The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Ninth District
ommunit
January 1989
Volume 4, Number 1
Houghton Michigan: Community of Economic Excellence
Houghton, Michigan owes its existence
to copper. Even the name Houghton
links the town and the metalDouglass Houghton was Michigan's
first state geologist, whose documentation of the Keweenaw Peninsula's
Copper Range deposits led to the
nation's first mineral rush.
From the 1850s until the 1880s, the
Copper Range was North America's
leading copper producer. However,
by the end of the nineteenth century,
production had begun to decrease
which, along with increasing mechanization, led to local population decline
on the Copper Range. By the 191 Os,
that decline was pervasive.
During this period there was some
growth in wood-based industry, and
with the automobile came increasing
tourism. But neither was enough to
offset mining declines and between the
1920s and 1970, Houghton lost 51 percent of its population.*
Despite these setbacks, Houghton survived. But city and community leaders
were aware that businesses continued
to disinvest, and without improving the
city's aging infrastructure, it would be
impossible either to preserve existing
business or to encourage new business
starts. They faced the important fact
that the city needed to envision its
future and develop a plan.
When Houghton began its planning
process, city leaders looked inward to
assess the town's strengths. Preeminent
among them were Michigan Technological University (MTU); the town's
unique physical setting with steep
hillsides, historic buildings and the
waterfront; and, finally, the scenic and
historic environment of the Keweenaw
Peninsula.
These resources became the basis for
Houghton's development strategy.
During the late 1960s, Houghton
participated in the HUD 701 planning
program. The program, which has been
consolidated into the Community
Development Block Grant (CDBG)
program, was designed to assist state
and local planning efforts. The city
subsequently implemented many of the
plan's recommendations, including
improving the transportation system,
the town's central business district and
waterfront, and the water and sewer
systems.
Houghton then developed and continues to utilize a two-part approach to
economic development that is designed
to build on the community's assets: to
maintain the sound relationship with
the university and to improve tourismrelated facilities to promote year-round
travel.
City-University Link
Houghton's own planning process coincided with increased enrollment and a
building boom at MTU. Founded in
18 85 as a school for studies in mining
technology, MTU has become a leading institution in the fields of engineering, science and research.
continued on next page
Produced by th
ideral Resn,e Bank of Mi1reapolis
Houghton Michigan, continued
Michigan Technological University has
a strong commitment to working with
government and industry to transfer
technology out of the university and
into the marketplace in order to
increase the nation's competitiveness.
(See box, next page.) This commitment
shows in partnerships between the
university and northern Michigan
communities and businesses. As an
example, MTU President Dale Stein
cites Peninsula Copper Industries in
Hubbell, which uses an MTU process
to recover copper from scrap, circuit
boards, pans and almost anything else.
Michigan Technological University,
though, has a special relationship with
Houghton. According to Dale Stein, the
city's major contribution has been the
"Houghton-a Good Place to Live"
campaign. This is more than a simple
slogan for Houghton. Development has
been geared toward community vitality
in general, but in particular toward
making Houghton an attractive place
for the university community. Stein
says the effort has a major impact on
the university's ability to attract top
students and faculty.
Houghton National Bank President
Alex Sample says that the town could
hardly exist without the university and
attributes the success of the partnership
largely to MTU's Dale Stein, but he
also quickly credits the city with helping maintain this vital partnership.
Financing Development
The city has been aggressive in its
pursuit of other development opportunities, as well. Since the city
committed to participate in financing
economic development, it has been
involved with a number of projects and
has grown in its sophistication at facilitating development. During the 1970s,
the city used its bonding authority and
grants to complete infrastructure
improvements and other development.
In 1979 Houghton created a Downtown Development Authority and tax
increment financing plan, and successfully sought grants for additional
infrastructure development. In 1983 the
city began assisting business through
financial participation. Using Community Development Block Grants and
Urban Development Action Grant
(UDAG) funds from 1983 through June
1987, the city provided gap financing
in the form oflow-interest loans to five
Courtesy of MTU/Publications-Photo Services
private development projects. The city
created a revolving loan fund from
CDBG and UDAG repayments and
recently, in partnership with MTU, used
the fund to participate in a major hotel
expansion in downtown Houghton.
The principal financing tools used by
the city include the following:
■ Urban Development Action Grant
Funds
repayments. The fund will receive over
$2.5 million in payments through the
year 2007.
■
Revenue Bonds
Houghton has established an Economic
Development Corporation which has
the authority to issue industrial revenue
bonds. IRBs provide long-term, belowmarket rate financing for businesses.
■
Tax Increment Financing (TJF)
The city has received six UDAGs
which are typically used for gap
financing.
