PROGRAM GUIDE

Developing CHDO Capacity: Models for States

July 1997

Kevin Kissinger

TABLE OF CONTENTS

Preface

Acknowledgments

Executive Summary

Chapter 1. The Role of Nonprofits in Affordable Housing

Chapter 2. HOME-Specific Tools that Build CHDO Capacity

Chapter 3. Other State Efforts

Chapter 4. Challenges and Opportunities

Preface

The Council of State Community Development Agencies (COSCDA) is a membership organization for executive branch state agencies that administer federal and state resources for housing, homelessness, and community and economic development. Among these programs are the Community Development Block Grant, the HOME Investment Partnerships program and the Emergency Shelter Grant. COSCDA members work extensively with local governments, nonprofit organizations and the private business community. COSCDA provides technical assistance, training, and advocacy for members concerning policy development and program practice.

This report is one of eleven reports COSCDA is preparing under a cooperative technical assistance grant funded by the U.S. Department of Housing and Urban Development. The grant is administered through the National Affordable Housing Training Institute, a nonprofit organization composed of eight public interest groups, including COSCDA. NAHTI provides technical assistance and training support to city, county and state governments in affordable housing and community development.

Under its cooperative agreement through NAHTI, COSCDA conducts various training and technical assistance activities to help state agencies administer the HOME program in an effective, innovative, accountable manner. These activities include HOME workshops, a quarterly newsletter called HOME notes, on–site consultations, and demand/response technical assistance and referral. The four guidebooks produced under this grant profile selected state programs to offer models of best practices in the development, implementation and management of effective HOME programs and viable housing development. Other guidebooks in this series are: Managing and Monitoring HOME–funded Rental Housing; State Use of HOME Funds to Promote Housing Opportunity and Choice; and Using HOME Funds to Help the Homelessness and Build a Continuum of Care.

HOME is a federally–funded housing program that allocates funds directly to states and local governments on a formula basis (40 percent to states; 60 percent to local governments) for the development of affordable housing. Created in 1990 through the National Affordable Housing Act, the HOME program has generated more than 200,000 units of affordable housing and provided over 28,000 low–income families with tenant–based assistance.

HOME is currently the most flexible form of housing assistance provided directly to states and local governments. The program was developed, in part, due to federal recognition of the increasing state role in affordable housing development and to prompt additional and continuing housing development by states and local governments. The program also strongly emphasizes the role of community–based nonprofit organizations (formally designated as community housing development organizations, or CHDOs) in the housing delivery system. HOME funds may be used to support a range of activities necessary to produce decent, affordable rental and homeowner housing. It can also be used for transitional or permanent housing for people who are homeless. Program activities may include new construction, rehabilitation and acquisition of affordable housing, as well as tenant–based rental assistance (for an initial period of 24 months, which may be renewed) and security deposits. Funds also may be used to support project pre–development or organizational operating support for CHDOs.

Acknowledgments

I would like to thank the people who contributed their time and knowledge to the development of this program guide. Due to their efforts, this guide provides examples grounded in the experience of three states: Wisconsin, Ohio, and Maryland.

Wisconsin Department of Administration: Mary Frances Fay, Tom Mish,
and Laurie Althoff
Wisconsin Partnership for Housing Development, Inc.: Janis Reck
Ohio Department of Development: Tiffany Draper and Johnie Torain
Ohio Community Development Finance Fund: Nora Bethea
Maryland Department of Housing and Community Development: Tonna Phelps
and Jim McAteer

Thanks also to John Sidor and Mimi Kolesar for their editing and comments.

This report often refers to the Maryland Department of Housing and Community Development as "Maryland." It also refers to the Ohio Department of Development as "Ohio," and the Wisconsin Department of Administration as "Wisconsin."

"The work that provided the basis for this publication was supported by funding under a cooperative agreement between the National Affordable Housing Training Institute (NAHTI) and the U.S. Department of Housing and Urban Development (HUD). The substance and findings of the work are dedicated to the public. The author and publisher are solely responsible for the accuracy of the statements and interpretations contained in this publication. Neither HUD, NAHTI, COSCDA members or the states featured in this report are responsible for the accuracy of the statements and interpretations contained in this publication. Such interpretations do not necessarily reflect the views of the United States Government, NAHTI, COSCDA, COSCDA members, or the states featured in this report."

Executive Summary

Housing produced by community–based nonprofit organizations is often a desirable and inexpensive way to create affordable housing. In theory, housing production by such organizations avoids the wasteful bureaucracy of "government" housing, while also ameliorating the profit–seeking tendencies of the private sector. Community–based nonprofit organizations have played an increasing role in affordable housing development, especially over the last twenty years.

The HOME Investment Partnerships Program, authorized by the National Affordable Housing Act of 1990, sought to build upon the growing role of this "third sector." It recognized a "community housing development organization" as eligible for a specific setaside of funding. With the first allocation of HOME funds in FY 1992, this special emphasis made CHDOs a central focus for most states administering the HOME program. As new CHDOs come on the scene and some older ones still struggle, many states wrestle with the same CHDO capacity–building issues that they were five years ago.

This report profiles the methods used by three state agencies to build CHDO capacity. To prepare this report, the author visited Wisconsin Department of Administration, the Ohio Department of Development, and the Maryland Department of Housing and Community Development.

Chapter one examines the increasing role played by CHDOs in affordable housing development. Given the financial, organizational, management and client–centered issue they face, CHDO capacity is an important issue. Several reasons exist to build their capacity. First, CHDOs provide housing for an under served market while remaining responsive to community needs. Second, they have political visibility, which often "takes the heat off" states by adding a layer of insulation between program administration and political concerns. Finally, they can leverage funds, especially in under served areas by attracting funds from foundations and lending institutions familiar with nonprofit organizations.

Chapter two examines the HOME programs of Maryland, Ohio, and Wisconsin in terms of CHDO capacity building. The narrative explores opportunities to develop CHDO capacity in relation to CHDO certification, operating funds, predevelopment loans, application review and monitoring. In each case, performance benchmarks become a key way to insure effectiveness.

Chapter three examines activities the three states have taken to build CHDO capacity distinct from HOME itself. These activities include programs to develop the capacity of nonprofit housing developers, partnerships, training, and peer–to–peer matches. The final chapter provides a concluding perspective for states to weigh as they attempt to make their own capacity–building activities more effective.

Chapter 1. The Role of Nonprofit Organization in Affordable Housing


Nonprofit Housing Development, B.C. (Before CHDOs)

Substantial development of housing by community– based, nonprofit agencies is a relatively new
phenomenon. Although nonprofit organizations have been involved with low–income housing for over a century, they did not play a significant role in development until the 1960's. During that decade, social activists often formed community–based development organizations because of some specific issues such as urban poverty or socioeconomic inequity. Such activism greatly accelerated the involvement of nonprofits in the development of affordable housing.

