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City voices support for $725k loan to shelter but wants further discussion of terms

September 17, 2013

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City commissioners voiced support Tuesday for a $725,000 loan for the Lawrence Community Shelter, after leaders with the homeless shelter expressed concern about the financial bind the organization would find itself in without the money.

"Truthfully, if you turn this down, I'm not sure what we will do," Joe Baker, the treasurer for the shelter's nonprofit board, told commissioners.

The shelter raised a little more than $3 million in pledges to purchase and renovate a vacant warehouse near the Douglas County Jail in eastern Lawrence for use as a homeless shelter. But shelter officials told city commissioners at their weekly meeting that costs to renovate the structure ran about $600,000 higher than was originally estimated.

That left the shelter with an approximately $625,000, short-term loan with a local bank. The loan comes due later this year. The shelter also has about $100,000 worth of roof repairs that, it has discovered, need to be made to the building at 3701 Franklin Park Circle.

The shelter wants to replace the short term loan, which carries an interest rate of 5 percent, with a 15-year loan through the city at a 2 percent interest rate.

Commissioners said they understand the shelter's situation and directed staff members to draw up documents for a loan. But commissioners still have some debating to do at a future meeting regarding how the city should protect itself in the event the shelter defaults on the loan. Mayor Mike Dever and Commissioner Mike Amyx both said they wanted to place a traditional mortgage on the real estate.

"If this was my money, I would expect that level of protection," Dever said. "And I treat taxpayer money like it is my money."

The remaining three commissioners weren't yet ready to commit to placing a mortgage on the property. Commissioner Bob Schumm said that may make it too difficult for the shelter to receive traditional bank financing in the future for any other improvements at the facility that may be needed. He instead proposed an agreement between the shelter and the city that would stipulate the shelter would have to receive the city's permission to place the property under a mortgage with any other party.

He said an outright mortgage with the city may send the wrong message to the shelter's base of donors.

"There seems to be a level of independence and a can-do spirit out at the shelter, and I don't want to diminish that in any way," Schumm said. "If we put a mortgage on the building, it may send a message to donors that the city is in charge, and they'll just let us handle it."

Shelter leaders urged commissioners to see the shelter project through. The group moved from its longtime downtown home to the new facility in late 2012, and shelter director Loring Henderson said the larger space is helping the organization meet its mission. He said the shelter has housed 147 people during the first eight months of the year, with a large spike in the number of families being served. He said currently the shelter has 17 children staying with their families.

Henderson said the shelter has helped place 61 people into full-time jobs during the first eight months, in part because the shelter now has room to offer a 13-week program that better prepares shelter guests to enter the workforce.

He said the shelter also has seen a significant drop in the number of police calls made to the facility. Through the first eight months at the new location, 11 police calls have been made, down from 64 during the same time period a year ago when the shelter was downtown.

Commissioners unanimously directed staff members to further discuss the terms of the loan with the shelter. Those terms will include a sizable balloon payment that would be made by the shelter to the city at the end of the 15-year period, in order to make the loan more affordable to the shelter in the early years. Commissioners expect to have the loan, which would be funded through reserve funds of the city, on the agenda at their Oct. 8 meeting.

Comments

waitjustaminute 1 year, 3 months ago

It's a 3-ring circus, and nobody is sure where to look 'cause each ring has another act, outside of and away from core services, asking for $$$. Step right up, buy some $15 dollar day-old popcorn, and watch the show. Only in Lawrence, folks. Only in Lawrence.

bearded_gnome 1 year, 3 months ago

about the financial bind the organization would find itself in without the money.

"Truthfully, if you turn this down, I'm not sure what we will do," Joe Baker, the treasurer for the shelter's nonprofit board, told commissioners.

The shelter raised a little more than $3 million in pledges to purchase and renovate a vacant warehouse near the Douglas County Jail in eastern Lawrence for use as a homeless shelter. But shelter officials told city commissioners at their weekly meeting that costs to renovate the structure ran about $600,000 higher than was originally estimated.

---sounds like they need the loan because of poor planning/management.

the city should not* be competing with private lenders, and should not undercut private lenders' interest rates by way of taxpayer funding.

