| SES # | TOPICS | COURSE NOTES |
|---|---|---|
| Part I: Course Introduction | ||
| 1 | Course Overview Definition of Economic Development Role of Finance in Economic Development | This class provides an overview of the course content and objectives, and it discusses the definition of economic development and the role of financing in the economic development process. |
| Part II: Business Financing | ||
| 2 | Business Finance Needs Business Financing Instruments | This class looks at the many instruments used to finance business enterprises to understand the difference between debt and equity financing, the varied forms of debt financing, and the advantages and disadvantages associated with different financing instruments. The appropriateness of different financing instruments for various stages of business development and businesses' capital needs is also discussed along with the distinct capital needs and issues faced by small firms. Finally, we will review the basic finance terms and calculations related to debt and equity instruments. Business Finance Basics (PDF) |
| 3 | Analyzing Finance Needs I: Introduction to Accounting and Financial Statements | In this session, basic accounting principals are reviewed and the three primary financial statements produced by accounting systems are explained: the balance sheet, the income statement, and the cash flow statement. The difference between cash and accrual accounting and the relationship of financial statements to business cash flow is a key theme for this class. Business Financial Statements (PDF) |
| 4 | Analyzing Finance Needs II: Evaluating Firms for Financing, Financial Statement Analysis | This class will expand upon the understanding of financial statements to develop analytical tools used to evaluate the financial needs of companies and the most appropriate financial instruments to meet these needs. A comprehensive framework for evaluating a firm for economic development financing is discussed and then key financial analysis tools are introduced. The primary tools discussed will be ratio analysis, common size financial statements and forecasting cash flow and debt service capacity. |
| 5 | Working Capital Finance | This class focuses on working capital financing needs to understand what working capital is and why it is important to a business. The difference between "cyclical" working capital needs and "long-term" working capital needs will be discussed along with the issues involved in evaluating a firm's need for working capital debt and extending working capital financing. A written analysis of the Crystal Clear Window Company financing request is due today and will provide a case example for exploring these topics. The range of financial instruments and institutional sources for working capital will also be reviewed. |
| 6 | Fixed Asset Financing | Fixed asset financing is essential for the growth and expansion of businesses. The greater uncertainty and longer repayment terms make it more difficult for firms to secure such financing. We will look at the role of fixed asset financing in business growth, the unique issues in financing longer term capital needs, and the evaluation of a firm to extend fixed asset financing, using the Cambridge Biotech Case Study to gain insight into these issues. |
| 7 | Real Estate Financing | This class provides an overview of the real estate development process and financing issues, including key needs for economic development oriented real estate projects, the financial statements used for real estate projects, analyzing a project's capacity to support debt and equity, and the different financial instruments and sources of real estate projects. Real Estate Finance (PDF) |
| 8 | Analyzing Business Financing Needs III | To strengthen skills in evaluating a firm's financial needs and capacity to support financing, this class is devoted to an analysis of the Phoenix Forge case, using a role play enactment of a Community Loan Fund Board meeting to consider the Phoenix Forge loan request. |
| Part III: Program Models and Federal Resources | ||
| 9 | Introduction to Capital Markets, Capital Market Imperfections and Financing Gaps | This class covers the institutional structure and operations of private capital markets, including the direct "public" markets and the "private" markets of financial intermediaries. Discussion of these markets will emphasize what economic development role they play, which institutions are most important for community-based economic development and the capital market failures and imperfections that occur in private capital markets. These market failures define the financing gaps that economic development finance programs and institutions are designed to address. A two-part framework for interventions to address capital market failures and financing gaps will be discussed. Capital Markets and Financing Gaps (PDF) |
| 10 | Private Market Interventions I: Guarantees and Credit Enhancement | Loan guarantee programs are one of the most common tools used to expand capital availability to businesses through private capital markets. This class reviews the different guarantee forms, the major guarantees programs and what research indicates about their impact and best practices. A case study of the Emerging Technology Fund is used to explore design issues for loan guarantee programs. Loan Guarantees (PDF) |
