Who profits from Burbank Housing's "nonprofit" development?
"Nonprofit" corporations aren't necessarily charities. And when a nonprofit corporation does business, that doesn't mean nobody profits from the deal.
Nonprofit Burbank Housing builds and manages affordable housing. It's all but an arm of local government. Its website says, "We are involved in active partnership with local governments to meet housing objectives, working in cooperation with all nine cities in the County and the unincorporated area. Burbank Housing's ongoing role in the development of affordable housing within the County is referenced in the current housing elements of the County's local governments."
Burbank Housing Development Corporation (BHDC) is a nonprofit developer, and Burbank Housing Management Corporation is its rental management arm. A Press Democrat story today said Burbank built 600 homes and more than 1700 apartments in the last 20 years. (3/5/05, "Burbank housing repairs finances")
So how does a nonprofit developer work? "To make the projects affordable, Burbank Housing relies on a complex array of financing to lower development costs, rents and purchase prices. Much of it is tax-credit financing to attract private investors, providing developer fees that pay Burbank Housing's costs and construction loans.
Public agencies provide deferred loans often used to buy land, pay costs for engineers, architects and other professional services, or show a local subsidy to compete for federal tax credits. Much of the private money, however, isn't paid until a project is completed and has two months or more of cash flow. 'We have to earn a living just like any other developer does,' [executive director John] Lowry said."
And like other developers, nonprofits have unexpected setbacks: "Despite its experience in financing and completing projects, Burbank Housing ran into problems with project delays the past two years. Project delays mean investors contribute less and total revenues suffer."
I understand all that to say private investors get tax breaks for financing Burbank's projects. It borrows money from the local banks like other developers do, and also gets deferred loans from local agencies like the City of Santa Rosa. But the private investors don't have to pay until a project is complete and making money--and that can lead to trouble.
Nonprofit Burbank came up $750,000 short the last two years: "The deficits totaled $250,000 in the 2003 budget year and $500,000 in the 2004 budget. Burbank Housing was forced to lay off 11 employees and seek $900,000 in short-term loans, well above its more typical $500,000 line of credit."
"While Burbank Housing always has operating debt, it needed a consortium of local banks to increase their line of credit to $1.3 million.Burbank Housing needed $900,000 and projects paying that off in the current budget year. "
So now the banks and public agencies--including Santa Rosa--are making Burbank toe the line: "The banks, as well as cities and the county, have required Burbank Housing to make quarterly financial reports. Such reports had been provided on a project-by-project basis.
Burbank Housing went further and adopted its first business plan last fall. 'We were concerned. But they were able to take some corrective steps,' said David Gouin, Santa Rosa's director of economic development and housing."
[The PD identified Gouin as "director of economic development and housing", although it hasn't reported the transfer of Santa Rosa's "Economic Development" function to the former Housing & Redevelopment Department, and the semi-independent Redevelopment Agency. See the 2/28/05 item below, "City renaming Housing & Redevelopment to stress 'Economic Development' ".]
When Burbank has problems, the taxpayers' money is at risk: "Monitoring by Burbank Housing's lenders indicates the nonprofit is on the right course, Gouin said. 'The city's a stakeholder in the affordable-housing developments,' he said. 'They just worked on their construction scheduling and the project management so there's no peaks and valleys between revenue and expenditures.' "
Burbank Housing carries much of the burden of providing "affordable housing" for Santa Rosa and Sonoma County. We taxpayers lose the use of the "deferred loan" money the City Council pays to grubstake nonprofit Burbank until a project is up and running. And it looks like the "private investors"--who apparently are the coalition of local banks--eventually make a profit with little risk by paying back those loans.
The Council should be telling us a whole lot more about Burbank's "affordable housing" projects, and the way we "stakeholders" are paying for them. Are they the right projects, in the right places? Are they really necessary at all? We also have a right to know whether the local banks are making good money at our risk and expense.