PURPOSE

The purpose of this report is to provide more information to the Redevelopment Agency Board and City Council on funding program options for local community-based non-profit organizations.

BACKGROUND

At the November 2, 2004, Council Meeting, Mayor Marsha Ramos asked that the Council discuss the possibility of developing a low-interest loan program for non-profit organizations in the City that wish to purchase or build new facilities. 

On January 11, 2005, staff presented to the Redevelopment Agency Board and City Council, the first step of a �one step-two step� process.  The staff report briefly presented various options for providing assistance to non-profit organizations including: a low-interest loan program; the Community Development Block Grant program or; a non-profit incubator option; and using Redevelopment Agency funding as leverage for other funding resources.  The Agency Board and City Council directed staff to bring back a more detailed report on funding options, specifically taking into consideration the typical challenges associated with a non-profit�s ability to cover debt service obligation.

ANALYSIS

At least three options are outlined as potential means to assist in purchasing or building facilities.  In addition, staff has formulated a partial list of proposed criteria.  The potential programs outlined below could provide assistance to non-profit organizations who may not qualify through traditional lending institutions.  Traditional commercial loans are determined mostly on cash flow, income stream that the business and/or property can generate, credit history, financial performance of the business and collateral.  The nature of non-profit organizations as non-lucrative businesses established for providing charity or social service-oriented programs, often do not meet the conventional loan process.  As was mentioned in the January 11^th report, staff conducted some preliminary research on loan programs for non-profit organizations. In conversations with existing non-profit community lenders in the Los Angeles area, staff learned that a low-interest loan program for property acquisition or construction might be difficult to develop. It has been the experience of at least two non-profit lenders (Los Angeles County Community Development Commission and Pasadena Development Corporation) that organizations may have difficulty demonstrating repayment ability and, if funded may not be able to service the debt.

I. Community Development Block Grants (CDBG)

Activities funded from Community Development Block Grant funds must meet two tests: First, the activity must meet a Housing and Urban Development (HUD) national objective. Second, the activity must be eligible. National objectives include activities which:

1)     Benefit low and moderate income persons/families

a. Area benefit;

b. Provide services for low and moderate income limited clientele;

c. Provide housing for low and moderate income persons; or

d. Create or retain jobs for low and moderate-income persons;

2)     Remove slum or blight conditions; or

3)     Address "urgent needs" (examples would include earthquake damage or flooding).

Acquisition of real property, public facilities and improvements, and commercial rehabilitation all qualify as eligible activities.  Non-profit organizations, if awarded, can use CDBG funds for public facilities or improvements if they meet a national objective per CDBG HUD Guidelines.  Burbank�s CDBG projects and activities, as well as all other federally funded programs, are subject to citizen participation, review and comment prior to approval. The Community Development Goals Committee serves as a recommending body (to the Council) for Burbank�s CDBG Program. 

Some non-profit organizations may not be able to meet a national objective.  An organization who serves primarily homeless individuals would qualify under the �70% benefit to low/moderate income households� but an organization which serves the general public from all income levels would not qualify.  Furthermore, although the City has specific eligible areas per the Burbank CDBG Map (attached as Exhibit A), based on low/moderate income from the Census data, if a non-profit organization is located in the benefit area but serves the general public and does not meet a national objective, then the organization would not qualify. 

The City of Burbank averages $1.4 million in CDBG entitlement funds yearly and about $1.1 million of these funds are awarded for capital projects.  However, it is imperative to note the current CDBG program (at the federal level) may be undergoing significant changes, which may or may not affect the funds allocated to the City of Burbank.  According to the Federal Housing and Urban Development (HUD) website, the Federal Administration's proposed budget for fiscal year 2006 has significant changes to the CDBG program.  The budget proposes a new $3.7 billion program within the Department of Commerce called Strengthening America's Communities Program to support local communities' efforts to improve their economies and their quality of life. This initiative will consolidate HUD's Community Development Block Grants and several other federal development programs into a more targeted, unified program that sets stronger accountability standards in exchange for flexible use of the funds.  The articulated goal of the Strengthening America's Communities Program is to target funding to high poverty areas, offer greater incentives and increase accountability so federal development dollars make a stronger difference in distressed areas. 

It is unclear how the City of Burbank will be affected by this proposed budget.  The current CDBG funds allocated to the City may remain the same, be increased, reduced or eliminated.  Staff is monitoring the budget process and will provide more information as it becomes available.  

