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HomeMy WebLinkAboutAgenda - 04-21-1998 - 9cORANGE COUNTY BOARD OF COMMISSIONERS Action Agenda Item No. q - C ACTION AGENDA ITEM ABSTRACT Meeting Date: April 21, 1998 SUBJECT: Request for Funding - Orange Community Housing Corporation DEPARTMENT: Housing and Community Development PUBLIC HEARING: (Y/N) BUDGET AMENDMENT: (Y/N) ATTACHMENT(S): INFORMATION CONTACT: 4/6/98 Finance Director Memo Tara L. Fikes 4/6/98 CH Town Manager Memo TELEPHONE NUMBERS: - - ext. 2490 Hillsborough 732 -8181 Chapel Hill 968 -4501 Durham 688 -7331 Mebane 227 -2031 PURPOSE: To consider a request from the Orange Community Housing Corporation for additional funding for this fiscal year. BACKGROUND: On February 17, 1998, the Orange Community Housing Corporation (OCHC) reported a $42,000 deficit in their operating budget for the fiscal year ending June 30, 1998. This budget shortfall is primarily due to the fact that the anticipated revenue from the Magnolia Place development included in this year's budget will not be available to the corporation this fiscal year. Also, the Corporation has had to incur approximately $4,004 in attorney fees in order to resolve the outstanding issues at Magnolia Place. To cover the budget shortfall, OCHC asked for additional funding this fiscal year from the County and the Towns in the following proportions. Orange County $ 19,000 Chapel Hill $ 19,000 Carrboro 4,000 Total funding $ 42,000 At that time, the Board of County Commissioners asked that the Finance Director review the financial situation and report his findings to the Board along with specific recommendations regarding future operations. His memorandum is provided in the attachment to this abstract. On Monday, April 6, 1998, the Chapel Hill Town Council approved a resolution authorizing the allocation of an additional $19,000 to OCHC for this fiscal year. This resolution also requires that "the Mayor and the Manager meet with their Orange County and Carrboro counterparts to discuss and bring back to the three governing bodies proposals to, over a longer period of time, address the problems the Corporation has had, with a review of the Corporation, and then develop policies and standards which the three governing bodies would require of the Corporation." 2 RECOMMENDATION(S): The Manager recommends, after reviewing the report from the Finance Director, the following action: 1. Require the Orange Community Housing Corporation to report on the implementation of the recommendations listed in the Future Considerations section of the Finance Director's report prior to final action to appropriate county funding to the Corporation for FY 98 -99; 2. Approve the request for additional funding in the amount of $19,000 in order to ensure the survival of the Corporation. Funds will come from the County's contingency fund which has a present balance of $86,595. FINANCE DEPARTMENT MEMORANDUM TO: Orange County Commissioners John Link, County Manager FROM: Ken Chavious, Finance Director DATE: April 6, 1998 2a 4r 32 ORANGE COUNTY NORTH CAROLINA SUBJECT: Review of Financial System and Information for Orange Community Housing Corporation. As you requested I have met with the staff of Orange Community Housing Corporation to review their financial system, operations, and other related information. In addition I have had several discussions with the CPA firm that audits the Corporation. I have also contacted the Chapel Hill Finance Director and the Carrboro Community Development Director to inform them of this review. The attached report outlines my observations as well as provides my thoughts on certain items that the BOCC may want to consider for future implementation. Please contact me if you have any questions. cc: James Baker, Finance Director Town of Chapel Hill James Harris, Community Development Director Town of Carrboro Tara Fikes, Housing and Community Development Director Orange County Robert Dowling, Executive Director Orange Community Housing Corporation 208 SOUTH CAMERON ST • P.O. BOX 8181 • HILLSBOROUGH, NORTH CAROLINA • 9191732 -8181 3 ORANGE COMMUNITY HOUSING CORPORATION Report of Review of Financial System and Information Financial System Audit and Financial Reporting Orange Community Housing Corporation (OCHC) has an accounting system similar to those used by a number of non -profit corporations. The accounting is done on an accrual basis in accordance with Generally Accepted Accounting Principles. The financial records of the organization are audited annually by an independent CPA firm similar to the audits performed on the County and Towns. There is no indication of problems related to the accounting system or internal control structure of the Corporation. Each