After two defaults, some city officials seek more structure in loan process

David Fishman, Reporter

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In the midst of two recently defaulted loans from local businesses, some Evanston officials want to create a more transparent and concrete loan process over the next year.

“There isn’t a clear understanding from people in the community on how, why and when we give money,” said Ald. Donald Wilson (4th), who sits on the Economic Development Committee. “If you don’t have a policy it’s really hard for anybody at all — myself included — to be reactive to how things are happening.”

The city has created a number of economic development initiatives to attract and retain local business. Recently, however, the city’s case-by-case loan system has come under scrutiny after Davis Transportation and Chicago’s Home of Chicken & Waffles defaulted, potentially costing taxpayers nearly $300,000 in unpaid debt.

“There are cases when a company would like to open in Evanston and has a financial gap,” said Paul Zalmezak, an Evanston economic development official. “We look at those on a case-by-case basis and if it meets the standards of what we’re trying to accomplish … we’ll consider a loan.”

Currently, there is no documented process by which a business can obtain a loan from the city, Zalmezak said, which gives city officials the ability to work out “creative” deals. On the other hand, that ambiguity sometimes gives the appearance city officials favor one business over another, he added.

When Davis Transportation owner Jared Davis began the application process for a loan through the city in March 2014, he said he expected a quick turnaround to help with some time-sensitive deals. Six months later, when the money finally arrived, those deals had long since disappeared and Davis said he struggled to find new contracts.

Davis Transportation, a luxury charter service, has since paid back less than 5 percent of its loan after closing its doors last month due to unforeseen complications and loss of business, said Davis.

Wilson said he tends to vote down loans to private businesses. In his constituency, he added, voters have voiced frustration with the lack of transparency and documentation in the loan process.

“The business that is getting the grant or the loan could be getting an unfair advantage over similarly situated businesses and they could be creating a disadvantage for the ones that aren’t getting it,” Wilson said.

But Ald. Ann Rainey (8th), who also sits on the Economic Development Committee, said she disagrees with Wilson. When done properly, she said, the city can use its resources to improve deteriorating neighborhoods and keep failing businesses alive. For example, when Little Beans Cafe, an indoor playground and family cafe at 430 Asbury Ave., requested a $75,000 loan in 2014 to help move into Evanston, the city jumped on the opportunity.

“That building (on Asbury Avenue) sat empty for over 10 years and only junk wanted to go in there — things that would contribute nothing to the community,” Rainey said. “That’s just a classic example of how a private entity could take a few dollars from the city and make this spectacular space.”

Little Beans Cafe is on track to repay its loan from the city before it terminates in 2025.

Last year, Chicago’s Home of Chicken & Waffles closed its doors and subsequently defaulted on a $200,000 loan from the city. In April, the city recovered about a third of its money, but the remainder is still outstanding. Rainey, who voted to approve the loan in 2012, said it had been a “terrible mistake” because the project lacked vision and substance.

Local business owner and Evanston resident Hecky Powell, a recent addition to the Economic Development Committee, said he had mixed feelings about extending loans to some businesses but rejecting others.

“I do not believe in using tax dollars to bring businesses into this community,” he said. “We should have more specific guidelines for applying for a loan. … We need to understand where the city’s trying to go with economic development and then we need to prioritize.”

Loans should be reserved for existing businesses that have contributed something to the community, Powell said, not outsiders looking to expand into Evanston. Dave’s Italian Kitchen, for example, has contributed 44 years of taxes, jobs and meals to the community — services which have earned the restaurant city aid, he said. Dave’s briefly pursued a loan last month before it subsequently resorted to crowdfunding.

Zalmezak said no “perfect world” exists for economic development. Ultimately, he said, the city’s “conservative” track record provided evidence that it had largely done a good job.

“A lot of this work has to be done on the fly and if you’re too restrictive … then you’re not going to get some of the more creative deals,” he said. “In an ideal world you’d have a program or guidelines established that everybody would have access to, but in practice that just doesn’t really work.”

Email: davidpkfishman@u.northwestern.edu
Twitter: @davidpkfishman

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