Bethlehem Food Co-Op: enthusiasm for the project but concerns about financing

logo The latest in a series of posts on City government logo

Barbara Diamond enjoys retirement as Lehigh University Director of Foundation Relations by engaging in various activities and organizations hopefully for the betterment of the community. Her particular interests at the moment are preventing gun violence, local government ethics reform, and Bethlehem Democratic Committee work.

Dear Gadfly,

I have been following the recent commentary about the BFC. Many thanks to you for your research and Dana for his expertise to help us consider whether using these important grant programs are appropriate, especially in the amount proposed, for this purpose.

I am also a BFC member; I believe I was #297 or 298 at a time when the goal was 300 members to get off the ground. That was about 3 years ago. I understand that such a major endeavor takes more capital than originally expected.

I remain enthusiastic about the project, but I also have concerns about financing the project with such a large grant from those programs. Is the BFC the highest and best use of those precious community development funds? As you have proposed, the city should provide more information about why it selected this program for a grant of this significant amount.

I appreciate Kathy Fox’s comment about some of the good things the BFC is doing in the community and finding in their By-laws that they are a non-profit is reassuring.

I think it would be further reassuring if the public and the Council could learn from the city and/or the BFC about how the $200,000 + funds collected from the public so far have been deployed, as well as the $50,000 grant from the city. A bit of transparency would help.

Dana’s suggestion that the BFC consider a low-interest loan from the DCED seems like a good way to go too.

Barbara

A funding option for the Bethlehem Food Co-Op

logo The latest in a series of posts on City government logo

Dana Grubb is a lifelong resident of the City of Bethlehem who worked 27 years for the City of Bethlehem in the department of community and economic development, as sealer of weights and measures, housing rehabilitation finance specialist, grants administrator, acting director of community and economic development, and deputy director of community development.

Thanks for your research, Gadfly.

In my mind, the City still needs to explain how it will achieve low/mod benefit. Job creation/retention was another possibility, and that is generally done through economic development loans. The DCED director did indicate that there is an economic development loan pool available. Whether CDBG is involved with that, I don’t know. In my time it was called FRED (Fund for Revitalization & Economic Development). If a loan was made and 51% of the jobs either retained or created were either offered to or filled by low/mod income individuals, compliance with the statutory objective was met. Of course everything was documented to support that and reported to HUD on performance reports.

I think it’s still important for the City to explain how it will achieve compliance on this allocation.

A low-interest economic development loan through the city’s DCED removes ethics and conflict of interest (real and perceived) from the equation.

Dana

The Bethlehem Food Co-Op: “It can be so much for the Bethlehem community” — but is taxpayer funding ok?

logo The latest in a series of posts on City government logo

Still thinking about the tension of funding the Bethlehem Food Co-Op with Federal government CDBG money through the City.

The question seems to be whether means and end are aligned.

No question — Gadfly says as a Co-Op member! — that the end is noble.

Listen to BFC Board member Kathy Fox (remember that Kathy posted about BFC activities a day or so ago) during audience discussion at a panel after Festival UnBound’s “Poets, Troubadours, and Troublemakers” event a few weeks ago.

“One of our goals in having a community-owned full service grocery store in downtown Bethlehem is to bring people together through food . . . Co-ops are much more than just a grocery store . . . It’s all about community . . .You have to educate . . . I talked to some of the Latinos that joined to find out just trying to find out what we have to do in order to make our store a place from your neighborhood would come to . . . It can be so much for the Bethlehem community . . . consider joining it to try to create this hub for our community, to shop and to meet and to talk and to learn.”

Noble cause, no question.

But even BFC member Gadfly was surprised at tax dollars as a means to that noble end.

And is hoping that the City can help clarify the issue.

Gadfly has had his share of grant application experience.

From his experience, he remembers applications, on the one hand, that are open-ended — just tell us what you want to do.

On the other hand, he remembers applications that are very specific — here are the specific goals of our program, tell us exactly how what you want to do fits these goals.

Gadfly feels that the application for a government grant would probably lean toward the latter kind of application.

And thus Gadfly feels that more information from the City about the BFC application and how the City saw that application in compliance with CDBG guidelines would help clear the air.

