A new report by Enterprise Community Partners provides an insightful analysis into the financial challenges facing community developers and offers thoughtful recommendations for how to address them at the organizational and system levels. It should be required reading for all community developers and their supporters.
The report, Building Sustainable Organizations for Affordable Housing and Community Development Impact, affirms many of the conclusions and recommendations developed by the Massachusetts Community Development Innovation Forum over the past three years. Enterprise conducted an in-depth analysis of 10 nonprofit organizations that have faced financial crisis in recent years and examined systemic issues that contribute to financial weakness. The report also identifies the particular strengths and weaknesses facing neighborhood based organizations. Finally, the report offers recommendations for both community development organizations and for funders/lenders.
According to Enterprise, community development organizations should:
- - Strengthen their financial reporting and management,
- - Beware of one-time cash receipts and manage them effectively,
- - Diversity revenue streams, but only by growing strategically into business lines that align with organizational mission and can be profitable in the long-term,
- - Prioritize financial sustainability to ensure that long-term organizational health is not endangered by a single project or program, even one that has high mission impact, and
- - Collaborate to reduce costs, improve quality, and expand impact.
Enterprise offers the following recommendations to funders and lenders:
- - Incentivize long-term ownership and stewardship of affordable housing assets by allowing cash flow to be paid to a project’s sponsor,
- - Set realistic property and asset management fees and structure deals with sufficient cash flow to pay them, and
- - Embrace an early warning system to address problem properties and weak organizations quickly before they grow beyond repair.
Here in Massachusetts we are already taking action to implement many of these recommendations. We are promoting the implementation of the Strength Matters TM financial reporting system and providing other training and support to improve financial management. We are offering training for asset management and advocating for increased asset management fees. And we are engaged in an active discussion about how to improve cash flow and reduce reliance on one-time developer fees. And, of course, we are implementing a host of new collaborations. The Enterprise report will hopefully fuel these efforts and secure broader support for making the changes needed to sustain and grow the community development field.