State to Pump $500 Million into Small Biz by Reviving Link Deposit Program
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SEPTEMBER 12, 2007
CORDRAY REVIVING TREASURY'S
ECONOMIC DEVELOPMENT PROGRAM
In hope of growing the state's economy, Ohio Treasurer Richard Cordray is revving up a small business program that has languished in recent years.
He has increased the amount of money that small businesses and banks can request for reduced rate loans through his office's Linked Deposit Program to $400,000 (from $250,000) and doubled the amount of money spent per job from $25,000 to $50,000.
"Raising the loan amount is necessary to support the kind of entrepreneurship that is so vital to jobs of the future as well as the steady growth and success of the businesses of today," Cordray said. "Doubling the jobs-to-dollars ratio should translate to creating and keeping the kinds of jobs that can support a family.
"Whatever my office can do to support businesses that will stay in our home towns and create jobs that pay well, we will do it," Cordray said.
The Small Business Linked Deposit program, authorized by the Ohio Legislature in 1983, allows the treasurer to use up to 12 percent of the state's investment portfolio to purchase reduced rate certificates of deposit at local banks. The banks must then pass along the interest rate reduction-up to three percent for a two year period-to small businesses to create or retain jobs.
"The state's portfolio is averaging over $7.7 billion, which means that after other commitments we have $500 million available to pump back into Ohio's economy at a time when it has been hemorrhaging jobs and into community banks at a time when they need liquidity," Cordray said. "That's $1 million dollars a day."
A detailed analysis of the program conducted by Cordray's staff revealed recipients typically have been businesses with a median age of 5 - 8 years concentrated within the manufacturing and retail sectors of the economy. Few high-tech businesses have participated to date.
Involvement in the program began to decline when interest rates started to drop in 1999, Cordray noted. However, the program did not recover when rates began rising again. While 1,526 small businesses participated in the program in 1998, only 156 businesses were using the program by 2006.
Cordray cited a February 2007 study by the Small Business Administration (SBA) that concludes: "state efforts to promote small business formation will be more fruitful in terms of generating economic growth than virtually any other policy option."
The births-or deaths-of small businesses are seen as the single largest determinant of gross state product employment and state personal income growth, according to the SBA Report, Cordray said.
Cordray said his office will continue meeting with small businesses, Chambers of Commerce, banks, economic development offices, and local government officials to fine- tune the program. More changes are anticipated next year, which marks the program s 25-year anniversary.