Dever is right and sCHUMMP is wrong! though I wouldn't even go as far as mortgaging. just say no.

does the shelter now require local ties or local history since it's spending local moneys? bet not. glad the police calls are down, but is that just a fluke, or something?

and the city is already raining down bus passes in a huge number on the shelter.

bearded_gnome 1 year, 3 months ago

The remaining three commissioners weren't yet ready to commit to placing a mortgage on the property. Commissioner Bob Schumm said that may make it too difficult for the shelter to receive traditional bank financing in the future for any other improvements at the facility that may be needed. He instead proposed an agreement between the shelter and the city that would stipulate the shelter would have to receive the city's permission to place the property under a mortgage with any other party.

---what planet is Schumm living on? they'd already be endebted to the city and he envisions the shelter being free to further mortgage?

really? not in the real world.

John Graham 1 year, 3 months ago

How do they plan on making the "sizable" balloon payment? This sounds like a way to keep the payments artificially low during the first 14 1/2 years then the shelter can either refinance again or simply default. With no collateral wanted by the city, defaulting would make the most sense. I am glad the commission is worried about how the shelter will be able to get additional loans before paying the city back. That should just about guarantee a default by the shelter. This under estimate of the buildout by $600,000 and only now realizing the roof needs repairs of $100,000 proves the people running the shelter are incompetent in managing the shelter's funds. How can the commission think they will manage this loan any better. How dare the city commission claim they are looking after the tax payor's money. Now every group will be hitting up the city for a sweet heart deal like this. Where can I sign up for such a loan. I guarantee that I am more able to pay it back than the shelter. The city might as well just give them the money outright and forget calling it a loan that way we won't be disappointed when we never get paid back. Just more tax dollars down a rat hole. Oh well, the city can always raise the taxes somewhere. Liberal democrats just love to waste tax payor money on social programs.

blindrabbit 1 year, 3 months ago

Using some astronomical terms, Lawrence Commission is on the committed Event Horizon to a supermassive black hole called the Homeless Shelter. Like those in outer space, the local one will suck the lifeblood out of the city budget.

jack22 1 year, 3 months ago

I hope the gamble pays off for the city. I guess they can always raise taxes on the rest of us if it doesn't work out, right?

somebodynew 1 year, 3 months ago

jhwkdoc1964 - Why the balloon payment so far out ?? Simple really. The shelter gets to have this 'free' money until the current commissioners are LONG GONE. Then it is somebody else's problem and they and just blame it on these guys and say there is nothing they can do about it when the shelter defaults.

But this will not be the last of the money grabs, this is just a different look. In another year or two it will be something else. And wait for budget time........

justforfun 1 year, 3 months ago

My understanding is the city is quietly drafting plans to raise the Mill Levy in order to have a fund when such things arise.

Michelle Reynolds 1 year, 3 months ago

Schumm says if they put a mortgage on the property it would send the wrong message. Wait what? Doesn't People's Bank have a mortgage on the property that the cities loan will pay off? What's the difference. Mr. Schumm a mortgage filed at the county helps protect the loan. That's why any bank that loans money files a mortgage. This is Finance 101. Also, why are construction costs $600k over budget? Didn't someone estimate the work before they started? Or did no one manage the general contractor on the job. Sounds like this is going to be a city money pit.

Hey. I found $10 bucks in my pants pocket. Don't tell our city commissioners. I am sure they will tax me on it so they can waste it on another dumb project.

dontpeeltheonion 1 year, 3 months ago

"If this was my money, I would expect that level of protection," Dever said. "And I treat taxpayer money like it is my money." (omg, ha ha ha ha ha ha)

On $750K he gets responsible? Did anyone else spit their coffee when they read this quote? He couldn't give away $22.5 million of our taxpayer money fast enough when it came to Rock Chalk Park. Where was the scrutiny there?

I guess I shouldn't complain though, we're getting a deal that is just too good to pass up. You know, with Bill Self contributing $1 million to the INFRASTRUCTURE and the city contributing $11.5 million to INFRASTRUCTURE.

What matters is that at the end of the day, we're getting a fabulous $10.5 million recreation center on a $750,000 piece of ground that we're BUYING ........all for the bargain basement price of $22.5 million!

Thanks City Commission!!

nick_s 1 year, 3 months ago

If the KU athletic department, Shannon Zenger, Fritzel, or Compton were involved they'd have no problem securing the funds from the city. Take a lesson from these guys homeless shelter...

