Updated: 06/08/2010 06:20:57 PM MDT

Anna and Chris Brozek opened Slowtrain Music four years ago on Salt Lake City's 300 South, doing it the hard way, by racking up high-interest credit card loans to get it off the ground. They got the doors open at 221 East and started to sell hard-to-find records, CDs and music by local artists, but lacked the funds to hire employees. Efforts at traditional financing failed when two banks turned down their applications for Small Business Administration-backed loans.

Then Anna got an e-mail that mentioned low-interest, small-business loans were available from the Utah Microenterprise Loan Fund. The couple applied and received $25,000, which they used to hire two employees and pay off those high-interest credit cards. "It's incredibly easy to do -- if you're willing to put in the effort," recalls Anna of their experience at UMLF.

Now the nonprofit agency, which has granted 618 small-business loans since 1993, is expanding its reach to the disabled community. In conjunction with the Logan-based Utah Assistive Technology Foundation, it is willing to loan up to $25,000 each to disabled Utahns who want to start their own businesses. Applicants must have a strong business plan, a lot of desire and a willingness to meet face-to-face with UMLF's loan committee to plead their case.

Often, that meeting may be what turns a no into a yes, said UMLF CEO and Executive Director Kathy Ricci.  "You must not be able to access traditional bank or credit union funding," she said. "Some people get turned down because they don't have enough collateral, or perhaps something happened in their lives -- a divorce, a medical problem, a layoff, a car accident -- that hurt their credit score."

Ricci said her loan committee goes beyond that to make its decisions. "If they have good reasons behind it, we will overlook that."  About two-thirds of loan applicants fall into the low- and moderate-income category. Generally, this refers to a four-person household income of less than $40,000 a year.  So far, no one who is disabled has applied for the UMLF loans, but Marilyn Hammond, executive director of the Utah Assistive Technology Foundation, says she believes some applications and business plans are in the development stage.

"We had a webinar ... and 15 people signed up for it," she said. "From that, I know there are some people out there working on their plans."  Disabled applicants are referred to Hammond's foundation to have their disability certified. Then their applications will be forwarded on to the Microenterprise Loan Fund. 

As that initiative waits to gain traction, organizers hope it becomes as successful as the fund's broader program that helped Maggie Pugh become her own boss.

She had worked six years in a hair-products salon at 2696 S. 500 East in South Salt Lake that came up for sale. The owner offered her the business for $75,000 and was willing to carry a contract. But Pugh needed a down payment. A customer told her about the UMLF.

"They loaned me $25,000. I am paying off the former owner, and I only owe $10,000 on my [IMLF] loan," Pugh said. "Right now, we are doing very well" in the business she named My Diva Girls, which targets the Latina and African-American community.

Ricci said the bottom line for her organization is to use the loans "as tools for community development. We help people go through the process and help them develop their business plans. Sometimes they need just a little bit of money, other times they need more. We fill that need."

And there's a bit of irony in the program.

In addition to Salt Lake City and Salt Lake County, which have kicked in some funds, UMLF is primarily funded by 25 different financial institutions -- the same kind of institutions that turned down the applicants when they tried to go through the traditional-loan route.

Tax Extenders Bill Stalls in Senate

Debate in the Senate on H.R. 4213, the “American Jobs and Closing Tax Loopholes Act of 2010,” the so-called tax extenders bill has stalled in the Senate. As was the House version when it eventually passed the House, the bill is steeped in controversy over such costly items as extending unemployment benefits and fixing a reduction in Medicare reimbursements to doctors, issues which have nothing to do with the tax extenders but are considered “must pass” provisions and therefore are included in a bill that is eventually expected to become law. Republicans have repeatedly forced Democrats in both houses to scale back the cost of the bill by either shortening the time that benefits would be in effect or take steps to “pay for” proposals that spend federal dollars. One of the ways the bill’s cost is partially offset, the tax treatment of income from venture capital and real estate partnerships.

The pending Senate version of H.R. 4213, like the House-passed version, would reauthorize through 2012 the popular “Build America Bonds” program. Under the program, which was authorized in the American recovery and Reinvestment Act of 2009 (ARRA), issuers receive a direct payment of 35% of the interest costs on these taxable bonds. Under the bill’s provisions, the interest subsidy would be reduced to 32% in 2011 and to 30% in 2012. The bonds, which are a compliment to traditional tax-exempt bonds, have been mainly used for infrastructure as they require the facility financed to be governmentally-owned. Their use for housing has been quite limited, although it is expected to grow in the future. In his FY 2011 budget President Obama urged Congress to make the program permanent. The Senate bill’s provision is estimated to cost the Treasury $4 billion over 10-years.

The bill also authorizes through 2011 another ARRA bond program known as “Recovery Zone Bonds,” which could be used by communities for infrastructure, job training, education, and economic development in areas with significant poverty, unemployment or home foreclosures. The bill makes a change in the redistribution on bond authority such that each municipality gets a minimum allocation equal to its share of the national unemployment in December 2009.