year the Corporation has received an "unqualified opinion" from the auditor on the financial records with the exception of 1997. The audit report for the fiscal year ended June 30, 1997 has not been issued. This was discussed with the OCHC Director and the CPA performing the audit. It is the advice of the CPA not to issue the report until liability issues related to the payment of certain creditors have been resolved. A copy of a letter from the CPA is attached. These liabilities are related to the partnership formed between OCHC and the builder of Magnolia Place known as Magnolia Place Partners. (See Impact of Magnolia Place Partnership below.) The liabilities could negatively impact the financial statements of the Corporation. However, negotiations are underway which could significantly reduce the liabilities thus impacting the Corporation's balance sheet favorably. If the audit report were to be issued now, it would contain a "qualified opinion" which means that the financial condition of the Corporation can not be fairly presented because of the uncertainty of the liability issues. Budget and Account Structure The current structure of the OCHC budget commingles all revenue and expenditure sources and uses. The income from the County and the Towns of Carrboro and Chapel Hill, which is provided to help pay the operating costs of the Corporation, are not consistently separated from the income and costs related to special projects. For example, predevelopment costs (architects and engineers) associated with the Meadowmont project are included in the operating budget. These costs will be paid with operating revenues thus draining resources intended for operations. All project revenues and expenditures should be accounted for and budgeted separate from operations. This separation is occurring for some projects in the current budget but not others. If up front costs are required when planning projects, revenue sources to fund these costs should be identified above and beyond the funds provided for operations. Payment of these costs with operating income is one of the reasons the Corporation is experiencing projected shortfalls. 4 Proiected Cash Flow and Overatine Budget Deficit The OCHC presented a request to the County Commissioners in February 1998 regarding their need for additional funding. Information presented at that time projected a cash flow deficit of approximately $22,000 and a budget short fall of approximately $42,000. According to cash flow projections, the corporation will run out of money at the end of April or early May. The projections have been reviewed and confirmed. As mentioned above the following items contribute significantly to the projected deficit. Predevelopment Costs $ 8,000 (Scarlette Village,/Meadowmont) Engineer (Meadowmont) 12,000 Architect (Meadowmont) 1,480 These items have not been paid. Impact of Magnolia Place Partnership As mentioned above OCHC entered into a partnership with a builder to establish Magnolia Place Partners, an entity separate from the regular operations of the Corporation. The liabilities mentioned in the discussion above belong to the Partnership. These liabilities exist because the builder did not complete the job and left bills for materials unpaid. The builder was not required to provide a performance bond. The Partnership has cash on hand to pay a significant portion of the liabilities, however, liens have been placed upon individual homes in Magnolia Place. As long as this situation exists, there is a possibility that the Corporation, as a partner of Magnolia Place partners, may have to shoulder the responsibility for a portion of the liabilities. Included in the Partnership funds restricted by the liens is approximately $30,000 to $40,000 in development fees that could eventually be passed along to Corporation. The Corporation's original budget for 97 -98 included $50,000 in revenue from this source. Item Requiring Immediate Attention As mentioned above the Corporation will run out of money soon if additional funds are not made available or if the current expenditures cannot be reduced. The budget shortfall will be approximately $42,000. If each government were to provide the funds required to prevent this shortfall based on current contributions, the cost to each would be as follows: Orange County $19,000 Town of Chapel Hill $19,000 Town of Carrboro 4,000 $42,000 Other remedies include delaying payment of Corporation obligations and/or restructuring or laying off staff. If the lien situation with the Partnership is resolved prior to the end of April, the $30,000 to $40,000 mentioned above could be used to remedy this cash shortage. The current feeling is that resolution of the situation will not be timely enough