For more than 30 years, the plumping and heating contracting firm of R. M. Thornton Inc. worked out of a building on Florida Avenue in Northeast Washington.
By late 1975, Frank Reaves, president of the contracting company, decided that his rapidly expanding business needed more space and that the time had come to buy a building.
Because of the high cost of building space in the District, Reaves focused his hunt in Virginia and Maryland. After several months of searching, Reaves found possible sites in Capitol Heights, Md., and Merrifield, Va.
He still had to contend with the problem of high interest rates on loans. So when Reaves found out that he could get a $300,000 loan for the new building at a 6.5 percent interest rate through the Maryland Industrial Development Financing Authority (MIDFA), his problem was solved and his decision was made.
This is no isolated incident. The MIDFA program, which began nearly 13 years ago, has become in the last few years an increasingly important tool in the Prince George's County campaign to lure new businesses to the area and to keep established ones happy.
Under the MIDFA program, businesses are authorized to get tax-exempt loans from private banks and, in most cases, state insurance for the loans.
According to county officials, nearly 20 industrial projects are presently under way because of MIDFA, including expansion of firms already in the county and the movement of new firms from other jurisdictions.
The Prince George's County department of Program Planning and Economic Development estimates that, within 20 years of completion, the 20 projects will add 1,800 jobs to county employment rolls and another $700,000 to property tax revenues at present rates.
According to the department, the projects represent $42 million in new investments in the county, half of which is MIDFA-guaranteed loan money.
"We can't say that MIDFA is the only reason the firms decided to move to Prince George's County," said Paul Gilbert, director of Program Planning and Economic Development. "But in many cases it is a decisive factor.
"Everyone gains under the MIDFA program," he added. "The state and the county get a larger tax base, the banks get a new customer, and the community gets new jobs."
The magic of the MIDFA program is derived from the ability of the federal, state, and county governments to grant tax-exempt status to projects, in effect lending private firms the government's name. As a result, industrial firms are able to get loans at three-quarters the going interest rate at the banks of their choice.
In the R. M. Thornton case, that meant a $300,000 loan at 6.5 percent interest. The firm next door to Thornton's Capitol Heights building got its loan at 9.75 percent interest.
"There's no question the MIDFA program makes some projects that would not otherwise be possible a reality," said Marlin Husted, president and vice-chairman of the People's Security Bank of Maryland. "In some cases a MIDFA loan can make or break a deal. The lower interest rates are quite an incentive for any businessman who is short on capital."
Reaves said the Thorton building, which has several unusual features, probably would not have been built without the $300,000 loan from MIDFA. The total project, including land, cost nearly $475.000. Using the loan and personal savings, Reaves said, he was able to construct a building that is almost self-sufficient.
Using advanced solar energy technology and knowledge gained from 32 years in the heating business, Reaves constructed a building that has its own heating, cooling, water, and sewerage systems. The solar panels on the two-story building can be seen from several blocks away.
While Reaves' innovative heating system is already in place and working, he has not as yet gotten the okay from the county health department to discontinue use of the county water and sewerage systems.
"I don't think there's a building anywhere in the world like this one," said Reaves. "We may get the word any day now that we can use our own sewerage system. We didn't use the MIDFA money to put the new technology in, but there's no way we could have constructed the building without the money."
He said that the new energy technology cut his company's utility costs about in half. The relocation of the business created 20 new jobs in Prince George's County, he added.
County officials say that they expect the MIDFA program and industrial revenue bonds to become increasingly popular in the coming years because of high interest rates in the private loan market.
"Hardly anyone can borrow money in a loan market as tight as the one we have now," Gilbert said. "Businessmen will definitely be looking at MIDFA loans and industrial revenue bonds as a means of mantaining growth."
While the MIDFA program has become an often-used tool to expand or lure new investment to Prince George's County, it has stirred some controversy. Last summer, County Executive Lawrence J. Hogan refused to endorse a MIDFA loan guarantee to Garfinckel's which had planned to build a warehouse and office complex in the county.
Hogan said that he opposed the loan because the county had enough warehouses. But a Garfinckel's executive alleged that Hogan withdrew his support because Garfinckel's management refused to contribute to the Washington Ear, a nonprofit corporation that provides information services for the blind. In past years, the charity received funds from the county budget but became an early casualty in the first year under TRIM, the county's tax limiting charter amendment.
Although the loan was approval from the County Council and the state financing authority, the county executive continues to maintain that he will not sign for the MIDFA loan guarantee.
More than anything else, the dispute points up the difficulties that the county still has in attracting manufacturing firms under MIDFA. According to Gilbert, manufacturing companies remain a tiny percentage of those who borrow money under MIDFA.
"MIDFA's working for us, but that doesn't mean it's necessarily going to change the mix of businesses that we already have in the county," said Gilbert. "That can only be done with time and good salesmanship on our part."