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Deal-closing fund may be just the start for Commerce Authority

(From left) Don Cardon, Gov. Jan Brewer, Jerry Colangelo (File photos)

(From left) Don Cardon, Gov. Jan Brewer, Jerry Colangelo (File photos)

The $25 million deal-closing fund that forms a pillar of the new Arizona Commerce Authority is eye-catching, but may just be a drop in the bucket.

The Commerce Authority plans to start a program called the Growth Fund Collaborative, which will provide millions of dollars in credit to small businesses, infrastructure construction, specialized job training and other programs that officials say will spur economic development.

The ACA is still working out many of the collaborative’s details. But Sandra Watson, the Authority’s chief operating officer, said the goal of the program will be to coordinate various kinds of assistance the agency can offer to businesses.

“We are looking for very strategic ways to partner with businesses,” Watson said.

One of the main facets of the Growth Fund Collaborative will be a funding mechanism called volume capital bonding, or volume cap. The program, authorized by the Internal Revenue Service, allows businesses to issue tax-exempt bonds, called private activity bonds, in a partnership with the government. Once the Commerce Authority signs off on a business project, the bonds would be issued through county industrial development authorities.

Businesses must meet a host of federal criteria and are limited in the types of projects they can finance through the bonds. But Commerce Authority President and CEO Don Cardon said they will be a boon.

Arizona will have about $600 million in volume cap bonding authority next year, Watson said, though much of it must be used for housing, mortgage and student loan bonds. But Cardon has discretion over 10 percent of the money, and another 25 percent can be used for manufacturing or other commercial projects.

Volume cap isn’t a new ability for the Commerce Authority, or the Commerce Department it is replacing. But unlike during the past few years, Cardon and Watson said they plan to promote the program more and encourage businesses to take advantage of the opportunity.

Cardon said the poor bond market during the recession was a deterrent in recent years, while economists said it is difficult for businesses to meet some of the criteria — especially the requirement that companies not invest more than $10 million in their businesses over a three-year period. The requirement is meant to ensure that the bonds go primarily to small businesses.

The bonds will help credit-worthy businesses that can’t otherwise get loans from banks because they don’t have enough capital, Cardon said.

“They don’t have liquidity. … They can’t get the loans. So you’ve got the banks with all this money but they’re not getting it out into the businesses because the underwriting is so rigid,” Cardon said. “So, we’re going to … create a way for small businesses that are credit-worthy but can’t get the banks to loan them money to get money from this collaborative.”

Only the businesses themselves are responsible for the bonds — governments aren’t on the hook if the companies default — but economist Alan Maguire said they are an attractive investment because buyers don’t pay taxes on them, much like with government bonds.

The Commerce Authority will also use the Growth Fund Collaborative to fund major infrastructure projects such as roads, bridges and rail lines that will benefit businesses and encourage economic growth, Cardon said. Watson said the Authority will partner with businesses to provide job training with the collaborative, and the quasi-private agency is contemplating other enticements and incentives the collaborative might offer.

“Don (Cardon) is looking at opportunities to pool together resources in order to maximize opportunities for Arizona,” Watson said. “This would be one, and there will be other areas.”

Cardon announced the Growth Fund Collaborative at the Commerce Authority’s March 29 board meeting, where he outlined the agency’s hurried plans to transition from the old Commerce Department into a new public-private economic development agency. The authority’s most immediate plans, he said, are finding a new downtown Phoenix headquarters and hiring key staffers.

Once the initial phase of the transition is finished, the authority will focus on more long-term plans, which include the creation of a 501(c)(3) non-profit called Team AZ. The non-profit will use private sector contributions to cover expenses that can’t be paid with taxpayer dollars.

At the board meeting, Cardon said Team AZ could be used to fly foreign business owners to Arizona as part of the Commerce Authority’s efforts to entice them into moving to the state. The fund might also be used to fund office furnishings for the ACA’s new headquarters, which Cardon said could cost as much as $600,000.

“You can’t spend — and you shouldn’t spend — speculative tax dollars on those kinds of things,” Cardon told the ACA board.

Sen. Ron Gould, a Commerce Authority critic and one of the few legislative Republicans to vote against the bill that created it, said there could be numerous conflicts of interest if the authority collects contributions from private corporations.

“That’s my whole fear with this whole … public-private partnership concept,” said Gould, a Lake Havasu City Republican. “I think it is problematic because you’re going to have a co-mingling of privately raised funds and taxpayer funds.”

Cardon said the ethics policies the ACA is drawing up will include policies on the 501(c)(3), but he said he didn’t think businesses would expect anything in return for contributions to Team AZ.

“To think that somebody’s going to fund a $400,000 deal and expect a $4 million return because they funded a dinner — there’s a point where we have to say there’s not a connection for that,” Cardon said. “And if you try to tie that small of an investment into a deal, a major, multimillion-dollar deal for a company, then we’ve lost our sense of trust in our civilization, let alone the business part. That’s my opinion.”

Indeed, one of the Commerce Authority’s top priorities is crafting ethics and conflict-of-interest policies that will maintain the agency’s integrity and bolster the public’s trust, said board co-chairman Jerry Colangelo.

In his speech to the board, Colangelo said he understands the concerns that the Commerce Authority, whose board consists of CEOs of many of Arizona’s biggest companies, would engage in backroom deals and cronyism. But the authority will abide by policies that ensure transparency, accountability and honesty, he said.

“There has been some coverage related to how privatizing government leads to backroom deals,” Colangelo said at the ACA board meeting, its first since Brewer signed the agency into law as part of the jobs bill. “There will be no scandal or abuse at the ACA in any way.”

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