The federal government began its relationship with nonprofit affordable housing developers in the 1950's. During this time, it authorized programs such as the Section 213 housing cooperative program, the Section 202 senior citizens housing program, and the Section 221 low–income family housing program (later replaced by the Section 235 and 236 programs). Farmers Home Administration joined the effort began supporting nonprofit sponsors of self–help housing projects in the 1960's. This increased government support of nonprofit housing agencies sealed the passage of the Housing and Urban Development Act of 1965, which gave recognition and funding to a special type of housing nonprofit agency. The act authorized housing development corporations to provide technical assistance and funding to nonprofit developers of affordable housing.

From these roots, housing development arose as a specific mission of nonprofit agencies. In the seventies and eighties, many organizations formed with a community or economic development agenda that included housing. As these new organizations multiplied and the older ones matured, a sharp rise occurred in the number of programs and agencies that supported these nonprofits, including state community affairs agencies. Although federal support for affordable housing plummeted during the 1980's, the nonprofit sector continued to grow. Many state and local governments created programs during this time that reinforced the role of nonprofits in housing development.

During the 1990's, the federal government again supported housing nonprofit development. The National Affordable Housing Act of 1990 contained incentives for the nonprofit housing sector, particular in relation to HOME. The number and level of expertise of nonprofits in affordable housing development continue to grow.

Dreier and Hulchanski (1994) state that the number of community–based, nonprofit housing organizations increased from 200 to 2,000 from 1983 to 1993. They further state that "these groups . . . developed or renovated almost 320,000 housing units and created (or retained) almost 90,000 permanent jobs."

Many institutions and programs supporting nonprofit housing organizations have also arisen. Public/ private housing partnerships, many of which work with nonprofit groups, are now active in cities and state across the country. Networks of nonprofit housing producers have been created, along with various types of umbrella and partnership organizations, to improve technical assistance to community–based developers.

States and CHDOs: A Special Relationship

The legislation that created the HOME program sought to build upon the growing role of community–based, nonprofit agencies in housing. The program defined a specific type of nonprofit entity, called a "community housing development organization," that is eligible for a specific setaside of funding. States and local governments receiving HOME funds (called Participating Jurisdictions or "PJs" in the regulations) must set aside at least 15 percent of their allocation for projects developed by CHDOs. Nonprofit organizations not designated as CHDOs can use the balance of HOME funds, but cannot use the setaside. These requirements created a special relationship between states and CHDOs, a relationship that many states actively promote.

CHDOs

CHDOs must be structured according to strict standards laid out in the HOME regulations. To qualify for the CHDO setaside, they must own, sponsor or develop affordable housing and have effective management control of all projects through the term of affordability. To qualify for setaside funds or gain access to HOME technical assistance, CHDOs must be certified by the state to receive state funds. Six major factors distinguish a CHDO:

CHDOs must have effective management control of a project. They are obligated, through their written agreement with the state, to meet all HOME requirements. These requirements include actions such as maintaining rents at the appropriate level and assuring that tenants meet the income eligibility rules of HOME. CHDOs also make important decisions about a project. Such decisions include how to manage a property, what construction or rehabilitation will take place, and the terms and conditions of sales. They do not have to be the owner or mortgagors, although this is their most likely relationship to the property.

The CHDO Setaside

States must set aside at least 15% of their HOME allocation for CHDOs. Nonprofit organizations not meeting the regulatory criteria for CHDOs can also receive HOME funds, but they are not eligible for the 15% setaside. CHDOs may use the setaside to carry out any eligible HOME development activity. Because tenant–based rental assistance is not a development activity, the CHDO setaside cannot be used for this purpose. CHDOs may also use HOME funds for special predevelopment loan activities.

CHDOs may act as subrecipients, which are nonprofit organizations hired by states to administer various elements of a state's HOME program. Such elements include project screening, marketing, reviewing tenant income, and counseling potential purchasers. Such activities, however, are not "CHDO setaside" activities.

HOME regulations also allow states to use some of their HOME allocation for CHDO–specific activities. A state may use 5 percent of its total HOME allocation in each fiscal year for operating expenses. A state may also use ten percent of its CHDO setaside for predevelopment loans.

Current CHDO Capacity

CHDOs now exist in all fifty states. As a whole, they are fulfilling their mission of developing affordable housing. They have helped revitalize many neighborhoods and communities. In spite of this record, many states see CHDOs continually struggling with the same difficulties they were struggling with five years ago. Other CHDOs not struggling with such issues are still looking for opportunities to improve; experience has taught them to stay ahead of the inevitable difficulties.

The CHDO system has come a long way since Congress created HOME. In reflecting upon their progress, states must realize that CHDOs still face many challenges. Producing and managing subsidized housing is intensive, hard work in which only the truly committed and seriously competent CHDOs can succeed, especially over the long term.
Given the financial, organizational, and management challenges they face, CHDOs often perform admirably. Given the disadvantaged areas and residents they serve, most CHDOs are meeting the reality of their mission, at least for the short term.

As new organizations, most CHDOs depend upon the status quo of the current system of financing, particularly the HOME program. If the federal and state governments decide to go back to a system of subsidies for private developers, many CHDOs will be in trouble. If the federal government reduces or eliminates HOME funding, CHDOs may face the need to exist independently of federal or state funds.

Additionally, the management of affordable housing for the long term also offers challenges that many CHDOs and states are only beginning to discover. The nonprofit system (including CHDOs) is currently creating much–needed housing for low– and moderate–income families.

Capacity Building Defined

For this report, capacity refers to the ability of CHDOs to develop and maintain affordable housing throughout the term of affordability, while remaining a financially stable organization capable of taking on new projects. This guide does not attempt a more specific definition for two reasons. First, several publications have recently attempted to define and measure the capacity of nonprofit organizations. Second, the issues, trends, and capabilities of each CHDO and each region vary. States and CHDOs must define for themselves what true capacity means for them. For instance, one state may define CHDO capacity as the degree to which a CHDO can effectively develop housing without state or federal operating funds. Another state may define CHDO capacity as the ability to develop a specific number of projects per year while effectively monitoring and managing previously developed projects.


Why Should States Build CHDO Capacity?

Several reasons exist why states may want to foster the capacity of their CHDOs for affordable housing development. Since states must use at least 15% of their annual HOME allocations for CHDOs, it makes sense to insure that the CHDOs receiving the money use if effectively.

