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ORR # 2001-027 DEPARTMENT OF AGRICULTURE
AGRICULTURE DEVELOPMENT DIVISION
REGULATION NO. 351 JULIAN STILLE VALUE-ADDED AGRICULTURAL DEVELOPMENT FUND
Filed with the Secretary of State on February 25, 2002 These rules take effect 7 days after filing with the Secretary of State
(By authority conferred on the department of agriculture by section 2 of 2000 PA 322, MCL 285.302)
PART 1. GENERAL PROVISIONS
R 285.351 Definitions.
Rule 1. (1) As used in these rules:
(a) “Act” means sections 1 and 2 of 2000 PA322, MCL 285.301 and 285.302.
(b) “Applicant” means any one of the following entities that does, or applies to do, value-added agricultural processing or related agricultural production operations, or both, in the state of Michigan:
(i) An individual.
(ii) A farmer-owned cooperative.
(iii) A partnership.
(iv) A limited liability company.
(v) A private or public corporation.
(vi) A local unit of government.
(vii) A producer-funded commodity organization that is legislatively authorized in Michigan.
(c) “Application instructions” means the document, which is issued by the department to applicants and which describes information required to participate in the agricultural development fund program in the given state fiscal year.
(d) “Creditworthiness” means the ability or capacity to borrow money from a nonpublic source.
(e) “Current ratio” means current assets divided by current liabilities. This will be used as a measure of short- term financial soundness.
(f) “Department” means the Michigan department of agriculture.
(g) “Director” means the director of the department or his or her designee.
(h) “Equity position” means the difference, expressed in percentage terms, between the total value of the assets of the applicant and the total value of the liabilities of the applicant.
(i) “Expand” means to provide for new facilities or an addition to existing facilities, new products, and services.
(j) “Feasibility study” means a written study document that consists of an expert analysis of all of the following elements of the proposed venture:
(i) Economic feasibility.
(ii) Market feasibility.
(iii) Technical feasibility.
(iv) Financial feasibility.
(v) Management feasibility.
The meaning and use of these elements shall be the same as those of the United States department of agriculture as defined in the guide for completion of feasibility studies, rural development instruction 4279-B, appendix A, adopted on December 23, 1996. The department shall accept and use a feasibility study that has been approved by the United States department of agriculture. A copy of the guide for completion of feasibility studies is available at no cost from either the Michigan Department of Agriculture, Agriculture Development Division, 525 West Allegan, Lansing, Michigan 48909 or the United States Department of Agriculture, Rural Development State Office, 3001 Coolidge Road, Suite 200, East Lansing, Michigan 48823.
(k) “Financial soundness” means the ability of a business entity to operate profitability or remain sustainable over a reasonable time period.
(l) “Grantee” means any applicant who the director has awarded a grant from the agricultural development fund on the project proposal.
(m) “Job” means a direct employment position with the grantee created or
retained as a result of the completion of the project and expressed in terms of a full-time equivalent as defined by the United States department of labor.
(n) “Public notification” means 1 or more press releases sent to appropriate Michigan news media outlets and a public posting on the department’s web site.
(o) “Project” means a venture or an activity, which is funded or proposed to be funded from the agriculture development fund.
(p) “Risk management” means the level at which the applicant minimizes exposure to financial risk.
(2) Any financial terms or definitions shall be consistent with generally accepted accounting principles, unless otherwise defined in these rules.
(3) The terms defined in the act have the same meanings when used in these rules.
R 285.352 Application, submittal, selection criteria, scoring, and decision process.
Rule 2. (1) The department may conduct a grant program using monies from the agricultural development fund pursuant to the purposes and provisions of the act and may utilize up to 5% of the fund for administrative support of grant processing and compliance. The program shall be a competitive grant program and applicants shall make an application for monies from the fund pursuant to the act and these rules.
(2) An application for a grant from the agricultural development fund shall be made on a form or format prescribed by the department for the purpose or purposes described in the act.
(3) Not less than 60 days before the application deadline, as determined by the director, the department shall make a public notification of the grant program, including information on the application form and application instructions. The director may indicate certain priority program initiatives or classes of agricultural commodities and products in the application instructions based upon programmatic or funding changes for each fiscal year.
