Detailed descriptions of classes and reading assignments are available below.
Course Description and Objective
Financing Community Economic Development focuses on the tools and programs available to the economic development practitioner to addresses capital needs for businesses and economic development projects. The course begins with an overview of the institutional structure and operations of private capital markets to provide an understanding of capital market imperfections and the financing gaps resulting from these imperfections. In the second section, we will review the different types of business financing needs and how to analyze a firm and its financial statements to understand its capital needs and ability to support financing. Next, the course will survey the program and institutional models that exist to address capital gaps and stimulate private investment in community based development, including federal funding resources. Program management is the focus of the fourth part of the course where issues of program design, operations and capitalization will be reviewed. Finally, students will be introduced to public finance tools and their application to economic development.
The course objective is to provide students with the following knowledge base and skills:
1. An understanding of the operation of private financial markets and their limitations and imperfections in serving economic development finance needs.
2. Familiarity with the program models and institutions that can be used to address community and business finance gaps.
3. Knowledge of federal economic development programs.
4. An understanding of operational needs and best practices in managing economic development finance programs.
5. An introduction to public finance tools and their economic development uses.
6. An ability to match feasible program approaches and models to address specific development financing gaps and business capital needs.
7. The capacity to identify institutional and program resources that can be used to meet economic development financing objectives.
8. The ability to define the organizational/capacity needs to operate economic development finance programs.
9. An understanding of different business capital needs and the appropriate financial instruments and institutions used to address these needs.
10. An introduction to interpreting and analyzing business financial statements.
Reading Materials and Assignments
Reading assignments are specified for each class in the course syllabus. Optional readings are also listed and students are encouraged to read or skim these materials as well. Reading assignments are from the following course textbook and a photocopied packet of reading materials ("The Reading Packet").
Many classes include case study readings used as a focus for class discussion. Careful reading of the case study to determine critical facts and circumstances of the case, to identify the critical issues raised by the case, and to be prepared to participate in class discussions is required.
Required Course Books
1. Seidman , Karl F. Economic Development Finance.
We will be using the pre-published edition of this book, which will be available on the course website or in a printed version in the reading packet from Copytech. Several supplemental readings are also included in the course reader. The photocopied text and reading packet is also on reserve at Rotch Library.
Course Requirements
In addition to the completion of all reading assignments and participation in class discussion, students are required to complete the following assignments:
1. Several short case studies analyses
2. A term project report
Each of these requirements is discussed below.
Case Study Analyses
Five case study write-ups are described in the syllabus. These case study write-ups include financial analysis and a brief (typically 2-3 pages) write-up that addresses specific questions posed in the assignment. The written discussion should incorporate the results of the financial analysis required in the assignment and include the financial analysis or projections as an appendix. The five case study assignments are:
| 5 |
Working Capital Loan Request Analysis (Crystal Clear Window Company) |
| 8 |
Employee Buyout Loan Request Analysis (Phoenix Forge) |
| 12 |
Community Reinvestment Act Campaign Design (Wilmington Delaware) |
| 17 |
Financing Plan for an Inner City Supermarket |
| 24 |
Lending Agency Recapitalization |
Term Project
The term project entails a team of three or four students working on a finance project for a client during the semester. A list and brief description of projects and clients is included in a separated attachment handed out with the syllabus. Only one team may work on a project. A list of the team members and the project selected by the team is due by Lecture 7. A brief (2-3 page) project work plan is due on the day of Lecture 11. The final written project is due on the last day of class.
Grading
Grading will be based on each student's demonstration of their knowledge of the course material and capacity to apply this knowledge to projects, programs and development finance needs. All course work will be considered in determining grades, with class participation accounting for 1/3 of the grade, case study write-ups for 1/3 and the term project for 1/3.
Classes and Reading Assignments
Part I: Course Introduction
| 1 |
Course Overview
Definition of Economic Development
Role of Finance in Economic Development |
Seidman. Chapter 1, pp. 1-8.
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This class provides an overview of the course content and objectives, and discusses the definition of economic development and the role of financing in economic development process.
Part II: Business Financing
| 2 |
Business Finance Needs and Financing Instruments |
Seidman. Chapter 2.
Berger and Udell. "The Economics of Small Business Finance."
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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 debt instruments.
| 3 |
Analyzing Finance Needs I: Introduction to Accounting and Financial Statements |
Seidman. Chapter 3.
