Council OKs ‘local’ loan for planned hotel franchise

Questions from City Council Member Katie Tovo about a proposed Family Business Loan led to an illuminating discussion at Thursday’s Council meeting about what the word “local” really means.

Tovo said she was surprised to find out that the program does not require that loans go to local businesses. Specifically, she wanted to know more about why a Home2Suites hotel, which is a Hilton franchise, qualifies for the program.

The Section 108 loan, which is for up to $402,000, is part of the Family Business Loan Program. Airport Commerce, LLC received the loan to help develop the planned $8.3 million, 87-room hotel at 1707 Airport Commerce Drive near Austin Bergstrom International Airport.

“This continues to give me some pause that we are using our family loan monies to help construct what is a local location for a national franchise,” said Tovo, who compared the loan to more recent loans in the program, which she pointed out seemed to be “of a different type of a business.”

“These were small, independently owned businesses, not kind of the local arm of a national franchise,” said Tovo. “This one really seems to be very different.” Tovo suggested that Council add language to the loan criteria to ensure that loans went to smaller businesses not affiliated with national franchises, but that did not come to pass.

After a discussion about the program, Tovo made the motion to approve the loan. It passed unanimously, with Council Member Bill Spelman absent.

Economic Development Department Assistant Director Sylnovia Holt-Rabb explained that although the hotel is a franchise of a national company, a local business owns the franchise.

“We implement this program to encourage local small businesses, because they are the heartbeat of our community,” said Holt-Rabb. “It is not a penalty that a local small business buys into a franchise. We’re looking for anyone with a well-vetted business plan that can come in and hire locally.”

Economic Development Department Director Kevin Johns said the area where the hotel will be built has a 36 percent poverty rate, and the focus of the program is to create jobs. He explained that the city had created a separate microloan program to specifically address local small businesses. He said that franchises were increasingly purchased by minorities because they offered structured programs that were a “more guaranteed, organized way to success.”

“As you know, Austin is on a lot of great lists, but it’s also on a list that we don’t want to be on, which is one of the highest rates of poverty growth in America,” said Johns. “Of the 45 jobs that will be created there, half of them have to be for hard-to-employ, low-income people … We just think it’s a really good tool for Austin.”

Johns said that if the city tried to place additional requirements on the loans, it was likely that the federal government would not approve them. He said the Department of Housing and Urban Development was “very clear” about not discriminating against businesses that met their requirements.

Council Member Mike Martinez pointed out that franchises are local businesses, run by families investing in Austin. He suggested that better transparency in the loan-awarding process would add to the “level of clarity” in cases such as the hotel.

“You may see a big chain on the sign on the front window, (but) it’s a local individual who is employing Austinites,” said Martinez.

Council Member Laura Morrison said that she would like to see a breakdown of how much money stays in the local economy for franchises.

Though the deadline for these particular loans is in December, Tovo said she would be interested in talking about what restrictions the city could place on the loans without violating the federal goals. Johns said he would enjoy that conversation.