ACTION REQUESTED:
Title
Communication from the City Manager, Assistant City Manager and Finance Director/Comptroller with a Request to ADOPT an ORDINANCE Amending the City of Peoria 2020 - 2021 BIENNIAL BUDGET Relating to the General Fund Budget for Fiscal Year 2020, in the Amount of $30,000.00, the East Village TIF Fund, in the Amount of $5,000.00, and the Warehouse District TIF Fund, in the Amount of $5,000.00, to Fund Administrative and Start-up Costs to Deliver the Full-Time Presence of a Non-profit Microloan and Financial Services Organization, JUSTINE PETERSEN.
Body
BACKGROUND:
Across the United States, use of standard retail banking services and products is below 75% and even lower in our most at-risk households. These same underserved households are the least likely to be able to save for emergencies and unexpected expenses. Peoria needs multiple organizations and deep funding to provide alternatives to the payday loans and informal banking methods (e.g. family member loan) these households turn to instead of banks. Reasons households do not use formal bank options are many including: lack of credit quality, lack of trust in banks, the low dollar amount of the loan, and access to banks.
Key Details from FDIC Report on use of Banks
In 2018 the FDIC released its 2017 biennial survey of unbanked and underbanked households in the United States. This study has three critical definitions, unbanked - households that have no standard retail bank relationship (e.g. debit, checking, savings services); Alternative Financial Services (AFS) - non-bank financial services such as payday loans, rent-to-own, lien loans and other very high interest rate financial services. AFS can range from 40% to over 400% APR. Lastly, the report focuses on underbanked households, where they do have a standard retail bank service or account in the household, but also rely on AFS.
Their study found that over ¼ of American households are either unbanked or underbanked and unsurprisingly these numbers were found to be “markedly higher” in households that were Black, Hispanic, and younger. The study also found that only 56% of unbanked and 17% of unbanked households are saving for unexpected and emergency needs.
Justine Petersen (JP)
Started in St. Louis by Social Worker Justine Petersen the same-named entity is a non-profit bank and social service organization that provides private micro-loans, small business gap loans, financial education, credit building services, home purchase support and more. They provide these services alone and with partners and are the largest SBA micro-lender in the United States. They have made multiple attempts to enter the Peoria Region and currently are able to provide a few loans every year through significant commitment from local partners. However, the need is much greater and the ability for JP to expand service in the area is limited without a person on location in Peoria, full-time.
Justine Petersen has assisted with financial service for the purchase of over 4,000 homes and over $415 M in home loans; $50M in over 2600 microloans to businesses; and over $4 M to over 9,000 individuals. In addition JP has opened over 1500 IDA accounts structured to help households build a savings habit and fund. These and other educational and credit building activities have been built to address and economic equity gap in access to loans and credit, the ability to understand and build credit, a lack of healthy alternatives to AFS and more.
Client Makeup:
• 80% Low- and Moderate-income Households
• 80% Inner City Residents
• 81% African American
• 68% Female Head of Household
Program Outcomes:
• 75% of assisted entrepreneurs started a business
• 94% business survival rate
• 58% of businesses were able to take an owner draw as compensation
• Nearly 4 jobs were created for each full-time business (including owner)
• Average of $17
Their experience in Peoria and in Micro-lending leads them to believe that the Peoria Region could be served by several million dollars in loans on an on-going basis.
The Request
The City of Peoria and Peoria County have been discussing support of Justine Petersen to get them established in the Peoria area. The start up costs for a full-time employee and loan loss reserve are the most significant barriers to JP developing a larger presence and commitment to the Peoria area. As a result of this discussion and on-going discussions with JP, we are requesting that the City grant $30,000 from the General Fund and $5,000 from the East Village TIF as well as $5,000 from the Warehouse District TIF to the JP organization. This $40,000 will be used to hire and establish a fulltime loan program in Peoria. In turn the County is in discussions to support a $100,000 reserve on their revolving loan fund for loan loss reserve. These funds would be paid to JP in the event of a default on a loan. Given the Justine Petersen rational, the County reserve should enable JP to deliver its first $1 million to the community. Once established the expectation is that any later administrative costs would be primarily covered by the income associated with loans. And we would work with JP to identify alternate sources for future needs.
FINANCIAL IMPACT: $10,000 reduction in TIF funds and a $30,000 reduction in the General Fund.
NEIGHBORHOOD CONCERNS: Improve the ability to provide funding for unanticipated financial needs for underserved households and businesses.
IMPACT IF APPROVED: Typical Justine Petersen private loans average $1,500 and business loans average $12,500. This means that 80 to 660 loans could be sourced by the initial $1M loan pool. In addition, JP would look to establish or partner locally to support financial and credit education and services.
IMPACT IF DENIED: Peoria will continue to have households with only very high interest rate and informal options to manage household financial needs.
ALTERNATIVES: There are some small-scale, local alternatives, which would continue to exist, but do not meet the total need in the area. This should not impede the on-going work of those organizations. Just as we have multiple retail banks available to banked households, multiple options for un/underbanked households only improves the ability to get high-quality service to the entire economy.
EEO CERTIFICATION NUMBER: Pending
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2017 - 2032 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Grow Peoria
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Grow employers and jobs.
2. Reinvest in neighborhoods.
DEPARTMENT: City Manager's Office