to provide any relief in the current fiscal year. However, once the lien situation is resolved, the funds that become available to the Corporation can be used to finance future predevelopment costs. Future Considerations Should all builders and contractors be required to post performance bonds? The Executive Director of Orange Community Housing Corporation has contacted other similar non -profit housing organizations in the state regarding the use of performance bonds when developing new housing. He has also spoken with a local bonding agency regarding costs. These discussions have revealed the following: a. Performance and payment bonds can cost as much as three percent of the contract price, thereby increasing construction costs. b. Some contractors are unable to qualify for bonds because of the lack of financial strength. Bonds are only available to large, well - capitalized companies, whose financial strength is not a risk. C. The issuance of performance and payment bonds is extremely rare in single - family developments; Bonds are typically used for large, commercial projects, or multi - family projects only. The impact of this requirement should be considered before adopting this as a rule. 2. The Budgetary and accounting formats should be changed to account for project revenues and expenditures separate and apart from operations. 3. Funding for predevelopment, architects and engineers should be budgeted within a project budget with funding sources identified. 4. Potential projects should be presented to the governing bodies for review. Information provided for review should include proposed project budgets and an identification of any additional funds required. Representatives from each governing body and OCHC could structure this review process to insure all concerns are addressed. Quarterly reports, to include financial status and project updates should be provided to the County and the Towns. AGENDA #11 MEMORANDUM TO: Mayor and Town Council FROM: W. Calvin Horton, Town Manager SUBJECT: Funding Request from Orange Community Housing Corporation DATE: April 6, 1998 This memorandum reviews a request for additional funding for the current fiscal year, 1997 -98 from the Orange Community Housing Corporation. The attached resolution would authorize the Manager to execute a revised performance agreement with Orange Community Housing Corporation; the attached ordinance would allogate S 19,000 from the Town's General Fund for this purpose. BACKGROUND At the January 27, 1998 public forum on t Corporation submitted a budget request for rr funding for the current fiscal year (please see additional $19,000 for next fiscal year above t Council in previous years. The request for ne Preliminary Budget proposal to the Town Coun The Corporation also asked for a grant of $19 operating budget of the Corporation. This men The Orange Community Housing Corporation I the Corporation will run out of operating funds obtained from the supporting governments of budget deficit of approximately $42,000 in the c The Corporation is requesting an additional S County, and 54,000 from Carrboro to fund this budget for the year which showed substant development which will not be realized. lnst+ expenses to address problems associated with tk Town budget, Orange Community Housing fiscal year, and also asked for supplemental ttachment 1). The Corporation asked for an 550,000 annual allocation made by the Town year's funding is considered in the Manager's in the current fiscal year to help balance the dum will address this portion of the request. submitted budget projections which show that May, 1998, unless supplemental resources are ange County. The Corporation anticipates a ,ent budget year. 9,000 from Chapel Hill; $19,000 from Orange 42,000 deficit. The deficit arose from an initial a program income from the Magnolia Place ad, the Corporation has had to incur additional project (please see Attachment 2). Post -it* Fax Note 7671 IDaI8 ► To O f ^ From ComelyL Phone • I Phone A Fax 0 Fax A 2 The Town of Chapel Hill has an annual performance agreement with Orange Community Housing Corporation, which includes an annual iwork plan. The 1997 -98 agreement provides a budget of $50,000 from the Town of Chapel Hilli This agreement ends on June 30, 1998. We have worked with the staff of the Corporation to adjust the work plan to what we believe is a manageable level reflecting the priorities of the local governments. Attachment 3 contains a copy of the revised work plan as approved by !the Board of Directors of Orange Community Housing Corporation. Priorities for Chapel Hill Mclude working to design a concept plan for the Scarlette Drive project, developing 32 homes in the Meadowmont subdivision, administering