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Town OK’s moral obligation to business incubator

Citing the “spirit of cooperation” and the good of the region, Pulaski Town Council will enter into a moral obligation to back a portion of a $2.6 million refinancing loan to help save a Fairlawn business incubator and it’s parent company.
Although Councilmen Joel Burchett Jr. and Robert Bopp voted “no,” the town council agreed 4-2 to back one-fourteenth ($184,450) of the loan amount.
When combined with $350,000 the Town of Christiansburg agreed to back and $1,317,500 Pulaski County will support, New River Valley Development Corporation now stands $750,000 short of having enough obligations to back the loan. The development corporation operates New River Valley Competitiveness Center off Viscoe Road at Fairlawn.
Unless the corporation receives enough moral obligations from its eight founding jurisdictions to back the refinancing loan, it could become insolvent by the end of June, thus threatening the business incubator.
According to discussion at Tuesday’s meeting, Floyd County is considering the request and the City of Radford wants to delay a decision until June. The Town of Blacksburg and counties of Montgomery and Giles apparently declined to participate, but have been asked to reconsider that decision.
The Competitiveness Center currently has 19 tenants (including several regional agencies) and 65 employees.
Burchett called the incubator “under utilized and mismanaged.” He told fellow councilmen Tuesday “I cannot and won’t support” the moral obligation because “it’s failing now” and it will continue to be “business as usual” so there is no reason to believe it won’t default on the loan, leaving its backers holding the bag.
Town Finance Director Sherry Boyd indicated it shouldn’t be “business as usual” because the jurisdictions that back the loan will have a proportional say in the management of the center.
Mayor Jeff Worrell said that while he isn’t “happy (the corporation) got in this situation,” he thinks it would “be a big mistake to do nothing and let it fail.” Even if the town hasn’t directly benefited by having businesses locate within the town after graduating from the incubator, Worrell said “what is good for the region is good for everyone.”
Questions were raised Tuesday and at Monday night’s Pulaski County Board of Supervisors meeting as to what businesses have graduated from the center and where they have located.
According to County Administrator Peter Huber and town Economic Development Director John White, the Development Corporation is in the process of developing a list for the jurisdictions.
Burchett disagreed with Worrell’s summation of the center’s importance, saying no one has given him a “substantial reason to support it.”
Worrell noted that the success rate of businesses coming out of the incubator is 80 percent, compared to an 80 percent failure rate for small businesses that start without the benefit of an incubator.
Councilman Morgan Welker said it “doesn’t seem that bad to me” for the town to back a portion of the loan.
“They’ve made it this long and we’re in a horrible recession right now,” he said, referring to the fact the incubator is 10 years old. “They seem to think if they can get this refinancing they’ll be okay.”
Welker said he thinks it would be “worth it for the good will and spirit of cooperation.” Besides, he added, it may not matter whether the town obligates itself to any of the loan anyway if other jurisdictions don’t step up to the plate too.
Bopp asked White how the backing jurisdictions would have to pay – all at once or in installments – if there is a default.
White said that is hard to say because it would depend upon “the nature of the default.”
Both White and Councilman Larry Clevenger pointed out that the town would have a stake in ownership of the Fairlawn building it there was a default. Clevenger said it is worth $4.2 million, so even if the building had to be sold at a discount, the loan backers would still be able to recoup their funds.
Councilman H.M. Kidd said he thinks the “business incubator as a whole is a great thing. I’ve seen businesses come and move on” to their own facilities.
Vice Mayor Dave Clark said the town has worked to improve its relationship with Pulaski County, so if the county is willing to support half of the total obligation, the town should be willing to cover one fourteenth.
To that, Burchett responded that the town residents are also county residents, so they already are contributing to the obligation.
The county had requested a $325,000 obligation from Pulaski, but councilmen didn’t feel comfortable providing that kind of backing.
White said during an earlier meeting that the incubator is being considered as a site to start businesses for the town’s proposed Nanotechnology Park. Without town support, he said, he is afraid the town will lose participation in the center.
He also pointed out that the refinancing would allow the center to remain open “without any cash contributions” from the localities.
Jurisdictions need to act on the requests for moral obligations by May 25 or the bank proposing to offer the refinancing may withdraw its offer.
Worrell contends each of the eight jurisdictions is partly to blame for the Center’s financial situation in that when a new business is opening “we all want it on our Main Street when it probably needs to be there to start with.”
In a letter from Huber, requesting support for the refinancing, Huber indicates that the corporation is in a “difficult situation” because graduating businesses and the current economy has left the Competitiveness Center with a 57 percent occupancy rate.
“As a result of (the reduced occupancy) and the interest on our current debt, the corporation will not be able to remain solvent past June 30, 2009 when a $20,000 interest payment becomes due,” Huber states. He points out that the corporation currently has a cash balance of $254.39 and owes $41,248.45 to a reserve account being used “to pay utility bills and other critical expenses.”
Huber said the corporation’s Board of Directors “believes that the continued operation of the incubator is critical to rebuilding the economy of the New River Valley and has been working on resolving the financial difficulties … for some time.”
Huber points out that the incubator’s services are “likely to become more critical as residents affected by recent layoffs begin to consider use of their talents in making a living by starting a small business.”
In addition to the moral obligation, the Development Corporation is asking the localities to also provide “in-kind operational support” such as mowing, accounting, management services and light maintenance for the incubator.
Any jurisdiction participating in the moral obligation will have a “proportionate say in the management and operation of the facility, an equity position in the center and potential prospects for revenue generated by the center as occupancy increases,” Huber states in the letter.