CHDOs are Locally–Responsive and Flexible

More important, a CHDO system with true capacity gives flexibility to a state's housing delivery system. Through interaction with CHDOs, states can expand and improve the supply of affordable housing in under–served areas. CHDOs often provide continuity and stability to these areas that the private sector cannot often provide.

States may also find that since CHDOs are community–based organizations, their housing development activities may be more appropriate for the areas they serve. With an emphasis on low–income persons, CHDOs fill a niche in areas under–served by private affordable housing developers. In areas where the local government lacks the administrative capacity or political will to take on the added responsibility of housing development, CHDOs can make a real difference. States may find that experienced CHDOs can link resources and services together more quickly and efficiently than many local governments in small communities.

CHDOs Can Leverage Funds

A CHDO is a legally recognized structure with which lenders are now familiar. Lending institutions and foundations may be more willing to work with CHDOs due to the recognition that CHDOs more effectively mix financing sources for affordable housing. CHDOs are also more likely to provide or have links to needed support services.

Disadvantages to working with CHDOs include potential conflicts between the local government and the CHDO, which can slow or halt project development. A lack of experience and capacity by the nonprofit may have serious implications for effective project development, and may impose considerable costs of staff time and money on the state. Finally, states may experience some political fallout from private developers who perceive CHDOs as receiving special advantages unavailable to the private sector.

Chapter Two. HOME–Specific Tools for Capacity Building


An Overview of Three State Programs

HOME program regulations contain specific provisions that states can use to build the capacity of CHDOs. Additionally, many actions that states must take when administering their HOME program contain inherent opportunities for capacity–building. This chapter examines both subjects. To provide a background to this chapter, a brief description of each state's HOME program is necessary.

Wisconsin's HOME Program

The Division of Housing at the Wisconsin Department of Administration distributes HOME funds in four categories using both formula and competitive application processes. Its 1997 authorization from HUD is $12,769,000 million; it will also receive $738,000 in HOME program income and recaptured funds from previous projects. The state has not yet determined the specific division of HOME funds among the four categories.

Under the Rental Rehabilitation Program, local
sponsors provide funds to owners of existing rental properties to make improvements. The Weatherization Home Repair Program provides HOME funds to contractors of the federally–funded Low–Income Weatherization Program. Awarded by formula to Community Action Agencies, the HOME funds in this category allow contractors to make repairs that bring housing up to quality standards.

The Accessibility Improvement Program operates in cooperation with Wisconsin's Independent Living Centers and other regional organizations. These organizations use HOME to make units accessible for persons with disabilities who own and occupy a unit. Finally, Wisconsin's Home Ownership Program is coordinated with the state's Housing Cost Reduction Initiative through an annual competitive process. The state solicits applications annually from local sponsors seeking to operate first–time home buyer programs.

HOME in Maryland

The Maryland Department of Housing and Community Development allocates most of its HOME funds ($5,586,000 for FY 1996) to its
existing programs: Rental Housing, Homeownership; and Special Loans. Besides HOME, the Rental Housing Fund uses state funds, bond funds, and Low–Income Housing Tax Credits. The Home-ownership Program combines HOME and state funds. Finally, the Special Loan Program uses HOME to help nonprofit sponsors meet requirements for group homes (or for the group homes themselves). Applicants may also use HOME funds with the existing rehabilitation and special purpose programs.

In FY 1996, Maryland allocated $600,000 in HOME funds to the Innovations Fund, where applicants propose projects or pilot programs that stimulate new ideas or test innovations not permitted within regular department programs. Although the state gives points to reward true innovation, it does not restrict funding to such projects. It allocates funds competitively, with awards recommended to the Housing Finance Review Committee. The state anticipates awarding funds in one round, but will hold a second round if they do not award all Innovations funds.

Ohio's HOME Program

Ohio uses its HOME allocation in three state programs. In FY 1996, it devoted $11 million in HOME funds to its Community Housing Improvement Program. CHIP funds rehabilitation for rental and owner occupied housing, including home buyer assistance, new housing construction, tenant– based rental assistance and other activities. Ohio includes part of its community development block grant in CHIP, so it also funds non–HOME eligible activities such as off site infrastructure and shelters of special needs populations.
The state awards grants competitively during one funding application round. Non–PJ cities under the HOME program and non–entitlement cities under the CDBG program may apply.

$10.6 million of the state's FY 1996 HOME allocation goes to its Nonprofit Housing Development Program. Funds from this program provide gap financing to nonprofit community–based organizations, including CHDOs. The state awards grants in both PJ and non–PJ cities. Seventy percent of the total funds are reserved for projects with competitive Ohio Low–income Housing Tax Credits. The state accepts applications for projects not using tax credits (or using secured noncompetitive tax credits) continually. Applications for projects that use competitive tax credits have three funding rounds. The third program is a CHDO Competitive Operating Grant Program, which is discussed later in this chapter.

The above overview of Wisconsin, Maryland and Ohio's HOME programs provides a context for the examples of capacity–building given in this guidebook. Using the practices of these three states, this chapter first examines CHDO capacity–building in terms of CHDO certification and the application process. It then moves to a discussion of operating funds, predevelopment loans, and the monitoring process.

CHDO Certification

States must ensure that the organizations they designate as CHDOs meet the regulatory requirements of the HOME program. Such requirements include the structure of a potential CHDO's governing board, the status of its nonprofit incorporation, its history of community service, and its capacity to carry out development activities.

To do this, all three states use checklists to certify CHDOs. In the early days of HOME, Wisconsin encouraged its network of community action agencies to become CHDOs, since many of them were already engaged in housing activities. Ohio, a state with a long history of building nonprofit housing capacity, had a nonprofit housing network ready to be certified. Maryland worked to certify a CHDO in each of nine regions in the state. All CHDOs in Maryland automatically receive a formula allocation. In Ohio and Wisconsin, states with four to five times the number of CHDOs as Maryland, designation does not carry a guarantee of HOME funds.

Examining Your Own Program

Even before a CHDO is designated officially by a state, the opportunity exists to build capacity through the certification process. If a state has under–served areas, it can try to foster new CHDOs. It can look at areas where a nonprofit might require technical assistance to improve its capacity and management capabilities. Although a state must certify any nonprofit organization that meets the regulatory criteria as a CHDO, it is not obligated to fund an entity just because it has been designated.

Recertification and Decertification

None of the states in this report "recertify" CHDOs, but through monitoring and the identification of "at risk" grantees, they have the capability to deobligate funds and to reject applications. States may want to examine CHDO certification annually, using past performance as a criterion.

Maryland, for example, reserves the right to decertify any CHDO that does not produce an approved project over four consecutive years. If decertified, the CHDO would still be eligible as a nonprofit to apply for HOME funds; it just could not access the state's CHDO setaside.

