By Michael Howell
In anticipation of a budget crunch related to the loss of a major tenant at the Ravalli Entrepreneurship Center, Ravalli County Economic Development Authority (RCEDA) Director Julie Foster and Economic Development Specialist John Schneeberger put together a plan to reduce expenses by cutting back on travel, janitorial services, special projects development, eliminating the contingency fund and cutting their own salaries back to 2011 levels. The RCEDA Board of Directors refused to consider the salary cuts. As a result they came to the County Commissioners with a request for an additional $10,000 in county funding for Fiscal Year 2015 and another $20,000 in additional funding for FY 2016. The County Commissioners opted for a wait and see approach to the forecasted crunch since it was based on the worst case scenario of not filling the vacant space at the Entrepreneurship Center.
Precipitating the budget dilemma is the pending move of the Bitterroot College to downtown Hamilton. The college expects to move out of the Entrepreneurship Center and into the Westview school building on Main Street by August 1, 2015. According to Schneeberger, given the current operating expenses for RCEDA of about $20,000 per month, without a tenant, they would burn through available cash in about six months.
Foster presented a snapshot of RCEDA activities that included being a one-on-one counseling service for businesses as a sub-center of the Women’s Business Center. They also offer government contracting counseling services through the Montana Procurement Technical Assistance Center. They operate as a Montana Cooperative Development sub-center and offer Building Bitterroot Business planning and financial classes, as well as providing gap financing for businesses and infrastructure.
Except for the first year in 2001 when the county contributed $76,000 and in 2012 when it provided no funding, the County has been funding RCEDA at the rate of $30,000 to $40,000 annually. (This does not include the Director’s health care insurance which the county also covers.) The City of Hamilton has contributed $4,000 annually since 2008.
RCEDA first ran into trouble when one of its initial building tenants, Falcon Asset Management (FAM), went out of business. The improvements made to the building to accommodate FAM were financed through a loan amounting to $270,000 in November of 2009. But after only 18 months the company was dissolved and RCEDA was left holding the bag. The Bitterroot College moved in and took up some of the slack but also precipitated further expenses. A $66,567 loan was taken out with the Montana Board of Investments in January 2012 for parking lot improvements to accommodate the college students. RCEDA is also sitting on two other loans related to lift station financing to provide sewer services to the building center. One of those loans from 2009 for $65,000 is costing $5,040 annually in principle and interest payments. Payments on the second loan of $277,954 from the Ravalli County Revolving Loan Fund have been indefinitely deferred.
Foster emphasized that, despite the troubles, RCEDA has been very successful in its economic development program to date. She noted that local government was getting a good return on its investment. For every dollar contributed to RCEDA in 2012 another $24 was brought in. In 2013 this jumped to $34 to every local government dollar invested and in 2014 it jumped to $40 for every local government dollar invested.
Foster said that, according to Montana Department of Revenue estimates, the $130 million expansion project at GlaxoSmithKline from 2006 to 2008 which RCEDA helped facilitate brought in an additional $3,224,356 in taxable value based on the sum of the building and equipment. This would add $306,313 in tax payments to the state general fund annually. If the 100 new employees bought property in Ravalli County they would be paying about $109,866 in property taxes to the county. The annual property taxes paid to the county out of this single project comes to about $400,000 total. She said that in the first six months of 2014 the total number of new jobs created (111) and retained (20) by RCEDA activity is equal to the entire previous year.
Commissioner Greg Chilcott said that cutting salaries was not an option. He said RCEDA was not in a cash crunch yet and may not even get into one for another year or two if it goes without a tenant. He said he was struggling with the idea of taking money out of county reserve funds to put them into RCEDA reserve funds for a worst case scenario.
“We may hit some rough times, but you guys always seem to land on your feet,” said Chilcott. “We expect to see at least some of that space rented and we don’t expect to see a crash and burn.”
Commissioner Jeff Burrows said, “We as a county can’t budget that way. We can’t come in and say let’s not budget SRS, let’s not budget PILT and cut our revenue by 50% because that revenue may not happen. You can’t do that or we would come up every budget cycle with a doom and gloom prediction that we weren’t going to make it. We can’t do that. Let’s project out that we are going to get that income. That we are going to find a tenant. If you project that out further it’s suddenly a little brighter.” He noted that at least one of the loans that was costing $33,000 annually was set to mature in 2017 and that would change the picture. So would renting or leasing space in the next few years.
Commissioner J.R. Iman said that cutting salaries was like “shooting yourself in the foot” because these are the people who need to be doing the work to bring in the new tenants. He said, “I’m not in favor of cutting salaries at this time, there has to be another answer.”
The commissioners expressed concurrence that no salary cuts would be considered but that other options and projections should be brought forward. Chilcott suggested that the county and the municipalities in the valley that all benefit from RCEDA activity should get together and see if they could come up with a funding strategy that would assure adequate funding for RCEDA operations.