#112 Jul/Aug 2000

Finding Ways to Cover Administrative Costs

This fall, at a philanthropy conference at the White House, First Lady Hillary Rodham Clinton said emphatically that if the philanthropic sector was serious about making the world a better […]

This fall, at a philanthropy conference at the White House, First Lady Hillary Rodham Clinton said emphatically that if the philanthropic sector was serious about making the world a better place, it had to provide more core operating support to nonprofits.

CDCs nationwide wholeheartedly agree. “We are drowning in loan money, but very few people can provide our CDCs with funding to hire staff, pay rent, and operate computers,” says Reymundo Ocañas, president of the Texas Association of CDCs.

Many CDC staff members have often heard stories from their senior colleagues about the “old days of the Office of Economic Opportunity” when the federal government recognized the wisdom of investing in community-led economic development. Don Maxwell, former president of The CDC of Kansas City, says that annual checks of $1 million or more helped his CDC develop business enterprises and opportunities.

But by the 1980s, political changes resulted in drastic cuts to CDCs’ government funding. Philanthropic sources too have drastically reduced the amounts they give for operating support.

In the face of these challenges, CDCs are devising creative ways to cover their administrative costs.

Internet Service Provider. Northern Cambria Community Development Corporation (NORCAM) provides internet access for nearly 500 people in its rural Pennsylvania community. The service connects residents of three counties to the internet via NORCAM’s technology, and has helped NORCAM raise $1,500 a month for administrative support.

Property Management Income. Chicanos Por La Causa, Inc. generates administrative funding through its property management company, Tiempo, Inc. It also does inter-company agreements to fund core staff with profits from real estate commissions and real estate deals. R.D. Martinez of Calexico Community Action Council in California built a monthly rental income into the plans for the Council’s new incubator development. Now the Council can count on $10,000 per month in revenue to pay for staff and rent.

True Project Cost Assignment. Simple technology changes allow CDCs to capture the true costs of a project. Copiers, postage meters, and telephones can all be programmed to capture various project codes. Those costs can be directly charged to project costs.

Pay Yourself First. Nuestra Comunidad Development Corporation in Roxbury, MA places half of every developer’s check into its Venture Fund. This Fund is an internal revolving fund that allows the CDC to quickly act on new projects without waiting for predevelopment funds to be in hand. The Fund also accelerates Nuestra Comunidad’s ability to create its own projects and can be used as a credit enhancement when the CDC applies for loans.

Operate on the Loan Spread. Impact Seven, in rural Wisconsin, operates almost entirely on the margin between the amount it borrows from banks and agencies and the amount it lends to entrepreneurs.

Special Events. Special events can increase both community support and unrestricted funds. Marshall Heights Community Development Corporation holds an annual ballroom event that features remarks from elected officials, local journalists, residents, and grantmakers. Manna, Inc. holds a fall reception with entertainment that taps many individual donors. Last fall approximately 200 people attended the annual event, which raised about $15,000. This past March Manna held its Second Annual Fun Run/Walk for Affordable  Homeownership,  raising  over $40,000. Mon Valley Initiative in rural Pennsylvania holds an annual golf tournament.

Put Profit into the Developers’ Fees. Bob Brandwein, a community development specialist in Boston urges every CDC to be sure it makes a profit on each deal. “You can structure every deal to ensure that your CDC gets a solid return,” he claims, citing Bethel New Life in Chicago, The CDC of Kansas City, Vermont Slauson Economic Development Corporation in Los Angeles and CET in San Jose as successful examples. Some state associations, like the Affordable Housing and Community Development Network of New Jersey, are fighting regulations that prohibit nonprofit developers from taking developers’ fees but allow for-profits to get them.

HOME Funding. Section 92.208 in the HOME regulations states, “Up to 5 percent of a participating jurisdiction’s fiscal year HOME allocation may be used for the operating expenses of community housing development organizations (CHDOs).” HUD’s CPD Notice 96-09 also clearly defines operating expenses as an eligible category. The Affordable Housing and Community Development Network of NJ successfully advocated  for  increasing  funding  for  their HOME Operating Grant Program and state Performance Grant Program; last year the state awarded an all-time high of $1.8 million in grants, up from  $1 million in previous years.

Community Development Block Grants. The North Carolina Association of CDCs has worked with the state to create a statewide Small Cities CDBG technical assistance set-aside for nonprofits involved in community economic development. NC currently invests $500,000 in the set-aside and plans to reach five percent of the total CDBG allocation provided to the state or $2 million, whichever is higher.

For-Profit Ventures. A few years ago Manna established Providence Construction, Inc., a wholly-owned subsidiary staffed by Manna employees, which offers construction management and general contracting services to other nonprofits. Manna also offers other nonprofits architectural design services. Together, these services generate $75,000 – $125,000 per year for Manna.

Even with all this creativity, true CDC self-sufficiency is still very difficult to do. Subsidy and grant funds will always be required for CDCs to carry out their important work.


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