Tibbetts Optical is a 17 year old retail optical shop owned and operated by Brenda Tibbetts, a sole proprietor, for the past two and a half years. She's grown the business from gross sales of $101,055 in 2011 to $130,714 in 2012.  It is now a very attractive retail storefront business in downtown Monson.  Brenda is an active participant in the downtown merchants group.   

Brenda Tibbetts has 15 years of experience as an optician and a passion for “helping others feel good about their eyewear."  She was a manager at Lens Crafters for 10 years and also has two years experience teaching opticians. In late 2010, she purchased an existing practice in Monson that had been in operation for 15 years. Shortly after opening the business, the June 2011 tornado destroyed much of downtown Monson and blew the roof off Brenda’s store. Much of the refurbishing work, equipment, and inventory purchases were financed with two low interest rate credit cards.  However, the credit cards now carry rates as high as 20%.

Adding to the credit card burden, Brenda’s spouse, Raymond, who has his own drywall contracting company, recently injured his back.  This required surgery that will keep him out of work for more than 6 months.

A request for bank financing within the last year was declined due to the business’s high debt to income ratio and length of time in business.

Brenda asked QVCDC for assistance in preparing for another approach to a bank. QVCDC staff, augmented by consulting help from a Certified Public Accountant, completed a financial review and identified several steps Brenda could take to improve her financial position and record keeping. As a result, Brenda made significant changes in order to reduce expenses.  She made improvements to her accounting system and corrected previous errors. She learned what inventory moves and which is more profitable.

With help from Quaboag Valley CDC, Brenda identified that her main competition comes from a business in Palmer, and that she has some competition from WalMart in Ware.  Accordingly, she’s repositioned her business to feature her consultative selling skills, better selection of merchandise and fast and accurate service because she cuts many of her own lenses.

Due to her extensive industry contacts in western and central Massachusetts, Brenda receives many referrals to her shop from colleagues. She has demonstrated her ability to persevere through setbacks, and has the willingness and capacity to become more strategic in her business operations.

The assistance and improved finances helped Brenda obtain the capital for needed equipment.

QVCDC’s next steps with this client are to help her use the more accurate financial information to put together a financing package to refinance her high rate credit card debt.

By Gail Farnsworth French, Quaboag Valley CDC

The New England Housing Network held its annual conference in Needham, MA yesterday and the speakers and workshops provided a tremendous amount of information and insight into the current state of affairs in Washington, DC.  

Four ideas that stood out for me:

1. It's bad - but it could get worse:  The budget situation in Washington is terrible with significut cuts on the way in FY 2012 and further cuts likely in the coming years. The Super Committee's failure to reach a deal means automatic cuts of about nine percent in FY 2013, but those cuts might actually have been worse had the Committee reached a deal.  Under the default plan, the military will aborb a much greater share of the cuts than under any other likely budget scenario.  And long term budget pressure will likely force deeper cuts in housing and community development funding, absent a broad budget deal that includes both new revenue and reductions in spending on health care.

2. Revenue, revenue, revenue :  All of the national housing advocates made it clear that housing programs, and more importantly the people those programs serve, will be hurt badly without an increase in revenue.  Housing advocates will need to speak out on the need for more tax revenue issue and not simply lobby for our own programs.

3. Housing is a platform for "care" as well as "opportunity:"  MIT Professor, Xavier Briggs, spoke at lunch about the emerging data that documents how the Moving to Opportunity program achieved dramatic outcomes for low income families in the areas of public safety, health, and mental health.  These outcomes dramatically improve the quality of life for these families and reduce the need for public expenditure in other areas, in particular health care. Briggs emphasized that these results are important, even if families did not always see a dramatic increase in their income or economic security. Briggs encouraged housing advocates to more strongly and effectively articulate the value of housing as a platform for "care" as well as "opportunity."  If we can better document how housing investments reduce the cost of health care, we may be able to win more support - and more dollars - for our agenda.  Look to hear much more about this topic in the coming months.

4. Mortgage Finance Reform is happening:  While advocates are forced to largely play defense on budget issues, and most legislation is stuck in gridlock, our national advcocates do believe that Mortgage Finance Reform will happen - probably in 2013 after the election.  This could be the biggest and best opportunity in the near future to advance progressive housing policy (and block regressive policies) so advocates should be fully engaged in this debate now as the proposals advanced in 2012 will form the basis for legislation in 2013.

To learn more about these and other issues discussed at the conference, click here.

A new report by Enterprise Community Partners provides an insightful analysis into the financial challenges facing community developers and offers thoughtful recommendations for how to address them at the organizational and system levels. It should be required reading for all community developers and their supporters.

