Illinois Facilities Fund:
innovation for nonprofit capital investment

By JENNIFER HALPERIN

For years, an abandoned convent took up the northwest corner of Church and C streets in Belleville. The Catholic diocese in the city wanted to turn the building into something productive, but faced a daunting task in raising the hundreds of thousands of dollars needed to renovate it.

Officials at the state's Department of Children and Family Services (DCFS) told the diocese they would be interested in funding a "shelter care program" on the site if Catholic Social Services would manage it. This type of program houses young children temporarily after they're abandoned or removed from an unfit home until more permanent arrangements can be made. But while the state could pay for the program's day-to-day operational expenses, including debt service payments, it couldn't provide up-front money for capital projects like the overhaul needed at the old convent.

A full-fledged fundraising campaign was undertaken, which exhausted just about all available resources — corporate gifts, grants and individual contributions — but raised only half of the $280,000 needed. "At that point, I'm not sure we could even have brought the building up to code," said Alien Nelson, administrator of the Don Bosco Children's Center that now occupies the building. "Walls had to be built. Ceilings had to be re-plastered. A sprinkler system was needed. The building was originally built in the 1960s, so nothing was handicapped-accessible. We had to change things down to the way the front door swings open."

What made these renovations possible — turning the abandoned convent into a children's center — was a below-market loan from the Chicago-based Illinois Facilities Fund (IFF), a private, nonprofit corporation that offers low-interest loans and helps set up other capital improvement financing plans for human service agencies funded by government contracts.

The IFF, with total current assets of nearly $7.2 million, began in 1987 as a program of the 77-year-old Chicago Community Trust. The trust is a permanent endowment made up of gifts and bequests from individuals, families and organizations; interest earned on the endowment goes toward grants and loans to charitable organizations. For years the trust had received requests for capital financing from state-funded human service agencies that were under pressure to expand their facilities but unable to get money rom the state to do so. In 1983, for example, the trust had loaned $1 million to agencies under contract with DCFS.

With such obvious need in mind, trust officials created the IFF to provide direct loans and other assistance to nonprofit human service agencies. It was incorporated in 1988 and received tax-exempt status in early 1990; since then, it has approved $4.5 million in loans. The fund's board of directors is made up largely of officers from finance-related corporations and human service organizations. IFF loans average $200,000 with terms not exceeding 10 years, and in 1992 they carried a typical interest rate of 7 percent, according to its executive director, Trinita Logue.

The money is intended for capital projects only — construction, remodeling and energy conservation improvements, for example. The IFF's purpose is to fill part of the credit gap that plagues many nonprofit agencies unable to obtain growth capital from traditional lending institutions. "It's very difficult to get financing through banks for projects like this," said Carol Herman, finance director for Catholic Social Services in Belleville.

Mark Ballard agrees. As director of finance and administration for Cathedral Shelter of Chicago, a halfway house for men recovering from substance abuse, he knows how hard it is for nonprofit groups to obtain relatively low-interest loans for large amounts of money. A $250,000 IFF loan enabled Ballard's organization to expand its service last year. "At the time there was no way we could have renovated without the loan," he said. For years the shelter underwent "deferred maintenance" and "half-assed repairs," crowding 11 clients into its cramped residential space. "Now we've got 16 people and we're very comfortable. We hope to expand to 19."

While large, prominent nonprofit groups sometimes are able to raise building funds through high-profile campaigns, smaller agencies rarely have that option. At the same time, budget limitations leave the state generally unable to provide money up front for capital development. The IFF's lending arrangement, which is unique to Illinois, may be the only chance some charitable groups have to obtain capital improvement funding, since the organization identifies risk differently from other lending institutions.

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"There's a huge number of qualifications we look at," said Logue. "We do credit evaluations. Our underwriting procedures are similar to banks'. But we score risk differently because we assign risk differently. We look at good management, financial stability, a track record of repaying other debt. Most agencies we work with rely on annual government appropriations, and most banks consider that a high risk. We do not. There is some risk, but our purpose is to lend to these kinds of organizations."

In analyzing loan applications, IFF examines the program or service being delivered and contacts the governmental funding source to determine whether full financial support for the service is likely to continue. IFF's risk analysis is based on the prognosis for future funding of the service and the agency requesting the loan.

Jeannette Tamayo, special assistant to the acting director of DCFS, acts as liaison between the agency and IFF. "In some respects this type of loan is always risky because you can't guarantee programs will be funded ad infmitum. There's a commitment from the governor's office and the department to include [debt service payments] in the budget request to the legislature, but we can't bind the General Assembly to approving it."

Despite the state's tight fiscal situation in recent years, Logue said that now is not an especially risky time for IFF to approve nonprofit loans. "We've seen fewer loan requests because people are waiting to see what's going to happen with the state budget," she said. "But we don't see a risk in funding." In mid-November the IFF even began a new program, approving requests for 10 bond issues to build 10 day care centers for low-income Illinois families, seven of which will be in the Chicago area. "We feel child-care funds will only increase," said Logue. "It has been recognized as an area for economic development, and we feel there's no risk in funding child care."

Along with its lending program, the fund assists agencies with obtaining other low-cost financing and with management and real estate-related financial planning. The IFF also works with brokers, architects and engineers to locate appropriate property for an agency.

This type of program may be needed more than ever now, since the current economic climate has seen cutbacks and reduced lending to philanthropic agencies — even those that are well established with extensive fundraising experience, said Christine Esposito, a Chicago consultant for IFF. According to a survey by the Independent Sector, a Washington, D.C.-based coalition of charities and grant-makers, the average household donation to charity fell by one-fifth between 1989 and 1991. "Certainly it's true that giving has dropped nationally," agreed Ted Hearn, spokesperson for the MacArthur Foundation. "We've endorsed what the fund has been doing. There's a need there."

But for all the loans IFF is able to dole out to human service agencies, much more money is needed. In 1992 the IFF conducted a study of nearly 500 nonprofit agencies in Ilinois that provide needy people with child care, health care, emergency shelter and housing, among other services. Of the agencies studied, 70 percent needed money to complete standard maintenance work or to bring their facilities up to code. The price tag for such needs could reach as high as $300 million statewide. "The fact is, millions of citizens depend on nonprofit agencies to deliver them basic services," said Logue. "With inadequate resources, the future of these agencies is jeopardized."

Programs like those through IFF show how the private sector sometimes can step in to help human service agencies grow and expand. Now we'll have to wait and watch how well this much-needed financial backup works. In an ideal world we could expect state government to repay this money that's been put out to serve the state's needy without a hitch. But as those who have kept an eye on the legislature well know, it's not impossible for the state to fall short of its end of the bargain.

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