CHICAGO -- Some Midwest states are launching initiatives to provide relief to local governments struggling to assist towns deluged by heavy flooding along the Mississippi River and its tributes.

Meanwhile, most local officials believe that the federal government will come through with the lion's share of the needed funds.

President Bill Clinton yesterday signed into law a $6.3 billion federal flood relief bill that will provide funds for rebuilding infrastracture and offsetting crop losses. Flood damage costs in the Midwest have been estimated at $12 billion.

Some state programs are helping communities finance start-up costs for flood-related rebuilding projects.

In Illinois, Gov. Jim Edgar recently announced that the state will provide $76 million for communities, farmers, and low-income people victimized by flooding.

Edgar said that $34 million in interest-free loans will be available to more than 100 municipal and county governments along the Mississippi and Illinois rivers through the Illinois Development Finance Authority. Under the accelerated loan program, those governments will be eligible to receive 90% of the state income tax funds they would normally receive over the next 11 months.

The Illinois authority expects to issue tax anticipation notes, backed by future income tax receipts, to finance the program, according to an authority official. The notes are expected to be sold by the end of the month, and Lehman Brothers will serve as senior manager for the deal.

"Local governments that have struggled to protect lives and property need an infusion of money now. This innovative interest-free loan program will provide it at no cost to the state's general fund," Edgar said in a press release.

Another $40 million in loans will be available to farmers through the Illinois Farm Development Authority. The state-guaranteed loan program is funded by money borrowed from private lenders, according to Laura Lanterman, chief financial officer for the authority.

In addition, low-income Illinois homeowners can tap into $2 million of no-interest loans to help them rebuild or repair their homes. Those funds are provided by real estate transfer tax proceeds.

In Nebraska, Firstier Securities Inc. in Lincoln is offering a line of credit to local governments, according to William Giovanni, the firm's president. He said that the interest rate, which will be finalized after the firm talks with county and municipal officials, will probably be between 4% and 5%.

Giovanni said that the costs of the damages to public infrastructure in the state is estimated at $42 million.

"This [program] will enable [local governments] to fund recovery in advance of receiving federal and state funds," Giovanni said.

In Iowa, Gov. Terry Branstad has relaxed bidding requirements to permit state and local officials to speed up road repairs, according to Richard Vohs, the governor's press secretary.

In addition, Branstad has allowed the Prairie Meadows racetrack, which is owned by Polk County, to shorten its racing season to 60 days from 90 days to provide about $450,000 of county funds for flood relief, Vohs said. He said that the funds were slated to pay for operation of the racetrack in the last month of the racing season.

Vohs added that Branstad is considering relaxing betting limits on a riverboat casino in Davenport to enable the community to recoup tax revenues it lost when the casino closed during the flood. Currently, Iowa law restricts losses on riverboats to $5 a bet or a total of $200 per cruise.

Davenport was at the forefront of national media coverage when the flood began, partly because the city did not have a flood wall to hold back the water.

The flooding, which hit the Midwest in early July, contributed to the prolonged sale of $23.9 million of Davenport general obligation bonds that were priced July 7 but did not close until Aug. 5, according to Dave Harmon, a vice president at Harris Bank, the senior underwriter for the deal. The issue financed capital improvements and economic development projects in the city.

"I think that [the prolonged sale] was a reaction to the flood," Harmon said, noting that flood damage in the city was relatively minor, primarily because city officials made sure that major development were not built on the floodplain.

Christy Myers, senior vice president at Evenson Dodge Inc., the city's financial adviser, agreed.

"Davenport got a lot of publicity early on," Myers said. "But as things went on, damage there was not as bad as in many other places."

Myers said that the flooded area included bike trails, a baseball park, and a municipal garage that the city had intended to replace.

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