the Urgent Repair Program (a home repair progr�, m for elderly low - income homeowners), and searching for a site for a multifamily rental development. The budget as revised provides a basic budget, for the organization which appears to be the minimum needed to run the organization. We believe the budget is reasonable. The Town's Housing goals and objectives of should participate in a variety of strategies to Chapel Hill's 1989 Strategic Report recomn cooperating with Orange County in the org development corporation. In 1990, the Town Community Housing Corporation, and with the budget annually since that time. SUMMARY Since its inception in 1990, Orange following: • Development of the 55 unit Dobbins • The development of 42 single - family • Building two single- family homes on • Conducted homebuyer education clan Highlights of current activities in process • Completing the renovation of 6 to Cantoro; • Completing the repair of construction • Administering the Urgent Repair Prod income homeowners; • Developing a new concept plan for th • Conducting homebuyer education claa Comprehensive Plan indicate that the Town end to the housing needs of the community. ed an implementation program of actively scion and funding of a non -profit housing the County worked to establish the Orange vn of Cantoro, has funded its base operating ACTIVITIES Housing Corporation has achieved the 1 apartment complex in Chapel Hill; mes (Magnolia Place) in Hillsborough; lividual lots; and for approximately 150 people annually. June, 1998 include: in the Carr Court neighborhood in ems at Magnolia Place; which provides critical repairs to very low Scarlette Drive property in Chapel Hill; and .7 RECOMMENDATION The Orange Community Housing Corporation is one of the major ways the Town of Chapel Hill carries out the goals and objectives of its ComWhensive Plan related to the provision of housing for lower - income households in the community and in Orange County. The Corporation also carries out projects which address housing goads in the Consolidated Plan for Orange County, a five -year plan submitted to the U.S. Department of Housing and Urban Development. The Corporation has demonstrated its value in accomplishing such projects as the Dobbins Hill rental project on 13 -501 Boulevard, and the Magnolia �Iace development in Hillsborough. Manager's Recommendation; We recommend that the Town Council allocate an additional $19,000 in the current fiscal year from the Town's General Fund for the operating budget of Orange Community Housing Corporation. The attached resolution would authorise the Manager to execute a revised performance agreement for 1997 -98 adding $19,000 to the budget of Orange Community Housing Corporation. The attached budget ordinance would allocate $'19,000 from property tax revenues in the current budget year expected to be higher than originally budgeted. ATT 1. Proposal of January 27, 1998 from Orange 2. Memorandum of February 11, 1998 from Community Housing Corporation (p. 13) 3. Revised Work Plan of Orange Community nunity Housing Corporation (p. 6) Cook and Robert Dowling, Orange ing Corporation, 1997 -99 (p. 16) 0 4 9 A RESOLUTION AUTHORIZING A REVISION TO THE 1997 -98 PERFORMANCE AGREEMENT WITH ORANGE COMMUNITY HOUSING CORPORATION (984- 6/11-14) WHEREAS, the Orange Community Housing Corporation assists the Town of Chapel Hill with carrying out the housing goals of its Comprehensive Plan and Consolidated Plan; WHEREAS, the Corporation and the Town have 1cntered into a performance agreement for 1997- 98; NOW, THEREFORE BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council authorizes the Town Manager to execute a revised 1997 -98 performance agreement providing an additional $19,000 to the Orange Community Housing Corporation; and BE IT FURTHER RESOLVED that the Council authorizes that the amended performance agreement incorporate changes in the work program as authorized by the Corporation's Board of Directors, and emphasizing the following items through June 30, 1998: • Completing the renovation of six Carrboro; • Completing the repair of • Administering the Urgent Repair Pre income homeowners; in the Carr Court neighborhood in at Magnolia Place; which provides critical repairs to very low • Developing a new concept plan for the Scarlette Drive property in Chapel Hill; and • Conducting homebuyer education This the 6' day of April, 1998. AN ORDINANCE TO AMEND "THE ORDINANCE CONCERNING APPROPRIATIONS AND THE RAISING OF REVENUE FOR THE FISCAL YEAR BEGINNING JULY 1, 1"7(984-6/0-4) 1 BE IT ORDAINED by the Council of the Town of Chapel Hill that the Budget Ordinance entitled "An Ordinance Concerning Appropriaoons and the Raising of Revenue for the Fiscal Year Beginning July 1, W" as duly adopted on June 23, 1997 be and the same is hereby amended as follows: ARTICLE I Current I Revised APPROPRIATIONS uB dget Ihcrease Decrease Budget GENERAL FUND Non - departmental Agency Contributions 473,796 119,000 492,796 i I ARTICLE II REVENUES GENERAL FUND Property Taxes 13,368,2000 This the 6* day of April, 1998. 