The city of Gresham has secured funding for a children’s fountain downtown, but don’t go shopping for swimsuits just yet.

Although the U.S. Department of Housing and Urban Development has approved the $1.5 million federal loan, City Hall has not received the loan documents and paperwork yet, said Steve Fancher, Gresham’s director of environmental services. Once it does, the city can move forward on the project at the Center for the Arts Plaza, situated between Northeast Second and Third streets and Hood and Kelly avenues.

“If it’s approved by the city council, we could start construction late this summer or in the spring of 2014,” Fancher said, adding it probably won’t be finished until next year.

The federal Section 108 loan will fund the design and construction of the 40-foot diameter fountain, which has long been planned as the plaza’s second phase. The loan allows Gresham to leverage part of its future Community Development Block Grant allocations from the Department of Housing and Urban Development for the fountain, which is considered an economic revitalization project.

It’s the second time Gresham has relied on the Section 108 program to fund a city project. Gresham first used it to help fund the Rockwood Building, a social services building that opened in 2011 in cooperation with Human Solutions. Gresham officials also raised eyebrows in 2008 when it used a line of credit to pay for Phase I of the Center for the Arts Plaza and the Gradin Sports Park.

Such loans and credit lines are necessary for Gresham to build amenities, said Gresham Mayor Shane Bemis.

With one of the lowest tax bases in the state, the city’s general fund is spent almost entirely on police and fire service. This month, residents begin paying an extra $7.50 a month on utility bills to prevent further public safety and parks maintenance cuts. Next year, residents will vote on whether to replace the temporary fee with a levy.

But the city’s annual Community Development Block Grant allocation can’t be used for personnel or routine city services, such as fire and police, Bemis said.

“If it could be, that would be my unequivocal first choice,” he said. “Since it is tailored more to funding infrastructure and social service projects, I cannot think of a better opportunity than to build an amenity that will improve Gresham’s urban form, spark development and business activity, and give our kids a safe place to recreate and cool down on hot summer days.”

The fountain has always been planned as part of the Center for the Arts Plaza, which was completed in the summer of 2009.

Bemis and other city councilors hope it attracts children, families and business to the downtown core much like Portland’s Jamison Square, which overflows with children on hot summer days.

“Over the years HUD’s Section 108 program has proven an effective tool for attracting private investment to projects of the sort that Gresham envisions,” said Mary McBride, HUD’s Northwest regional administrator. “We are pleased to be able to support Gresham economic, cultural and housing development efforts.”

Gresham also has been granted another Section 108 loan for $1.46 million, allowing the city to create a loan pool to help finance commercial, retail and affordable housing, as well as other site improvements citywide, but with a focus on downtown, Rockwood and West Gresham.

Section 108 loan guarantees allow local governments to borrow money from private investors at reduced interest rates, creating a powerful investment tool that can drive economic development in underserved areas, said HUD Secretary Shaun Donovan. “The program will be a boost to the city’s revitalization efforts and provide jobs for Gresham residents who need them most,” he said.

But they are not risk free. Governments must pledge a portion of their current and future Community Development Block Grant allocations to cover the loan amount as security on the loan. They also must repay the loan within 20 years.

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