Memorandum

City of Lawrence

City Manager’s Office

TO:	Thomas M. Markus, City Manager
FROM:	Casey Toomay, Assistant City Manager
CC:	Diane Stoddard, Assistant City Manager Brandon McGuire, Assistant to the City Manager Bryan Kidney, Finance Director
DATE:	April 13, 2017
RE:	Lawrence Community Shelter Loan Forgiveness Request

Summary

In February of 2017, the City received a request from the Lawrence Community Shelter, Inc. (LCS) to forgive the remaining balance on the loan they received in 2013 to pay off their bank loan as well as to fund roof repairs for their new location.

City staff met with John Tacha, Jr., the President of the Board of Directors for LCS and John Magnuson, the LCS Board Treasurer, to discuss this request. In the meeting, Tacha, Jr. and Magnuson also discussed other options they could explore for additional revenue for the shelter, including requesting financial support from surrounding communities that do not have homeless shelters since some LCS patrons often come from those communities. Following this meeting, the City Manager sent a letter to LCS outlining a proposed course of action.

A formal request was submitted by Trey Meyer, Executive Director of LCS requesting that the City forgive 1/11 of the remaining balance each year, with appropriate adjustments to the amortization schedule for the balance remaining after such reduction, such that, the balance on the loan will be $0 at the end of 2028. In that request, Mr. Meyer also responded to concerns that LCS previously committed to not asking for additional funding from the City. Also addressed were questions about a previous commitment to seek alternative sources of revenue, including the option of charging residents a modest stipend when those residents were employed.

Staff is recommending the City amend the 2013 Loan Agreement with Lawrence Community Shelter, Inc. and forgive $23,148 of the estimated 2028 balloon payment each year for the remainder of the term of the loan. Assuming LCS continues to make monthly payments and makes an annual request for loan forgiveness that is approved by the Commission, the balloon payment would be extinguished by December of 2028.

Terms of the Original Loan Agreement

In 2013, the Lawrence Community Shelter requested a loan from the City. The loan would be repaid over time at a lower interest rate than the 5% interest rate the Shelter was receiving from their bank, reducing their expenses.

Under the terms of the loan agreement, the City agreed to loan LCS $725,000 plus interest at 2% to be used as follows:

1) To pay the balance of a construction loan through Peoples Bank in the amount of $627,098.82;

2) To pay for repair work to the roof of the Lawrence Community Shelter facility.

The City paid off the loan and acquired the assignment of the mortgage and gained the rights, privileges, and powers under the mortgage and promissory note held by Peoples Bank.

The first $225,000 of the loan was to be interest free, provided it was paid back by October 31, 2014. The remaining $500,000 was to be repaid, plus 2% interest, in 180 equal monthly installments of $1,848 until December of 2028 at which time the remaining unpaid balance (approximately $287,191) was to be paid in a lump sum to the City.

In order to lower the monthly payment, the remaining $500,000 was amortized at 2% over a period of 30 years, rather than 15 years.

Rather than fund the entire $725,000 loan from the City’s General Operating Fund, the City paid $425,000 from the General Fund and $300,000 from the Special Alcohol Fund. The 2013 Budget was amended to spend down the fund balance in the Special Alcohol Fund.

Status of Loan Payments

LCS repaid the first $225,000 of the loan in 2014. The funds were deposited in the General Operating Fund. LCS has paid $73,920 in monthly payments to date and their account is current as of April 13, 2017.

Staff Recommendations

As shown on the attached amortization schedule, which assumes LCS will continues to make monthly payments, in order to achieve a balance of $0 as of December 2028, the amount of the annual loan forgiveness would be $23,148.

Because the interest component of the payment was based on a 30 year amortization period rather than a fifteen year period, extinguishing the principle portion of the loan sooner would not change the amount of interest paid and therefore the monthly payment would not change. Staff does not recommend any further adjustments to the monthly payment amount.

Because the current City Commission cannot bind a future Commission, staff recommends the Commission consider an amendment to the 2013 Loan Agreement each year that LCS submits a loan forgiveness request.