19,000 13,387,200 10 M 11 14 COUNCIL R EVANS MOVED, SECONDED BY COUNCIL MEMBER PAVAO, ADOPTION OF SOLUTION 13c. THE MOTION WAS ADOPTED UNANIMOUSLY. (INSERT RESOL TION 13c HERE) 1 DRAFT Item #11- Orange Community Housing Corporation Funding Request COUNCIL MEMBER EVANS MOVED, SECONDED BY COUNCIL MEMBER PAVAO, ADOPTION OF RESOLUTION 14. Council Member Brown said it was important Council address short-term solutions that would funding shortfall will occur, and suggested that vw COUNCIL MEMBER BROWN OFFERED A St THE REQUEST FOR ADDITIONAL FUNDIN ASK THEM TO MEET WITH THEIR COUNTERPARTS TO DISCUSS AND BRIE BODIES PROPOSALS TO ADDRESS THE S MEET THE ADMINISTRATIVE NEEDS WE ADDRESS THE PROBLEMS THE CORPORA CORPORATION, AND THEN DEVELOP Pi THREE GOVERNING BODIES WOULD REQL Mayor Waldorf asked if the substitute motion Council Member Brown said that was correct, more closely at the request. to continue this program, and moved that the cep the Corporation going after May when their work in concert with Carrboro and the County. BSTITUTE MOTION THAT WOULD REFER 3 TO THE MAYOR AND MANAGER AND ORANGE COUNTY AND CARRBORO fG BACK TO THE THREE GOVERNING 4ORT -TERM PROBLEM OF FUNDING TO [CH WILL OCCURINMAY, 1998, AND TO ;TON HAS HAD, WITH A REVIEW OF THE )LICIES AND STANDARDS WHICH THE IRE OF THE CORPORATION. mt that no funding would be approved tonight. it would give the Council an opportunity to look Council Member Foy stated that Orange County liad been asked for $19,000 as well. Mr. Dowling stated their request was on the County's agenda Ifor April 21'. He noted they had also made a request of Carrboro, but it had not been placed on their agenda as yet. He noted that the funds must be received by May so that operations could continue. i Council Member Capowski asked if the $50 Housing Corporation is General Fund money. asked why weren't we giving them Housing those funds would have to be spent on a spec eligible for these funds. COUNCIL MEMBER FOY SECONDED MOTION. we currently give to the Orange Community Horton said yes. Council Member Capowski Urban Development money. Mr. Horton said project, and therefore the Corporation was not MEMBER BROWN'S SUBSTITUTE Council Member Brown said she did not believe the $19,000 was as important as having the DRAFT 15 Council's questions answered, and her motion provides a way to provide the Council with a more thorough review and still meet Mr. Dowling's deadline of May. Council Member Pavao suggested that the Council approve the funds but still require the information as Council Member Broom has proposed. Council Member Foy said that if the County was pot going to address this request until April 21', the maybe the Council should look into what the problem is and have some process to address why $19,000 is needed now, as this adds $19,000 to the yearly request for this point on. He suggested our Finance Director contact the County to detennjne what their intentions are. Mr. Horton said he had met with Mr. Dowling previously and he had no doubt that the Corporation needed an immediate infusion of cash in order to remain solvent. i Council Member Brown suggested that the $19,000 be approved as a temporary measure, and then a more in -depth study take place. COUNCIL MEMBER BROWN WITHDREW HER SUBSTITUTE MOTION. MAYOR WALDORF SUGGESTED A NEW MOTION WHICH WOULD ADD LANGUAGE TO ADDRESS THE PROBLEMS THE CORPORATION HAS HAD, WITH A REVIEW OF THE CORPORATION, AND THEN DEVELOP; POLICIES AND STANDARDS WHICH THE THREE GOVERNING BODIES WOULD REOLURE OF THE CORPORATION. THE MOTION WAS SECONDED BY ADOPTED UNANIMOUSLY. COUNCIL MEMBER EVANS MOVED, SEO ADOPT ORDINANCE 0-4. THE MOTION W Item #12 - Council Member Andresen stated she Commission. Council Member Evans said she favored which would give the two -year members Council Member Bateman said she would want to participate to join the Commission. Council Member Andresen asked that proposal to the Council for considetlo COUNCIL MEMBER PAVAO MO ADOPT RESOLUTION 15a. THE MO (INSERT R- 1!HERE) 12 t fL MEMBER BROWN. THE MOTION WAS DED BY COUNCIL MEMBER PAVAO, TO ADOPTED UNANIMOUSLY. Commission Terms Council should leave this decision up to the idea df setting staggered terns for two and three years, ugh time to make a difference. e to some one -year terms to allow others who may i referred to the Commission and have them make a I SECONDED BY COUNCIL MEMBER EVANS, TO )N WAS ADOPTED UNANIMOUSLY.