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City staff identifies financial options to assist small businesses

Thursday, January 30, 2014 by Bill McCann

A City Council committee this week backed a staff report recommending four financial and payment assistance options for the full Council to consider to help small business contractors and subcontractors cope with meeting City of Austin living-wage requirements.

Staff recommendations include two options for making loans available to small business contractors and two ideas for speeding up payments to those businesses.

The report represents a big step toward addressing a problem that the Council recognized several years ago as it moved to update its economic development policies.

City staff officials briefed the Council Committee on Minority-Owned and Women-Owned Business Enterprises and Small Business on the options report Tuesday. The three-member committee, chaired by Council Member Mike Martinez, then voted to take the staff report to the full council, which is scheduled to get a briefing on the issue today.

Small business contractors have voiced concern that minimum wage requirements set by the city could pose significant problems for them because they often do not have up-front funds to participate in city projects, especially large-scale ones. The problem became exacerbated, according to small and minority business representatives, when last October the Council approved several measures, including a wage floor of $11 an hour, for private projects that get city economic development assistance.

At that time, the Council also directed city staff to look into options, including loan guarantees, to assist small businesses in dealing with the changes and report back to the Council. The staff report, presented by Veronica Lara, director of the city’s Small and Minority Business Resources Department, represented staff’s response to that request. Lara and Rosie Truelove, director of the Contract Management Department, responded to council members’ questions on the report. Many of those questions related to potential costs of the various options to the city.

In her briefing to the Council committee, Lara outlined eight options, including four recommended options the staff came up with as a result of research and a series of meetings with stakeholders.

The recommended options include:

·       The city would work with third-party financial institutions to offer independent loans. Under this program, nonprofit lenders and banks would volunteer to offer loans with more flexible criteria than traditional commercial loans. The program would require no city funding.

·       The city would contract with a lender to offer loans with flexible terms. The contract would cover the cost of administering the loan program. The city also would provide seed money for a revolving loan fund. This program would require yet-to-be-determined city funds and additional city staff to oversee.

·       The city would establish a “quick-pay” program similar to one used in the construction of the new City Hall. The city would pay a prime contractor a quick-pay advance amount at the beginning of the project. A subcontractor would provide invoices to the prime contractor as work is done and be paid more quickly.

·       The city would set up a mobilization prompt-pay program that would allow prime contractors to submit pay applications twice a month rather than monthly at certain critical points during the project. This would allow eligible subcontractors to submit invoices to the prime contractor twice a month, rather than monthly, and receive payments more quickly during mobilization phases in projects valued at more than $2 million.

The latter two programs could result in somewhat higher costs on construction contracts, according to the report, because the prime contractor would have higher expenses in processing payments more frequently.

Representatives of minority business groups supported the quick-pay and prompt-pay options at Tuesday’s committee meeting, but some appeared less enthusiastic about loan programs.

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