But Gadfly is still wondering about the question of Council members voting on a project that they “own”?

Anybody with ideas on that point?

Bethlehem Food Co-Op funding: Gadfly thinks the ball is in the City’s court

logo The latest in a series of posts on City government  logo

We’re following the controversy over the Council approval of the City awarding $105,000 in Federal Government CDBG funds (HUD) to the Bethlehem Food Co-Op ($50,000 last year).

With a little online searching, Gadfly found several sites that related to CDBG funds and Co-Ops. (Along the way, Gadfly noted several references to the CDBG program as “flexible” and used often to “leverage” projects).

Can a non-profit like BFC qualify for CDBG funds?

A faithful follower of Gadfly has recently posted the opinion that food co-ops often receive CDBG funding.

Gadfly’s non-professional web search did pick up several instances of such funding.

A particularly good example, in fact, came from HUD itself:

The Community Development Block Grant (CDBG)
Serving Low- and Moderate- Income Neighborhoods since 1974
A Multi-Media Scrapbook
Department of Housing and Urban Development
2014

The BFC application would have to fit the following general criteria that we have cited before (p. 2):

The Community Development Block Grant (CDBG) program helps local governments develop viable urban communities. It is an important and flexible program that is used to address one of three national objectives:

  • Benefit low- and moderate-income (LMI) persons;
  • Aid in the prevention or elimination of slums or blight; and,
  • Meet an urgent need of recent origin that the unit of general local government is unable to finance on its own.

A link in the scrapbook’s bullet 1, takes you to:

The following activities are different ways of meeting the national objective to benefit low- and moderate-income persons.

  • Activities carried out in neighborhoods, consisting predominantly of persons of low- and moderate-income, to provide services for such persons, can qualify under the LMI Area Benefit national objective.
  • Activities involving facilities, designed for use predominantly by persons of low- and moderate-income, can qualify under the LMI Limited Clientele national objective.
  • Activities that involve the acquisition or rehabilitation of property to provide housing, which upon completion will be occupied by low- and moderate-income persons, can qualify under the LMI Housing national objective.
  • Activities involving employment of persons, a majority of whom are persons of low- and moderate-income, can qualify under the LMI Jobs national objective.

Gadfly can’t be sure, but bullets #1 and #2 seem most probably the ones pertinent to BFC. So let’s look at them.

More on Bullet #1:

Examples may include the following when they are located in a predominately LMI neighborhood:

  • Acquisition of land to be used as a neighborhood park
  • Infrastructure improvements, such as sidewalks, in a residential neighborhood
  • Construction of a health clinic
  • Development of a community center

The activities listed above benefit all residents in the service area (that is predominately LMI) and thus are the type of activities that may qualify under the LMI Area Benefit national objective.

More on Bullet #2:

Examples include:

  • Acquisition of building to be used as shelter for homeless persons
  • Rehabilitation of a center for persons with disabilities to learn life skills
  • Demolition and clearance of a building to prepare a site for a future senior center
  • Public service activities such as provision of health care primarily for lower-income clients

The listed examples qualify under the Limited Clientele national objective because the beneficiaries can be identified as LMI residents.

Then go to Economic Opportunities (pp. 18-19) and find — mirabile dictu! — a main example of a food co-op and links to a couple other food co-ops.

A business like a food co-op seems to need to qualify in one of two ways:

Projects providing essential goods and services will typically qualify either on the basis of:

LMI Area Benefit.

To qualify under the LMI Area Benefit National Objective, the service area must be primarily residential in nature. There must be documentation that the business is providing essential goods and services to that service area population. Goods and services might include grocery stores, dry cleaners, pharmacies, health care, etc. A high-end boutique or souvenir shop would not be considered as providing essential goods and services.


or

LMI Job Creation/Retention.

A Job Creation/Retention activity is one that creates or retains permanent jobs, 51% of which are held by or made available to LMI persons. Jobs indirectly created by an assisted activity (i.e., trickle-down jobs) may not be counted.
—–

Gadfly sees nothing that says non-profits can’t receive CDBG funds, which was a question he and others had.

And a food co-op is a highlighted example of a HUD-funded project in a HUD document, so there would seem to be no hindrance to such a proposal under HUD guidelines.

