Tag: community development

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If the Community Created the Plan, Why Not Give Them the Tools to Implement It

By: David Craft, Community Development Clinic Fellow

Inner-city neighborhoods have the capacity to collectively take ownership of development within their own communities. Community members, with facilitation by local government officials, spend extensive time and money creating comprehensive plans to shape the development goals for their neighborhoods. However, the actual development efforts are traditionally handled by developers who are not rooted within the community. The same process that traditional developers/investors use to conduct development or rehab projects within inner-city neighborhoods can be accomplished by the residents and groups already living in those communities. Through organizational structures such as real estate investment cooperatives, real estate investment trusts or community land trusts, a community can implement the goals from their comprehensive plans and have ownership of their own community assets. Additionally, community-owned development can slow down some of the issues (gentrification, flipping, real estate speculation, loss of community identity) that grow exponentially with the increased development from the “back-to-city movement”. Some examples of community-owned real estate structures include:

  • NYCREIC-a New York Not-for-Profit Corporation, based in NYC, that invests in real estate to create long-term affordable community-controlled space for cooperative enterprise, art, culture, and organizing. Individuals can become members by contributing a one-time fee of $10.00 which provides them with full voting rights. The purpose of using this organizational form is not to create wealth for community members but rather give them the opportunity to stabilize their neighborhoods and ensure there’s affordable space for civic, cultural and cooperative uses in their communities.
    • Pros: Very low buy-in (one-time contribution of at least $10). Members all have one vote regardless of initial contribution. Ran by a board which means no single individual can control the organization and nobody can use the organization to solely benefit themselves.
    • Con: Organized under state Not-for-Profit law which requires the profits made by the organization to stay within the nonprofit and cannot pass to the members.
  • Northeast Investment Cooperative-a real estate development cooperative in Minnesota that allows community members to become owners and investors in a cooperative that buys and rehab properties in their community. The purpose of using this organizational form is to give every member a vote on the types of amenities and service options within their community and provide a return on their investment.
    • Pros: All members have one vote regardless of their investment. Operates as a for-profit entity which allows the members to get a return through dividends and selling their shares.
    • Cons: High buy-in (minimum buy-in $1,000).
  • Community Investment Trust Program-provides a low-dollar investment opportunity in commercial property to local residents. Residents must complete a financial literacy course before becoming a member. Annual dividends are paid from profits of the building and the shares change value as the value of the property appreciates and the loan on the property is paid down. The purpose of this model is to provide residents an opportunity to invest in the commercial real estate (already purchased and operating by a community-based institution) within their own communities.
    • Pros: Minimum investment ($10, $25, $50, or $100 every month). Members profit from annual dividends and changes in shares value when property appreciates and loan on the property is paid down. Restricted only to individuals living in a specific zip-code.
    • Cons: Requires an institution to make a large up-front investment in purchasing the property.

Lack of financial resources does not have to be a hindrance to communities when deciding to take on development or rehab project. Many developers/investors will tap “OPM” (other people’s money) when taking on a real estate project. With the political power that a community can collectively harness, many funding resources will become available for projects. For example, Miracle on Craig Street, a group of community residents from the Hamilton Hill neighborhood of Schenectady, NY want to re-open a community center that was foreclosed by the City of Schenectady. Miracle on Craig Street is a client of the Albany Law Community Development Clinic. Initially, they raised $30K through community donations. Since then, the group has learned about other potential funding sources (i.e., government, private foundations, etc.) that are available for the group’s project. Communities have the opportunities to collectively bring the amenities and services to their areas. However, time will play an issue when it comes to community-led development efforts.

The longer it takes for decisions to be made in real estate, the more expensive it becomes to complete the project or the more likely the property ends up in another developer/investor’s possession. With a community-led development effort, time could become an issue when more people are required to approve issues that could arise during a real estate project. However, community-led development can avoid the political issues that traditional developers face when pursuing a development project. Depending on the government approvals needed for a project, traditional developers have to spend time obtaining community support and support from elected officials when seeking approvals for their projects. A community-led development project would have the community-backing from the beginning and elected officials would be more inclined to support the projects of its constituents compared to out-of-town developer/investor.

Too often, the focus of community and economic development in low-income communities is to bring developers from outside the community and give them every single subsidy possible to develop within the community. However, we have seen of how these same developers will abandon those communities when it does not fit their bottom line.  Why not flip the script and give the resilient residents and groups a bigger share of the resources to bring their own plans to fruition?

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Fiscal Sponsorship Saves Time, Money, and Headaches While Giving Support and Tax-Exempt Status to Emerging Non-Profits

Post By: Sarah Besson

Fiscal sponsorship can be one of the most valuable tools to community development, and yet it is relatively unknown to the average person venturing to start a non-profit.  Fiscal sponsorship allows a “project” (any non-profit venture that would qualify for its own 501(c)(3) tax exemption) to take on the tax-exempt status of a “fiscal sponsor” (any entity that already has 501(c)(3) tax-exempt status that agrees to fiscally sponsor the project).  Through fiscal sponsorship, a project can save the time, money, and headaches that come with incorporating as a nonprofit and filing for tax-exempt status and instead put those resources into the project itself.  The fiscal sponsor will generally take a portion (typically 5-15%) of the funds raised for the project to go towards the cost of administration of the project.