States can play an active role in CHDO certification. They can look at under–served regions to help a nonprofit in that region become a CHDO. Alternatively, they can provide incentives for existing CHDOs to expand their services to under–served regions at recertification time. The Virginia Department of Housing and Community Development, for example, actively certifies CHDOs as a service to its state recipients and local PJs.

Operating Fund Programs

Operating funds permit CHDOs to successfully use HOME funds for projects in which they are owners, sponsors or developers. A state may use up to five percent of its annual HOME allocation to fund CHDO operating expenses. § 92.208 (a) of the HOME Final Rule describes operating expenses as those "reasonable and necessary" for a CHDO to pay for items such as "salaries, wages, and other employee compensation and benefits; employee education, training, and travel; rent; utilities; communication costs; taxes; insurance; equipment; materials and supplies."

Although they may be used for general administrative costs, and operating expenses, and project costs, states must provide HOME operating money with the anticipated use of HOME funds by a CHDO to develop HOME–assisted housing. If a CHDO is not already receiving HOME funds under the state setaside, the state and the CHDO must enter into a written agreement. This agreement specifies that the CHDO is expected to receive funds within twenty–four months of being given the operating expense funds. It further specifies the terms and conditions upon which this expectation is based. States should clarify this expectation in the written agreement by listing the mutual expectations between the state and the CHDO that demonstrate a progression toward the development of HOME–assisted housing. For example, the written agreement can include the following mutual expectations:

A CHDO may not receive HOME funding for any fiscal year in an amount that provides more than 50% or $50,000 (whichever is greater) of its total operating expenses in that fiscal year. HOME funds provided to a CHDO acting as a subrecipient or contractor are excluded from this equation.

Why Should a State Provide Operating Assistance?

Giving operating funds to CHDOs gives states the opportunity to strategically build CHDO capacity. In general, no one else offers such funds. CHDOs interviewed for this guidebook said that operating expenses are extremely important to their viability. CHDOs therefore will strive to meet organizational or performance benchmarks associated with the award of such funds. Operating funds can thus act as a "carrot on a stick" to improve CHDO capacity.

A state can also use operating funds as a tool to get a CHDO going–to fill the budget gap until a CHDO has enough projects and activities to bring in some income. In this sense, operating assistance is not a capacity–building activity per se, but it keeps a CHDO viable until it gains the capacity to stand on its own.

How Three States Structure Operating Assistance

The three states highlighted in this guidebook each provide operating funds to CHDOs in different ways. Maryland divides operating assistance funds among all state CHDOs, provided the CHDOs meet a qualifying threshold. Ohio, through its CHDO Competitive Operating Grant Fund, provides assistance on a multi–year, competitive basis. Wisconsin provides operating assistance through its CHDO Resource Fund. CRF also provides money for predevelopment expenses (discussed later in this paper) and leverages CHDO Intermediary money.

Maryland's CHDO Operating Assistance Fund

Maryland began its CHDO Operating Assistance Fund in FY 1996, reserving $300,000 (just under 5% of its HOME allocation) for the program. The state caps operating assistance funds available to a CHDO in any fiscal year at $50,000, the legal limit. It grants a maximum of $30,000 per year to newly–formed CHDOs who have not produced an approved HOME–eligible project.

According to its program description, Maryland uses this fund to "develop the capacity of state– designated CHDOs to undertake the development of affordable housing and . . . [to] sustain the capacity of active CHDOs in the effective leveraging of capital and operational resources." All state-certified CHDOs, either previously existing or newly formed, receive a grant. For purposes of distributing FY 1996 funds, the state defines existing CHDOs as those certified before July 1, 1995. It defines newly formed CHDOS as those certified after July 1, 1995.

Maryland divides two–thirds of its operating fund allocation equally among all certified CHDOs. They award the remaining one–third to CHDOs who have produced a HOME-funded project or program approved by the state's Housing Finance Review Committee. For CHDOs in this category, the state awards funds based on the number of approved projects a CHDO undertakes compared to the total number of HOME projects approved for all CHDOs in the fiscal year.

Since the state completely distributes operating funds each year, they distribute any balance remaining equally to the remaining eligible CHDOs (up to the maximum allowed for each CHDO). Maryland distributes operating assistance funds quarterly.

Newly-formed CHDOs are eligible for operating assistance for up to two years. They must meet criteria established by the state. These criteria provide an excellent example of how a state can clarify the "reasonable expectation" that a CHDO will begin using HOME funds to develop HOME– assisted housing within 24 months. The criteria includes: providing staff resumes reflecting the experience required to produce the type of housing being planned and submitting a strategic development plan covering a minimum of three years. Before a new CHDO receives operating assistance, Maryland determines if its goals are realistic and achievable based upon the resources available to it. For a newly-formed CHDO to receive funding in year three, it must have constructed at least one approved project during the previous two years.

CHDOs that produce at least one approved project since becoming certified are eligible to receive operating funds for a minimum of two years. To be eligible for operating assistance, CHDOs who have not produced an approved project must provide a strategic plan and certify that they will apply for HOME funds within the next twelve months.

At the beginning of each fiscal year, Maryland notifies eligible CHDOs of the amount of funds available. CHDOs must then apply. The CHDO must also provide evidence of good standing within the State and its most recent financial statements showing its yearly operating expenses.

A CHDO that receives two years of operating assistance without producing an approved HOME project is ineligible for funding in the next fiscal year. The state awards further operating assistance only after the CHDO has met production requirements. Since the program is only in its first year, no CHDOs have become ineligible.

Ohio's CHDO Competitive Operating Grant

In FY 1996, the Ohio Department of Development used $509,800 for its CHDO Competitive Operating Grant Program. The goals of Ohio's program are to provide competitive operation grants to state- designated CHDOs in communities not designated as PJs. The grant ceiling is $100,000 (up to $25,000 per year, for a maximum of four years).

Ohio rates applications on five principles: 1) leverage and coordination of other resources; 2) overall program design; 3) commitment of the board of directors and community; 4) administrative capacity, and 5) past performance in the state's Nonprofit Housing Development Program (described earlier). Applicants may submit a proposal for one specific funding track per year.

Track one, designed for newer CHDOs, focuses on capacity building, training, and education. Tracks two and three focus on the identification, planning and design of a HOME–eligible project. The focus of track four is the development of the planning and design activities from the prior tracks into a full application. Track four may be alternatively used for operating support during the development of a HOME project already funded by the state.
Each track contains different operational activities eligible for funding. In FY 1996, the state began including performance milestones with each track. Ohio places a "hold on funds" on 25% of the award until the CHDO successfully attains the milestones. Since the benchmarks have been in effect for less than one year, the states has not yet had to hold back any funds.

