Today, U.S. Senators Charles E. Schumer and Kirsten Gillibrand urged the U.S. Department of Housing and Urban Development (HUD) Secretary Shaun Donovan to extend the City of Binghamton's deadline to repay a Section 108 loan. The City of Binghamton initially took out this loan from HUD in 1985 by pledging their Community Development Block grant funding as collateral. The loan was taken out on behalf of a developer to help build the former Regency Hotel and Conference Center as part of a larger economic redevelopment project. In time, the developer defaulted on the loan, leaving the City of Binghamton on the hook. Forced to terminate the lease of the hotel, the City of Binghamton suffered a devastating hundred-year flood that cost the City millions of dollars in damages to the property, and despite multiple attempts to sell of the property during the recession, the City was unable to do so successfully. Now the City of Binghamton faces a looming deadline to repay the Section 108 loan in full by August of 2014 or lose a large portion of their Community Development Block Grant funding allocation. Schumer and Gillibrand said that while the City has been able to pay down a portion of the debt, the requirement to repay the loan in full by August of 2014 would divert critical federal funding from other development projects in Binghamton.
Schumer and Gillibrand wrote to Donovan last August asking that HUD consider extending the length of the City of Binghamton's Section 108 loan. HUD responded that in order for the agency to extend the Section 108 loan for a longer period, HUD must determine that good cause exists and would be an acceptable risk to the Federal government. As a result, the Binghamton City Council passed a resolution to pledge the City's full faith and credit in support of the City request to extend the repayment period. This resolution passed on March 20, 2013.
"After devastating flooding and a number of unforeseen setbacks with local developers, I am urging the Department of Housing and Urban Development to work with the City of Binghamton to extend the length of the City's Section 108 loan. To require the City to immediately repay their loan or lose a significant portion of their CDBG funding would stunt rebuilding Binghamton's economic development," said Schumer. "After suffering a 100-year flood and a the Great Recession, the City of Binghamton will be unable to repay the Section 108 loan by next summer without diverting federal funds from critical development projects. I have appreciated HUD's flexibility in the past, and I'm urging the federal government should take into account the potential hardship to Binghamton's residents and businesses as it considers granting an extension for the repayment of the loan."
"From historically harsh flooding and extreme weather, to other setbacks of no fault of their own, the City of Binghamton deserves this extension," Senator Gillibrand said. "Local officials, businesses and families in Binghamton are doing all they can to strengthen the local economy, attract businesses and support new jobs. The federal government should be standing by them at every step of the way in this effort, and never put new obstacles in our way. I hope that HUD will continue working together with us in good faith to give Binghamton the time they deserve to make this repayment."
The City of Binghamton originally took out the Section 108 loan on behalf of a developer to cover construction and operation costs of the former Regency Hotel as part of a greater effort to spur economic development in the region. After the City agreed to lease the Hotel to the private subcontractor who was required to reimburse the City for all Section 108 loan payments, the City stopped receiving payments for the Section 108 loan in 2005 and was forced to terminate the lease for the hotel. Shortly following this, the City of Binghamton suffered a devastating hundred-year flood which caused significant damage to the property, which was unable to be sold during the recession. As a result, the City of Binghamton is currently unable to repay the loan by next summer without diverting funds from critical infrastructure and redevelopment projects.
Section 108 loans are a commonly-used and effective tool employed by cities to revitalize distressed areas and leverage private sector investment. Specifically, cities like Binghamton may borrow against future federal Community Development Block Grant funding in order to make low-interest loans to incentivize local redevelopment projects. Typically Section 108 loan interest rates are 50 percent less than commercial market rate loans.
A copy of Sens. Schumer and Gillibrand's letter appears below:
Dear Secretary Donovan,
We write to you on behalf of the City of Binghamton, New York, which applied for and accepted Section 108 loans from the United States Department of Housing and Urban Development (HUD) and to reinstate our support that HUD and the City find a reasonable solution to modify the existing payback requirements of these loans going forward. While the City of Binghamton understands and intends to pay the Section 108 loans back to HUD in full, a series of unfortunate and unforeseen events have made it very difficult for the City to meet its current contractual obligations. As a result, we would like to encourage you once again to consider providing the City with additional time to pay the shortfall you are due in order to avoid placing additional burdens on its residents.
As you may know, Binghamton took out these loans to cover construction and operation costs of the Regency Hotel as part of a greater effort to spur economic development in the region. Binghamton originally agreed to the terms of the Section 108 loans with the understanding that the City would lease the Hotel to a third party who would reimburse the City for all loans payments and the value of the Hotel and the City's Community Development Block Grant (CDBG) funding would serve as collateral to HUD for the loans. As a result, the City leased out the Hotel to a private subcontractor who was required to reimburse the City for all Section 108 loan payments. In 2005, the City stopped receiving payments for the Section 108 loan and was forced to terminate the lease. This decision was soon followed by a devastating hundred year flood costing the City millions of dollars in damages to the property, and the failure of multiple sales of the property during the recession, which have since hindered the City's ability to meet its current obligations for these loans.
It is our understanding that HUD has committed to working with the City of Binghamton but needs the City to provide assurance that the extended loan term constitutes as acceptable financial risk and that a good cause exists for waving regulatory limitations. As a result, the City of Binghamton has drafted a resolution for the Binghamton City Council to pledge the City's full faith and credit in support of the City of Binghamton's request to extend the repayment period. This resolution passed on March 20, 2013. It is our hope that the passage of this resolution alleviates any concerns that HUD has in regards to the City's request.
As noted above, the City of Binghamton understands that it must pay the Section 108 loans in full. However, to do so over the next two years would be devastating to a series of programs that rely on CDBG funding and have been used to meet blight removal, economic development, housing repairs and homeownership and other community development goals. The City would also be forced to lay off the staff supporting these programs. We encourage you to work with the City of Binghamton to find an equitable solution to ensure that the City pays the full amount owed to HUD while at the same time allowing the City to recover from a series of inopportune incidents and economic downturns which have created this predicament.
Thank you for consideration of this request. Please feel free to contact members of our staff if you have any additional questions or concerns.