Why consider fiscal sponsorship?  The benefits of fiscal sponsorship are seemingly endless.  Incorporating and obtaining 501(c)(3) status can be costly and time-consuming.  Filing the IRS Form 1023 currently costs $600 and can take an average of 11 months to receive a determination letter.  Even for projects eligible to file the IRS’s short-form application, Form 1023-EZ, the fee is still $275.  When those costs are added to the $75 fee to incorporate as a not-for-profit in New York state, a project is looking at a $350-$675 bill before it has conducted any charitable activities.  For short-term projects, going through the long process of incorporating and obtaining independent 501(c)(3) status may not be realistic.  For other projects that are just starting out, the money to file with the Department of State and IRS is often better used for furthering the project’s charitable activities.  Fiscal sponsorship also provides an opportunity for a new project to test its viability without bureaucratic hurdles.  If a fiscally sponsored project does not work out, it is much easier and faster to phase out a project than it is to dissolve a not-for-profit corporation.  If things do work out for a project, there will be greater resources available if the project decides to seek its own tax-exempt status down the road.

But fiscal sponsorship is not only for short-term or new projects.  There are some projects that have remained in fiscal sponsorship arrangements for years.  These long-term projects have found that the benefits of less administration and reporting requirements allow them to focus more energy and resources on the charitable purposes of the project.

Types of fiscal sponsorship arrangements.  There are several ways to arrange the fiscal sponsorship relationship.  Some arrangements involve the fiscal sponsor taking the project “in-house” and administering it using employees, volunteers, and agents of the fiscal sponsor.  For other types of arrangements, the project remains with a separate entity (typically either an unincorporated association or a not-for-profit corporation that has not yet obtained its own tax-exempt status) but is funded by the fiscal sponsor through a series of grants.  There are benefits and drawbacks to each type of arrangement, but having different options can give the project and fiscal sponsor flexibility to consider the needs of the project and plan accordingly.

In any type of valid fiscal sponsorship arrangement, the sponsor is legally required to retain complete discretion and control over any funds raised.  This is known as the sponsor’s “variance power” and variance power prevents the fiscal sponsorship relationship from being a mere conduit prohibited under the Internal Revenue Code.

What to look for in a fiscal sponsor.  If your project decides that fiscal sponsorship could be a good fit for its goals and needs, you will want to reach out and begin communications with potential fiscal sponsors.  Practically speaking, any 501(c)(3) can provide fiscal sponsorship, but there are some key traits to look for to increase the likelihood of a successful partnership:

  • Financial and organizational health. You will be trusting this organization to collect donations to later be used for your project.  Poor financial or organizational health is a red flag signaling that this organization may not be a good choice for a fiscal sponsor.
  • Exempt purposes aligned with the purposes of the project. In order for an organization to provide fiscal sponsorship to a project, the mission of the project must further the mission of the fiscal sponsor, as determined by the fiscal sponsor’s organizing documents.  In many cases, the mission of a potential fiscal sponsor will be broad enough to encompass many potential projects.
  • Experience as a fiscal sponsor. While this is not a requirement, it can be beneficial if your fiscal sponsor is familiar with the mechanics of the relationship.  At a minimum, you will want to verify that a potential fiscal sponsor is aware of and ready to comply with its legal responsibilities as a fiscal sponsor.
  • Key personnel. A great fiscal sponsorship relationship can provide the project and its staff with mentorship as it enters the non-profit sector.  Evaluate whether potential fiscal sponsors’ contact persons are likely to provide the support your project may need.

Creating a fiscal sponsorship agreement.  Once you have found the right match who is willing to be a fiscal sponsor to your project, you will want to reduce the arrangement to a contract.  At a minimum, the contract should outline fees, the variance power of the fiscal sponsor, and an exit provision where the project can be moved to another 501(c)(3) organization (whether that be to a different fiscal sponsor, or to an organization of the project’s founders who subsequently attain 501(c)(3) status).

For 501(c)(3) organizations.  For firmly established and stable organizations in the Capital Region that already have 501(c)(3) status, fiscal sponsorship presents a great opportunity to broaden their impact and diversify their activities by becoming fiscal sponsors for local projects. There are far fewer visible fiscal sponsors in the Capital Region than, for example, in New York City.  Greater visibility of fiscal sponsors could lead to development of more nonprofit projects as project founders are able to see more financially realistic ways of getting their project off the ground.

Capital Region Fiscal Sponsors.  The following organizations provide fiscal sponsorship in the greater Capital Region area:

  • Innovative Charitable Initiatives, Inc., a subsidiary of the New York Council of Nonprofits (NYCON) (Albany, NY): http://www.nycon.org
  • Center for Transformative Action (Ithaca, NY): http://www.centerfortransformativeaction.org

 

 

Sarah Besson is a 2018 J.D. Candidate at Albany Law School and serves as Executive Editor for Lead Articles on the Albany Law Review. In addition, Sarah is an intern with the Community Development Clinic for the current Spring 2018 semester.