Optional: Anthony and Reese. Accounting: Text and Cases. Chapters 2 and 3.
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In this session, an overview of accounting basic is provided, including a review of accounting principles, the two primary accounting statements (the balance sheet and income statement) and how to interpret them. The difference between cash and accrual accounting and the relationship of financial statements to business cash flow is a key theme for this class.
| 4 |
Analyzing Finance Needs II: Assessing a Firm's Business, Financial Structure and Capital Needs |
Seidman. Chapter 4.
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This class will expand upon the understanding of financial statements to develop analytical tools that can be used to evaluate the financial needs of companies and the most appropriate financial instruments to meet these needs. The primary tools discussed will be cash flow analysis, ratio analysis, and forecasting debt service capacity. A framework will be presented for the analysis of a firm that seeks financing that incorporates, community impacts, market and business considerations and financial feasibility.
Term Project Teams and Selections are due.
| 5 |
Working Capital Finance |
Seidman. Chapter 5.
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This class will look in depth at working capital financing needs. We will discuss 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 are discussed along with the financial instruments and institutional sources for working capital. The issues involved in evaluating a firm's need for working capital borrowing and extending working capital financing are also considered. A written analysis of a firm's (Crystal Clear Window Company) financing request is due today and provides a case example for exploring these topics.
Crystal Clear Window Company Case Assignment due.
| 6 |
Fixed Asset Financing |
Seidman. Chapter 6, pp. 181-204.
Cambridge Biotech Case Study.
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Fixed asset financing is essential for the growth and expansion of businesses. The greater uncertainty and longer repayment terms make it more difficult to secure such financing for young and small firms. We will look at the different financial instruments and institutional sources for fixed asset financing, the unique issues in financing longer term capital needs, and the role of fixed asset financing in business growth, and evaluation of a firm to extend fixed asset financing. For class, review the Cambridge Biotech Case Study and attachments and come to class prepared to discuss the questions posed in the case study.
| 7 |
Real Estate Financing |
Chapter 7
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This class provides an overview of financing for real estate development projects including the components of a development budget and sources of financing, the components of a property's operating revenue and costs, and financing issues and needs for economic development oriented real estate projects. Review the City Plaza Case study and calculate the property's maximum mortgage loan and financing gap, if any.
| 8 |
Analyzing Business Financing Needs III |
Seidman. Chapter 6, pp. 204-218
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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.
Part III: Development Finance Program Models and Federal Resources
| 9 |
Introduction to Capital Markets, Capital Market Imperfections & Financing Gaps |
Seidman. Chapter 1, pp. 8-31.
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In this session, we will focus on 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.
| 10 |
Private Market Interventions I: Guarantees and Credit Enhancement |
Seidman. Chapter 8.
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Loan guarantee programs are one of the most tools use to expanded capital availability to businesses through private capital markets. This course 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.
Term Project Work Plan due.
| 11 |
Private Market Interventions II: Community Reinvestment Act
Bank CDCs |
Seidman. Chapter 9, pp. 307-342, 354-359.
Mellon Bank profile in Small Business for Economic Development.
Lowe and Metzger. "A citywide strategy: The Pittsburgh Community Reinvestment Group."
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As the primary source of business credit, private commercial banks and thrift institutions are the key community institution in making capital available to small businesses and economic development projects. As government regulated financial institutions, several opportunities exist 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 demonstrate meet the full range of credit needs of the communities they serve. Since its enactment in 1977, there have been extensive efforts and programs either initiated directly by banking institutions and 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 and content of the Community Reinvestment Act is reviewed along with research on its impacts on bank capital availability. Pittsburgh's experience will serve as a case study on strategies to leverage community development financing commitments from banks and along with other research, to identify best practices in using the CRA. Bank CDC regulations and how the can be used to implement new development financial products and institutions are the second focus for this session.
| 12 |
Private Market Interventions III:
Community Development
Banks Bank Holding Companies |
Seidman. Chapter 9, pp. 342-354.
Taub, R. Community Capitalism. Chapters 1, 2, 5-8.
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Banks can be organized and managed to supply capital with a community and economic mission. Banks provide a core financial intermediary for supply capital while a bank holding company allows supplementing 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 Shorebank's successful model and what this suggests about its current relevance.
