Enthusiasm was high at the second forum on building local wealth sponsored by Willits Economic Localization (WELL) on March 25th.
The question underlying this event was whether WELL should play a role in stimulating or managing a connection between local investors and local entrepreneurs. Holly Madrigal, who serves on the Willits City Council in addition to the WELL coordinating committee, introduced and facilitated the forum.
Three experts in aspects of local finance and economic development presented for the first hour, followed by more information, ideas and interest in investing from some of the 50 or so in attendance.
Richard Cooper is director of the Mendo-Lake Credit Union (MLCU) and a board member of the Economic Development & Finance Corporation (EDFC), a non-profit organization that channels federal grants and loans to businesses in Mendocino County. Cooper noted that the MLCU has expanded greatly in the past few years, including noticeably after the Occupy Wall Street movement encouraged people to transfer their accounts to local institutions. Their focus is consumers: mostly auto loans, some home loans, and personal loans up to $20,000 that could be used for small start-up businesses. At the moment, they have a surplus of funds with not enough qualified borrowers.
he EDFC, on the other hand, is focused on job-creating business loans. There are success stories, such as the Gualala food co-op and [FILL IN].
However, as a “lender of last resort,” these investments are higher risk, and there have been some failures, especially in recent hard economic times. John Kuhry, director of EDFC, noted that they currently have about $300,000 in funds not yet allocated to eligible businesses.
Both Cooper and Kuhry stressed their responsibility to wisely manage these public funds and to earn the public’s confidence. In addition to careful vetting of business plans, they often partner with other investment groups, such as the Arcata EDFC and local banks, to minimize the potential impact of a failed investment on any single institution. Richard Willoughby, of North Valley Bank, is one such partner interested in local investments.
Andy Schexnaydre is on the board of GoLocal Sonoma County and a socially-responsible financial planner. His prior experience included work for the Pacific Stock Exchange, UBS, and Financial West, “all of which,” he noted, “have their decision-making headquarters far away from local communities.” To illustrate the contrast, he showed an excerpt of “It’s a Wonderful Life” in which George Bailey, the local banker, pleads with his patrons to have faith in the interactions that benefit both borrowers and lenders – and the community - at the local level.
Schexnaydre pointed out the traditional banking formula (that George Bailey operated under), where investors get 3% return, borrowers pay 6%, and the bank makes a 3% profit. “In the 1970s,” he noted, “Wall Street’s profit margin climbed to 15%. In 2007, it was 40%. That leaves investors with nearly 0% return, and borrowers paying exorbitant rates.”
“In February 2012,” Schexnaydre continued, “five business giants agreed to a $25 billion settlement, with no criminal charges, for mortgage fraud – after that fraud had contributed to an estimated $700 billion in real estate losses.” He rattled off some alphabet soup of the kinds of financial transactions that continue to run rampant on Wall Street, virtually none of which benefit local businesses or jobs.
“Some of the new ideas for local economies include ‘crowd-funding,’
time-banking, and cooperatives,” said Schexnaydre. “You have to be careful, but don’t be intimidated. Lending institutions are highly regulated, but individuals or small groups of private investors have lots of leeway.”
John Sakowicz, host of KZYX’s All About Money show, a past dealer on Wall Street, and recently appointed to the County Employees Retirement Board, was the third presenter. The MCERA manages investments of $352 million to secure retirement benefits for the County’s employees.
“When I was interviewed for appointment to the board, Supervisor Dan Hamburg asked what I thought of investing 1% of these funds locally,” recounted Sakowicz. “My first reaction was that might conflict with my responsibility to protect the employees investment. But then I realized that local micro-loans, in partnership with EDFC and other banks, could be both safe and beneficial – to the fund as well as the community.”
“When I brought up this idea to the MCERA,” he continued, “I got blank stares.” Sakowicz urges citizens to lobby their Board of Supervisors and Shari Shapmire, County Treasurer, if they would like to see $3.5 million directed from this fund to invest in local job-creating businesses. He cited several precedents of pension funds successfully doing this type of alternative investment, including British Columbia, Ontario, and the States of Texas and Maryland. The California State retirement board, CalPers, has been making a 22% return on its alternative investment program of inner-city loans, for another example.
During the audience discussion, John Kuhry (of EDFC, noted earlier) mentioned that Yokayo Bio-fuels is considering a public offering to expand its business. He said that investors could choose what is coined “patient capital” (or “slow money”) – keeping interest rates low and not expecting any immediate returns while a new business gets started.
Facilitator Holly Madrigal noted that the Willits Chamber of Commerce was the first Chamber to join BALLE, the nation-wide Business Alliance for Local Living Economies. “BALLE sponsors very useful webinars and conferences to promote the kind of business-investor cooperation being explored in this forum,” said Madrigal.
Another Willits City Councilmember, Ron Orenstein, commented that his primary concern is local jobs, yielding a healthy local economy, rather than a cash yield on investments. Quite a few enterprises are interested in the “business incubator” he is establishing at the Railroad Center. Orenstein, along with entrepreneur Ron Cole, feel there is great potential for synergy, using the wastes or bi-products of one business as the resource for another.
Keith Rutledge of REDI (Renewable Energy Development Institute in Willits) said they’re considering a program similar to Sonoma County’s PACE (Property-Assessed Clean Energy) which allows qualifying homes and businesses to finance energy improvements paid back through the property tax rolls.
Some of the other ideas brought up in the discussion session were stressing energy and food independence, choosing a “pilot project” to invest in, or “bundling” several businesses to encourage cooperation and minimize risk, producers and consumers co-operatives, buying local, and direct marketing.
About 3/4th of the audience members indicated interest in becoming local investors. Several WELL coordinating committee members indicated this topic will be high on WELL’s agenda this year.
Andy Schexnaydre http://www.golocal.coop