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Taking a page from Washington, cities craft their own stimulus

Unable to wait for federal help, they are finding ways to offer loans to local businesses.

By Jeremy KutnerContributor to The Christian Science Monitor / March 4, 2009

As part of its five-part stimulus plan, San Francisco is using $23.8 million of federal money to lure companies to set up shop in struggling parts of the city.

Robert Galbraith/Reuters

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Business in the tiny northern California town of Lakeport is withering. Weekend pleasure boaters aren’t coming to Clear Lake like they used to, and credit remains almost impossible to come by.

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So Lakeport made a bold decision: Even in a time of budget deficits, it agreed to sell some of its own property and use the cash to fund loans to help save the stores of its gold rush-era downtown.

Like a handful of cities from New York to San Francisco, Lakeport is not waiting for a federal stimulus to see their businesses through the current crisis. The plans are often controversial and in some cases unprecedented, exposing the cities to the risks of defaulting businesses. But there is no blueprint for how cities should manage their own small-business recoveries, and the scope of the problem demands action.

“We’re in a situation where we have to do what we can to try and pull ourselves up by our bootstraps and not stand by and do nothing,” says Richard Knoll, director of the Lakeport’s redevelopment agency.

The municipal relief efforts encompass a wide array of strategies:

– Several cities, including Boston, San Francisco, and Bayonne, N.J., are repurposing federal money to give microloans to businesses, to spur construction, or to attract industries.

New York City is spending $10 billion – much of it from its own pockets – to get the local economy moving and to encourage entrepreneurs to spawn businesses in emerging fields.

– On a smaller scale, Westport, Conn., has relaxed longstanding city rules by allowing shops to place signs on the sidewalk, hoping the advertisements might gin up more business.

“The town doesn’t have any spare change, but we can make other efforts and try some outside-of-the-box thinking,” says First Selectman Gordon Joseloff, who says the city is also encouraging recently unemployed resident consultants and investment bankers to donate their expertise to brainstorm for local shops.

Lakeport’s decision to sell off $405,000 in city assets remains among the most far reaching efforts to save local businesses. It is a town of only 5,100 residents that is already facing a huge budget shortfall of its own and is considering major cuts in other areas.

Desperate times, desperate measures

Lakeport has made loans before, but always used federal dollars. The depth of the economic downturn, however, is prompting cities like Lakeport to consider new ideas.

“It’s a little unprecedented, the scale of the problem now, so I think everyone is on new ground,” says Karl Seidman, a professor of economic development at the Massachusetts Institute of Technology in Cambridge.

Cities have a long history of local business development, he says, but they are less equipped to deal with rescue efforts.

“The challenge for cities is that they’ve got their own fiscal crises to deal with,” says Professor Seidman. Yet for development programs “to make a difference,” he says, they must be done on a huge scale.

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