—–

The City DCED administrator told us that applications for the CDBG funds were examined internally for compliance with HUD regulations, which, Gadfly assumes, means the points he has outlined above.

The City no doubt has to ultimately certify that compliance in pretty specific detail for HUD.

Gadfly is not sure whether at this early date — that is, prior to Council approval — that the final HUD paperwork would be filled out.

But the City could provide or at least describe the BFC application and explain how it is in compliance with the HUD guidelines we see above (perhaps last year’s application as well).

Just what is BFC saying it will specifically do with the money?

And that would seem to settle the issue.

At this point Gadfly — feeling less like the Benedict Arnold of the co-op movement — is leaning toward the position that an award to BFC would be legitimate (if all bureaucratic minutia is satisfied, of course).

And that the ball is in the City’s court to explain the compliance in more detail to answer the questions raised.

But what about the objection that City Council members are voting on a project in which they are “owners”?

Jeez.

Chatter around Gadfly’s water-cooler about funding the Bethlehem Food Co-Op through a government grant

logo The latest in a series of posts on City government logo

Gadfly’s ear has picked up the following:

  • I think I’ve convinced myself that the store will have a significant impact on low-income residents, especially if it’s located on/very near a bus line.
  • How many low-income people have paid to join the Co-Op?
  • The city government should stay out of private business.
  • What are the results of the William Penn program? I haven’t heard of it.
  • No one says it has to be located in a “blighted” area but that would certainly be a plus, especially as far as CDBG is concerned.
  • What programs in other cities are the Co-Op following?
  • The problem with low/mod benefit is that you need to be able to justify and quantify it to qualify for funding.
  • To my mind, you just take the hand of the needy and share your table with them. Simple.
  • The CDBG funds are “once and done” — when the store is open it will not need that kind of funding. Unlike, say, a non-profit offering a service, which in theory will be back year after year unless the need goes away (not likely).
  • Is there anything on the BFC web site that would indicate its mission with low and moderate income families? It would not appear so.
  • “The end doesn’t justify the means.”
  • Presumably BFC will be paying more property taxes than the current building owner, the process of improving the building will provide jobs and purchase of materials from local sources, and the store, when open, will provide new jobs. So definitely adding to the local economy.
  • It’s a noble effort but shouldn’t receive public funds.
  • If I was sitting in a Council seat I could convince myself to vote for it, on its merits. But I do admit that I find the potential conflict of interest question an interesting one, as the potential to profit from the Co-Op is real.
  • If the City ok’d it, it should be ok.
  • With so many Council members — and the mayor — members, what would Robert’s Rules of Order dictate if they all recused themselves?
  • It does seem odd that “blight,” which is in the CDBG guidelines, gets so little and the BFC, whose status is a bit questionable, gets so much.
  • Have other Co-Ops across the country successfully applied for CDBG funding? Or   have they been deemed ineligible?
  • Is it “Co-Op” or “Co-op”?

What are you hearing?

A simple question about Council votes on the Bethlehem Food Co-Op

logo The latest in a series of posts on City government logo

Stephen F. Thode is Professor Emeritus, Department of Finance and Law, Lehigh University.

Gadfly:

Let me frame this as a simple question:

Do Members of Bethlehem City Council believe it is ethical for a Council Member to participate in a decision to grant public money (taxpayer dollars) to an entity for which that Council Member is an owner, and, therefore, has a financial interest in the outcome?

Steve

In a previous communication, Steve advises that “owner” is “the word the Co-Op itself uses.” Gadfly had been wondering how membership in BFC differs from membership in, say, the YMCA/YWCA, of which, it is conceivable, some or all Councilpersons are members, and which has been awarded funding too. Should membership in the Y trigger recusal as well? But the idea of ownership, that BFC members benefit financially (discounts, sales, etc.), probably answers Gadfly’s question.

Funding the Bethlehem Food Co-Op: concerns about compliance

logo The latest in a series of posts on City government logo

Dana Grubb is a lifelong resident of the City of Bethlehem who worked 27 years for the City of Bethlehem in the department of community and economic development, as sealer of weights and measures, housing rehabilitation finance specialist, grants administrator, acting director of community and economic development, and deputy director of community development.