Another factor to consider is the Davis-Bacon Act.  Capital improvements and construction projects which use any amount of federal funds, including CDBG, must adhere to the Davis-Bacon Act (prevailing wages). This mandate could increase the total project cost by an additional 30%.

Considering all these factors, barring a major overhaul to Burbank�s CDBG funding, this program is a viable means with which to fund non-profit facility projects.  Currently, CDBG funds are being used for the Burbank Temporary Aid Center, which meets the eligibility tests of the program.

II. Redevelopment Agency Loans as Funding Leverage or Equity Match

Another funding option is to use Redevelopment Agency funds to provide forgivable loans structured similarly to economic development loans (i.e. Porto�s Bakery, Urban Outfitters, etc.) to leverage other funding sources already secured by the non-profit organization.  Funds for this program, should the Agency Board/City Council support such an effort, are proposed to be awarded on a case-by-case basis.  Furthermore, if this option were selected, the location of the building and/or program services would need to address the eradication or prevention of blight.

As stated in the proposed eligibility criteria below, staff recommends redevelopment funds be leveraging funds.  Under the proposed criteria, the applicant non-profit organization would be required to provide proof that a significant portion of the funding has been secured from other sources.  Solicited funds from Redevelopment Agency  would be funding leverage for the organization.  Redevelopment Agency funds, layered with grants from private donations, foundations, other organizations or public agencies would allow the non-profit organization to demonstrate readiness to implement a proposed project.  The Agency would allocate funds as �matching� or �partial matching� dollars once an organization proved funds from other sources have been raised, awarded or secured or able to show available resources such as non-profit �equity.� 

If the Agency were to establish such a program, each loan would need to be individually crafted.  Clear performance measurements would likely need to be established to support a unique loan forgiveness schedule.  Individual performance measurements could respond to some aspect of increased services for low/moderate income individuals and families.  To the extent possible and similar to some of our economic development loans, the Redevelopment Agency would seek security for a loan such as a lien on the property.  The proposed eligibility criteria are further described below.    

If the Agency Board chooses this option to develop as a program to assist non-profit organizations purchase or build facilities, it should be noted, the organizations would be required to adhere to Prevailing Wages Law, which could increase the total cost quite significantly, possibly between 10% to 30%.  In addition, the mechanics of using this option would be dependent on the physical location of the proposed facility (within or outside a Redevelopment Project Area). 

III. Grant Award Program (YES Fund)

The third option described herewith suggests expanding the Youth Endowment Services (YES) Fund to include a �non-profit organization grant award program.�  Additional Redevelopment Agency funds could be appropriated into the fund to provide grants to non-profits on a competitive basis.  The current redevelopment tax increment that is allocated for the YES Fund is 5% (of the 80% of tax increment revenue).  That 5% could be increased for the proposed combined youth and non-profit program.  

The amount of funds appropriated into the YES Fund varies from year to year and is dependent on the tax increment revenue from the redevelopment project areas. The YES Fund is a mechanism to collect and disburse monies received from two sources: 1) restricted Agency contribution funds specifically for public, youth-related capital projects; and 2) unrestricted funds (from private donations) to benefit any Burbank youth. 

The primary drawback of this option is that under the YES Fund structure the Agency-funded facilities must be part of the public infrastructure and be located within a Redevelopment Project Area.  Direct Agency funding for a private, non-profit use would not be permissible under California Community Redevelopment Law unless that use were tied directly to the Agency�s affordable housing program, as in the case of achievement centers owned and operated by the Burbank Housing Corporation or in the elimination of blight.  Therefore, this option is not recommended for the subject use.

ELIGIBILITY

The CDBG program has clearly-defined eligibility criteria established by HUD.  As previously stated, if the Agency Board/City Council opts to use Agency funds, staff recommends certain eligibility criteria be established as well.  This suggested criteria is not intended to be comprehensive, it is likely that other factors may need consideration. However, this discussion focuses on some primary components that would serve as a foundation on which to build.  First and foremost, it is proposed that the use of Agency funding would be used as leverage for other funding sources.  In addition to the basic eligibility criteria and leverage or non-profit match, staff would consider the organization�s history in Burbank, sustainability and specific services provided.  

Non-profit Match

This criterion assesses the leveraging of resources including non-profit �equity� and funds to support the proposed project.  Proposals would be rated based in part on layering of resources and funds from other sources (i.e. private donations, private foundation funds, other grants or organization �equity�).  Within this criteria the final program developed would be a �non-profit matching resources program� not necessarily dollar-for-dollar matching. For example, the Burbank Temporary Aid Center, recently received multi-year CDBG funding for the expansion of the facilities already owned by the organization.  In this case, the non-profit matching resource was BTAC�s property.  The non-profit organization would be required to use funds from the Agency as �matching funds� to the organization�s resources and/or funds. Additionally, collaboration with other non-profits to increase efficiency and decrease duplication of services would be highly desired.