(4) An application for a grant shall be directed into 1 of the following 4 program categories:
(a) Market research and technical assistance for a specific product prepared by an industry consultant who has expertise in the field.
(b) Detailed business plan development that incorporates a specific marketing strategy that is based upon a written feasibility study and specifically outlines the working capital and financial needs, management structure, construction, production, marketing, and distribution needs.
(c) Application and utilization of innovative technology that will enhance and support the commercialization of value-added products.
(d) Facility purchase and construction, including land, site development, utility improvements, transportation installations, telecommunications, and other infrastructure improvements, demolition, buildings, and equipment. The department may apportion available grant funds in any manner for the 4 program categories in the application instructions.
(5) The department may update the application instructions each fiscal year. The department may also issue amended or subsequent application instructions after the initial application deadline based upon priority program initiatives, programmatic, or funding changes in a given fiscal year.
(6) The application review process will proceed as follows:
(a) Upon receipt of an application, the department shall determine if the application is complete or is lacking necessary information. If the application is found to be complete, the department may forward the application, if appropriate, to the agriculture development review committee. If the application is found to be incomplete, the department shall request additional information and study on all or any portion of an application, by written notification to the applicant setting forth the necessary additional information. Until the necessary information is provided to the department, the department shall neither evaluate nor score the incomplete application for possible approval of grant.
(b) The department’s determination to approve, modify, or reject a completed application shall be based on the selection criteria and scoring system as set forth in subrules (9) and (10) of this rule. The director may appoint, on a fiscal year basis, an agricultural development review committee for its review and scoring of the applications and advice on the program. The review committee may divide into subcommittees. The review committee or subcommittees shall evaluate and rank all applications based on the selection criteria and scoring system as set forth in subrules (9) and (10) of this rule. The review committee shall be comprised of parties specified in the act. The parties shall have relevant business, management, or professional expertise. A subcommittee of the review committee that is evaluating and ranking applications based on the selection criteria and scoring system shall be made up of nonapplicants and parties who do not have a conflict of interest. Each complete application shall receive a score and rank from the review committee and from the department together with a recommendation to approve, modify, or reject the application.
(c) The department may modify or reject all or any portion of the application if any 1 of the following situations occurs based upon the recommendations of the review committee:
(i) An applicant fails to submit an application as outlined by the application instructions provided under R 285.353(1) or fails to comply with the requirements prescribed in the act.
(ii) The total estimated revenues available for agricultural development fund projects are exceeded by the sum of all funding that is requested in the applications received for the state fiscal year.
(iii) The department and agricultural development review committee determines that a proposed project requires further justification.
(7) An applicant shall notify the department of a proposed change in an initial or amendatory application for federal funds that would require an increase or decrease of the state financial commitment.
(8) The review and approval process shall be completed within 90 days of the established application deadline.
(9) An application for a grant shall be evaluated according to all of the following selection criteria:
(a) Demonstrated economic and social benefits to in-state producers.
(b) Demonstrated economic and social benefits to communities in Michigan.
(c) Project leader and management team experience and expertise.
(d) Demonstration of a high level of innovation and initiative to benefit producers in Michigan.
(e) Financial soundness, credit-worthiness, and risk assessment.
(f) Analysis of proposed project in terms of business and market planning.
(g) For facility grants, completion of a feasibility study, business plan, and financial plan.
(h) Clear project proposal with specific, measurable outcomes.
(10) Applications shall be ranked according to the following scoring or point system:
(a) A score of 0 to10 points will be awarded based on economic development resulting from the project that impacts in-state producers of specific commodities involved in the project.
(b) A score of 0 to 10 points will be awarded based on assessment of the extent to which the project should lead to improvements or retention within the resident/adjacent community, such as higher wages, improved benefits, more jobs, higher tax base, greater economic activity, and use of higher level of skills not typically found in the community.
(c) A score of 0 to 10 points will be awarded based on the level of cash matching funds or other written verification of repayment capacity. In-kind contributions shall not be counted as a cash match.