Town OK’s moral obligation to business incubator

Citing the “spirit of cooperation” and the good of the region, Pulaski Town Council will enter into a moral obligation to back a portion of a $2.6 million refinancing loan to help save a Fairlawn business incubator and it’s parent company.
Although Councilmen Joel Burchett Jr. and Robert Bopp voted “no,” the town council agreed 4-2 to back one-fourteenth ($184,450) of the loan amount.
When combined with $350,000 the Town of Christiansburg agreed to back and $1,317,500 Pulaski County will support, New River Valley Development Corporation now stands $750,000 short of having enough obligations to back the loan. The development corporation operates New River Valley Competitiveness Center off Viscoe Road at Fairlawn.
Unless the corporation receives enough moral obligations from its eight founding jurisdictions to back the refinancing loan, it could become insolvent by the end of June, thus threatening the business incubator.
According to discussion at Tuesday’s meeting, Floyd County is considering the request and the City of Radford wants to delay a decision until June. The Town of Blacksburg and counties of Montgomery and Giles apparently declined to participate, but have been asked to reconsider that decision.
The Competitiveness Center currently has 19 tenants (including several regional agencies) and 65 employees.
Burchett called the incubator “under utilized and mismanaged.” He told fellow councilmen Tuesday “I cannot and won’t support” the moral obligation because “it’s failing now” and it will continue to be “business as usual” so there is no reason to believe it won’t default on the loan, leaving its backers holding the bag.
Town Finance Director Sherry Boyd indicated it shouldn’t be “business as usual” because the jurisdictions that back the loan will have a proportional say in the management of the center.
Mayor Jeff Worrell said that while he isn’t “happy (the corporation) got in this situation,” he thinks it would “be a big mistake to do nothing and let it fail.” Even if the town hasn’t directly benefited by having businesses locate within the town after graduating from the incubator, Worrell said “what is good for the region is good for everyone.”
Questions were raised Tuesday and at Monday night’s Pulaski County Board of Supervisors meeting as to what businesses have graduated from the center and where they have located.
According to County Administrator Peter Huber and town Economic Development Director John White, the Development Corporation is in the process of developing a list for the jurisdictions.
Burchett disagreed with Worrell’s summation of the center’s importance, saying no one has given him a “substantial reason to support it.”
Worrell noted that the success rate of businesses coming out of the incubator is 80 percent, compared to an 80 percent failure rate for small businesses that start without the benefit of an incubator.
Councilman Morgan Welker said it “doesn’t seem that bad to me” for the town to back a portion of the loan.
“They’ve made it this long and we’re in a horrible recession right now,” he said, referring to the fact the incubator is 10 years old. “They seem to think if they can get this refinancing they’ll be okay.”
Welker said he thinks it would be “worth it for the good will and spirit of cooperation.” Besides, he added, it may not matter whether the town obligates itself to any of the loan anyway if other jurisdictions don’t step up to the plate too.
Bopp asked White how the backing jurisdictions would have to pay – all at once or in installments – if there is a default.
White said that is hard to say because it would depend upon “the nature of the default.”
Both White and Councilman Larry Clevenger pointed out that the town would have a stake in ownership of the Fairlawn building it there was a default. Clevenger said it is worth $4.2 million, so even if the building had to be sold at a discount, the loan backers would still be able to recoup their funds.
Councilman H.M. Kidd said he thinks the “business incubator as a whole is a great thing. I’ve seen businesses come and move on” to their own facilities.
Vice Mayor Dave Clark said the town has worked to improve its relationship with Pulaski County, so if the county is willing to support half of the total obligation, the town should be willing to cover one fourteenth.
To that, Burchett responded that the town residents are also county residents, so they already are contributing to the obligation.
The county had requested a $325,000 obligation from Pulaski, but councilmen didn’t feel comfortable providing that kind of backing.
White said during an earlier meeting that the incubator is being considered as a site to start businesses for the town’s proposed Nanotechnology Park. Without town support, he said, he is afraid the town will lose participation in the center.
He also pointed out that the refinancing would allow the center to remain open “without any cash contributions” from the localities.
Jurisdictions need to act on the requests for moral obligations by May 25 or the bank proposing to offer the refinancing may withdraw its offer.
Worrell contends each of the eight jurisdictions is partly to blame for the Center’s financial situation in that when a new business is opening “we all want it on our Main Street when it probably needs to be there to start with.”
In a letter from Huber, requesting support for the refinancing, Huber indicates that the corporation is in a “difficult situation” because graduating businesses and the current economy has left the Competitiveness Center with a 57 percent occupancy rate.
“As a result of (the reduced occupancy) and the interest on our current debt, the corporation will not be able to remain solvent past June 30, 2009 when a $20,000 interest payment becomes due,” Huber states. He points out that the corporation currently has a cash balance of $254.39 and owes $41,248.45 to a reserve account being used “to pay utility bills and other critical expenses.”
Huber said the corporation’s Board of Directors “believes that the continued operation of the incubator is critical to rebuilding the economy of the New River Valley and has been working on resolving the financial difficulties … for some time.”
Huber points out that the incubator’s services are “likely to become more critical as residents affected by recent layoffs begin to consider use of their talents in making a living by starting a small business.”
In addition to the moral obligation, the Development Corporation is asking the localities to also provide “in-kind operational support” such as mowing, accounting, management services and light maintenance for the incubator.
Any jurisdiction participating in the moral obligation will have a “proportionate say in the management and operation of the facility, an equity position in the center and potential prospects for revenue generated by the center as occupancy increases,” Huber states in the letter.