The Arkansas Federal Credit Union said Wednesday that it lost out on some $400,000 in potential gross interest income over the six-year term of a loan it was to make toward $17.5 million in initial funding for the Little Rock Technology Park.
The tech park is planned for an aggregate 3.25-acre area on and around Main Street downtown, along what is being called the Creative Corridor. Phase I development of the park is expected to cost about $24 million, with funding also coming from a 2011 voter-approved sales tax allocation.
By the end of this year, the city will have collected roughly $6.6 million in sales-tax revenue for the tech park. That money will be added to the $17.5 million to buy up property, construct buildings and pay for related professional services in Phase I development of the park.
Complete cost of the park, in five phases, is estimated at $100 million. The city sales tax, to be collected through 2022, is expected to generate about $22 million toward the project.
Arkansas Federal Credit Union CEO and President Rodney Showmar came up with the $400,000 figure after crunching numbers based on the interest rate charged over the life of the loan.
The credit union was among a group of lenders listed on an Aug. 7 letter of intent between the Little Rock Technology Park Authority and the bankers who were collectively to make the loan. In addition to the credit union, lenders were Arvest Bank, Bear State Bank, First Security Bank, Simmons Bank and Centennial Bank, which is steering the work of the consortium of lenders.
However, some banks complained to the Arkansas Bankers Association that the credit union shouldn't be included in the deal because it is exempt from federal taxation, and the tech park is being funded with taxpayer dollars. The bankers association intervened, and the credit union was removed from the list and two more banks were added: First Arkansas Bank & Trust and Relyance Bank. By the time a new letter of intent was signed by the Little Rock Technology Park Authority on Sept. 4, the deadline had passed for the credit union to make a competitive bid.
The credit union, based in Jacksonville, serves state government employees and other groups. It's the 10th-largest financial institution in Arkansas with just under $1 billion in assets, according to the credit union.
An attorney for the credit union said in a letter Wednesday to members of Little Rock's Board of Directors that the credit union still wants a shot at making a loan for the tech park.
"AFCU was effectively frozen out," Dick Downing of James, House & Downing, P.A. wrote to city directors. "In our view, this was foul play."
"We would like to discuss this situation because it could cause higher costs to the tech park. Certainly, it is allowing others, for competitive reasons, to dictate public policy," Downing added.
Showmar said the the credit union was "just told" that it would leave the consortium and that the rest of the lenders would proceed without it.
"We really had no other recourse," Showmar said. "We didn't think that was very fair."
He believes the tech park authority needs to honor the original letter of intent or allow the credit union to place a bid.
"Basically we were kept from submitting a bid by being included on the front end, but then excluded after the deadline had passed," he said.
Tech park director Brent Birch, whose father Bob Birch is regional president for Centennial Bank, said Centennial "is the gatekeeper on who is in, who is out from the bank perspective." The authority isn't involved in or preferential in regard to what banks are included or excluded, he said.
"The banks are making those decisions," Birch added.
Mary Good, chairman of the Little Rock Technology Park Authority board, said the group is "agnostic" about which lenders are making the loan.
"We don't care," she said. "We'd be happy to have whose ever money is willing to loan it to us at a price that makes sense. We have no dog in this hunt."
The board had nothing to do with which institutions were chosen, she said.
"We were not in the position to decide who was going to be in the consortium," Good said. "There are some banks in and some banks not, and the tech park authority had nothing to do with that.
"That was done by the banks in putting together a joint proposal," she added.
A call to Jeff Hildebrand, vice president and chief lending officer for Centennial, was not returned in time for publication Wednesday.
In Downing's letter, he asked to meet with the city directors and said later Wednesday that he would try to get in front of them at a future meeting.
Bill Holmes, president and CEO of the bankers association, said the organization had calls from several members questioning the credit union's participation in the consortium and wanting to know how they could get in on it.
Holmes said he called the underwriters at "one of the lead banks" to suggest replacing a non-tax-paying entity with taxpaying entities to support a tax-funded park.
"It was just too much of an irony to me," Holmes said. Using all banks instead of including the credit union isn't costing the tech park any more for the loan, he said.
It is possible, admitted Brent Birch, that some of the financing package put together under Centennial's lead is tax exempt, meaning the bank won't have to pay taxes on part of the interest earned.
"Our attorneys are reviewing and giving opinion on what would qualify to be tax-exempt," he said.
Downing called it "hypocrisy." The credit union has complained to the tech park authority board "and gotten nowhere," he said. That's what predicated the letter to the members of the city's board of directors.
The $17.5 million loan will help the tech park buy the Exchange Bank Building and its annex, owned by companies of Warren Stephens; another vacant building and parking lots owned by Stephens; and the Mays, Byrd and Associates law firm building, next to the Exchange Bank annex. Construction would include renovating the annex and law firm building. The Stephens property is under contract for $11.5 million. The Mays, Byrd and Associates building has been appraised at a little more than $500,000.
Good said the bank consortium's finance package is currently under review and should be approved soon in order for the authority to move forward in the new year.
The future tech park will provide space to companies and startups that are primarily tech-based and that plan to use research from partner hospitals and universities to make products or services. In addition to the city, stakeholders in the tech park include the University of Arkansas at Little Rock and the University of Arkansas for Medical Sciences, Arkansas Children's Hospital and the Little Rock Regional Chamber of Commerce.
In a Sept. 15 letter to Arkansas Business, National Association of Federal Credit Unions President and CEO Dan Berger defended the credit union tax exemption and said misinformation from the Arkansas Bankers Association led to the credit union being uninvited to participate in the lending consortium's tech park funding.
Berger noted in his correspondence that credit unions "pay plenty of taxes," including payroll, property, real estate and many state and local taxes. He also said credit unions filled the gap of much-needed capital when traditional lenders such as banks withdrew their financial support during the financial crisis.
"The [Arkansas Bankers Association] put politics above the potential jobs and economic growth of the community, which speaks volumes about its self-serving agenda," Berger said.
He ended his letter saying he hoped the Little Rock Technology Park Authority board of directors would "have a change of heart and give Arkansas Federal Credit Union the chance to participate in the bidding process."
A Section on 09/24/2015