KU_cynic 1 year, 3 months ago

Any loan must be require amortized principal payments over time. Saddling a non-profit with a balloon payment is just not sustainable and will politicize any default/renegotiation/refinancing at the end of the 15-year period. If the shelter can't afford a more reasonable payment structure then that would be a symptom of unsustainability from the git-go..

jhawk1998 1 year, 3 months ago

What part of NO did the commission not understand? They are so willing to spend the taxpayers money but unwilling to give any property tax relief. This needs to be remembered in the next election cycle. Any candidates?

Matthew Herbert 1 year, 3 months ago

Between yesterday's article and today's the cost of roof repair has fluctuated between $250,000 and $100,000. Can someone on the Commission please ask a few serious questions, the answers to which should impact your decisions, before pulling out their checkbooks?

Matthew Herbert 1 year, 3 months ago

"There seems to be a level of independence and a can-do spirit out at the shelter, and I don't want to diminish that in any way," -- Commissioner Schumm

They come begging for more money after defaulting on the previous loan they took out and you interpret that as "independence" and "can do spirit". Wow. You sir are out of touch with reality.

jafs 1 year, 3 months ago

I see nothing about defaulting on loans in the article.

What's your source that they have defaulted on them?

Matthew Herbert 1 year, 3 months ago

My source is the homeless shelter itself who stated before the commission that their loan was coming due and if the city doesn't give them the money, they don't know what they'll do. Having no plan to pay a debt other than borrowing more money....That sounds like default to me.

jafs 1 year, 3 months ago

Sounds like "refinancing" to me. Also, you claimed that they "defaulted on the previous loan", which hasn't even come due yet. You can't default on a loan before it comes due.

It's true that they didn't plan on needing the money they now need, and so are in a bit of a bind, which is unfortunate, and I would have much preferred that this didn't happen, and it might have been preventable.

But, cost over-runs on renovations of various kinds are so common these days, it's hard to find a project that doesn't have them.

Matthew Herbert 1 year, 3 months ago

Correction: It's hard to find a GOVERNMENT project that doesn't have them. I've been directly involved in construction projects since 2006. The difference is, since tax-payers don't fund my renovations, I have this odd habit of properly budgeting.

jafs 1 year, 2 months ago

If you talk to homeowners about construction projects, you find that many of them often go "over-budget", and contractors routinely put clauses in contracts allowing for that, rather than giving set limits.

I find the whole thing absurd, but it seems to be very common.

50YearResident 1 year, 3 months ago

This sounds like a Nigerian Scam and the City Commission is buying it hook, line and sinker. There is no way the shelter can maintain it's services and pay back a (loan?) of any amount. It will never be able to secure enough funds for operation, so how is it going to pay off a loan? It wouldn't surprise me to see it move out in the middle of the night after the City writes a check for $750,000. A full audit of finances and operation is called for before 1 penny of tax payer funds is given out. This shelter will soon be consuming the entire United Fund Budget.

50YearResident 1 year, 3 months ago

"He said an outright mortgage with the city may send the wrong message to the shelter's base of donors." Well now, if you want to send the right message to the base of donors, tell them this: You wanted to support this money pit so dig deeper in your pockets and donate another $750 thousand, and be quick about it before their next money request comes out.

Ladybug2 1 year, 3 months ago

Very bad deal commissioners. This is not protecting the city taxpayers at all! I'm disappointed in you.

beebo 1 year, 3 months ago

I wonder if Bob was loaning his own money, would he do so without filing a mortgage on the property. Me thinks not.

Then don't do it with our money. Pretty simple.

I'm guessing the bank only made it a short-term loan due to the borrower's inability to demonstrate sufficient/dependable cash flow to pay it back.

50YearResident 1 year, 3 months ago

If the bank won't refinance at 5% for a short term, why would the city make the loan at 2% for 15 years and include low payments with a balloon and no collateral? Something doesn't smell right here.

jafs 1 year, 3 months ago

Who said the bank wouldn't refinance?

The shelter would prefer a longer term loan, that's all I get from the article.

50YearResident 1 year, 3 months ago

"Truthfully, if you turn this down, I'm not sure what we will do," Joe Baker, the treasurer for the shelter's nonprofit board, told commissioners. What do you think this means?

jafs 1 year, 3 months ago

I don't know.

But, it certainly isn't proof that the bank wouldn't refinance their loan.

beebo 1 year, 3 months ago

If 'we' are going to be getting into the lending business, then the Shelter's last three year's full financial statements need to be posted, including year to date, for our review as to their ability to re-pay the loan.

