Bill 11, the provincial legislation to enact  the Southwestern Ontario Development Fund, passed second reading on March 5 and will now go to committee for further study.

The opposition Progressive Conservatives voted against the bill, arguing the province can't afford the SWODF (as well as its Eastern Ontario counterpart, which is also contained in the bill). PC economic development critic Monty McNaughton (Lambton-Kent-Middlesex) was widely reported as referring to the fund as "corporate welfare".

SWEA and its partners South Central Ontario Region (SCOR) and Western Ontario Wardens' Caucus (WOWC) began advocating for creation of the fund before the 2011 provincial election, arguing that businesses and communities in the region needed an incentive program to encourage private sector investment at a time when manufacturing jobs were being lost at an alarming rate.

Following announcement of the fund, a SWEA delegation met with minister Duguid and his senior officials in mid December, outlining a vision for the fund focussed primarily on immediate job creation in the small and medium enterprise sector. SWEA has encouraged MPPs of all parties to support this program during a time of significant turbulence in our regional economy. SWEA also proposed the involvement of the commercial lending sector as a means to generate private sector investment through the use of modest, very targeted public incentives.

Key recommendations to the minister include:

• The primary objective of the SWODF should be direct, measurable job creation. There is an immediate need to re-engage workers, primarily in manufacturing, who have lost their jobs due to plant closures and down-sizing.
• Given the overall size of the fund and the pent-up demand for it, there should be a clear focus on business creation, expansion and retention in the SME sector. This is the best mechanism to ensure that the benefits of the fund are widely distributed to all parts of the region – rural, small urban and urban.
• The fund should include grants and loans, with the largest portion – as much as 80% -- in the form of loans. This ensures that the fund is leveraged by generating a high level of private sector investment.
• To leverage funds even further, SWEA advocates a role for the commercial lending sector. It is estimated that such an approach could achieve leverage in excess of $20 for every dollar expended from the fund. Our strategic partners at Libro Financial Group, a London-based credit union with 15 branches across Southwestern Ontario, have created a preliminary model of such an approach.  In brief, the commercial lending proposal is designed to encourage businesses to secure loans from any participating financial institution while going through all normal credit assessment procedures. The SWODF is used to reward direct and proven job creation -- at one, two and three year benchmarks – in the form of Job Creation Credits (direct payments, not tax credits). Thus, money from the fund is released only when jobs are proven to have been created. Depending on the size of the credit, the money received by the business will more than offset the cost of borrowing and will also significantly reduce the costs of hiring and training new staff.
• There will be instances where grants will prove advantageous. We suggest that the size of grants be limited to the range of $25 - $50,000. Grants could be made available to agencies and other not for profit groups. The focus should remain on direct job creation as much as possible. We do not see a role for the SWODF in municipal infrastructure initiatives.
• To further stress the importance of job creation through the fund, we recommend that all loans and grants be evaluated based on the number of jobs to be created. In all instances we suggest that a minimum of three jobs be the target for each loan or grant. This relatively low number also signals that the program aims to be distributed widely throughout all parts of the region, whether urban or rural.

SWEA's proposals, including the involvement of the private lending sector, are designed to encourage and maximize private sector investment, create and sustain jobs in the short term, and ensure maximum accountability for the public funds within the program.

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The SWEA board of directors is recommending that the proposed Southwestern Ontario Development Fund (SWODF) be strongly focused on direct job creation using a combination of grants and loans.

In addition, the board endorsed a proposal to offer SWODF loans through the commercial lending sector. Such an approach could leverage fund dollars by as much as 15 to one. The proposal was developed by Libro Financial Group, a SWEA strategic partner with 15 credit union branches across Southwestern Ontario. Recommendations in the proposal suggest the involvement of all interested commercial lenders, not just credit unions.

“There is tremendous pent-up demand for funds in the SWODF,” states SWEA president Serge Lavoie. “Offering loans and partnering with the commercial lending sector in Southwestern Ontario is a powerful way of expanding the pool of money while targeting investment into direct job creation.”

In the SWEA-endorsed proposal, businesses would enter into normal lending arrangements and commit to a job creation target. At the end of one year, the business would receive a Job Creation Credit from SWODF for each job created.

SWEA also proposes a grant component for the fund, aimed specifically at small and medium enterprises. Grants should range from $25,000 to $50,000, with businesses matching grant dollars on a 2 to 1 ratio.

Whether loans or grants, SWEA is suggesting consideration be given to applicants aiming for the creation of at least 3 full time equivalent positions or more.

In supporting its recommendations, the SWEA board notes that the modest size of the SWODF dictates that the money be tightly focused on job creation in the short term. When the need is so great and available funds so limited, it’s important to target investments wisely. The combination of loans and grants, with low thresholds, ensures participation by all sectors of the economy within Southwestern Ontario. The plan also levels the playing field among rural, small urban and urban areas.

“We’ve listened carefully to what the province has been telling all of us,” states SWEA chair and Stratford mayor Dan Mathieson. “Money is tight and immediate job creation is a top priority. In situations like this, we all need to be open to new ideas and approaches.”

SWEA will be sending its detailed recommendations to MEDI minister Brad Duguid as a follow up to the meeting representatives had with him last December. Debate on Bill 11, the legislation enabling the fund, will resume in mid-February when the Ontario legislature resumes sitting. The minister has stated he hopes to receive approval and have funds flowing by late spring.

SWEA’s proposals in brief:

• Direct job creation should be the primary focus of the SWODF.
• Funds earmarked for businesses should be divided 80% to loans and 20% to grants.
• Loans should be offered and managed through the existing commercial lending sector to leverage additional funds and reduce program overhead costs.
• Grants should range from $25K to $50K, with recipients matching the grants 2-1.
• Loans should be $50K or more
• Both grants and loans should have a stated minimum job creation goal of at least 3 FTE.

The Southwest Economic Alliance is a partnership of counties and cities in Southwestern Ontario with the mandate to promote the economic transformation of Southwestern Ontario