VILLAGE OF MOUNT PROSPECT, ILLINOIS
Flood Loan Program

For the second time in less than a year, "the heavens opened and the rains came" deluging thousands of residents in the Chicago Northwest Suburban area. The rains started during the early morning hours of August 14,1987 and before they let up some twelve hours later, nearly ten inches of rain had fallen on the area. The volume of water was so great that retention/detention areas quickly overflowed their banks, creeks and waterways were swollen into vast lakes, and the Metropolitan Sanitary District's deep tunnel reservoir of one billion gallons was filled.

The results were devastating. Cars were stranded on highways as interchanges and underpasses flooded, O'Hare Airport became an island with traffic in and out impossible, and thousands of basements were flooded. Many families who were still recovering from the flood of 1986 were hit with a double whammy by this second rainfall.

In Mount Prospect, the results were much worse than in 1986 when the Des Plaines River overflowed its banks and flooded approximately 200 homes. This time the flooding was Village-wide with an estimate of several thousand homes being flooded. Fortunately, the flood waters subsided quickly and by Saturday, August 15, 1987, most of the roads were again passable. However, the damage had been done and Village residents faced a massive cleanup. The cleanup started immediately and by Monday morning, parkways and tree-banks were heaped with furniture, carpeting, appliances and other items ruined by the flood. During that week, Village crews and refuse contractors hauled an estimated 9,000 tons of flood-damaged goods from the residents' homes.

On Tuesday August 18, 1987, George Van Geem, one of the Village Trustees, called the Village Manager and the Village Finance Director and stated he had received many requests for assistance from Village residents. He asked whether the Village could provide immediate loans to residents who had suffered flood damages. In response to this request, several calls were placed: (1) to the Village Attorney who determined that under home rule powers, emergency loans could be a valid municipal purpose; (2) to the Village's financial consultant who stated that an additional amount could be added to a pending bond sale on September 15, 1987; (3) to Bond Counsel who confirmed that any such bonds would be taxable bonds; and (4) to two local bankers who offered to help the Village set up a Flood Loan Program. These findings were passed on to Trustee Van Geem.

At the Village Board meeting that evening, Trustee Van Geem introduced the idea to the Village Board and recommended funding of up to $5,000,000 for the program. Two of the conditions proposed were that the loans not exceed $10,000 per applicant and that they be made available to apartment residents as well as home-owners. The Village Board unanimously approved the Flood Loan Program and directed the Village Staff to come up with a program that would make the loans available as quickly as possible.

Planning started in earnest the next morning with meetings with the local bankers, Bond Counsel, and the Village's financial consultant. Various ideas and concerns were discussed including a concern over the amount of funds needed and the potential cost to the Village of taxable funds. One of the unresolved questions was how much actual interest from residents there would be in a loan program. From the discussions, a decision was reached that the Village could use existing reserves for the initial loans and go to the bond market only if the need was demonstrated. Both of the local banks involved in the discussions offered to lend the Village any interim funds needed, and one of the banks made a commitment to provide five-year financing at nine percent and ten-year financing at ten percent to the Village.

A number of options were considered by the Village Manager and Finance Director regarding the amount of the possible loans to apartment residents compared to homeowners and the rates of interest that should be charged. It was determined that a cap should be put on loans to apartment residents because they would not be

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responsible for structural repairs. Additionally, it was decided that an interest rate that was 1/2% to 3/4% less than a home-equity loan would be a reasonable rate. The following plan was formalized and was presented to the Village Board on August 25,1987:

		Apartment
	Homeowners	Residents
Amount of Loan ........$1,500-$10,000		$500-$2,000
Term of Loan ............. 1 Year-10 Years		1 Year-3 Years
Interest Rate .............. 1-5 Years, 8 1/2%		8 1/2%
	..............................6-10 Years, 9 1/2%

Applications would be accepted only during the period of September 1-30, 1987. Again, the Village Board unanimously endorsed the plan.

In an attempt to make the program as convenient for applicants as possible, the Village required only a one-page credit application, a statement of the damage sustained and how the funds would be used, and a $40.00 application fee. When the applications were received, they were reviewed for completeness and then submitted to the bank for a credit report. After the credit report was obtained, a Note, Mortgage, and Truth-In-Lending Disclosure Form were prepared by Village Personnel along with a Village check for the loan amount. Generally the loans were processed in three to four working days but in several cases, applications which were received on Thursday and Friday were processed and the loan amount disbursed on Saturday of the same week.

Although the total amount of the loans was significantly less than the amount authorized by the Village Board, there was much more interest than had been expected. A total of 54 loan applications were received with total loans amounting to $359,000. All loan requests were granted and all loans were disbursed by Saturday, October 10, 1987. The loan applicants were made up of 53 homeowners and one apartment resident.

After all of the loan applications were processed, an analysis revealed 33 loans totaling $186,000 were for five years or less and 21 loans totaling $173,000 were for six to ten years. Further analysis of scheduled loan payments indicated that some $359,777 would be received during the first five years and $132,110 during the last five years of the program. Using this information, several financing plans were considered including the possibility of the Village financing the total amount, borrowing the total amount and a combination of using Village funds as well as borrowed funds.

The plan for funding the loan program ultimately included a bank loan of $175,000 at nine percent for five years and an advance of Village funds of $184,000. The Village advance will be paid back over 10 years and will include interest at eight percent. This particular plan

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was selected because it provides flexibility if the loans are paid ahead of schedule, it provides a reasonable return on Village funds, and it provides, a surplus of approximately $6,000 for possible loss and costs. In the interest of minimizing ongoing costs, Village personnel will administer the collection of the loans.

During the past year we had all been made keenly aware of the destruction caused by floods, but a review of the statements of flood damage on the applications brought home the personal devastation suffered by Village residents. Application after application told of the complete loss of items that had been collected over a lifetime, some of which could never be replaced. The loans would be used to repair structural damage and replacement and/or repair of furnaces, appliances, furniture, carpeting and many other items of personal property. A summary of the statements indicated that approximately $210,000 would be used for structural repairs and $149,000 for appliances, furniture, carpeting and personal items.

All of the loan recipients were thankful for the help they received and many asked that their appreciation be expressed to the Village Board. The words of an editorial that appeared in the Mount Prospect Herald on August 20, 1987 sum up the public response to the loan program:

"Instead of whining about the flood, Mount Prospect's elected officials figured a way to help people quickly without costing the Village bundles of money. The Trustees didn't diddle around waiting for the Federal government to bail out flood victims in the Village. Instead, they dealt with a once-in-a-lifetime event creatively, humanely, and quickly . . ."

The Village's action was a unique response to a local emergency, and it appears that the results justify the courage and foresight of the Village Board in authorizing Mount Prospect's Flood Loan Program. •

Page 24 / Illinois Municipal Review / November 1987