The CHDO Resource Fund of Wisconsin

Wisconsin awards funds for CHDO operating assistance through its CHDO Resource Fund. CRF also provides money for predevelopment expenses and provides a pool of funds for CHDOs to use for CHDO Intermediary services (these last two items are discussed later in this report). The state devotes about $1,000,000 of its HOME money to CRF.

The state last awarded CRF grants in three–year contracts. To be eligible, CHDOs must submit a work plan that includes a budget, a disbursement schedule, a program timetable and minimum activity benchmarks. Wisconsin bases CRF funding approval on several factors: the geographic distribution of potential projects; adherence to consolidated plan goals; the need for technical assistance; existing organizational capacity, the commitment of the CHDO and the involvement of the local community. CRF's Competitive Operating Grant Program provides CHDO operating funds in three tracks; each track requires that applicants meet progressive performance benchmarks in organizational capacity, work plan, and impact of operating funds. Applicants must reapply each year.

The state rates applicants for Track One by using benchmarks for preliminary organizational strengths and the impact of the HOME operating funds. For Track Two, the state adds benchmarks such as the identification of a HOME–eligible project, reason-albinos of the proposed work plan and consistency with the consolidated plan. They also evaluate the organization's track required during the past year. Finally, Track Three focuses on compliance with previously–required milestones, status of proposed projects, and the extent to which other funds have been identified and committed to the organization's operations and projects. Applicants may apply for Tracks Two or Three without having been awarded funds under Track One. State staff said they are pleased with the results of their three–year program. Their CHDOs show much higher organizational and production capacity than three years ago when most were new organizations. At the end of the first three–year cycle, they are currently redesigning CRF to meet the needs of Wisconsin's CHDOs in the coming years. The Operating Fund portion will continue to use progressive benchmarks.

Using Operating Assistance

States can effectively link the provision of operating funds to CHDO capacity–building. To do this, states must provide operating funds on an ongoing basis with specific performance benchmarks attached as a condition of future assistance. All three states examined in this report provide operating funds on a multi–year basis. They also use performance benchmarks or production criteria as a condition of continued funding. Maryland and Ohio began including benchmarks in 1996, so neither state has yet sanctioned a CHDO. Both states, however, report that these benchmarks increased the organizational and production capacities of their CHDOs.

The experience of three years show that Wisconsin's benchmarks were effectively geared toward CHDOs at varying levels of capacity. Maryland's emphasis on older and newer CHDOs also serves as a good example of delineating different benchmarks for CHDOs at different capacity levels. States should explicitly examine the capacity of their existing CHDOs before setting performance benchmarks. Newer CHDOs, for example, might not be able to meet a benchmark concerning prior production, while a benchmark of board composition may be ineffective for a strong CHDO with development experience.

When desiring an operating assistance program, states need to by wary of creating dependence.
States need to foster an attitude that CHDOs must be self–supporting after a few years. Operating expense funds, if allocated correctly by a state, can use benchmarks that teach a CHDO to structure projects so that the CHDO retains some income for operating expenses. The goal, of course, is to foster a CHDO system that can function without operating subsidies.


Predevelopment Loan Fund Programs

States may use up to 10 percent of their CHDO setaside for predevelopment assistance loans. These loans must be project–specific. Predevelopment assistance loans may be for project–specific technical assistance and site control loans, or they may be for seed money loans. Predevelopment loans assure that CHDOs have access to funds for up–front project expenditures. The HOME loans provide a form of line of credit that many nonprofit developers need but often have difficulty obtaining from private sources.

Predevelopment loans may not exceed customary project preparation costs. CHDOs must repay them into the state's HOME fund unless the project does not get developed. Unless the project does not happen, loans are subject to HOME matching requirements. As with all HOME funds, CHDOs may not use these loans to pay for general staff or administrative costs, and they must relate all costs to a specific project. A CHDO could, for example, use a predevelopment loan to fund the time of an architect who develops a plan or the time that a staff appraiser spends to produce an appraisal. On the other hand, they could not use the predevelopment loan to pay the general salary of the CHDO's Director.

CHDOs must repay the loans from construction loan or other project income. Such costs can be wrapped into other HOME financing and be subject to those terms. If impediments to project development are present, the state may waive repayment.

The purpose of a technical assistance and site control loan is to establish the preliminary feasibility and implement steps toward gaining site control. It must be used prior to gaining site control. Eligible activities include an initial feasibility study, consulting fees, the cost of a preliminary financial application; fees for architects, legal advice, engineers, and the development team; site control expenses, and title clearance costs. Such funds can be used to meet HOME environmental assessment requirements and to purchase site options. CHDOs cannot use these loans for site acquisition, however, which can be funded with other grants or loans.

Seed money loans cover preconstruction costs for a specific project. CHDOs must have site control, preliminary financial commitment, and a capable development team in place before becoming eligible. Preconstruction costs include: construction loan commitments; architectural plans and specifications; costs of zoning approvals and engineering studies; and legal fees.

Not all projects actually get constructed. States may forgive repayment if a project does not go forward. To do so, the state should demonstrate that it has worked with the CHDO to overcome barriers, make a judgement that the project cannot go forward, and document this information in a file.

Why Should States Provide Predevelopment Loans?

Predevelopment loans provide "risk capital" to get housing deals moving that otherwise might not get made. This money is important because virtually no one else is providing it; other lenders do not want to "go in" on a deal at this early a stage, since many projects do not become feasible. Just like with operating funds, the provision of predevelopment loans puts states in a unique position. The loans allow states to selectively promote deals by the CHDOs that have the capacity to carry out a specific type of project. The loans also can serve as a tool for states to help a new CHDO begin its first few projects.

Wisconsin's Program

As part of its CHDO Resource Fund, Wisconsin provides predevelopment loans to give a CHDO a loan for site control. Wisconsin caps its CHDO predevelopment loans at $5,000. Available solely as a predevelopment loan for site control for proposed rental housing development project, the loan requires a match.

The state requires CHDOs to complete the application for its Rental Housing Development program to qualify. CHDOs must treat the loan as a partial advance of HOME funds that they can repay in one of two ways: from the construction loan or adjusted in the disbursement of additional HOME funds. If the state and a CHDO determine a project is not feasible, the state forgives the loan.

Wisconsin has not allocated any predevelopment loan funds since beginning CRF. The difficulty with its program, said staff, was that CHDOs must incur substantial predevelopment costs to meet the criteria to obtain the predevelopment loan.

Ohio

Ohio addresses the need for predevelopment funds though its Community Development Finance Fund (as part of their Nonprofit Housing Development Program) using state (not HOME) funds. Through this program, the state awards predevelopment funds as either grants or loans. CHDOs and other nonprofits can apply.

