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Missoula considers forgiving $243K of Burns Street Commons debt

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With nine units remaining unsold, the Burns Street Commons, a 17-unit affordable housing development, stills holds $1.4 million in debt and the North Missoula Community Development Corp. is asking the city of Missoula to forgive more than half of a $400,000 loan the city made to help with the debt.

A proposal to forgive a city loan to the Burns Street Commons, an affordable housing complex, has not been fully vetted in the public eye and has the potential to give other similar projects a black eye, according to some other supporters of affordable housing.

The North Missoula Community Development Corp. built the Burns Street Commons - 17 units, community space and a grocery store - but the project is struggling with $1.14 million of debt.

To help, the city of Missoula earlier loaned the development corporation $400,000, and on Monday the Missoula City Council will consider forgiving $243,000 of that amount.

Councilman Bob Jaffe, who is recommending the loan forgiveness, said the homes never got enough public support in the first place. So the proposal only brings the subsidy to "within the normal range."

And according to one resident and supporter of the land trust model, partial loan forgiveness is the best option for affordable home ownership for generations to come. Gabriel Furshong, a resident board member of the North Missoula Community Development Corp., said the benefit of keeping the land permanently in trust has been lost in the conversation.

"For the nine units that are unsold, you know, if the CDC were to fail, if it were to be allowed to fail, then the opportunity to pay it forward for those nine units would be lost," Furshong said. "And I think that's a really important opportunity."

But the plan has raised a number of concerns among other City Council members and affordable housing supporters.

One is whether it's appropriate for the deal to put some $86,000 back into the pocket of the development corporation; the money comes from an 8 percent sales commission from each remaining unit sold.

"It's public money," said Patty Kent, who develops housing for the Western Montana Mental Health Center, of the loan. "The public needs to know that it's well spent, and we take that very, very seriously."

Jim Morton, with the Human Resource Council, said the deal will affect the public's outlook on affordable housing in general, not just the development corporation's work. If the public believes forgiving the loan is throwing good money after bad, that sentiment could color future affordable housing projects.

"When we come up with the next project, we want a receptive attitude," Morton said.

Meanwhile, North Missoula Community Development staff see other communities pour public funds into land trust projects such as the Burns Street Commons as a way to make housing permanently affordable. Executive director Bob Oaks said the corporation's other developments have been showcased as community projects by the city of Missoula and the Montana Board of Housing. But the community is less willing to take ownership when the economy wreaks havoc on a development.

"When we run into trouble - it's your project. You should suffer for your bad decisions," Oaks said is the sentiment.

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The money comes from the city of Missoula's Title 1 funds, which are supposed to benefit projects for low income folks. In an earlier conversation, a grants administrator for the Office of Planning and Grants said $400,000 was the whole of the fund; so forgiving $217,476 in principal would deplete the fund by more than half.

The fund hasn't been used this way in the past, and Morton and Kent have raised questions about the proposal. For one thing, Kent said she believes Councilman Bob Jaffe, proposing the loan forgiveness, should step aside because he sat on the board of the development corporation when it built the Burns Street Commons.

She also said other agencies haven't been able to tap into that fund for more than $10,000 at a time. And the development corporation, which has needed help "time and time again" for Burns Street, isn't the only organization that would be at the table asking for a loan if the city so easily forgives them.

"Anybody who wanted a $400,000 Title 1 loan turned into a grant would be here," Kent said.

The Human Resources Council has loaned money to the project as well, and Morton wants to know how his organization will be repaid the rest - an estimated $50,000, according to the development corporation. Some units are being rented out, and Morton also wants to know what the repayment plan is if those units don't sell and end up being used as rentals instead.

Additionally, they question the sales commission the organization is taking. When shortfalls arise, Morton said most developers give up their own fees to make sure they pay lenders first. With the banks, it's expected, and "that's how most of us do business."

Councilman Adam Hertz, a loan consultant, raised the same question in committee: "It's all government money. Can't they find some private money or (funds from other sources) to sustain operating costs?"

More importantly, though, leaders of the other nonprofits said the deal with public money hasn't been thoroughly vetted in a public forum. Kent and Morton said they are glad to see the city support affordable housing, and this plan could be the best option for affordable housing in Missoula. But not all the stakeholders have been involved in the discussion, and on its own accord, the development corporation hasn't succeeded with Burns Street Commons yet.

"Isn't it time to bring some other brains to the table?" Morton said.

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The vetting, though, happened every step of the way, said the development corporation's Oaks. The banks and the mayor and the city of Missoula thoroughly scrutinized the deal early on, and when the economy tanked, Burns Street Commons struggled as well.

Title 1 money hasn't been loaned before for such a large project, and Oaks said if the City Council wants to make home ownership a priority, the money should be turned into a grant. He said it was the administration's idea to loan money from that fund, and it was a risky loan in the first place.

"There is a great argument I think for a municipality to invest in this community land trust, and there are ways that happens all over the country," Oaks said.

He also said the sales commission will keep the development corporation alive long enough at least to sell the homes, "an extraordinary community benefit." The model holds the land under a home in trust, which means owners don't earn as much equity, but the homes remain affordable in future sales.

"It's a good economic benefit to the city to have homeowners in it," Oaks said.

Councilman Jaffe agrees, and he said he fails to see how he has a conflict. He values the idea of a land trust and wants to use public money to create a permanent asset.

"I don't have a financial interest in the proposal. I have a philosophical interest in seeing these sorts of things succeed," Jaffe said.

In other communities that value affordable homeownership, the city helps fund the organizations that build them. Missoula doesn't, though, and he said that sales commission is one of the few ways such organizations can sustain themselves and continue doing their work.

"Do we support having this organization? And the work that they do? Because this is how it's funded is through project revenue," Jaffe said. "And Patty would be thrilled to see it starve and go away because it's one less mouth to feed."

Reporter Keila Szpaller can be reached at @KeilaSzpaller, 523-5262, keila.szpaller@missoulian.com or on MissoulaRedTape.com.

 

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