Since the in the 1960s, cities and states across the U.S. have set up community focused funds or Community Development Financial Institutions to tap into funding sources from the US Treasury. In almost all of these cases, the organizations lend to nonprofit organizations to create or upgrade community facilities and create affordable housing. They all have a focus on helping low income individuals and communities. Interest rates are typically lower than traditional bank financing. The USDA also lends to nonprofits for community facilities, but being a public and federal program, there can be significant restrictions on what they can finance.
Although financing options exist, Carbondale nonprofit organizations are often not eligible due to our size, location and the community’s relative wealth. Furthermore, the interest rates for these loans although favorable can still make a project unworkable.
All of the nonprofit lending options around the country available today were created to address a gap in financing from existing sources. Carbondale has a number of advantages that would enable it to create its own fund for community infrastructure improvements that better serves community needs than traditional funding sources. They include:
- An engaged and philanthropic community: Carbondale has distinguished itself as a very generous and creative community. It is revealing that Carbondale has a 35+ year old public radio station, a 40+ year old community arts organization and a public arts commission with a town budget hovering around $6M. While the old Aspen Elementary School was transformed into the Red Brick Center for the Arts by the City of Aspen and a vote of taxpayers, the Third Street Center was created with significant community involvement and minimal public dollars.
- A model for the fund already exists: The Third Street Center and the Town of Carbondale manage the Carbondale Revolving Loan Fund to support the growth of new and existing businesses and nonprofit organizations within the Town boundaries of Carbondale. This revolving loan fund is capitalized with Federal dollars and has limitations (maximum loan amount of $25,000 for three years), but the interest rate is well below traditional commercial loans (3%) and it is more flexible with collateral requirements. A new fund specific to nonprofit capital improvements could adapt this existing model.
- No need to create a new organization: Third Street Center already serves as the nonprofit fiscal sponsor for other community serving organizations (Roaring Fork Cycling, Sopris Garden Network, Youth Water Leadership Summit) so there is no immediate need to set up a separate nonprofit organization (and await IRS approval) to manage the capital fund. The structure can be set up quickly and with little cost. Third Street Center also has annually audited financials that can provide donors/investors the assurances they need to participate in capitalizing the fund.
- Not having to create a stand-alone organization can reduce the cost of money: If the Carbondale Community Fund is staffed by an existing organization like the Third Street Center, the cost of running the Fund decreases significantly. Those savings can then be passed along to nonprofit borrowers in the form of low interest
HOW THE CARBONDALE COMMUNITY FUND WOULD WORK
The structure of the Carbondale Community Fund could be similar to the existing Carbondale Revolving Loan fund, which includes local bankers and business people. In this new case, however, we could have donor / investors and some nonprofit executive directors or board members to make loan decisions.
Initially, the Third Street Center would provide the staff, legal, and accounting services for the fund and create the structures for loan applications, debt payments, and payments to investors. The fund would be housed in the Third Street Center offices, which would reduce the need for office and meeting space. The Fund could become a stand-alone entity at a later date, if needed.
The Carbondale Community Fund could be capitalized in several ways, including:
- Grants from individual as the donations will be potentially tax deductable
- Grants from foundations, donor advised funds, public entities
- Social Impact Investments – the investor (individual, family trust, or foundation) seeking a “social impact” on the investment at no or a low return. These investments would be for multiple
Given a cursory calculation of planned nonprofit capital improvement projects at places like the Third Street Center, the Launchpad, and the Thompson House, $2.5 million would be an initial capitalization goal for the fund, but it could operate effectively at various capitalization amounts.
Loans would initially be for nonprofit capital improvement projects on nonprofit owned or public properties and for the refinancing of existing loans already being effectively serviced by a nonprofit organization for a similar purpose.
Loans would be set at a low interest rate (0.25-2.0%). The rate would reflect the source of the loan funds. If the funds are donated or lent to the Carbondale Community Fund at a low interest rate (0-1%), the low rate can be passed on to the lender. The loan amount caps would depend on the capitalization of the fund.
Depending on the initial success of the fund, there is always the potential that other community focused projects could be helped by the creation of this fund. For instance, there is an intense need for affordable housing in the Carbondale area. In addition to the cost of land and labor in our region, the cost of financing for affordable housing is a significant challenge to its creation. Reducing the financing costs of affordable housing projects could be a way to encourage more affordable housing development on land owned by public or nonprofit organizations.
Depending on the scale of the fund, public infrastructure projects (roads, trails, pools, community solar projects, etc.) could potentially be financed locally at a lower interest rate than available on the Bond Market. (The current affordable rental housing project on school district land in Carbondale cost roughly $5M).
Case Study: Third Street Center
The Third Street Center renovation was fortunate to receive significant support from community members, public and foundation grants, the Manaus Fund, Alpine Bank, and the Town of Carbondale. The Third Street Center board and project team raised roughly $2M for the renovation and borrowed $2.5M from Alpine Bank. (The 2007-2010 recession contributed to the decision to borrow rather that attempt to raise more dollars). The current loan is structured as a conduit tax-exempt bond through the Town of Carbondale, which Third Street Center services through rental income from community organizations renting office space at below market rates.
Since 2010, Third Street Center has successfully serviced this debt paying $1.2M over the past 9 years. Today, the loan balance is roughly $2.1M.
Alpine Bank took a significant risk in lending to a unproven concept and kept the interest rate on the loan as low as possible (currently 3.5%). Alpine Bank has even reduced the principal on the loan for Legacy gifts pledged to Third Street Center. Even with these efforts, Third Street Center has paid over $900,000 in interest on the loan since 2010.
Imagine if most of that interest went to principal payments instead?
Imagine if the principal payments could be then be re-lent to other projects to improve the Third Street Center, or the Thompson House, or …
The Carbondale Community Fund is a tool to make such a scenario possible.
Interested in the Fund? Give us a call at 970-963-3221 x3 or send an email to colin at thirdstreetcenter.net