Also extended through 2010 is a provision authorized by ARRA that permits 9% Low-Income Housing Tax Credits to be exchanged for cash. Under the provision housing credit allocating agencies may exchange for $.85 on the dollar all credits carried over from prior years as well as 40% of the current year’s allocation. This provision is intended to compensate for the withdrawal of Fannie Mae and Freddie Mac from the tax credit market. The bill also extends the exchange program to 9% credits allocated in response to Hurricane Katrina and to credits allocated in 2007 for floods in the Midwest. The bill does not extend the exchange program to 4% tax credits that accompany tax-exempt bonds, something that a coalition of national housing organizations is seeking. S. 3326, introduced by Senator Maria Cantwell (D-WA), would extend the exchange to the 4% credit. Such a provision was included in H.R. 4849, a small business jobs bill passed by the House in March. That provision could be added to a small business jobs bill that is to be considered by the Senate Finance Committee in the near future.

The tax extenders bill also provides for an additional round of New Markets Tax Credits in 2010 of $5 billion. It also permits investors to claim these credits against the AMT for investments made between March 15, 2010 and January 1, 2012. Also extended through 2010 is the designation of certain economically distressed census tracts as Empowerment Zones and Renewal Communities, which provide tax incentives for investments in these areas.

The bill also extends through 2011 a HERA provision permitting the Federal Home Loan Banks to guarantee tax-exempt bonds used for infrastructure. Tax-exempt housing bonds have for sometime been afforded this treatment on a permanent basis. In addition, the bill extends through 2011 the ceiling on “qualified small issuer” of $30 million, a provision also authorized by HERA. NACCED and NACo have supported this provision.

The House bill provides a one-time, $1 billion capitalization of the National Housing Trust Fund, a program authorized by HERA. Under the program, whose funding is allocated among the states, the bulk of these capital funds must be used for housing benefitting households at or below 30% of median income. Also provided is $65 million in project-based vouchers to provide rental assistance, the only way that households of extremely-low income can be served. According to the House Ways and Means Committee, the author of the bill, the funding will support 10,000 multifamily units and create 15,000 construction jobs and 4,000 permanent jobs.

One of the provisions that “pays” for the bill is a change in the tax law treatment of “carried interest.” Current law provides that carried interest that arises from venture capital, private equity and real estate partnerships be taxed entirely at the 15% capital gains tax rate rather than the much higher ordinary income rate. The House version of the bill would require that some portion of income (50% in 2011 and 2012 and 65% thereafter) arising from these partnerships be taxed as ordinary income. The Senate version provides that, to the extent carried interest reflects a return on invested capital, it would be taxed at capital gains rates. To the extent carried interest does not reflect a return on invested capital 75% of it would be taxed at the higher ordinary income and the balance at the capital gains rate beginning in 2011. The tax at ordinary income would be reduced to 50% for carried interest on the sale of assets held for five or more years.

Proponents have criticized current law as permitting hedge fund managers to reap a tax windfall. NACCED and NACo passed a resolution at the March Legislative Conference urging Congress to preserve the present law treatment of carried interest, arguing that applying the change to real estate partnerships will serve as a disincentive for real estate investments in distressed neighborhoods which often is the only reason that such investment takes place.

The Democratic Congressional had intended to have the final bill on President Obama’s desk prior to the July 4 th recess. That timetable has now been called into question. Yesterday, the Senate failed to cut off debate by a vote of 56-40. Sixty yea votes are needed to bring the bill to a final vote.

House Leaders Still Lack Agreement on a Budget Resolution; Appropriations Process Stalled

House Democrats has still not agreed on a process for setting an overall ceiling on domestic discretionary spending for FY 2011. Without know their share of the cap individual House Appropriations Subcommittees, including the one that sets spending levels for HUD programs, they have not been able to proceed on their individual bills.

Under the 1974 Budget Control Act Congress would normally enact a budget resolution for the subsequent fiscal year by April 15 th. This would give the go-ahead to appropriators to draft the 12 individual spending bills. However, in his FY 2011 budget President Obama called for a three-year freeze on domestic spending. In the House the so-called fiscally-conservative “Blue Dog” Democrats have called for an additional 5% cut on top of what the President proposed. The Congressional Democratic leadership has been unable to break the stalemate with the Blue Dogs, and no action has been planned on drafting a House version of the FY 2011 budget resolution. The Senate Budget Committee approved a FY 2011 five-year budget resolution in April that generally adopted the President’s freeze on domestic spending. That legislation will not be brought to the Senate floor unless there is assurance that the House will take up its version.

House Budget Committee Chairman John Spratt (D-SC) has indicated that without an agreement with the Blue Dogs it is likely that the House will have to include a “deeming resolution” in a yet-to-be determined legislative vehicle, perhaps the pending FY 2010 defense supplemental appropriations bill. The deeming resolution would contain an overall cap on domestic spending that would then be allocated among the appropriations subcommittees so that they could proceed with their bills. It is not clear whether such a cap would follow the President’s freeze on spending. If it did and that was reflected in the FY 2011 Transportation and HUD appropriations bill that would mean that formula funding for the CDBG program would remain at $3.99 billion and the HOME program would avoid the $150 million cut to $1.65 billion that the President proposed in his budget.

With the process bogged down, it seems increasingly likely that Congress will enact few if any FY 2011 appropriations bills before the October 1 st start of the federal fiscal year. This will necessitate a “continuing resolution,” which would fund programs, including HUD’s at the FY 2010 levels. How long the continuing resolution would last is open to question, perhaps until after the November elections or into next year.

Announcement of NACCED Meetings in Connection with the NACo Annual Conference