Feasibility

This criterion would assess the organization�s readiness to implement the proposed project. To be considered for funding, a project would be required to demonstrate that it could meet all of the following feasibility criteria, which demonstrate a project�s readiness to begin and viability through completion of the project.  A recommendation of funding for the year of placement would be contingent on a project�s ability to demonstrate that it can meet all of the feasibility criteria.

• Availability of Ongoing Operating Costs

This criterion measures the ability of the organization to support the project upon completion. The organization must demonstrate it has the resources to fund services (including the operation and maintenance of the facility) upon completion of the project.  The organization would be asked to describe what the proposed new facility would include or how it would be of additional benefit for the client population served. Additionally, consideration would be based on whether program services will be increased or maintained at the same level and whether services will be expanded (i.e. to low/moderate income individuals and families and/or the general public).  The non-profit organization�s proven ability to secure other funds and resources for the on-going programmatic operating costs once the purchase or construction project is complete would also be considered.

• Elimination of Blight

Location of building and/or program services must address the eradication or prevention of blight.

• Percentage of Total Project Budget in Place

This criterion measures the percentage of the total project budget that is in place.  As suggested previously, the non-profit organization would be required to provide proof that a significant portion of the funding has been secured from other sources for the project; non-profit resources and �equity� would also qualify.  Additionally, Agency funds would be matching funds that could be used to leverage other funds, as previously stated.

• Plan for Construction Management

Construction projects must have a feasible plan for construction management in place.

History and Successful Measurements of Outcome

The history and sustainability of the organization would be taken into account.  Those non-profit organizations with a successful track record of program outcomes and which provide services to a broader cross-section of the community in need would also be considered.  As stated previously, the proven ability to secure other funds and resources for the on-going programmatic operating costs once the purchase or construction project is complete would be favorably considered.

Other basic eligibility requirements may include:

●  Must be a non-profit 501 (c) (3) organization already located in Burbank;

●  Must demonstrate fiscal sustainability;

●  Funds solicited by non-profit organization must be used towards the purchase or

    construction of facilities (or other capital improvement-type projects as deemed

    appropriate by the Agency Board/Council);

●  Redevelopment Agency would seek security for award of funding such as a lien on

    the property.

FISCAL IMPACT

Depending on which, if any program, the Agency Board and City Council chooses, the following describes the funding sources and the impacts: 

I. CDBG

If the Agency Board and City Council chooses CDBG funds to provide assistance to non-profit organizations, the funds would come from the Federal CDBG funds allocated to the City of Burbank.  As mentioned above, the City of Burbank receives limited funding, averaging an annual $1.4 million.  Furthermore, the proposed 2006 Federal Budget proposes to move the CDBG program from Housing and Urban Development to the Federal Department of Commerce, which may affect the amount of funds the City of Burbank receives.

II. Redevelopment Agency Loans

Funds for this program would come directly from the Redevelopment Agency (�80%�) unappropriated fund balance.  The Agency Board may choose to limit how much funding could be awarded to a non-profit on a case-by-case basis.  Alternatively, the Agency Board may choose to designate a lump sum available for a full or pilot program such as the funding that is set aside for the Downtown Tenant Assistance Program.

CONCLUSION

While on the surface a true loan program for a non-profit organization to purchase or build facilities may not appear to be feasible, there are other �forgivable loan/grant-type� options.  The Community Development Block Grant program is one option; however, potential federal program changes are not known at this time.  The use of redevelopment funds as �forgivable loans� or grants is an option that may be further explored.  Within this option, the Agency would consider the location of the building and/or program services to address the eradication or prevention of blight.  Furthermore, the proposed Redevelopment Agency program would consider the following:  ongoing operational sustainability; leveraging of funds; project feasibility; and establish clear criteria, as previously recommended.  Staff seeks direction from Agency Board/City Council on the following: 1) is there support for a non-profit loan program; 2) if so, staff asks for feedback on the proposed framework present herewith (including the suggested criteria); and 3) staff seeks direction on funding implementation options (for example, on a case-by-case basis or lump sum of funds similar to the Downtown Tenant Assistance Program). 

RECOMMENDATION

Staff recommends the Agency Board and City Council provide additional direction.

EXHIBITS

Exhibit A � CDBG Eligibility Map