September 26, 2002
Tax-exempt bonds pump up nonprofit projects
By REIDUN CROWLEY
Washington State Housing Finance Commission
“It would have taken us much longer and cost the school more to phase the construction over a longer time,” said Jean Orvis, Seattle Academy director.
Instead, the school built a larger project sooner using tax-exempt bonds issued through the Washington State Housing Finance Commission. The independent school refinanced its building, acquired and renovated an arts center and a warehouse, bought land, and built a gymnasium.
“The ability of nonprofits to access below-market interest rates means there is more money for project costs,” emphasized Miriam Sevy, president of Leora Consulting and financial advisor to nonprofit organizations including the Seattle Academy. “This makes some projects feasible that wouldn’t be feasible using conventional debt.”
“Momentum is key in capital projects,” said architect Bob Hull of The Miller/Hull Partnership. “Having a secure source of funding keeps momentum and the spirit of the project going, otherwise people start losing interest.”
Concerning the bond-financed Fremont Public Association facility in Wallingford, Hull said, “Because of the shortened time frame, we were able to work with the same people, stuck with a timeline, secured contractors, and were ready to go.”
Now, instead of later, the Wallingford community has a new attractive facility for a hundred employees who provide much-needed client services, support local businesses, and work in a building that provides meeting space for other organizations.
Another nonprofit making a significant difference in its urban community is Henry Cogswell College. In 1996, the four-year college relocated its campus to downtown Everett to partner with the local business and civic communities in revitalizing the downtown area. Due to the location, downtown businesses provide services to the college’s students, faculty and staff, thus relieving the college of those costs.
In 1999, the U.S. Department of Education gifted the college with surplus property: the historic Everett Post Office and Federal Building. The college financed building renovation and restoration through tax-exempt bonds at substantial savings.
According to college President Ron Hundley, “The college’s vision calls for enrollment growth from the current 300 students to a least 1,000 during the coming decade. This will increase customers for downtown businesses, expand demand for housing, and require additional facilities for the college. Any expansion of the college’s facilities will certainly be financed by tax-exempt bonds. No other option makes sense.”
Roy Mann of CB Richard Ellis, real estate consultant to nonprofits, believes the nonprofit sector is an underserved one. He describes tax-exempt bonds as one more tool to help his clients live within their budget. He likes the lower interest rates and has been impressed with the longer amortization.
United Way of King County recently decided to use tax-exempt financing for a new headquarters near its existing building. “We’re pleased with our neighborhood and glad we can stay there,” said Jon Fine, president and CEO. The savings from the bonds will enable the organization to stay in its downtown location.
Nonprofits improve urban communities. Puget Sound Electrical JATC Training Center in Renton bought a 66,000-square-foot building and the neighboring parcels, cleaned up the brush, and improved the property. Training Director Bill Bowser said, “Since debt payments were lower, we could afford to do more on the remodel.”
A city’s livability can be measured by its commitment to humane treatment of its companion animals. Tacoma’s new animal shelter confirms that commitment. Tax-free bonds allowed The Humane Society to finance its new shelter without reducing services to the community.
The state Housing Finance Commission partners with the lending community. By law, the commission makes no loans. Commission programs work with the banking community and other financial institutions that serve Washington’s communities.
“Working with the commission, we have a broader range of products to offer our customers,” said Tim Coulter, vice president and commercial loan officer at Frontier Bank, who has worked with several nonprofits in Snohomish County. “The nonprofit can increase the scope of the project while maintaining the same level of repayment.”
In 1990, the state Legislature designated the Housing Finance Commission to be the state’s issuer of tax-exempt bonds for capital facilities owned by nonprofit 501(c)(3) organizations. Federal law allows tax-exempt bonds to finance capital expenditures, including land, acquisition, construction, and capital equipment, provided they are used to further the IRS-approved nonprofit’s mission.
“This enables the commission to partner in strengthening Washington communities as well as provide safe and affordable housing,” said Kim Herman, executive director of the commission. “With over $730 million issued for Washington’s nonprofits, including housing providers, it is easy to determine the interest savings these organizations achieve. Every dollar that is not paid in debt can be used to enhance nonprofit services.”
Unlike private activity cap bonds that are issued on behalf of for-profit housing developers, there is no limit or “cap” on the amount of nonprofit bonds that can be issued for Washington’s nonprofits. “The only limit on bond issuance is the amount of debt the nonprofit can afford,” Herman said. “The nonprofit bonds issued for an organization do not decrease in any way the amount of tax-exempt bonds that can be issued on behalf of for-profit housing.”
Washington nonprofits have used bonds to finance over 61 housing projects and 79 capital facilities for offices, social services, athletics, cultural uses and schools — as well as job training centers and economic development centers. Virginia Mason Research Center, Pioneer Human Services, Antioch University, Pacific Science Center, and the Tacoma Art Museum have all used nonprofit 501(c)(3) bonds.
At a time when local governments are cutting funding for projects and services, “providing access to below-market interest rates is even more important,” said Tia Peycheff, director of capital projects at the commission. “By partnering with the banking and nonprofit communities, we are able enhance economic development and lessen the burden of government.”
For more information about tax-exempt bonds issued by the self-funded commission, visit its Web site www.wshfc.org.
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