Wilmington Case Study Write-Up due.
| 13 |
Program Models I: Revolving Loan Funds |
Seidman. Chapter 10.
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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.
| 14 |
Program Models II: Venture Capital |
Seidman. Chapter 11.
Hebb and Mackenzie. "Canadian Labour-sponsored Funds: A model for the U.S. economically targeted investments."
CDFC Case Study.
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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. We will also look at the experience of the Massachusetts Community Development Corporation to consider strategy and management issues for public and community-based venture capital funds.
| 15 |
Program Models III: Community Development Credit Unions
Community Development Loan Funds |
Seidman. Chapter 12.
Kolodinsky, et. al. Vermont Community Development Credit Union: A community program that works.
VDCU 2002 Annual Report.
Community Self-Help Credit Union profile from Small Business Lending for Economic Development.
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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.
| 16 |
Program Models IV: Microenterprise Development |
Seidman. Chapter 13.
Taub, R. "Making the Adaptation Across Cultures and Societies: A Report on an Attempt to Clone the Grameen Bank in Southern Arkansas."
L. Servon, Lisa. "Microenterprise Development as an Economic Adjustment Strategy." 1998, pp. 37-50.
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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 two 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 that we will consider in class. The Lawrence case study also provides an opportunity to consider strategies to heighten the impact of microenterprise programs.
| 17 |
Federal Programs:
SBA Programs
CDFI Fund
New Market Tax Credits
HUD 108 Programs
Office of Community Services |
Seidman. Chapter 14
SEED Corporation Case Study.
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This session provides an overview of federal economic development programs administered by the Economic Development Administration, the Small Business Administration, HUD, and the Office of Community Services (in the Department of Health and Human Services). The Inner City Supermarket Case will provide an example for examining the advantages and issues related to using different programs.
Inner City Supermarket Financing Case Study Write-Up due.
Part IV: Program Management
| 18 |
Issues in Program Management: Program Planning and Design |
Seidman. Chapter 16.
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The first step in developing successful economic development finance programs is defining clear goals for the program and designing it to effectively achieve these goals on a sustainable basis. For our consideration of program planning and design, we will look at how finance programs relate to an organization's mission and strategy, the role of local capital market analysis in 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 approaches and issues in designing economic development financing programs. Design issues and method faced in the final class projects will also be discussed.
| 19 |
Issues in Program Management:
Marketing and Origination
Underwriting and Structuring Investments
Servicing and Portfolio Management |
Seidman. Chapter 17.
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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. We will use the case study of the Portland Development Commission's Revolving Loan Fund as a case example to identify best practices and to discuss ways to improve the loan fund's strategy and operations.
| 20 |
Issues in Program Management: Capital Management and Recapitalization |
Seidman. Chapter 18.
Robinson, K. "Structured Finance for Economic Development Loan Funds."
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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.
| 21 |
Term Project Presentations |
None |
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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.
| 22 |
Term Project Presentations |
None |
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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 |
None |
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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:
General Obligation Bonds
Tax Increment Financing |
Seidman. Chapter 15, pp. 1-27.
Johnson, Craig L. "The Use of Debt in Tax Increment Financing." Tax Increment Financing and Economic Development. Edited by Johnson and Man. Pp. 71-86.
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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. The use of tax increment financing for economic development will be discussed.
Manufacturer's Fund Recapitalization Case Write-Up due.
| 25 |
Municipal Finance Tools II:
Special District Financing
Assessment Financing |
Seidman. Chapter 15, pp. 27-42.
Mitchell. "Business Improvement Districts and the 'New' Revitalization of Downtown."
Springfield, MA Business Improvement District Plan.
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Assessment financing and special districts can be an effective way to finance projects or investments where the benefits are fairly localized and revenues to support these investments can be generated from new tax revenues from this local area. The primary focus of this class will be to introduce special district financing and explore their application to economic development projects. The application of this tool to business improvement districts will be reviewed. Orlando's experience using tax increment financing to improve its downtown will provide a case study to explore the issues faced in using this type of municipal finance method.
We will also look back over the semester's work, including the term project experiences, to identify key themes and conclusions related to community economic development finance. Possible areas of discussion include the role of financing in achieving economic development objectives, what principles that should guide the economic development finance activities? What can we say about best practices in managing programs and institutions? Can development finance institutions survive as an alternative capital market? What are key challenges they face in the future?
Term Project Reports due.