The Federal Home Loan Bank of Boston is working to raise awareness of a $15 million subsidy program it’s launching next week, aimed at stimulating job growth and economic activity throughout New England.
The Boston FHLB’s Jobs for New England is one of two programs intended to pump money into job creation and affordable housing through interest rate write-downs for member financial institutions. Beginning on Feb. 1, FHLB members will be eligible to apply for up to $250,000 in subsidies that they will be able to use however they please – within some parameters, of course.
Susan Elliott, executive vice president and chief business officer at the Boston FHLB, said the idea was borne out of the home loan bank’s recent celebration of its affordable housing program’s 25-year anniversary. The FHLB wanted to do something more to address the dual needs of affordable housing and economic development across New England.
But to figure out what, exactly, first they had to hit the road.
“We went out and met with a number of economic development agencies around New England and we heard lots of things,” she said. “I thought we were going to come back with a one-step solution and I couldn’t have been more wrong.”
For instance, FHLB members in Vermont voiced a need for long-term financing for small businesses, while New Hampshire members wanted more predevelopment funding, particularly for initiatives like incubators.
Conversations with the home loan bank’s board of directors solidified that notion that the program needed some flexibility in how funds would be used.
“Many of them are bankers, so they were saying, ‘it’s really the banks, the credit unions and the others we support. They’re the boots on the ground. They know what the needs are in the communities they serve,’” Elliott said.
Under the Jobs for New England program, FHLB members can apply for up to a quarter-million dollars in interest-rate subsidies that they can spread out over whatever time period they choose. In the current interest rate environment, spreading the subsidy over a five-year period would yield about $3 million in loans, while spreading it over a two-year period would yield around $11.5 million in loans, Elliott said.
The funds could ultimately finance the expansion of a bakery in Vermont, or could help an artist start a gallery in Portland, Maine.
“Our member financial institutions are the ones that know what the needs are in their communities; they also know the players and can figure out directly how best to use the funding,” Elliott said.
Cornelius K. Hurley, director of the Boston University Center for Finance, Law & Policy and a director on the Boston FHLB’s board, echoed that sentiment.
“This is kind of in recognition of a very little known fact, which is that most small business lending in this country is being done by community banks, not by BofA, so we’re there to help solve problems for our members, the vast majority of which are community banks, many of which are making small business loans every day and creating jobs,” he said.
Hurley said, “My hope is that after three years we have the capacity to revise it and renew it and it’s a smashing success.”
‘Balance Is Key’
“I think that this is a solid strategy,” said Michael Goodman, executive director of the Public Policy Center at UMass Dartmouth. “I think the ultimate test of the economic impact of these programs will be when we see which kinds of projects get funded.”
“If we see those funds flowing to smaller enterprises in weak markets across New England, then I think that would be a sign the program is having an impact; that is, making stuff happen that wouldn’t happen otherwise,” he said.
Members who receive subsidies have to demonstrate that the funds will be loaned to a small business that will use the money to create jobs or otherwise contribute to economic development. The program will run through 2018 and the home loan bank will review its results after the program’s first year.
“This is somewhat innovative in going at it as an interest subsidy that has some requirements to show proof of utilization, but is not excessively onerous,” said William M. Parent, the president and CEO of Blue Hills Bank.
In particular, Parent praised the reporting requirements for the Jobs for New England program. He said that similar programs sometimes have onerous compliance requirements that can turn off community financial institutions from participating.
“This is one where I think it’s appropriately fashioned that the funds will be utilized for its intended purposes,” he said. “It’s balanced. Balance is the key for providing funding for banks with target utilization.”