when the counties return them.

Nelson said he's disappointed that the process has outgrown local management. "We've had lots of good projects with this fund," he said.

Nelson said it appears that loan recipients will continue to make their payments to the Red Willow County treasurer's office, which will forward the payments on to the state. And proceeds of the sale of Pawnee Aviation property -- a $300,000 loan project that defaulted -- will ultimately end up with the state as well, he said.

"This fund has done a lot of good things," Nelson said. "However, the money is still available to us, and compliance will be someone else's headache now."