| 11 | Private Market Interventions II: Community Reinvestment Act, Bank CDCs | As the primary source of business credit, private commercial banks and thrift institutions are the key community institutions in making capital available to small businesses and economic development projects. As government regulated financial institutions, banks provide several opportunities to use specific regulations and the regulatory process to change bank practices and expand their supply of capital for economic development purposes. Under the Community Reinvestment Act, banks are required to meet the full range of credit needs of the communities they serve. Since its enactment in 1977, extensive efforts and programs have been initiated either directly by banks or under pressure from community organizations to expand credit for community development. Bank CDC regulations are a second regulatory vehicle that allows banks to supply higher risk financing and undertake non-traditional activities. In this class, the history of the Community Reinvestment Act is reviewed along with research on its impacts on bank capital availability. The use of the CRA in Pittsburgh provides and the 2003 Bank of America Fleet Boston merger provide two cases to explore the evolving nature of CRA practice. Bank CDC regulations and their use to implement new development financial products and institutions are the second focus for this session. Community Reinvestment Act (PDF) |
| 12 | Private Market Interventions III: Community Development Banks, Bank Holding Companies | Banks can be organized and managed to supply capital with a community and economic development mission. Banks provide a core financial intermediary for supplying capital while a bank holding company allows the creation of related organizations and programs that supplement banking services with other development activities. The experience of Chicago's Shorebank provides a lens for examining how banks and bank holding companies can be vehicles for community economic development, and the challenges associated with this approach to development finance. We will also consider reasons for the limited replication of the Shorebank model and its current relevance to development finance. Program Planning (PDF) |
| 13 | Program Models I: Revolving Loan Funds, Plans for Field Work | Revolving loan funds (RLFs) are the most common alternative development finance models with the longest history and track record. This class will review some of the key strategies and approaches employed by RLFs and guarantee programs and discuss important principles, issues and best practices. The Portland Industrial Site Loan Fund provides a case study to further explore these issues. We will also use part of this class to review plans for field work in New Orleans. Revolving Loan Funds (PDF) |
| 14 | Program Models II: Venture Capital | Venture capital and equity-like investments are a more recent and growing model of economic development financing, especially to support technology based business and commercial development of new technologies and products. Our discussion will include the unique nature of these financing sources, issues involved in managing venture capital funds, and the experience of state policy and then newer community development venture capital funds. Canada's experience with labor-controlled pension funds provides a third model for targeted venture capital investing. Venture Capital (PDF) |
| 15 | Project Work Session | This class will be devoted to sharing and reviewing the information, initial findings and issues that emerged from the field work in New Orleans. Each project team is responsible for preparing a brief summary of its work, preliminary findings and issues/questions, all of which are required reading for this session. |
| 16 | Program Models III: Community Development Credit Unions, Community Development Loan Funds | Community based and controlled financial institutions have been a small but rapidly growing source of development finance. These institutions are privately funded through local deposits or philanthropic support or both. We will review the two major institutional models: credit unions and loan funds and look at the particular benefits, issues and constraints inherent in these models. Community Development Financial Institutions (PDF) |
| 17 | Program Models IV: Microenterprise Development | The capital and technical assistance needs of very small businesses pose special challenges. Over the past decade, numerous programs have been developed to support the creation and financing of "micro-businesses" as strategies to alleviate poverty, assist the unemployed and stimulate local job and income generation. In this class, we will examine the primary micro-business development and lending program models as well as review key operating issues and principals. Taub's article on the Arkansas Good Faith Fund and Sevron's assessment of microenterprise program impacts offer differing views of the economic development contribution of microenterprise programs while the Lawrence case study raises questions about effective strategies to heighten the impact of microenterprise programs. Microenterprise Finance (PDF) |