Finally, staff would suggest the Commission keep in mind this request was made outside of the budget process and that it should be considered in the context of the 2018 budget process.

Prior LCS Request For Additional City Funding

In 2015, LCS requested emergency funding from the City and County. A request for increased funding had been made through the 2016 budget process but it was not approved by the Commission. A separate request was made at the City Commission meeting on July 7, 2015. At that meeting, there was discussion about LCS making changes to their operations and increasing their fundraising efforts so that they would not have to return to the City asking for emergency funds. Mr. Tacha, Jr. stated that, “it’s not going to come as a surprise to any of you that we will continue to come back year after year to ask to be a part of your yearly budget but I can promise you that this will be the last time under my watch that we come looking for emergency funding.”

At the meeting on July 14, Trey Meyer said “…we’re going to continue budgeting and fundraising and grant writing process right into 2016 and you know, not have to come back and ask for this this time next year.”

In the loan forgiveness request, Meyer explains that he believes LCS committed to not making any emergency or supplemental requests outside the budget process in 2016 or going forward.

The City Commission discussed the emergency funding request at a meeting on July 7, 2015 (see City Commission Meeting 07/07/15 beginning at 8:05:00) and again on July 14, 2015 (see City Commission Meeting 07/14/15 beginning at 3:00:05).

As outlined in the attached letter, the Commission ultimately approved $50,000 of matching funds from the Special Alcohol Fund and $1,180 for costs associated with a fundraising mailer.

Comparisons to the City Loan to Lawrence Humane Society

In the meeting with representatives of the LCS Board members and again in a recent correspondence from Former President of the Board of Directors for LCS, John Tacha, Sr. a comparison has been made between the City’s loan agreement with the Lawrence Humane Society and the loan agreement with LCS.

It should be noted that the City contracts with the Humane Society to provide shelter for animals picked up pursuant to the City’s animal control ordinance. K.S.A. § 47-1710 prohibits disposing of any animals for three full business days of custody. An animal shelter is necessary to comply with this statute and contracting with the Humane Society to provide an animal shelter is much more efficient and cost effective than operating an independent municipal shelter.

The amounts of the City’s annual contract with the Lawrence Humane Society since 2012 are shown below.

Funding Source	2012	2013	2014	2015	2016	2017
General Fund	$280,000	$280,000	$330,000	$350,000	$360,000	$360,000

City Support for LCS

Mr. Tacha, Sr. also commented on the City’s lack of participation during the process of moving to the new location and suggested the City made it difficult to get their new site approved.

According to Scott McCullough, Director of Planning and Development Services, the shelter’s downtown special use permit was granted in April 2007 with the intention to seek relocation of the shelter from the vicinity of downtown within a specified time period. The time period was extended to April 2011 as the shelter pursued sites outside of downtown. The city worked with the shelter on code language to accommodate their use and on several sites by which to locate the shelter. During the shelter’s transition period the city primarily had a role in deciding land use requests related to the special use permit and management plan of the shelter.

The City has also continued to provide financial support for LCS as shown on the table below.

Funding Source	2012**	2013	2014	2015	2016	2017***
LCS - General Fund	$57,000	$100,000	$100,000	$100,000	$100,000	$100,000
LCS - Special Alcohol	$136,000	$36,000	$44,000	$84,000	$84,000	$84,000
LCS - Matching Emergency Funding and Mailer				$51,180
LCS - Public Transit Bus Passes				$15,600	$15,600	$15,600
LCS- CDBG*	$51,618	$44,025	$38,970	$40,000	$26,191	$39,236
LCS- CDBG-R
LCS- Emergency Shelter Grant	$105,000	$75,400	$45,633	$47,000	$45,000
*LCS Total*	*$349,618*	*$255,425*	*$228,603*	*$337,780*	*$270,791*	*$238,836*
*The CDBG grant year runs from August to July.
**2012 Emergency Shelter Grant awarded for 18 month term ending in 2014.
***2017 CDBG estimate to be finalized once numbers received from HUD.
2017 ESG has not been awarded as of 4/12/17