Nonprofit sets example for effective, multi-source funding Tax

credits, grants, donations fuel $15 million Family HealthCare project

BY KRIS BEVILL

When Fargo’s Family HealthCare began planning a project in 2008 to move the center into a larger space that would accommodate the growing need for its services, CEO Patricia Patrón knew she would have to find an innovative way to pull together the $15 million needed for the project. The nonprofit health care organization worked hard to run a sustainable operation, but as with most nonprofits, money was tight and it would be impossible for FHC to fund a major project on its own.

Fortunately, the American Recovery and Reinvestment Act of 2009 included a rare opportunity for Federally Qualified Health Centers like FHC to apply for grant money to support those kinds of projects, and in December 2009, FHC was awarded a $6.6 million grant. That support, combined with local contributions and smaller grants, only provided a little more than half of the money needed to carry out the project, however, so Patron decided to explore other mechanisms that hadn’t been commonly used in North Dakota to supply additional funding. Tax credit programs offered an opportunity, but the process was quite complex and she realized FHC needed guidance to maneuver through the various hurdles involved in funding a project by using a combination of tax credits and grants.

After consulting with the U.S. health and human services department for help, she was connected with another nonprofit, Central City Concern in Portland, Ore., which had recently become the first organization in the nation to use a combination of stimulus grant money, multiple federal tax credits and other financing to fund clinic expansions.

“We’d had a lot of prior mixed-used financing experience both in the housing and on the medical side, so we were quickly able to do that,” says Sean Hubert, senior director of housing at Central City Concern. “FHC was trying to do the same thing, but was hitting some roadblocks and having some difficulties.”

With Central City Concern as consultants, FHC was able to piece together a similar funding package. Federal and state historic tax credit programs were utilized to provide $1.5 million in funding. The federal New Market Tax Credit program, which encourages investment in low-income areas, was tapped for an additional $4.1 million. As a result, FHC was able to begin construction of the project in 2011 with 90 percent of the project’s cost in hand.

Funding models like those used by FHC and Central City Concern become very complex because each tax credit bears varying legal structures and commercial debt must be provided by a lender willing to be a second-tier addition in the capital stack, according to Hubert. Patron says she hopes other nonprofits can learn from FHC’s experience and use it as an example for their own projects. “Sometimes you just need to think outside the box and learn about these things that are happening outside of our communities,” she says. “We were the first program in North Dakota to use three different federal funds to complete a massive capital project. These things are out there and we just need to be attentive and keep our heads looking outside the community to see how we can bring wealth into the community.”

The federal grant used by FHC is no longer available, but tax credit programs continue to present the opportunity for creative funding packages, according to Hubert. “Depending on the project, if you can twine historic and new market tax credits into a deal, and you’ve got a good team and good investors, sometimes you can get 40 percent or so of a project cost covered between those two tax credits,” Hubert says. “Then all of a sudden your project cost is 60 percent and that’s much easier.”

FHC opened the doors to its new facility late last year, but continues to seek funding for the remaining $1 million of the project cost and has until November to meet that goal. Patrón is optimistic the organization will meet its goal, although she admits that nonprofits have found it difficult to fundraise in the post-economic downturn, even in wealthy states like North Dakota. “I think we’re all becoming more sophisticated at fundraising, which is good, but I wouldn’t say it’s easier, even in a state which has a surplus,” she says. PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com