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SBA Hot Topic Tuesday — 23% Say CDCs aren’t Prudent Economic Developers, 66% Say No to Limiting Executive Compensation

January 26, 2016

By Bob Coleman
Editor, SBA Hot Topic Tuesday

SBA Hot Topic Tuesday — 23% Say CDCs aren’t Prudent Economic Developers, 66% Say No to Limiting Executive Compensation

Thank you to the 79 who responded to the Coleman poll about SBA’s request for industry input to further clarify certified development company “economic development activities.”

The fallout from Frank Dinsmore’s actions continues to haunt the CDC’s industry reputation. From our unscientific poll, 23% of the industry believes most CDCs are not acting prudently in providing and funding economic development activities.

Here are the numbers. Tomorrow I’ll run the individual comments.

I believe most CDCs act prudently in providing and funding economic development activities.

  • True — 77%
  • False — 23%

What is an acceptable level of cash reserves for future operations the CDC should hold before funding economic development activities?

  • 12 months of operating expenses — 44%
  • 6 months of operating expenses — 39%
  • 3 months of operating expenses — 17%

Or, should the CDC have the option to calculate the cash reserve based upon
(Check all that apply)

  • A percentage of the loan portfolio balance — 49%
  • A percentage of the annual servicing fees — 34%
  • A percentage of the surplus or profit — 53%

Should SBA limit the amount that CDCs may retain as a cash reserve?

  • No — 82%
  • Yes — 18%

Specific responses included 6 to 12 months operating expenses. One suggested 10 times annual servicing fees.

Should SBA require a CDC to reserve a percentage of revenue for economic development activities?

  • No — 61%
  • Yes — 39%

Specific responses ranged from 1 to 10 percent, with the most common at 5 and 10 percent.

Should SBA require a CDC to reserve a percentage of remaining funds, e.g. profit for economic development activities?

  • No — 52%
  • Yes — 48%

The most common responses were 10% and 50%.

Should SBA have the ability to limit executive director compensation?

  • No — 66%
  • Yes — 34%

A common answer for those that said yes is compensation should not exceed President Obama’s compensation of $400,000. Several pointed out they believe this is an IRS issue, not an SBA issue.

Specific caps ranged from $150,000 to $350,000.

Here is one well-reasoned comment, “SBA should, in those limited situations which merit it, clamp down on/censure those CDC’s and their executive directors who are abusing the organization/program. There is too much of the ‘sins of the few being visited on the many’ already. Just identify and deal with those who are abusing the system and let the others conduct their business without additional interference.”

Should the definition of economic development activity include business or technical procurement assistance: (Check all that apply)

  • Provided by the CDC — 70%
  • Paid by the CDC — 64%
  • Neither — 25%

My job is primarily related to:

  • CDC Industry — 47%
  • SBA 7(a) Lending — 22%
  • Small Business Lending — 16%
  • SBA/Government — 3%
  • Other — 13%
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