Holes

Gap in financing hasn’t altered Housing Corp’s path

I wouldn’t fund this business plan on a bet,” said David Harrison. The councillor for North Marysburgh was responding to the numbers presented to him and his council colleagues at a council committee meeting last week in support of the Prince Edward County Affordable Housing Corporation’s plan to build an 8-unit apartment block on Disraeli Street in Picton.

The project is estimated to cost $3 million. The Housing Corp doesn’t have any money. It has no revenue. It burns money. It owes the County $670,000.

So, to make it happen, County taxpayers will have to provide a construction loan. When the building is completed, a lender has agreed to fund a $2.1 million mortgage to be repaid over 45 years (it’s the only way the numbers work).

Then the Housing Corp must manage the building. Find tenants. Hammer out leases. Maintain the property. Pay bills. It has no experience doing any of these things.

Still, there is the matter of the missing $900,000 (the difference between the construction cost and the maximum the lender will finance). The Housing Corp board is hopeful that an “angel” or “magic wand waver” will step forward to fund this gap.

Nevertheless, the County’s Housing Director says they are “very close to construction and apartments being occupied this year.”

“It makes no sense,” countered Councillor Harrison. “In my opinion, this is a very poor place for taxpayers to be putting their money.”

POWER OF POSITIVE THINKING
But for the five members of council who sit on the Housing Corp board, there is no obstacle too tall that can’t be overcome by thinking happy thoughts. They continue to exude confidence that everything will fall into place—that the array of red flags they are staring at will fall away.

“We still have to figure out this funding gap,” admitted Picton councillor Kate Mac- Naughton and Housing Corp board member, as if the board was missing just a few nails and 2x4s. “But when we do that, we will have a track record that will be able to go to funding bodies and say ‘we’ve done it. We can do it.’”

John Hirsch, councillor for South Marysburgh and another Housing Corp board member, embraced the power of positive thinking to fill the funding hole. He hopes the board might yet land federal dollars for the project—despite failing to attract provincial or federal money in two previous attempts.

“There is a new federal funding program,” said Councillor Hirsch. “We might well succeed. If we do, in a few months’ time, we might largely be able to pay it off.”

So many ifs and mystical spirits.

“I do believe our community wants this,” insisted MacNaughton, beseeching her council colleagues to find residents willing to invest in the Housing Corp. “If [council members] know those magic wand wavers, we would be very interested in talking to them. We are looking at potentially establishing some campaigns. So get the word out there.”

Consider the word out.

Ultimately, however, Councillors MacNaughton, Hirsch and the Housing Corp board appear to be banking on County taxpayers to fill its financing holes. To fill the cost overrun holes. It’s operational experience holes. The arms-length corporation’s ambitions remain very much dependent on the County’s wallet.

RISK APLENTY
Shire Hall’s senior leadership, however, are leery of the risks the project poses to the municipality. Chief Administrative Officer Adam Goheen is on the record as saying the project should not proceed without federal or provincial funding.

The County’s Finance Director Arryn McNichol outlined the risks to a committee of council last week.

“We have a lot of money going out this year,” explained McNichol.

The County has committed to funding a portion of the rehabilitation of County Road 49. The last estimate put that project at $54 million, of which the province has committed a large share. Shire Hall is also funding the redevelopment of the longterm care home in Picton, with a price tag of about $100 million. Here again, the province will fund a large share, but it will be paid over 25 years. In the meantime, the County’s cash flow is being strained immensely.

He noted that the County’s exposure to the Housing Corp project could exceed $600,000. He then reminded council, too, of the $3 million hole left in the County’s finances due to a 2025 deficit.

McNichol also cited the Housing Corp’s pro forma (a statement forecasting cash flows—in and out—over the next five years) as a risk to the municipality.

“You are assuming that revenue comes in as predicted,” said McNichol. “If it doesn’t, the [Housing Corp] is adding to the amount it owes the County—currently about $670,000.”

WHAT’S THE ASK?
Some councillors were unclear why this file was on their desks, given that the plan still had significant funding holes.
“I am struggling with the gap,” said Wellington councillor Corey Engelsdorfer. “Is the project ready to go? Or is it conditional [on the funding holes being filled]? The final equity requirement is still unknown. How do you say you are close to construction without the money?”

Councillor Phil St-Jean, chair of the Housing Corp assured the Wellington councillor the report was just about ‘transparency’ and ‘full disclosure’.

“This report isn’t asking for anything,” asserted St- Jean, but he immediately qualified his statement. “Yes, [we are] potentially asking for waivers [of fees and charges] and for extension to repayment of the construction loan. But we are only doing so to match the requirements of our lender.”

As to the funding gap in the Housing Corp’s business plan, St-Jean remains hopeful that someone will step up.

“I would love an angel to drop in and give us $350,000 or become a partner in this project,” said St-Jean. “We had one interested party. That conversation did not go much further. I believe there are people out there who believe in this process.”

Councillor Harrison attempted to drag his colleagues back to the weak viability of the business plan in front of them.

“If you have one or two (rent) defaults, you’re in the red,” cautioned Coun. Harrison. “When you are looking at that kind of money for eight units, and if everything goes perfectly, you are going to turn $23,000? It makes no sense.”

Another councillor noted that while the project comprises eight units, only three will be available at affordable rents. The remaining five will be offered at market-based rents.

“Why are we in the market business?” asked Councillor Harrison.