SAN FRANCISCO - Fiscally strapped California wants to educate faith-based groups abouthow to use their nonprofit status to use creative financing - including the issuance oftax-exempt debt - to finance sorely needed housing and other social services for low-income people in the state.
The California Debt Investment and Advisory Commission is holding a series of seminarsaround the state that are attracting community activists and others seeking to find outhow to supplement their programs with loans, grants, and bonds.
Brenda Sharp, a minister at St. Peter CME Church in El Cerrito in the San Francisco BayArea, attended a workshop recently and is excited by what she heard about public andprivate programs and the availability of funds to build affordable housing and sheltersfor teens and battered women through religious-based groups.
"This is a new era for things to be happening. We have to think of innovative ways tohelp our society because our state is broke," Sharp said. "This year is looking bad [forCalifornia], and next year is looking worse, so we are trying to see what we can do."
Sharp was one of the nearly 75 people at the seminar held in Richmond.
Although it is not new for a church group to form a 501(c)3 corporation for its ministryor to partner with private or public organization to construct facilities for the publicgood, the state's campaign to educate nonprofits about the availability of funding hasstepped up in recent months.
The efforts are attracting the interest of public finance professionals. Recent courtcases supporting the issuance of tax-exempt debt for projects affiliated with faith-based groups have also spurred greater interest in the sector, which both underwritersand financial advisers see as a growth area for the industry. The efforts in Californiaare not connected to President Bush's faith-based initiative for federal funding ofreligious charities, which is currently pending in Congress.
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Dawn Carpenter, managing director and founder of Eos Financial Group, a financialadvisory firm that specializes in nonprofits, said faith-based organizations and othernonprofits are issuing more debt for projects "because of the tremendous stress" onfinancial resources available from local governments.The low cost of funds is also a consideration.
"It is a great time to be a borrower right now," Carpenter said.
Faith-based organizations have used tax-exempt financing for some time for buildingretirement homes, community centers, low income housing, so it is not anything new,according to Roger Davis of Orrick, Herrington, & Sutcliffe. "The state is educatingthem how to do this and provides a platform for them to do so, which is a good idea," hesaid.
Laurie Weir, of the California Debt Limit Allocation Committee, said the idea is forgroups to leverage the pool of cash for projects that are affordable and for publicgood.
One leader in the faith-based movement is Mercy Housing California, a secular group thatis sponsored by 11 faith organizations. Mercy Housing California works withcongregations or religious communities who donate land or sell it at a bargain to thegroup. It then secures approval for affordable housing, obtain leases at market rate orbelow market rate, and obtain the loans to build.
MHC is putting together applications requiring bond financing for a couple of projectsin Southern California. One is a 72-unit multifamily housing project in Oxnard to bebuilt with the assistance of $8 million of bonds sold through the California HousingFinance Agency. Another project for 75 units of housing in old Santa Barbara would usebond financing provided by an as-yet undetermined conduit issuer. Both deals are likelyto hit the market in September, according to Dara Kovell, MHC's director for SouthernCalifornia.
Presently, MHC has about eight projects in the works in the Northern California region.
"The key is not financial. It is in fact like a marriage," said Amy Bayley, who headsthe community development for MHC in the northern part of state. "You have to talk aboutthe worst-case scenario with your partner before you establish a relationship. It is howthe relationship works that will either make or break you. Be prepared for a wild ride."
The California Debt and Investment Advisory Commission will hold a half-day seminar inMay in Los Angeles with the Southern Christian Leadership Conference as a co-sponsor.That will be followed by a larger daylong event in the city sometime in October.
State Treasurer Phil Angelides said the goal is to move housing dollars where they wouldhave the most impact, to increase the amount offered and the state resources availablefor those most in need in underserved communities, whether urban or rural.
"I believe the time has come to take a prudent look about the wealth in our cities andinvest in infrastructure for our economy in our future," Angelides told the group.
California voters in November authorized the state to sell $2.1 billion of bonds forhousing, the largest authorization ever for housing. About $910 million willrehabilitate existing but substandard housing, another $290 million will assisthomebuyers with down payments, and $200 million would aid farm work housing programs.The remainder of the proceeds is earmarked for emergency shelters and homelesstransition and homeownership projects.
But even such huge sums of municipal debt will not solve the state's housing crisis.
"California has not built enough housing for more than a decade. To meet the needs ofthe growing population, state officials say that 220,000 housing units will need to bebuilt every year between now and 2020," according to a May 2002 report on the state byLittle Hoover Commission. "The shortage is greatest in the multifamily housing thatcould assist low-income families." That's where the nonprofits can come in.
Mary Ellen Shay, director of the California Association of Local Housing FinanceAgencies, said it is important for the groups to connect with professionals who have atrack record in debt financing, so as not to reinvent the wheel.
"It is almost impossible to finance a project with one financing [tool]. Some projectshave as many as three, and another I know has as many as 18," Shay said. "You end upwith tax credits, bond issuances, then the gap financing by a variety of local programsthat are available."
Jerry Burke, general manager of the California Statewide Community DevelopmentAuthority, said to his knowledge the agency has not funded any multifamily housing bondprojects through faith-based groups. However, some bond proceeds were used to build aJewish Community Center, and a retirement home by a religious Japanese group.
"I think we need all of the low-income housing we can get. It is the biggest need in thestate," Burke said. "It is something we would encourage and would support anything toincrease multifamily housing of any kind, as long as it doesn't discriminate."
Peggy Jones, assistant director of real estate and community development with NehemiahCorp. of California, said coalitions can be effective. One coalition of 35 churches inWoodland donated land to build 35 single-family homes. They came with a common goal -set their financial house in order and made it work.
"Nonprofits are first and foremost businesses. While you don't generate a profit, yougenerate revenue and it is what you do with it to expand your business to serve morebusinesses. You have to be financially solvent," Jones said.
The CME church is the only African-American congregation in El Cerrito and has existedfor 50 years with a small congregation. But the members want to do something vital andlasting to help others, and obtaining bond financing could be the way to fulfill thatdream, according to Sharp.
"I think we can rehabilitate a house, or build a shelter targeting those 18-to-25-year-olds who have been thrown out of the foster care system and have nowhere to live," shesaid. "There are a 1,000 possibilities. We want to contribute to our community."