Point allocation:
Proposed project provides more than a 50% match
10
Project provides a 33-50% match
6
Project provides a 25-33% match
4
Project provides a 10-25% match
2
(Note: if project fails to provide a 10% cash match, it is ineligible for grant award)
(d) A score of 0 to 25 points will be awarded based on the level of experience, expertise, and proven track record the management team possesses.
Point allocation:
Management team has demonstrated prior successes in relevant field 8
Management team includes other partnering entities that bring proven experience to the project 8 Management team possesses sufficient marketing and finance expertise 9
Point allocation:
Project targets a specific niche, value-added, or other market segment 5
Project utilizes innovative technology to increase profitability 5
Project has a closer connection to the end consumer rather than just targeting another agricultural commodity market 5
(f) A score of 0 to10 points will be awarded for the financial soundness of the project and the minimization of risk.
Point allocation:
Equity position of the applicant is 60% or greater
10
Equity position of the applicant is 50% to 60%
7
Equity position of the applicant is 33% to 50%
5
Equity position of the applicant is less than 33%
2
(g) A score of 0 to10 points will be awarded based on the project's clear description of purpose.
(h) A score of 0 to 10 will be awarded based on a determination of a priority for the agricultural industry based on the director’s determination.
(i) If the grant request is for facility purchase, equipment, and construction category, points will be deducted from the proposal’s score if it is determined that the following have not been sufficiently completed:
(i) A detailed marketing plan based on verifiable and useful market research for the product or products has not been completed by a professional market researcher. -20
(ii) A detailed, well-documented and realistic business plan has not been completed. -20
(11) The director of the department shall have final approval of grants made under the act and the department shall provide grants for reimbursement of approved expenses incurred by the grantee which may be divided into partial payments.
R 285.353 Eligibility and documentation required.
Rule 3. (1) An applicant for funding shall complete an application containing all of the following:
(a) A clear description of a proposed project or projects stating how the project is designed to establish, retain, expand, attract, or develop value-added agricultural processing and related agricultural production operations in this state.
(b) Documentation that the applicant or its designated business venture has been established according to state law, is in good standing, and is not in default of any federal, state, or local taxes.
(c) Adopted bylaws and articles of incorporation or other articles of organization as appropriate for business structure that indicated the specific duties, functions, and powers of the applicant.
(d) A statement of economic and social benefits to the Michigan producers, the local community, and the state of Michigan.
(e) A detailed proposal for specific use of the funds consistent with program focus and a detailed budget including capital costs, working capital, operating expenses, and revenues.
(f) Measurable outcomes of the project. All jobs that are created or retained shall be clearly a direct result of the project. The number of jobs created or retained shall be evidenced by a written commitment from the business to be assisted or others directly impacted.
(g) Documentation of guaranteed 10% matching funds shall be provided from nonstate cash funds.
(h) Analysis of the proposed project in terms of, and relative to, risk, business and market planning, financial soundness, and creditworthiness.
(i) Trade secrets, commercial, or financial information voluntarily provided to the department shall be provided to the department upon a promise of confidentiality as authorized by the director, and are exempt from disclosure under 1976 PA 442, MCL 15.231 et seq.
(j) Identification of project leaders, management, and marketing team and their expertise and experience in this type of project.
(k) Written support from the local community, suppliers, representatives of the Michigan food and agricultural industry, and others.
(l) Information on previously completed feasibility studies.
(m) An applicant seeking funds for land or property acquisition and assembly, building construction or expansion, demotion, purchase of equipment or related facilities and other improvements shall include a detailed marketing strategy backed by sound market research, a detailed business development plan, and identification of sufficient capital and operating funds prepared by a recognized financial institution which is in good standing in Michigan and which is nationally regulated.
A cash match of not less than 10% of the grant by the applicant or other repayment guarantee with a dedicated funding source such as a certificate of deposit is required before a grant can be awarded.
(3) The director shall authorize department staff and members of the agricultural development review committee to sign and abide by confidentiality statements for trade secrets or commercial or financial information voluntarily provided to the department by applicants upon a promise of confidentiality as authorized by the director, and is exempt from disclosure under 1976 PA 442, MCL 15.231 et seq.
