PORT ANGELES — The Clallam Business Incubator has a new caretaker and board with a critical mission: find new funding sources within the next six months or close down for good and go through federal bankruptcy court.
This ultimatum was self-prescribed by the new board, established mostly by representatives of local public entities on Nov. 1 to try to save the private, nonprofit organization located in the Lincoln Center, 905 W. Ninth St.
The Incubator — which provides discounted office space and professional support to new businesses, among other services — has been in a transitionary period since late September after the previous board concluded that the organization could not continue to pay a $49,000 annual loan payment to the county while maintaining its business-support services.
The Incubator made its first payment on the loan in June, as required by its agreement with Clallam County.
Until this year, it has had to pay only interest.
Before the last board dissolved, it cut its $60,000-per-year executive director and business consulting contract with the ONE Group in order to maintain a small cash reserve. Jim Haguewood, who is a ONE Group partner, acted as executive director through the contract.
On Monday, the seven-member Incubator board — made up of representatives of the county, city of Port Angeles, Peninsula College, Port Angeles School District, Port of Port Angeles and two previous board members representing local business — agreed to have the Clallam County Economic Development Council carry out some of ONE Group’s previous duties without compensation through March 31.
The school district, city and college had representation on the previous board. New to the board are the port and county.
The Incubator’s goal, said board member and county Administrator Jim Jones, is to find enough new public and private financial contributors by June to make the organization financially sustainable in the long run. As part of that mission, a new, long-term business plan will be developed, he said.
Bankruptcy court possibility
If the board can’t find enough new funding partners to keep the Incubator running within the next six months, the organization will dissolve and the county will go to bankruptcy court to try to get as much of a return as possible on its loan, Jones said.
The 20-year, $750,000 loan with 1-percent interest was approved by the Incubator board in 2004 to provide it the cash needed to finish construction of its space at the Lincoln Center.
The building also houses the North Olympic Peninsula Skills Center and Peninsula College’s Entrepreneur Institute.
The loan was made with the county because the private organization was not eligible for low-interest loans or grants from the state, according to Jones.
The county, therefore, made the same loan arrangement with the state Department of Commerce and then loaned those funds to the Incubator.
Jones said the county can’t forgive the loan because it would be considered “gifting public funds” and it would still be on the hook for its loan with the state.
Since the Incubator has little in the way of assets, the county would stand to lose most of the $750,000 if the Incubator fails, Jones said.
Through bankruptcy court, the county would likely be able to acquire the Incubator space at the Lincoln Center, he said, adding that the county has little need for the 8,376-square-foot location.
With interest and this year’s installment, the Incubator has made $71,000 in loan payments.
Entities contributing
Tentatively, the county, city and port have agreed to contribute about $30,000 each on an annual basis to the Incubator as part of a long-term financial plan, Jones said, but the organization would need roughly another contribution of the same size to make it sustainable.
The Incubator is in the red about $2,500 per month, without the cost of an executive director or the loan payment included.
Jones said the board members are estimating that they need $120,000 to cover annual expenses that revenues from clients and business classes don’t cover, such as the loan payment and its share of the Lincoln Center’s operating costs.
Jones said any new funding partners will likely be given a seat on the board, which can have up to 11 members.
A six-month deadline to create a long-term financial plan that can be marketed to potential funding sources was set by the board, he said, to keep the process from dragging out and in order be able to market the plan to public entities in the county, such as the cities of Sequim and Forks, before they finish their 2011 budgets.
‘Successful track record’
City Manager Kent Myers, who is also an Incubator board member, said that the board’s public and private representatives decided to take a shot at keeping the Incubator going because they believe that such an organization with a “successful track record” cannot be left to dissolve over a lack of financial support.
“A lot of cities are envious of us” for having an Incubator, he said.
“It would be certainly impossible to restart one,” added Myers, who called the Incubator “one more piece of an economic pie needed to improve our local economy.”
Throughout its tenure, the Incubator has had 16 new businesses as clients, with three graduating from its program, and consulted more than 200 businesses, said Neil Gamroth, a ONE Group partner.
The Incubator has seven start-up businesses as tenants and is still accepting more into its program. It has two “anchor tenants,” Shorebank Enterprise Pacific and the EDC, which pay rent but are not enrolled in its program.
The organization, which formed about five years ago but accepted its first tenant in May 2006, has used grants and an $85,000 per year contribution from the city to cover its start-up and operating costs that weren’t met by its revenue. Myers said the city will contribute $45,000 to the organization next year.
Bill Peach, Quileute tribe executive director and original Incubator board chairman, said the organization was never expected to be self-supporting.
“I believe that the board understood an incubator is a service to the community,” he said.
“And the likelihood that the Incubator was going to be totally self-sustainable from successful businesses, it was recognized that’s a low likelihood.
“At the end of the day, the likelihood that the community would contribute to business development on an ongoing basis was clearly understood,” Peach said, when asked if the original board expected further local contributions to be made in order to financially support the Incubator.
The Incubator’s expense-revenue estimate does not take into account tenants who are not up to date with their monthly rent payments.
Owed rent
The organization is owed about $15,794 in rent from four of its seven tenants.
EDC Executive Director Linda Rotmark attributed that to the sluggish economy, which she said has not been kind to new businesses.
“I think the economy affects everyone whether they’re an Incubator client or on the street,” she said.
Along with assisting its tenants, the Incubator has also supported the Entrepreneur Institute and the Entrepreneurial Challenge. It has also held classes on how to become a successful business owner, said Gamroth, who was the chair of the Incubator task force responsible for creating the organization.
“The Incubator was built on a five-year strategy plan,” he said. “We were right on the mark with the plan.”
But the problem for the organization, Gamroth said, was that the loan payment and its share of the Lincoln Center’s operating costs, which at 47 percent he thinks is more than it should be responsible for, were added after its original business plan was drafted.
That left it, he said, with only future grants or contributions from local public or private agencies with means to keep it afloat in the long run.
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Reporter Tom Callis can be reached at 360-417-3532 or at tom.callis@peninsuladailynews.com.