Maryland

Maryland awards predevelopment loans to CHDOs on a first–come, first–served basis. The state awards the loans for project feasibility costs or options on land or property. The state expects repayment through project financing, but it can waive repayment, if through no fault of the CHDO, the project cannot support the cost of the loan.

Using Predevelopment Funds to Build Capacity

To use predevelopment loans effectively, states must find a method to provide the funds in time. The three states in this report all experience varying degrees of difficulty in providing these funds in a timely matter while still insuring that the recipient has the capacity to use the money effectively. To be useful, the CHDOs must get the funds before a project becomes financially feasible and they can make a deal. States may want to look at their requirements for loan provision to ensure they are not too rigorous or time–consuming. Due to the relatively small amount of money involved (compared to regular HOME loans and grants), states should consider shortening the approval for such loans.

One way to do this is to keep of a list of "pre–qualified CHDOs" that are competent in a given area. The state could then use this list as an "okay" for approval of one or two predevelopment loans a year for a specific CHDO. Since the time frame is so short for the funds to be effective, this would allow a state to move to a demand–response system for providing predevelopment loans to qualified CHDOs.

For example, a CHDO with documented expertise in the development of SROs with HOME funds may receive almost immediate approval for predevelopment funds. A similar request by the same CHDO for a predevelopment loan for a multi–family rental housing for the elderly, however, would undergo a more rigorous evaluation by program staff.


Capacity and The Application Process

The application process for regular HOME projects offers another opportunity for states to build the capacity of CHDOs. On one hand, the large amount of funds awarded as grants and loans acts as another "carrot on a stick" for CHDOs to reach specific levels of capacity. On the other hand, staff reviewing applications can determine where a CHDO is weak in project planning and development; it can then make recommendations to the CHDO on the types of training or technical assistance to use. In the evaluation process, states can then award points to CHDOs who undergo specific training and technical assistance recommended in previous cycles by the state.

Ohio, Maryland and Wisconsin

All three states have elements in their applications that implicitly award points for overall organizational capacity. In the applications for its Nonprofit Housing Development Program, Ohio awards twenty points (out of 100) for administrative capacity and the overall role of the nonprofit. It asks for information on previously–funded projects, construction schedules, and time schedules. Maryland and Wisconsin also consider the past performance of an applicant, asking for similar information on their application forms. One potential weakness of application review in all three states is that none include points for accessing technical assistance and training in previous cycles.

Including CHDO Capacity in Your Application Process

The overall capacity of a CHDO to effectively develop, maintain, and manage affordable housing over the long term differs from the capacity of a CHDO to develop a specific project. States may want to look at the capacity of the whole organization during the application process.

Evaluation should go beyond need, deal feasibility and the capacity of a CHDO to develop a project. Although such items should be the foundation of any evaluation, states should consider long–term fundamentals for each project, especially property and asset management. Other items such as staff expertise, training undertaken in the past year, and past performance.

States may want to require that only "certified administrators" manage grants or that "certified" staff develop projects. Certification might mean knowing how to develop and manage a project, or it might mean understanding how to manage a HOME grant or loan. Certification can entail completion of a specific number or type of training, such as that offered by the National Development Council, the state, or CHDO intermediaries. Such a process would need to require that certified administrators update their training periodically. If the state effectively combines its own training with programs offered by other entities, it can create an effective process. Requiring certification forces CHDOs to send staff to training, thereby helping insure they have the capacity to develop and manager projects. Such a pool allows CHDOs who lose qualified staff to contract out until they can hire someone new, again insuring that they have the needed capacity. Finally, certification allows grantees without expertise or capacity in a specific area to tap that pool of talent.

As part of the certification process, for example, a state may train a person on the application process, financial management, and monitoring of a specific grant. They may also require that same person to attend training offered by a CHDO Intermediary, for example, on the development process. The next year, they may require that the newly certified administrator attend an organizational development training course offered by a consultant.

States may also want to look at their reasons for making a specific program competitive or noncompetitive. A competitive process theoretically ensures a better project, since applicants must win out over others to obtain funding. Such a process often just ensures that applicants improve the quality of the grant–writing. For CHDOs, competitive applications may work best in areas where many of them already possess expertise. In some states, formula grants or streamlined applications may work best in areas where CHDOs all have a specific capacity level. For example, a state that knows that all of its CHDOs are capable in single–family rehabilitation could award funds by formula every other year to every CHDO.

In states where CHDO capacity varies greatly in a specific area, noncompetitive applications or an "open funding window" may ensure better projects and build capacity. If CHDOs know that they have the time to learn about a specific area where they lack expertise, they may be more likely to branch out into new areas.


Project Monitoring and Building Capacity

States must monitor CHDO performance on specific projects, as they do with all organizations awarded HOME funds. Monitoring ensures that projects are initiated and that funds are committed within twenty–four months (or for rental production, thirty–six months) from the time a state gets its money from HUD. It also ensures that CHDOs meet the long–term requirements of housing quality and affordability.

Monitoring presents a unique opportunity for states to develop CHDO capacity. This opportunity exists if a state uses monitoring to identify technical assistance needs rather than as an attempt to catch the CHDO doing something wrong. This philosophy has implications for the way a state structures its monitoring system.

Ohio, Maryland, and Wisconsin

Ohio monitors each CHDO at least one a year, with an average of three on–site visits per project over three years. These consecutive visits allow the state to identify if CHDOs are meeting performance goals, and if not, getting the help they need. Maryland is currently developing different monitoring criteria for "old" and "new" CHDOs. Wisconsin is looking at its monitoring system to identify ways to build capacity of HOME recipients.

Combining Monitoring with Capacity–Building

One way for states to use monitoring as a tool to build capacity is targeted monitoring. A state can target it monitoring activities based on a CHDOs risk of performance and compliance problems. States should put procedures in place for staff to assess the risk that a grantee may encounter problems leading to poor performance or compliance violations. After such an assessment, the state can adjust the extent of its monitoring accordingly. The state can then work with a CHDO to help it get the information, knowledge, or expertise it needs.

For example, the state and a CHDO can work together to prepare an annual monitoring plan for each of the CHDOs HOME projects. The results of the state's monitoring activities during the previous year could serve as the basis for each project's plan. States could then use specific criteria to identify CHDOs needing on–site review. After selecting the grantees to receive on–site review, monitoring staff could then identify the program areas to examine. Under such a plan, newer CHDOs would receive a thorough review of all aspects of their activities and project, while more experienced CHDOs might receive only target reviews of specific areas that were a problem in the past.