| 18 | Federal Programs: SBA Programs, CDFI Fund, HUD 108 Program, Office of Community Services New Market Tax Credits | This session provides an overview of federal economic development programs administered by the Economic Development Administration, the Small Business Administration, HUD, the Office of Community Services (in the Department of Health and Human Services) and the U.S. Treasury CDFI Fund. Special attention will be paid to the New Market Tax Credit program and the experience with its initial implementation. The Inner City Supermarket Case provides an example for examining the advantages and issues related to using different programs and issues posed by utilizing federal programs within on overall project financing plan. |
| Part IV: Program Management | ||
| 19 | Issues in Program Management: Program Planning and Design | The first step in developing successful economic development finance programs is defining clear goals and designing a program to achieve these goals on a sustainable basis. In this session on program planning and design, we consider how finance programs relate to an organization's mission and strategy, how market analysis can be conducted and inform program design and how operational, institutional and financial factors influence program design. The Dorchester Bay Economic Development loan fund provides a case example to examine market analysis issues in designing economic development financing programs. Design issues and methods faced in the term projects will also be discussed. |
| 20 | Issues in Program Management: Marketing and Origination, Underwriting and Structuring Investments, Servicing and Portfolio Management | The core competency in operating loan funds is making good decisions on which loans or investments to make and effective oversight of these deals to help keep them on track and resolve problems. This class will focus on these activities, including the options for organizing and managing these functions and best practices in the field. Effective program management with limited resources (typical of public sector and community organizations) is prominent concern along with linking financing programs to other economic development resources. Managing Lending and Investing Operations (PDF) |
| 21 | Issues in Program Management: Capital Management and Recapitalization | With limited resources and capital needs that far exceed available funds, economic development finance programs are constantly challenged to manage financial assets to maximize capital for new investments and to expand their capitalization. We will analyze tools to enhance the use of assets and expand capital and discuss how to manage assets and liabilities for maximum effectiveness. Financial modeling of development finance institutions will also be reviewed. Raising and Managing Capital (PDF) |
| 22 | Term Project Presentations | This class will be used to review and discuss term projects. Each team will make a 10-15 minute presentation on their term project, analysis and preliminary recommendations. The presentation will be followed by questions and class discussion. |
| 23 | Term Project Presentations (cont.) | This class will be used to review and discuss term projects. Each team will make a 10-15 minute presentation on their term project, analysis and preliminary recommendations. The presentation will be followed by questions and class discussion. |
| Part V: Municipal Financing Tools | ||
| 24 | Municipal Finance Tools I: Municipal Debt Industrial Development Bond Guest Speaker: Tobias Yarmolinski, RBC Dain Rauscher | Multiple instruments are used to finance government capital expenditures, infrastructure improvements and projects. This class will provide an overview of how the municipal bond market operates and discuss the major types of municipal bond structures, their relative advantages and potential use for financing business and economic development projects. Our guest speaker will walk through the challenges technical aspects of an economic development bond transaction. Municipal Finance (PDF) |
| 25 | Municipal Finance Tools II: Tax Increment Financing Assessment Districts and BIDS | Tax increment financing and assessment districts are effective ways to finance projects or investments where the benefits are fairly localized and revenues to support these investments can be generated from new tax revenues or fees from this local area. The primary focus of this class will be to introduce TIF and assessment district financing and explore their application to economic development projects. The use of assessment financing to fund business improvement districts will be reviewed. We will also look at TIF financing of downtown improvements in downtown Orlando in the 1980s to explore the financing issues and debt structure options associated with TIF supported municipal debt. TIF and Assessment Districts (PDF) |
| 26 | Course Conclusion | We will also look back over the semester's work, including the term project experiences, to identify key themes and conclusions related to economic development finance. Possible areas of discussion include: How have your views evolved on the role of financing in achieving economic development objectives? What principles should guide economic development finance activities? What can we say about best practices in designing and managing programs and institutions? Can development finance institutions survive as an alternative capital market? What key challenges do they face? |
| 27 | Wrap Up | |