There may not be a free toaster involved, but Lawrence city commissioners on Tuesday are being asked to play the role of bankers signing up a new client.
Commissioners will consider approving a $725,000 loan to the Lawrence Community Shelter in order for the homeless shelter to stabilize the financing of its new facility and to replace the roof on its building.
"It is a lot of money, but I think we have invested too much in this effort to stop at this point," said City Commissioner Jeremy Farmer.
The concept of the deal is simple. The Lawrence Community Shelter has a loan with a 5 percent interest rate with Lawrence-based Peoples Bank that comes due later this year. Shelter leaders want to replace that loan with a 15-year loan from the city at a 2 percent interest rate.
Loring Henderson, director of the shelter, said he didn't have an estimate Monday afternoon on how much the lower rate would save the shelter in monthly loan payments, but he said it would be significant.
"What this does is puts us on a schedule and a footing that is affordable," Henderson said. "We can budget for this and move forward."
The loan is for work that was done to convert an empty warehouse near the Douglas County Jail in eastern Lawrence into a 125-bed shelter, offices and classroom space for the organization.
Shelter leaders approached city commissioners this summer about the idea of a loan, but at that time the amount was $500,000. But the amount grew to $725,000 when shelter leaders discovered the building's roof needed about $225,000 worth of work.
"The situation with the roof is something that happens with metal buildings like this, I'm told," Henderson said. "It is something that needs to get fixed, so we figure we may as well get it fixed now."
The city is proposing to use money in a pair of fund balances — the equivalent of savings accounts — to pay for the unbudgeted expenditure. The city is proposing to take $425,000 from the city's general fund balance, which will leave the account with about $12.2 million in reserves, according to the city's budget office. The remaining $300,000 would come out of the fund balance for the special alcohol fund, which would draw reserves for that fund down to about $70,000.
City Commissioner Mike Amyx said he thinks the immediate fiscal impact on the city's budget is relatively minor since the money is coming out of reserve funds. But he said he wants to have a discussion about what happens if the shelter is unable to repay the loan. Under the proposed agreement, there isn't the traditional requirement that the real estate be used as collateral for the loan.
"We always have to make sure taxpayer money is protected," Amyx said. "We're being asked to make a loan here, so I want to make sure we understand how the loan is secured."
City Manager David Corliss said he has recommended that the city not require the real estate to be used as collateral for the loan because he said that would decrease the shelter's financial flexibility in the future and may create an expectation that the city would take over the service if the shelter ever failed.
Corliss, though, said he thinks Lawrence Community Shelter is in a good position to repay the loan.
"This request isn't being made out of any weakness on the part of the shelter," Corliss said. "They have strong support in the community. They are just wanting to take advantage of the city's relatively low cost of money."
Farmer, who is the director of the nonprofit food bank Just Food, said he thinks it is appropriate for the city to look for creative ways to help nonprofit agencies. He said this loan request from the shelter may spur a larger discussion of what role the city should play in helping community social service agencies.
"We have to talk about how to facilitate taking care of people in our community better," Farmer said. "I don't know what all that may involve, but I do know that we have a platform to say taking care of people in our community is very important."
Commissioners meet at 6:35 p.m. Tuesday at City Hall.