Statement from the Department of Commerce
Recently, there have been questions posed about the mission, practices, and impact of the North Dakota Development Fund, Inc. (NDDF) and overall Department of Commerce related to economic development activity. We want to clarify the role of the NDDF and underscore its dedication to serving the citizens of North Dakota.
NDDF’s Role in our State’s Financial Landscape
The NDDF provides “flexible gap financing” through loans and equity investments not available from most conventional lenders for the purpose of economic development. Funds are available to new and expanding North Dakota primary sector businesses. The NDDF is committed to fostering growth across North Dakota by supporting local businesses and attracting new ventures that contribute to a vibrant economy. The NDDF’s work directly benefits North Dakota communities by creating jobs, promoting innovation, and supporting the industries that are the backbone of our state.
Through thoughtful and strategic investment, the NDDF focuses on responsible stewardship of funds, providing loans, making equity investments, and recently administering the first ever grant program in the funds 30+ year history, to companies meeting strict eligibility criteria. For example, NDDF guidelines mandate that it does not compete with the private sector. Generally, this results in establishing higher interest rates than one would see a bankable company obtain from a financial institution and the NDDF’s desire not to set the valuation of a company for purposes of an equity investment. Through its various program offerings, the NDDF seeks to (1) “increase the pie” of available capital to projects/companies that may not otherwise have access to capital, (2) provide capital to projects North Dakota is competing with other states to land, (3) provide low interest loans with the goal of expanding childcare capacity in the state, and (4) offering legislatively directed grants to companies seeking to automate manual processes to address workforce shortages.
Economic Development Collaborations
The NDDF staff works closely with state and local economic developers to support businesses that are interested in expanding and/or relocating to North Dakota. An economic developer’s role is to connect businesses to the resources they need to succeed in a given location. The following is a description of the typical practices and responsibilities of an economic developer:
- Assessing Company Needs: Initial meetings with prospective or expanding businesses are focused on understanding their unique requirements. This includes an assessment of workforce requirements, potential contract manufacturing needs, logistics solutions, real estate needs, and more. The business drives the level of engagement requested of the economic developer for these various needs. The level of engagement from an economic developer varies from project to project.
- Issuing Requests for Proposals (RFPs): Once a developer gathers detailed requirements from the business, they often issue an RFP statewide or regionally. This RFP outlines the specifications provided by the business, detailing the types of services, facilities, or resources needed. The goal is to attract proposals from local economic developers who believe they can fulfill the needs outlined in the RFP.
- Connecting with Local Resources: Economic developers work to connect businesses with local entities that meet the specifications outlined in the RFP. They maintain a network of local developers, suppliers, and contractors, fostering partnership to align resources with the company’s operational needs. By doing this, they help strengthen local supply chains and create synergies between new and expanding businesses and existing resources.
- Facilitating Workforce Solutions: Recognizing how critical workforce availability and access to skilled labor is, economic developers work with academic institutions, the Workforce Development Division within Commerce, and training providers to connect resources for a business’s labor needs.
- Navigating Incentives and Financial Support: Economic developers also ensure businesses are aware of available support, by assisting businesses in navigating local, state, and federal incentive programs. This could include tax abatements, grants, loans, and other funding options designed to support new investments.
- Site Selection: Economic Developers compile and provide RFP responses to the business that identifies the communities and proposals that align with the business’s needs. Based on the directive of the business, economic developers facilitate introductions to local officials, real estate agents, and others to explore site options and, eventually, pursue site negotiations.
- Ongoing Business Retention and Support: Even after a business has established operations, economic developers continue to support them by addressing evolving needs, identifying additional resources, and fostering long-term relationships that contribute to the business’s success within the community.
Economic developers advocate for businesses and communities. Sometimes economic developers’ efforts lead the companies they support to the North Dakota Development Fund.
NDDF Underwriting
Businesses that apply to the NDDF undergo a comprehensive diligence process that is comparable to credit underwriting completed by a bank and investment underwriting completed by a venture capital firm. The loan and investment underwriting process administered by NDDF staff culminates with a comprehensive credit/investment memo that is delivered to the NDDF board. As a result of the NDDF’s mission and strict vetting process, only a fraction of NDDF applicants advance through the underwriting process to present to the NDDF board. Even fewer are ultimately funded.
In the world of economic development finance, and investing generally, not every project results in a success story. With each new request from portfolio companies, whether it is to restructure loan terms or provide follow-on investment, the NDDF must reassess the risks, likelihood of project success, and track record of performance. The NDDF continually seeks to refine and improve its investment and underwriting criteria, management of portfolio companies, and updates on the status of projects it has invested in.
Oversight of NDDF
The NDDF is subject to significant operational oversight by its board which is made up of eight governor appointed members. By statute, the governor appointed members must serve in an executive capacity in private sector manufacturing, finance, exported services, tourism, and industrial technology and research. There must be at least one board member who is enrolled in a federally recognized North Dakota Indian tribe, the Commissioner of Commerce, and one member from a rural area. Every year, the NDDF goes through an annual independent audit. The audit results and the NDDF’s impacts are published in an annual report which is shared on the NDDF’s website.
NDDF Impacts and Continued Focus on Economic Development
At the time of publishing its 2023 annual report, and since its inception in 1991, the NDDF has a $3.91/$1 return on investment. It has invested in 898 projects and contributed to the creation of 9,350 jobs. These investments have been made in various business sectors, including value-added agriculture, value-added energy, technology, manufacturing, and childcare.
The NDDF staff is driven by the positive impacts its work creates in North Dakota communities and for North Dakota businesses. We are proud of the long track record of successful investments and strive to continue the rich history and legacy of the NDDF.
We are greatly appreciative of the immense trust and support shown by the legislature over the years. The NDDF staff and board are committed to continuing the work of serving a “gap financing” role in North Dakota.
Click here for more information on the North Dakota Development Fund.