Calendar

Introduction to Capital Markets; Capital Market Imperfections and Financing Gaps; Local Development Finance Systems

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 their economic development role, which institutions are most important for community-based economic development, and the capital market falures 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 captial market failures and financing gaps will be discussed. This class also introduces approaches to thinking about how capital markets and development finance relate to larger systems that influence how capital is deployed to advance economic development goals. Information on development finance in Detroit is provided to provide a context to consider the application of these concepts to a city.

Business Finance Needs; Business Financing Instruments

This class looks at the many instruments used to finance business enterprises, emphasizing the difference between debt and equity, 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 capital needs is also discussed along with the distinct capital needs and issues faced by small firms. Empirical data on how small enterprises are financed will be compared to the expectations based on capital market and firm development stage theories. Finally, we will review the basic finance terms and calculations related to debt and equity instruments.

Analyzing Finance Needs II: Evaluating Firms for Financing; Financial Statement Analysis

This class expands on the understanding of financial statements to develop analytical tools used to evaluate the financial needs of companies and find appropriate financial instruments to meet these needs. A framework for evaluating a firm for economic development financing is discussed and key financial analysis tools are introduced: ratio analysis, common size financial statements, and forecasting cash flow and debt service capacity. Two tools developed to help economic development organizations evaluate projects using community impact and triple bottom line approaches are presented in the readings and will be touched upon in class. We will also review the business financial analysis worksheet to discuss how ratio analysis and cash flow analysis is used to inform business lending decisions.

Assignment: Complete the Business Financial Statement Analysis worksheet

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.

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.

Phoenix Forge case assignment due

Municipal Finance Tools I: Municipal Debt; Industrial Development; Bonds; Qualified Energy; Conservation Bonds; Introduction to Tax Increment Financing

Multiple instruments are used to finance government capital expenditures, infrastructure imporvements, 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. We will also review the increasing interest in and potential to use muicipal and other bond financing for alternative energy and energy efficiency projects. Tax increment financing will be introduced in preparation for a fuller discussion of its use the next class.

Tax Credit and Financing; Historic Tax Credits; New Market Tax Credits; State Tax Credits

Tax credit financing has become increasingly important in economic development finance, especially with the New Markets Tax Credit (NMTC) program, which is one of the most important federal programs to stimulate investment in low-income areas. With over ten years of implementation, the processes and uses for this program are well established, albeit somewhat complex and byzantine. This session is devoted to providing an overview of tax credit financing and a deeper dive to understand the NMTC program and its use to advance economic and community development goals. This class will also look at some examples of how tax credits are being used in Detroit and Michigan's changes to its credits program.

Private Market Interventions I: Guarantees and Credit Enhancement

Loan guarantee programs are one of th emost 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 ath best practices. Special attention is paid to the SBA 7(a) program, including the program's use in Detroit and associated challenges in serving the city's low-income neighborhoods. We will also look at recent developments in federal loan guarantee programs: the Department of Energy loan guarantee program for alternative energy projects; and the State Small Business Credit Initiative created under the Small Business Jobs Act of 2010. A case study of the Emerging Technology Fund is used to explore design issues for loan guarantee programs.

Program Models I: Revolving Loan Funds

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 discuss important principles, issues, and best practices. It will also look at the recent growth of revolving loan funds to finance energy-efficient and clean energy deployment, including the creation of internal "Green Revolving Funds" within organizations. The Portland Industrial Site Loan Fund, DEGC, Philadelphia Green Works, and Portland Clean Energy Works provide contrasting cases to explore effective RLF design and management.

Program Models III: Community Development Financial Institutions (CDFIs); 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, referred to as Community Development Financial Institutions (CDFIs) are privately funded through local deposits, loans, and philanthropic support. We will review the two major institutional models: credit unions and loan funds, the particular benefits, issues and constraints inherent in these models, and the emergence of large multi-faceted CDFIs that combine a core financial intermediary with other related development and policy functions. The Los Angeles study reviews CDFIs' collective contribution to addressing housing and economic developments needs on a city-wide basis and provides a way to look at the effectiveness of CDFIs as a system and institutional policy to pursue community and economic development goals. The Cleveland CDFI case provides an opportunity to look at how a city can apply and support the CDFI model in light of changing market conditions and economic development priorities.

Term Project Presentations

This class will be used to review and discuss term projects. Each team will make a 15 minute presentation on their project, analysis and preliminary recommendations. The presentation will be followed by questions and class discussion.

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 theses functions and best practices in the field, and approaches to incorporating more comprehensive "triple bottom line" metrics into investment decisions. 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. The Rural Enterprises case will be used to explore challenges and effective practices in managing development finance operations.

Revisitng Finance Ecosystems; Detroit's Development Finance Systems

This class will revisit the question of how economic development finance operates as a system and the role of practitioners in strengthening and improving the system's effectiveness, using Detroit as the focus and drawing on what we have learned from the many reading and term projects.