If states want to use monitoring as a capacity–building tool, they must keep in close contact with CHDOs all year. They must consciously foster an atmosphere of trust, not "gotcha," or CHDOs will not express potential problems to the state. Such an atmosphere, when combined with a monitoring system that identifies potential problems and targets technical assistance to those problems, will go a long way forward building a viable CHDO network throughout a state.

Chapter Three. Other State Methods to Develop CHDO Capacity


A Potpourri of Programs

Besides HOME–specific tools, all three states highlighted in this guidebook also use other methods
to develop CHDO capacity. These efforts include programs unrelated to HOME that states can target to nonprofits. These efforts also include facilitative and instructional activities. Maryland, Ohio and Wisconsin all have specific programs aimed at the development of nonprofit capacity for housing development. These programs give CHDOs and often other nonprofits opportunities to gain new knowledge, experience, or expertise.

Wisconsin: WHEDA

As part of its CHDO Resource Fund, the Wisconsin Department of Administration cooperates with the Wisconsin Housing and Economic Development Authority to fund T.A. provision. Funded by the state, WHEDA provides funds to selected CHDOs to purchase services for technical assistance from Wisconsin's CHDO Intermediary. The state strives to provide WHEDA funds on a one-time, as-needed basis to support a particular HOME activity undertaken by given local organization. CHDOs can use WHEDA funds to pay for technical assistance over a time period negotiated between the state and the CHDO. CHDOs must match funds.

WHEDA has several unique aspects. It is a state–funded effort targeted strictly to CHDOs. It allows the state to influence the provision of technical assistance by its intermediary, the through the leveraging of funds. It is a cooperative venture between two state agencies, in close consultation with CHDOs and the state's HUD intermediary. Finally, WHEDA funds are awarded only once to a grantee. This "one–time award" structure allows the state to target capacity–building and technical assistance to specific CHDOs in the areas they need.

Ohio: The Community Development Finance Fund

Ohio encourages its nonprofits to use programs offered by the Ohio Community Development Finance Fund. The Fund is a non–governmental, nonprofit organization that gives disadvantaged Ohio communities tools to create employment, affordable housing, and community nonprofit facilities. It offers a predevelopment program whose purpose is to provide predevelopment grants or loans to nonprofit community–based organizations that will result in housing or employment opportunities for low–income families. The Fund caps requests for funds at $12,000.

CHDOs may apply for a loan or a grant, but the Fund reserves the right to award funds as grants or loans despite the option chosen by the CHDO. The Fund accepts applications on an open–window basis. Organizations are encouraged to obtain a cash match, but in–kind services may be used for the required 20% match.

The Fund also offers a Linked Deposit Program that gives community–based nonprofits access to affordable financing from local lenders for housing and economic development projects that are affordable to low–income people. Local lenders can make lower interest loans–as low as 2% for terms up to twenty years.

Under the program, the Fund makes discounted loans possible through a package of deposits specifically structured for the projects. These deposits are "linked" to the loan and are made by the state and its private benevolent deposit partners. The linked deposit is placed at below–market rates and the lender uses the earnings to compensate for its loss on the discounted loan. The deposit mechanism allows benevolent depositors to participate in projects benefiting low–income communities while not putting their capital at risk.

The term of deposit is usually shorter than the term of the loan, allowing for reuse of capital and expanding the efficiency and leverage of the deposit. Such deposits allow nonprofit housing developers to make projects more affordable to low–income people. Project sizes have ranged from $70,000 to $6.8 million. Deposits in the program have ranged from $25,000 to $200,000.

This Community Development Finance Fund is also unique, since the state originally fostered it to build nonprofit capacity. The Ohio Department of Development works closely with the Fund to use technical assistance dollars. The linked deposit program and the activities allowed under the predevelopment loan program give CHDOs tools unavailable with HOME funds.

Ohio: Training & T.A. Grant Program

The primary goal of Ohio's program is to help local or state nonprofits that are currently involved (or want to become involved) in supportive housing program, nonprofit housing development, economic development, self–sufficiency, and downtown revitalization programs. This program is unique since it is limited to nonprofits who wish to provide training. Funded with CDBG and HOPWA allocations, eligible applicants are statewide or regional nonprofits. This program uses these CDBG and HOPWA funds to encourage the development of training and technical assistance activities that state grantees can then use.

Maryland: MAHCAP

The Maryland Housing Capacity Assistance Program facilitates the participation of nonprofits in the housing programs offered by the state. MAHCAP's purpose is to increase the ability of start–up and inexperienced nonprofit housing development organizations to undertake the development of decent affordable housing. Under this special five–year demonstration program, Maryland awards competitive matching grants to eligible grantees for terms of up to two years. CHDOs may use funds for a wide range of affordable housing activities.

Applicants must have the intention of applying for state funds to finance at least part of their housing development project. The funds pay for operating activities such as general staff salaries and training. The maximum grant is $65,000 over a two–year period, or $40,000 in a single year. The state can enter grant agreements with terms as long as twenty–four months.

All grants require a match from the grantee as cash or in–kind contributions. The state provides funding for MAHCAP through appropriations from three revolving loan funds of the state. Each fiscal year, the state decides the allocations of MAHCAP funding based on one percent of that year's appropriation.

Unique to this program is a peer–matching idea: the state gives organizations with geographical proximity or complementary experience priority for funding. For example, two organizations in the same region–one experienced with Home ownership activities and one experienced with rental housing activities–pair up to receive funding. Such an incentive encourages the sharing of expertise, an effective method of building capacity.

Examining Your Own Program

The programs highlighted above offer several examples on how states can build CHDO capacity. States should examine the state resources available for such activities. Resources, of course, are more than funding and include training or technical assistance programs offered by other entities that CHDOs can use. States may want to explore formal linkages with these programs.


Other Efforts to Build CHDO Capacity

Besides specific programs, all three states build CHDO capacity through CHDO networks, peer–to–peer matching, working with CHDO Intermediary T.A. providers, workshops and training.

CHDO Networks

CHDO networks, whether informal periodic gatherings or formal organizations, offer states an opportunity to address capacity issues through a single interface. When part of an overall capacity–building strategy, such networks can give a state the input it needs to facilitate more effective capacity–building activities.

Wisconsin began a series of CHDO round tables, or periodic meetings where CHDOs meet with the state to discuss issues, share ideas, and articulate concerns. The state holds the round tables along with the meeting of state community action agencies, most of which are CHDOs. Maryland and Ohio both have long-standing networks of housing nonprofit organizations. CHDOs in both states meet regularly to network and share issues.

