Loan for Homeless Shelter Unlikely to be Repaid

By Mark McGuigan
Staff Writer

August 4 -- A $7 million "loan" to bankroll the relocation of a homeless shelter the City Council is expected to vote on next Tuesday night will likely never be paid back, City officials told The Lookout.

The use of the term “loan” in reference to the funding being sought by Ocean Park Community Center (OPCC) -- the organization planning to run and operate the proposed 33,000 square foot homeless facility at Cloverfield Boulevard and Michigan Avenue -- is something of a misnomer, officials said.

“People in here will be of such low income and of such limited means they won’t be able to pay toward the operation of the place,” Bob Moncrief, the City's housing director, said. “In this case we don’t anticipate much of a return.”

A zero return on funds allocated to support non-profit organizations is par for the course. Other projects the City has bankrolled with "loans" include other OPCC projects as well as housing projects built by Community Corporation, Project New Hope (the low-income facility near the pier for those suffering with HIV) and the Youth Hostel.

The real benefit to allocating these loans is in the services the City provides to the community, Moncrief said.

“The terms of affordable housing loans are consistently based on the notion that we get services in the form of a group providing assistance to people that need it,” Moncrief explained.

While the exact structure of the proposed funding remains something of an enigma to most council members who are awaiting more information from the city on the issue, the speed with which it arrived before the council is alarming some members.

“Where did it come out of all of a sudden?” said Councilman Herb Katz. “If the seller wants to sell then he’ll wait.”

“This needs a big airing,” Katz added. “I would not in any way support this as it stands.”

What is known is that the loan comprises two separate components, a “combination of loan and grant,” according to city officials. The first part is termed a “conditional grant,” the condition being that if OPCC follow City guidelines and operates the facility according to the agreement, then after a period of 80 years, the grant is “forgiven.”

The second part of the funding resembles more an ordinary loan but with a major spin. The terms are such that the OPCC can pay the loan off over time with whatever money it can spare from the “residential receipt fund,” money received from residents by way of rent.

But in the case of the new multi-million dollar shelter -- which will serve 200 homeless and shelter 55 -- this chest will almost certainly be empty most of the time. Without residential income, the City gets nothing in return.

“We ask for repayment annually with any funds left over after payment of all expenses,” Moncrief said. “But this may be zero.”

The term of the loan is typically for a period of 55 years, after which the remaining balance is due to the City. However, the City has the option of providing a further 25-year extension if OPCC agrees to continue operating the building as per the agreement with the City.

In all, a total of 80 years may elapse after which time the entire loan is forgiven regardless of how little was actually repaid to the City.

“After 80 years, it’s their property,” Moncrief said simply.

This is not necessarily the case with all City projects, some of which do return money. These are the exception rather than the rule, officials said.

Moncrief cites a number of reasons for opting to let the non-profit organization retain the title of the property, instead of purchasing the building and leasing it to OPCC.

First and foremost, owning a building provides OPCC with a great deal of leverage to gather donations. Having a tangible asset such as a property to back up fund raising is a great benefit to a non-profit organization, Moncrief said.

“There will still be a gap," he said. "The group themselves has to raise $700,000. It’s easier to do that when you own a building.”

While the loan from the city constitutes 75 percent of the organization’s total needs by providing the actual brick and mortar, the remaining 25 percent of all operations are classified as “services” and are funded by OPCC itself.

According to Moncrief, these services include the provision of case managers who will work with tenants to assess their individual needs and offer guidance in getting them back on their feet.

Moncrief also cites a more realistic reason for not opting to buy the property: some property owners are just not willing to sell property to the City in the first place.

“There was no guarantee the owner would sell to the City. It took a long time for the non-profit to get an option on the house,” he said.

“By definition this housing is not economical -- you couldn’t make an investment in it,” Moncrief explained. “It’s a loan program not an acquisition program.”

Whatever the argument for not buying the property, some council members are concerned that the entire project is of questionable merit.

“This is not a home, we could build 30 (similar) units with that money,” said Katz, who is an architect. “The question is, ‘Is this the wisest use of this money?’ I don’t think so.”

“There’s a couple of issues," said Councilman Bob Holbrook. "I don’t see this as a housing project and the voters never approved the lending of money.”

Bob Moncrief believes the City is making a good, long-term investment.