The report, Building Sustainable Organizations for Affordable Housing and Community Development Impact, affirms many of the conclusions and recommendations developed by the Massachusetts Community Development Innovation Forum over the past three years.  Enterprise conducted an in-depth analysis of 10 nonprofit organizations that have faced financial crisis in recent years and examined systemic issues that contribute to financial weakness. The report also identifies the particular strengths and weaknesses facing neighborhood based organizations. Finally, the report offers recommendations for both community development organizations and for funders/lenders.

According to Enterprise, community development organizations should:

• - Strengthen their financial reporting and management,
• - Beware of one-time cash receipts and manage them effectively,
• - Diversity revenue streams, but only by growing strategically into business lines that align with organizational mission and can be profitable in the long-term,
• - Prioritize financial sustainability to ensure that long-term organizational health is not endangered by a single project or program, even one that has high mission impact, and
• - Collaborate to reduce costs, improve quality, and expand impact.

Enterprise offers the following recommendations to funders and lenders:

• - Incentivize long-term ownership and stewardship of affordable housing assets by allowing cash flow to be paid to a project’s sponsor,
• - Set realistic property and asset management fees and structure deals with sufficient cash flow to pay them, and
• - Embrace an early warning system to address problem properties and weak organizations quickly before they grow beyond repair.

Here in Massachusetts we are already taking action to implement many of these recommendations. We are promoting the implementation of the Strength Matters ^TM financial reporting system and providing other training and support to improve financial management. We are offering training for asset management and advocating for increased asset management fees. And we are engaged in an active discussion about how to improve cash flow and reduce reliance on one-time developer fees. And, of course, we are implementing a host of new collaborations. The Enterprise report will hopefully fuel these efforts and secure broader support for making the changes needed to sustain and grow the community development field.

The U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund recently announced $104.8 million in awards for 179 local financial institutions serving struggling communities in 44 states and the District of Columbia. According to the CDFI Fund’s press release, these grants will help those financial institutions support local entrepreneurs and small businesses, and spur local economic growth and recovery by expanding access to capital and affordable financial services in underserved areas.

MACDC was pleased to see that four of our members had secured over $1.8 million in funding, along with five other Massachusetts based CDFIs who received another $3.2 million (three of these were national funds that are based here.)  Profiles of the winning organizations can be found on the CDFI web site.

Congratulations to our members:

• Dorchester Bay EDC
• Quaboag Valley
• Springfield NHS
• Western Mass Enterprise Fund

The CDFI program provides both technical assistance grants and core grants to certified CDFIs that demonstrate strong capacity and a sound strategic approach toward advancing their mission. The program is an excellent example of how the government can systematically and strategically build and strengthen a key field within the nonprofit sector. The program starts with a formal certification program that allows the CDFI Fund to identify the specific organizations that they are trying to strengthen. It then invests in both building their capacity through technical assistance grants and invests in their strategy through core capital grants. The funding is at the “enterprise level” and invests in their mission, rather than providing highly restricted, categorical grants that fund specific programs or activities.  As a result, the CDFI sector has grown substantially since the start of the program in the mid- 1990s.

While the current financial crisis has certainly taken its toll on the CDFI field – Shore Bank, one of the nation’s oldest and most successful CDFIs collapsed and had to be acquired by another institution -  the CDFI program has helped create a diverse, durable and resilient sector with the overwhelming majority of CDFI’s weathering today’s storm.  And the existence of a solid support infrastructure helped the CDFI field successfully secure additional funding through ARRA because there was an efficient way to distribute funds across the country.

Community health centers, Community Action Agencies and other non profits benefit from similar systems of support. However, at the moment, there is no parallel system for CDCs either at the Federal or state level and this is a serious problem for our field.

We hope to change that reality here in Massachusetts with the recent passage of a new CDC-enabling law, Chapter 40H.   This law will provide a mechanism for certifying CDCs in Massachusetts, thereby laying the foundation for establishing publicly and/or privately funded programs similar to the CDFI model. Ultimately, a comprehensive system of core support, technical assistance, organizational capacity building, professional development, and program funding would enable CDCs to work together and with others to dramatically increase our ability to bring economic opportunity to communities, neighborhoods and families across the Commonwealth.

The other day I read about a new report by New York State Comptroller Thomas DiNapoli (with the help of the New York Council of Nonprofits) that found that 87 percent of nonprofit contracts with state government (of more than $50,000) were not approved prior to the nonprofits’ beginning their work. On average, new contracts were approved nine months after the contract start dates and renewals were five months late on average.  New York State is essentially relying on nonprofit organizations being so committed to their mission that they will risk their financial health to continue providing services without contracts. Indeed the entire system appears to depend on this commitment. 

The only thing about this report that might surprise CDC and non-profit leaders is the fact that a state agency finally documented the problem.  All mission-driven organizations confront this challenge all the time – how to balance money with mission. We must often complete substantial work on a project or program before receiving a fee or reimbursement and those payments rarely cover the full cost of delivering the service. Cash flow becomes a chronic challenge and organizations are unable to build up a health reserve fund. The resulting impact on fiscal health can be severe as the Non Profit Finance Fund recently documented in a report on CDC Fiscal Health that was completed as part of the Community Development Innovation Forum.  