Examining Your Own Program

States can facilitate CHDO networks with little time and effort, often by providing a meeting place and travel money for the first few meetings. Such an effort will quickly reward a state. After two or three meetings, the networks can take on a life of their own, meeting independently of the state. States should stay connected to this network, and use it to gain input on the HOME program, CHDO activities, CHDO technical assistance needs, etc.

Peer–to–Peer Matching

Such matches place an organization experienced in a specific organization as a mentor to a less experienced organization. One example is a match between an experienced private developer with a CHDO. The CHDO can gain crucial development experience, and the developer can obtain knowledge of how to work with nonprofits and layer funding.

Another example may be a match between an experienced CHDO and a less–experienced organization desiring CHDO certification in an under–served area of the state. The two could jointly develop a project. In either case, the idea is to share expertise and knowledge in a "hands on" manner without much financial cost.

Each state studied for this report informally promotes peer–to–peer matching, but only Maryland explicitly rewards such linkages through its MAHCAP Program (detailed above).

Examining Your Own Program

Peer–to–peer matching is difficult to facilitate on a regular basis. The states in this report found it hard to find private companies willing to act as co–developers with CHDOs. States may want to consider providing incentives to experienced CHDOs who cooperate with less experienced CHDOs. The appeal of such matching is limited in the private sector, unless a strong incentive exists for a private developer to become involved in actual training and technical assistance to a CHDO for a specific project.

Working with CHDO Intermediaries

State and CHDO staff varied greatly on their opinions of CHDO Intermediaries. Some staff did not even realize they had one (or several), while others worked closely with the intermediary. Staff were unanimous, however, in saying that the Intermediary and the State needed to work more closely to avoid duplication. They also agreed that the intermediaries, which were focused on prepackaged items such as board training, have gotten more experienced and now understand the goal of moving CHDOs to production.

Examining Your Own Program

Negotiation is the key to a successful state relationship with CHDO Intermediaries. In some cases, HUD grants funds to national or regional organizations to provide technical assistance to CHDOs. Such intermediaries and state agencies usually have different goals and perspectives. The state/intermediary relationship can exist independently of one anther, leading to duplication, competition, and inefficiency. It can also exist cooperatively, when states and intermediaries strive to build a working relationship by cooperatively identifying T.A. needs and helping CHDOs. States should engage the intermediaries to insure that the technical assistance needs of their CHDOs are met.

Workshops and Training

All three states offered workshops and training opportunities to CHDOs. States often provided workshops covering topics such as the application process and grant administration. States also provided funds to bring specific types of training into specific regions. Finally, states linked their resources to training offered by other groups, acting as clearinghouses of information and assistance.

Examining Your Own Program

The role of the state is best suited to provide training such as application workshops. In some cases, especially in states with large, specialized staffs, training can be in a variety of areas, from underwriting to management practices. Great gains can be made in CHDO capacity if states ensure that CHDOs know of the training opportunities available.

Chapter Four. Challenges and Opportunities


Building Partnerships for Affordable Housing

As federal resources lessen, states must explicitly foster consistent strategies to promote the development of affordable housing. One of these strategies is to support the growing role of CHDOs. Key to this approach is working with CHDOs comprehensively, not just when designing application requirements or getting comments on the consolidated plan. Building CHDO capacity is thus really about partnership. Such partnerships ensure that the strategies identified in a state's consolidated plan plays out effectively at the local level. CHDO capacity building is the key to this effectiveness.

From the state perspective, one key factor in developing CHDO capacity is honest assessment of state–designated CHDOs. When meeting requests for technical assistance and capacity–building by CHDOs, a state should first conduct a thorough needs assessment. It should then work with the CHDO to develop a technical assistance plan; it should also ensure that the plan contains follow–up procedures and quality control.

One challenge faced by states is identifying true capacity issues from other issues. For instance, if many CHDOs continually turn in poor applications (the symptom), the cause may not be a lack of capacity but a lack of clear program guidelines from the state. When conducing a CHDO needs assessment, state staff should "separate the symptoms" by clarifying which problems are state barriers and which are real capacity problems. Self–assessment is not easy, which is why a joint effort by a state and one or more CHDO Intermediaries can often more effectively identify the true problems.

Another challenge states face is identifying the types of capacity building needed, since each type requires different strategies. Three basic categories of capacity needs exist: informational; organizational; and staffing. State staff in Wisconsin, Ohio, and Maryland easily identify CHDOs lacking informational capacity, since the CHDOs constantly ask basic questions. States can build informational capacity by providing written materials such as: the HOME Final Rule; all HOME notices; other applicable federal requirements, state program guides; and written examples. The CHDO Certification process as described in Chapter Two offers an excellent opportunity to identify and solve issues related to informational capacity.

Building organizational capacity remains a bigger challenge. The three states in this report identified five symptoms of poor organizational capacity: unclear project applications; decreased performance; untimely HOME expenditures; and poor documentation of compliance. States must ensure that they identify these symptoms during their CHDO application review and monitoring processes. State staff can use the operating fund and predevelopment loan programs described in Chapter Two as examples of other ways to improve organizational performance.

Staffing issues, the third type of capacity need, represents the most serious challenge for many states as they build CHDO capacity. All three states (to varying degrees) in this report reported that they had CHDOs with a lack of skills and experience and staff turnover. Potential solutions include the CHDO networks, peer–to–peer training, and workshop sessions described in Chapter Three.

One primary reason for the creation of HOME was building community capacity, specifically the ability of community–based organizations to deliver on the needs identified by residents. States can meet this expectation by using their HOME funds for CHDO operating and predevelopment. Since these funds remain scarce and valuable, the state can use them to promote effective CHDOs. Such an effort demands a comprehensive strategy from a state: building capacity (with CHDO operating support) and doing the deals that need doing (a predevelopment loan fund). This will not happen just by giving money. States need to link these funds to other resources and tools; they need to provide active oversight and a coherent vision. States can use the other opportunities identified in this report to help make the vision of CHDOs into a reality.

Progress made by CHDOs hinges on the expansion of their capacity. Many CHDOs still lack access to training and technical assistance that addresses their distinctive needs. At the state level, many alternatives exist that states should adapt to the needs of their CHDOs. Linking CHDO support to other resources, coming formally from the consolidated plan and informally from state facilitation, should be a primary goal. The same entities with an interest in developing more affordable housing–charities, local and national intermediaries, state housing and community development agencies, local governments, health and human service organizations—have a comparable interest in supporting CHDOs and developing their capacity. Since the needs are so many and the resources so few, fostering a nonprofit housing delivery system that can stand on its own will give states affordable housing far into the next century.

ABOUT COSCDA

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COSCDA is the premier national association advocating and enhancing the leadership role of states in holistic community development through innovative policy development and implementation, customer-driven technical assistance, education and collaborative efforts.

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