TIF districts provide infrastructure
support for economic development
projects.
■ Community Development Block Grant
Funds
A Community of Economic
Excellence
In 1987 Houghton received an Overall
Excellence Award from the Michigan
Community of Economic Excellence
Program (CEEP). The CEEP program
was created in 1983 to recognize communities and individuals that play a
unique role in economic development.
Press releases from the governor's office cited Houghton's "total community
approach to economic development."
CDBG proceeds have been used for
gap financing or to provide infrastructure in connection with a development
project.
■ Economic Development Administration Funds
EDA funds have been· used for infrastructure, utilities and site improvements at Houghton Development Park.
■
Revolving Loan Funds
A city revolving loan fund has been
established with UDAG and CDBG
continued on next page
Houghton Michigan, continued
It's not difficult to see what makes
Houghton work. City leaders initially
made a realistic assessment of the city's
assets. Second, even though they used a
variety of financing sources and
mechanisms, the town's development
plan centers on those "home-grown"
advantages. Third, the development
plan is comprehensive and long-term,
rather than emphasizing ad hoc or
short-term results. In addition, through
hands-on experience, city development
Ventures Group-A Unique
Development Tool
Michiwan Technological University
does n@t actually panieipate in development initiatives. This role belongs to
Ventures Group, afor-profit subsidiary
of the Educational Services lnstiMe
(ESI), a n@nprofit organ~zatcon formed
for the sole benefit of MTU. Gifts of
money to the university go to ESI; but
Ventures Group can accept a gift of a
busmess and, BY assignfng that business to an operating division, continue
tJO operat.e it rather than liquidate it with
the resulting loss @f jobs and l!lisruption
in the community.
MTU President Dale Stein acknowledges that react4on ro Ventures Group
is varie0, and that initially, the reaction
was that "this can't work." However,
Ventures Group, which started with a
$250,000 investment, now has $70
million in assets. The Group has 14
businesses.
For more informati0n, write tJO Dale F.
Stein, President; Michigan Techn&logical University; HoDghton, Michigan
49!931.
officials have become very skilled at
using a wide variety of financial
enhancements designed to meet their
particular financing needs.
Last, the city doesn't plan to rest on its
accomplishments, but has charted an
aggressive course for the future aimed
at maintaining a climate attractive to
business and technology-related
industry, providing amenities that will
attract tourists and improve residents'
quality of life, and continuing central
business district revitalization.
*John R. Borchert, America's
Northern Heartland. Minneapolis,
University of Minnesota Press, cl 987.
Revolving Loan Funds and Economic Development:
South Dakota's REDI Fund
A carefully constructed revolving loan
matching funds before applying to the
fund (RLF) can be an effective econom- Board of Economic Development for
ic development tool, in particular
the REDI Fund. The applicant must
because of RLFs' flexibility and wide
make a ten percent minimum equity
array of uses. RLFs can be funded from contribution. The rest of the funds
a variety of sources, including grants or come from private lenders.
tax revenues. RLF dollars are often
The REDI loans are amortized over a
blended with bank funds to lower the
period of up to 20 years, with five-year
bank's risk or assure a reasonable rate
balloon
payments to keep the fund
of return. The funds are designed to
revolving.
recapture the principal investmenthence the use of the term "revolving."
The Application Process
Not every project qualifies for REDI
The REDI Fund
South Dakota's Revolving Economic
financing. For REDI funds to go into a
Development and Initiatives (RED!)
community, the most important factor
Fund was created to address the need
is submission of a good application
which includes a thorough business
for new primary jobs in South Dakota
communities. The Fund was authorized plan and feasibility studies. It also
addresses several other points,
by the 1987 South Dakota Legislature
which approved a one percent sales tax including the following:
for one year to raise money for a
■ the intent of the applicant to create
revolving, low-interest loan fund. The
new primary jobs;
tax was removed two months earlier
■ the expectation that the business will
than expected, after the $40 million
have
a positive impact on the
needed to support the fund was raised.
community; and
The legislation authorized a new Board ■ the reasonable likelihood that the
loan will be repaid.
of Economic Development (state
board) to develop and implement the
The state board reminds those
criteria for making loans from the
communities
and ventures that are not
REDIFund.
initially successful that the Fund is
Loans for permissible activities are
revolving. If a business was not ready
made to any for-profit business or
for funding during REDI's first year, it
nonprofit business cooperative that is
may be ready later; and as loans are
either a start-up business, an existing
repaid, there will be more funds in the
business or a business relocating into
future for more businesses.
South Dakota that will create new
For more information, contact Troy
primary jobs.