Reversing these trends is a primary goal of the Community Development Innovation Forum. We have recently re-activated a group of stakeholders to develop recommendations for how the real estate development finance system can be reformed to better enable non-profit developers to achieve their missions in a financially sustainable manner. 

In the meantime, I have some very good news to report about a recent policy decision that moves us in the right direction. On April 6, at MACDC’s annual Lobby Day, Massachusetts Secretary of Housing and Economic Development Greg Bialecki, announced that he would forward commit $600,000 in FY 2011 funding for the small business technical assistance program so that he could double the size of recent grants to CDCs and other nonprofits and extend the term of their contracts by 6 months. By providing greater funding certainty and stability, the state will strengthen its organizational partners, promote longer term planning, enhance professional and program development and help leverage more private and federal money – without costing the state any extra money. 

 The Secretary’s announcement was in response to problems this program has had in past years when uncertainty about the state budget would cause substantial delays in the RFP and subsequent funding decisions. Groups sometimes had to wait several months into the fiscal year before learning whether they were going to be funded again and at what level.

 Secretary Bialecki’s creative solution was made possible by a generous commitment from Mass Development to provide $600,000 in funding to the program in FY 2010 and now FY 2011. Since these funds are not contingent on legislative approval of the state budget in June, the Secretary had the flexibility to think outside the box and create a solution that will benefit the state, the grantees and most importantly the small businesses that this program seeks to support. Now that is the type of Innovation that is worth celebrating!

Last Friday, at an event hosted by the Boston Foundation, the Community Development Innovation Forum released a new study by the Non Profit Finance Fund that looked at the fiscal health of the CDC sector.

Bill Pinakiewicz from NFF, highlighted the key findings of the study, including:

* Taken as a group, the twenty-six organizations represented in the study have become financially more vulnerable from 2003 thru 2008.  That means that the financial challenges facing community development corporations predate the 2008 recession.

* Unlike private real estate companies, CDC financial performance was not demonstrably better during the hot real estate market in the middle of the decade due to program limits on rents and profits, leaving little cushion when the market collapsed in 2008.

* The study did not find a significant difference among small, medium and large CDCs in terms of recent financial performance.

* CDCs were impacted by multiple factors – homeownership projects that came on line as the market collapsed, rental developments that were stalled or yielded inadequate fees, existing portfolios that generate little to no net cash flow to the CDC, cuts in government, foundation and corporate funding, and rising costs. The study period also covers the first five years following the elimination of the state’s CEED program, which had provided flexible funding to CDCs for more than 20 years.

* While all of the participating CDCs provided audits that fully comply with GAAP there is clearly a wide variation in financial reporting practices across the field that make it difficult to aggregate and compare data among CDCs.

We then heard from a panel including Geeta Pradham from the Boston Foundation, Jeanne Pinado from Madison Park DC, Phil Giffee from NOAH and Paul Juraschek the CFO at JPNDC.  The panelists pointed out that not all CDCs are struggling financially and that the true financial health of a CDC can sometimes be hard to discern from consolidated financial statements that include real estate properties and the core organization. The panelists described some of the tough decisions that CDCs have had to make to deal with the financial stress, including shutting down programs and laying off staff. They also noted that small changes in the real estate finance system with respect to developer fees, cash flow distribution and other rules could significantly improve CDC fiscal health and stability. There was also broad agreement that more consistency in financial reporting and more opportunities for CFOs and Executive Directors to learn from each other would be valuable.

MACDC, LISC and other partners in the Innovation Forum intend to follow up the study by renewing our efforts to improve the real estate finance system, to begin implementing Strength Matters in Massachusetts, to expand peer learning opportunities among CDCs, to support collaborations, mergers, and other ways to improve operating efficiency, and to continue researching trends to determine whether we are making progress in the coming years.

The structural flaws in the way that real estate is financed make it difficult for mission driven organizations to succeed, and this report underscores that point. Real estate development is a high risk economic activity and the affordable housing financing system makes it difficult for that risk to be adequately rewarded for mission driven organizations while not shielding them from the negative consequences of failure. It is also clear that the way all non profits are financed creates inherent challenges, including government contracts with little overhead, private philanthropy that is highly restricted and a lack of unrestricted operating funds that allow nonprofits to invest in organizational infrastructure, capacity building, research and development, and innovation. 

To me, a core problem is that too many funders are looking to simply buy services from nonprofit organizations at the lowest possible price and too many nonprofits play into this game at their own financial peril. Instead, we need more funders to think not just about the immediate program or project, but how their investment in that program or project will help the organization achieve lasting, sustainable community impact over the long term.