This needs to be done at least two weeks before a vote by the Commission.

The people, whose hard-earned income, in the form of taxes paid, will be loaned, must be assured that the loan will be paid back.

By the way, will this be the first of many non-profits to line up for a City Loan? What if a church needs a new roof? Where does it end?

smileydog 1 year, 3 months ago

Did George Stephanopololous give $2 million to the shelter?

been_there 1 year, 3 months ago

I say give them the money. At this rate the city is going to start taxing us to death and there is a good chance we'll end up living there. I for one would like to know that the roof over my head doesn't leak.

been_there 1 year, 3 months ago

Has the roof repair been put up for bid so the best deal could used? Have copies of the estimates by roofing companies been presented to the city. Please tell me the city had this done before even thinking of approving a loan. Remember how some of the costs at the Rock Chalk project were way off? Also require that any money left over from the roof repair be given back on the loan to bring down the balance. The money should only be used for the roof and the lowest bid accepted.

somebodynew 1 year, 3 months ago

been-there - not trying to be a smart-alec, but are you in a dream world ?? Money left over from the roof ?? Yeah, right, I am sure every penny of that will be 'required' for the repairs. (Oh, and no estimates beforehand either)

And you know I could certainly maintain a "can-do attitude". Particularly if I "can-do" with OPM (Other People's Money for those not as old as I.)

been_there 1 year, 3 months ago

Refresh my memory, who was the building bought from and for how much? Did the seller know the roof was bad and did not disclose it? Can they be required to help pay for the repairs, how about insurance coverage? Can donations be raised to help with the roof? Have they even tried to raise donations? Let's explore everything instead of just taking it laying down (and letting everyone walk all over us). These are questions the city commissioners should be asking.

jafs 1 year, 3 months ago

Although I'm disappointed that the shelter finds renovation to be more expensive than planned, that seems to be extremely common these days, for all sorts of projects.

To put this into perspective, the statehouse renovation was originally going to cost about $3 million, and now we're over $300 million and still counting - that's a mistake orders of magnitude more than the shelter.

Also, the statehouse renovation serves mostly vanity, while the shelter serves actual people, and provides services. Did anybody notice how much they've improved their job placement programs?

50YearResident 1 year, 3 months ago

Jafs , while you are feeling so good about this, get your checkbook out and make a big donation.

jafs 1 year, 3 months ago

How do you read "disappointed" as "feeling so good"?

Success 1 year, 3 months ago

The city regularly finances public improvements such as roads, sanitary sewer, storm sewer, sidewalks as part of residential developments. These public improvements are financed at a certain bond rate, available to the city and is usually less than what the developer could get from private bank financing. The repayment of this loan is attached to the property tax bill of the residents that primarily, though sometimes not exclusively, benefit from the public improvement. It seems reasonable for the tax payers of Lawrence to consider the renovation needs of the Lawrence Community Shelter to fall into the category of a public improvement that benefits many residents. It seems the interest rate should be somewhere in the same range as what is offerred to developers building homes the likes of which have seen recent declines in value due in part to the developers' failures to accurately meet the housing needs of the community.

John Graham 1 year, 3 months ago

The difference is the tax payers make use of the roads, sewers, etc. for which they are taxed. Those expenses are necessary for the function of a city. In the case of the shelter the tax payer is being used as a financial source for an unnecessary expense which they will not use and will not be repaid. The shelter has been and will remain a financial rat hole. Anyone believing the loan will be repaid in full, I have a bridge I would like to sell you. Let those who want to help write their own checks to the shelter. The rest of us should not have to be part of this money grab by the shelter. You state many residents benefit from the shelter. I disagree. The residents of the city are the tax payers paying for the privilege of living here. They are not using the shelter. The "residents" of the shelter are not paying taxes. They are in this community solely on the backs of the tax paying community. I for one want them off my back and out of my community. The city would be better off to give each shelter "resident" a one way bus ticket out of town. As long as that shelter is open it will be nothing but a financial drain on the community by laying guilt on the tax payers to give hard earned money to the bottomless pit the shelter is.

Jean1183 1 year, 3 months ago

I am so glad I no longer live in Douglas County!

patkindle 1 year, 3 months ago

"The problems in the USA today are there because the people who work for a living are now outnumbered by those who vote for a living."

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