Jones, Jr., Director of Finance at 605773-5032, 1-800-952-3625 (within
The RED! Fund may provide up to 45
percent of the total project cost and
South Dakota) or 1-800-843-8000
(out-of-state).
requires applicants to secure the
O·U·T·R·E·A·C·H
. ·,- .....~'>~ - • :..:..~:
,,·
........ ,.
• ), .prjrµitry-.fµrn;:ti,011··~f the .<;::·_orrimunity-:f,ff~frs ,
D!".'.~§io_n:is to g~th~:t ar1d share'irif9rrii,a_tion_which wiJJ .... :
_help, banks .ac:lclress 'tnt!ir communities,' .rei'Qveitme~i · ..,
needs. 1n· ·November, . 1988, the Federal ·Rese'r'vi . '- ;
_Bari( _o f '}fin~~-ap91is _i~ :'cooperation wf& 'fhe _.. Minnesota ijapkers As~ociafiofi Enterprise Network i ' ..
· · iind sfate and federal ag1/ndesipresented a series'6 f : _\'
· co(lf,~~~~c_e~ oA:eco{\'dguc ·dey~lopift'e-ntfi~aIJ.c'j~g·· ~ . •
- - to6l_s. T:l)e -c_otif.er.~nces w.er~ 'held •iff .Beini'clji, .
. AlexaIJdria .au,a M~n)c~to; Minpe~ota: The.-'q~je~~-C: ·'
tjves were :to i_ncr¢~se: •the .i.i~e;
grea'.t.ei:··-, ·
Minriesota,.·of,fe.d~ral anC, state fu_ri_QS, io'-sli0ii ..
· h~>,w-_fo b'leIJd _these funds w1fh ;private 'doll,_~rs,: '
and-topi-pyide'bank§ art _oRpor_tupity to estabfrsh · __: ::
_woi:kirig c6ntac,ts with :paiticipatin:g ·agencies'.~.. -'..
'in -
hi~~n,
OfflG~;;-.;:'~·
· RiQh(ir4 K.:
C~mm~~~ty~ff;ir;
. and ·Ga~olyn ·P. ·Llne; Comrn1,1nHy Affairs ;·:/
·C9~~din~tot; Were arriqng·th~ f~a~ufed speak~. _; -ers·. 0t_h~r p~rticpants iric_hic!.ed_tlie Econ(>mic ·. ·. :
PtyelopmeritAPiilin~ · : : _.. .
.i.~thiti_q~ (EDA), ' .
·E~rm~rs Home Ad~
,
· ,,, ~ --· ' .
mi -n.istration
(FmHA),'Minrie'sofa ' .
Dep~u'tQie_nt of Tr:foe -.''.·
and.Ec~riomicDevel- ·~.
·opmeu(CTED)-,, U.S. •.
Small _Business -- Ad·mi'niJtra.tioi1~(S~A), .- _.
and '.-U:S: 'Department . .,
ofHousing-ap.dUrban - ,:
Development (HlJ.D). · ·
Housing Administration
(FHA). Lenders, city officials and nonprofit organizations offered their perspectives on the housing development process. Carolyn Line
and Dick Einan also participated in the program .
Housing conference proceedings should be available on
video tape within several weeks.
The price of the tape will be
announced at that time. For
information about these or other
programs, phone Carolyn Line at
612-340-2048.
Top: Paul Bunyan and Babe the Blue Ox,
Bemidji, Minnesota, site of a lenders conference in November 1988.
. '. Botto'ni:· B;h Glover, ' Director of Consumer
. Affai(s;·FiifJ Gleltela_niand Rosie Burditt
· Co.n;rtJilnitj Affairs $pec(a,_@l FREJ Chicago
prepar~ to go oiJ'stage for,a skil -"To Lend
or ,Not-to ,Len_
d, ;, ai the ·December housing
conterenci
.
' _ '...
· · ·
.
. . . , .'
This newsletter is designed primarily to assist
financial institutions in the Ninth Federal Reserve
District in developing creative responses to
consumer issues and to the goals of the Community
Reinvestment Act.
COMMUNITY is produced under the direction of
Richard K. Einan, assistant vice president and
community affairs officer, and Carolyn P. Line,
community affairs coordinator.
■ In December, the Federal Reserve
Banks of Minneapolis, Chicago, Cleveland and St. Louis cosponsored a workshop on effective housing finance
programs and related lending techniques.
Featured speakers included representatives
from the Federal National
Mortgage Association
(FNMA) and the Federal
COMMUNITY is available without charge from the
Federal Reserve Bank of Minneapolis, Minneapolis,
Minnesota 55480 (telephone 612-340-2048).
Articles may be reprinted if the source is credited
and the Federal Reserve Bank of Minneapolis is
provided with copies of reprints.
@FedFRASER