PART 2. REPORTING AND COMPLIANCE REQUIREMENTS
R 285.354 Financial reporting and compliance requirements.
Rule 4. (1) The director of the department may impose fiduciary obligations upon a recipient of a grant, including performance bonding, and may impose conditions upon the receipt and expenditure of the grant money based on the financial stability of the recipient. A contractual grant agreement shall be entered into between the grantee and the department.
(2) A grantee shall provide to the department an annual financial and compliance audit report and management letter within 120 calendar days from the end of the grantee’s fiscal year. The report shall include a response certified by an independent, certified public accountant in accordance with the department’s and Michigan department of treasury’s audit guides. The department may grant an extension of up to 60 days upon receipt of a written request if the department determines the grantee has made a good faith effort to provide the necessary documentation. The grantee shall be required to provide the annual report for 2 years after the completion of the project.
(3) Failure to comply with the audit section of these rules may result in the withholding of agriculture development fund grants for any purpose or other conditions the director may impose upon the receipt and expenditure of grant money as stated in Section 2(6) of the act.
(4) The department may audit a recipient of funds in accordance with the contractual grant agreement entered into by the grantee and the department.
(5) For the duration of any funded project time period, the grantee shall provide semiannual progress reports. A report shall outline all of the following:
(a) Stated goals that have been accomplished.
(b) Documentation of all matching funds used.
(c) Any project modifications that have been made during the funding period.
The report shall be submitted within 6 months of grant award notification and every 6 months thereafter. Based on the nature of the grant, the director has discretion to allow annual reports instead of semiannual reports. Unless otherwise designated by the director, the grantee shall be required to provide the reports for 2 years after completion of the project. The director may waive the 2 year report requirement and may instead request 1 final completion report if the project has been completed and the director determines that the stated goals have been accomplished.
(6) Upon completion of a funded project, a grant recipient shall provide a complete project summary, including performance criteria met and additional pertinent information. A report shall be submitted within 45 days of project completion.
(7) Upon completion of a funded project, a grant recipient shall provide a complete financial summary of the project. An itemized list of expenses and income from the project as well as verification of matching funds is required in the report. The report shall be submitted within 45 days of project completion.
(8) If semiannual reports or annual reports are not provided to the department, then the director, after reasonable notice to the grant recipient, may withhold any remaining portion of the grant until the report has been provided. If the recipient fails to provide the required reports, then the director, in the interest of maintaining the integrity of the grant program, may terminate any remaining portion of the grant award. Grant reimbursement may be required if final summary or financial reports are not provided and the director determines that the stated goals of the grant have not been accomplished or there has not been documentation on how grant funds have been used.
R 285.355 Procedures for adjusting or withholding funds.
Rule 5. (1) The department may adjust or withhold project funds that are awarded under the act or may adjust project elements or alter the project scope under any of the following circumstances:
(a) Matching funds from governmental units or other persons that are necessary for the completion of the project are not awarded to the recipient by the end of the following fiscal year in which the project was approved.
(b) The actual funds available in the act are below the estimated funds available upon which the grant was approved.
(c) The actual cost of the project varies from the estimated costs on which a project was approved.
(d) A recipient fails to comply with the act, these rules, or orders of the director.
(2) The department shall notify a grantee, by certified mail, of a department-initiated action to withhold funds for noncompliance. The notice shall clearly set forth the reasons for the proposed action. The recipient shall have 30 days from the date of issuance of the notice to respond or undertake corrective action. The department may grant an extension if the recipient files a written appeal with the department.
(3) If, within 45 days after the date that the notice of intent to withhold was issued, the recipient has not corrected the reason for the withholding and notified the department of that correction; the recipient has not been granted an extension, or has not appealed the action, in writing, to the department and been granted a waiver, then the department shall send the applicant, by certified mail, a notification that funds are being withheld. Withholding of funds shall occur automatically after the notice of withholding is mailed.
R 285.356 Contractual agreements.