Gadfly,

Regarding competition for the CDBG & HOME funding, one of the weaknesses in City Hall is the lack of dissemination of the availability of the applications using the City’s website to make these kinds of announcements. That being said, I think the competition is found more in the amounts requested (over $324,000) versus what is awarded (over $190,000). Under the “Other” category I did notice a few different proposed recipients.

As far as the $155,000 allocation to the Bethlehem Food Co-op, $50,000 in 2019 and an additional $105,000 proposed for 2020, the question and my concerns expressed have absolutely nothing to do with the merits of that initiative. My concerns are about compliance, which means meeting the legal requirements of the federal Community Development Act of 1974. Nobody has explained how allocation of this funding will benefit clientele in which 51% or more qualify as low and moderate income in order to meet both the legal and regulatory requirements for CDBG.

When I asked the DCED director after the meeting how these requirements were being met, she shrugged her shoulders as if to say, “I don’t know.” Well, how can you recommend that a Mayor include this allocation and that Council approve it if you don’t know how it qualifies? There hasn’t been one example given how funding a food co-op will benefit primarily low and moderate income residents. I’m assuming the co-op will be open to all residents, yet 51% of Bethlehem’s population is not low and moderate income. Have the 660 members been surveyed to see if 51% are low and moderate income? I doubt that. So where is the statutorily required low/mod benefit?

Councilman Reynolds’ comments served to prove my second concern about conflict of interest as he touted his membership #141 and praised the initiative of the Bethlehem Food Co-op. Unfortunately, cheerleading something in which an elected official has a financial interest is not the way to go. The promise of future member benefits such as special sales/deals and already existing benefits of discounts at an array of Bethlehem businesses have monetary value that can add up if the Co-op is successful. THAT does not read well and it was similar conditions that lead to a Grand Jury investigation into a former City Councilwoman who was forced to resign because of her conflict of interest between her elected office and the non-profit she was involved with. Elected officials seldom seem to learn from other errors.

Councilman Reynolds should only be concerned about compliance with the federal law!

So, what should happen. First, I would question the need for $5,000 for operations. At $350 for each of 660 co-op members, a total of $231,000 should have been collected. Operations should come from that pot, not from taxpayers. Why is anything needed for operations? Was an audit submitted with the application to demonstrate the sound financial management of co-op memberships collected? Second, is there a way to justify low and moderate income benefit for the additional $50,000 already allocated and the additional $100,000 requested? I believe there is, but is it my responsibility to outline how? And it may reduce the amount needed for physical fit-out of a co-op facility if it’s used in a way that complies with federal law and CDBG program regulations.

So, here is my suggestion if anyone cares to listen. The $150,000 (or less if it costs less) total should be used for ADA (Americans with Disability Act) improvements ONLY when the co-op is constructed. Accessible checkout stations, ADA certified entrance doors, ADA restrooms, etc. HUD recognizes a “presumed” low/mod benefit when ADA improvements are completed using CDBG. Of course at this point there are no construction estimates to base this on, which if I were still running the CDBG program would be problematic.

In the end, the issue of conflict of interest, perceived or real, is the biggest hurdle to overcome in my opinion. And as I suggested to the DCED director, a low interest economic development loan is ultimately the best path to follow, because no elected official who is a co-op member would need to weigh in on that and cast a vote.

I administered grants, including CDBG and HOME, for the City of Bethlehem for 16 years of my 27 year city career. The city does not want to be caught misspending any grant money, let alone federal grant money. You want to build trust with funding agencies by administering grants based on law and regulations, not happy feelings that something is good for your community. For several years the City of Chester, Pennsylvania, lost its federal funding and had to repay all of it. Bethlehem does not want to fall into that trap, and it’s best if City officials, both elected and appointed, cross their tees and dot their eyes so it doesn’t ever happen!

Dana

Remember that Dana spoke at Monday’s Community Development meeting, and we provided the video here on Gadfly on Wednesday. Dana elaborates in this post on the two points he made at that meeting. Note that in the previous post, Kathy Fox does give an example of the kind of activity that Dana mentions as missing in his third paragraph. Gadfly appreciates the way Dana provides options/solutions to the problems he sees for a project that has merit.