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3 REMCs Using REDLG Funds to Improve Communities

A bright white water tower emerges from the landscape near the small towns of Scotland and Crane served by Utilities District of Western Indiana (UDWI) REMC. The simplicity of the tower belies the significance of the structure to the viability of the area. The water supply has driven an economic boon for business development and it has paved the way for a training academy in a thriving technology park. A 10-year loan with a zero interest rate from the United States Department of Agriculture (USDA), applied for and administered by UDWI, the electric cooperative that serves numerous businesses in the region, was the catalyst for moving forward with the construction of the tower in 2012.

Two other cooperatives served by Hoosier Energy – South Central Indiana (SCI) REMC and Southern Indiana Power (SIP) – have also received business infrastructure funding to assist their communities. Each of the three worked in concert with the USDA to provide loan and grant assistance under the Rural Economic Development Loan and Grant program, better known as REDLG. The program provides loans and grants to local utilities, which they, in turn, pass to local businesses to create or retain rural jobs.

USDA Business Program Specialist for Indiana Mark Beckman, said the national program has an allotment of $91 million for 2014 that can be allocated for approved projects. An additional $10 million is available for grants.

“It’s a really efficient program that’s seen a recent increase in activity in Indiana. With Hoosier Energy and the cooperatives providing guidance and mentoring to communities, the program could be tremendously advantageous to rural communities,” Beckman said.

The recent infrastructure improvements are among a list of community development projects eligible for funding: infrastructure, facilities and equipment for medical care to rural residents, telecommunications/computer networks for distance learning or long distance medical care, job creation for non-profits and funding for business incubators. Private business expansion projects, such as commercial real estate and equipment are also eligible to be funded by the REDL program.

SCI REMC Chief Executive Officer Greg McKelfresh is a proponent for the program. In 2012, the Martinsville-headquartered REMC secured a REDLG loan for the Owen County Redevelopment Commission (OCRDC) to extend a sanitary sewer main along state Route 43, connecting with a nearby industrial park.

“The board decided the project would make life better in Owen County for both people and businesses in that area,” McKelfresh said. "This particular loan doesn’t necessarily generate new jobs, but when you want to develop an industrial park, this certainly makes it more attractive to a business or manufacturer.”

Estimated cost for the sanitary sewer extension was $3,395,000 according to USDA Area Specialist Deb Boudreau. The REDLG loan secured by SCI was for $1 million, with a $300,000 match required by the program. An additional SCI grant for $300,000 was matched with an additional $60,000, then loaned to the OCRDC. The remaining $1.95 million needed for the project came from Tax Increment Revenue Bonds, Boudreau said.

Two other projects in southern Indiana have been equally advantageous to communities ¬– the water tower in UDWI REMC territory and multiple projects for rail line improvements secured by SIP.

USDA Business Program Specialist Wayne Dubble, located in Jasper, was involved in the rail project to upgrade portions of track and replace deteriorating bridges. The improved route runs from a rail yard in Tell City to Lincoln City. SIP administered a $740,000 loan to the Port Authority in late 2012, Dubble said. Work was completed in 2013.

Projects considered for REDLG funding by the REMCs are generally low risk to the cooperative, with good certainty of repayment, Beckman said, while offering infrastructure improvements for the community.

“It’s a fantastic program,” Boudreau said. “I don’t know anywhere else a community could get these types of no-interest funds. The funds really stimulate rural economies.”

SCI’s McKelfresh agreed. “It’s a great program to improve the economy of your service territory. As for the grant money, as it’s paid back, the Board of Directors will have control of those funds for use in other economic development projects. Without applying to the government on a case-by-case basis, the board will be able to divide the funds for multiple community projects.”

UDWI Chief Executive Officer Brian Sparks shares similar sentiments about the cooperative’s involvement with the REDLG program. The water tower was the second project his cooperative has helped fund.

“It’s been really good for us. Several years ago we secured funding for an expansion to a plastic injection molding factory in our territory,” Sparks said. The expansion led to job creation – one of the criteria used to determine REDLG funding.

With the water tower project, Sparks’ cooperative also secured a grant, which will result in a revolving loan fund in their community. He says REDLG, which has streamlined the application process, provides cooperatives with a natural opportunity to serve their communities.

“I would definitely encourage other cooperatives to embrace the program.”

REDLG FACTS

Loans: REDLG Loans, also referred to as REDLoans, are for a maximum of $2 million and a minimum of $10,000, administered by an electric cooperative or local utility organization for rural projects. There is no interest charged on the loan for up to 10 years. Depending on the project, payments can be deferred for up to two years, to allow the recipient to move through the phases of construction and then begin billing and collecting. The recipient of the loan is expected to provide a 20 percent match. The REMC, as loan administrator, may charge up to a 1 percent service fee for administering the loan.

Grants: An REMC or utility is awarded a grant for up to $300,000. The cooperative then adds 20 percent to the funds and becomes the loan officer, not just the administrator. The REMC lends the money for an initial community development project at zero interest. The loan comes due in 10 years or sooner. As the payments are made to the cooperative, the board can then loan the money on other approved community projects at a low interest rate. As long as the money is used to continue job creation or economic development, it revolves. If the REMC discontinues the program, the original $300,000 and any interest earned is returned to the REDLG program.

How projects qualify for funding: An interested cooperative submits an application for a local project to the REDLG program office in Indiana. The application is scored, then processed to make sure it meets criteria eligibility, and then submitted to the national office for review. Thirty days after the review, according to Beckman, the announcement is made for monthly awards.