Nonprofits feel squeezed by rent at county building

Lifeline cited high cost among reasons it asked for loan

By Stephanie Rice, Columbian Vancouver city government reporter

Published:

 
photoSharon Krupski, executive director of Community Services Northwest, has long tried to convince the county to lower rent at the Center for Community Health.

(/The Columbian)

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Monthly rent

The monthly rent schedule at the Clark County Center for Community Health, 1601 E. Fourth Plain Blvd. County departments pay less per square foot because they don’t contribute to the county’s debt service. The U.S. Department of Veterans Affairs, which occupies approximately 17 percent of the building, doesn’t pay rent because the VA leased the property the building sits upon to the county for free.

Lifeline Connections — $102,154 (57,123 billable square feet)

Community Services Northwest — $22,454 (12,556 sq. ft.)

Clark County Department of Public Health — $34,519 (47,888 sq. ft.)

Telecare — $12,262 (6,369 sq. ft.)

Clark County Department of Community Services — $11,322 (15,708 sq. ft.)

Cowlitz Indian Tribe Health and Human Services — $5,255 (2,939 sq. ft.)

Consumer Voices Are Born — $4,907 (2,744 sq. ft.)

Columbia River Mental Health Services — $557 (312 sq. ft.)

The Board of Clark County Commissioners’ emergency loan to Lifeline Connections didn’t just save a private nonprofit that offers essential public services, a specific finding made by commissioners to justify the loan.

This month’s loan also saved the largest tenant in the Clark County Center for Community Health, a $38.9 million building not scheduled to be paid off until 2035.

Lifeline’s medical director, Dr. Gilbert M. Simas, named the $1.2 million in annual rent Lifeline pays to the county as one of the organization’s biggest costs when he was explaining to commissioners on Feb. 8 about the organization’s cash-flow problems and why it needed a $190,000 loan to make payroll.

Commissioner Steve Stuart, who, along with Commissioners Marc Boldt and Tom Mielke, wasn’t on the board when the decision was made to build the Center for Community Health, questioned other county employees seated around the table about rent.

“This isn’t the first time we’ve heard about the rent,” Stuart said.

If the county lowers the rent for Lifeline, Stuart was told, the county would have to make up the difference in order to pay off debt.

“We’re the landlords of a very expensive building,” said Boldt.

Commissioners are expected to approve additional loans to Lifeline on Tuesday, but the loans will be given monthly according to what the county, which has been reviewing Lifeline’s finances, thinks Lifeline needs to cover expenses. Simas said Lifeline, which offers inpatient and outpatient substance abuse treatment and contracts with the county to treat drug court patients, will be short of cash the next few months. He attributed the cash-flow shortage to billing errors made by an outside company (Lifeline now does its own billing) and growing pains triggered by Lifeline’s switch to more private-pay patients.

Lifeline, which also has to repay $395,000 it took out on a line of credit from Riverview Community Bank before coming to the county for help, will likely be asked to start repaying the county loans -- at an interest rate of 1.97 percent, which is the same rate the county gets when it borrows from Bank of America -- this year.

Locked into leases

As Lifeline follows county instructions to ensure it has a sustainable business model, it should not bank on a break in rent from the county.

Sharon Krupski, who took over as executive director of Community Services Northwest (CSNW) after a lease had been signed with the county for space in the Center for Community

Health, has met before with county officials about the rent. The non-county tenants in the building are paying $21.46 per square foot per year in 2012 -- the figure changes slightly every year according to the county’s debt service -- while county tenants pay $8.65.

The U.S. Department of Veteran Affairs doesn’t pay rent for approximately 17 percent of the space it occupies in the Center for Community Health because the VA leased the land to the county for free. (For a list of monthly rents, see box).

Krupski said the county charges nonprofits too much.

She said CSNW rents space for its administrative staff at 4001 Main St. at a cost of $16.51 per square foot. That contract includes cleaning services and other amenities.

Krupski said spending money on rent directly takes from patients, and she estimates that if her agency had been paying $4 less per square foot for the past four years at Center for Community Health, that would have equaled $300,000 in services to clients.

With cuts in public funding for mental health and addiction services, “everybody is squeezed right now,” she said.

In 2008, the county did help CSNW and Columbia River Mental Health Services, another tenant, by giving nonprofit firms that treat the county’s mentally ill a 14 percent raise in reimbursement rates. The increase was in response to a study showing the county’s reimbursements weren’t covering what it costs to provide the services.

At the time, Krupski asked whether the county would consider lowering the rent at the Center for Community Health.

The answer was the same then as it appears to be now: No.

Mark McCauley, the county’s director of general services, said the county has to make its debt service payments and the tenants all knew the terms of the lease when they signed.

Adam Roselli, a commercial real estate broker for Eric Fuller & Associates, reviewed Community Services Northwest’s lease agreement with the county at the request of The Columbian. He said for furnished Class A office space, $21.46 per square foot per year reflects a fair value because of the telephone service, cleaning, IT service and other amenities.

Other Class A office space, such as Mill Plain One or Columbia Tech Center, runs $20 to $21 per square foot but doesn’t come with all the services offered by the county, he said.

Leases at the Center for Community Health run through 2035. If a tenant breaks the lease, they cannot operate elsewhere in Clark County for one year.

Roselli called the length of the lease very unusual.

During the prolonged recession, a lot of businesses decided they had to downgrade in order to save on rent. Certainly, agencies could find space in the Vancouver market for up to 40 percent less, he said.

For Lifeline Connections, which pays at the same rate as Community Services Northwest, the question isn’t whether the county’s charging a fair rate, Roselli said.

“But the question is would they still have chosen to be in Class A space if they’re trying to make payroll?”

$26 million still owed

In June 2004, county commissioners -- who at the time were Betty Sue Morris, Craig Pridemore and Judie Stanton -- approved a contract for Swinerton Builders of Portland to build the four-story, 175,000-square-foot Center for Community Health. The county had sold health department buildings on Fort Vancouver Way to Clark College for $4.2 million and received state and federal money, but the bulk of the building was financed by bonds.

The building sits on six acres of the Veterans Affairs Medical Center complex south of East Fourth Plain Boulevard, just east of Interstate 5.

Clark County Deputy Treasurer John Payne said in 2004 commissioners issued a $23.9 million bond. A $5.7 million bond was approved in 2005.

The county currently owes a total of $26 million on the two bonds, Payne said.

Payne said the county pays interest (an average of 4.75 percent) only on June 1 and interest and principal on Dec. 1 every year.

If debt service payments were made monthly, they’d average $157,800, Payne said. Tenants’ rent would cover $87,580 and the balance ($70,220) would come from real estate excise tax (REET) revenues.

REET are collected whenever a home is sold and are based on a percentage of the sale.

The decline in REET revenues has followed the downturn in home sales and property values. In December, commissioners decided that the dwindling REET revenues would be used to pay debt on county buildings, such as the Public Service Center and Center for Community Health, instead of going toward new capital projects such as roads and parks.

Krupski said while tenants did agree to be in the building, before they moved in, the county increased rent by 17 percent.

Payne said the county’s financial adviser inadvertently applied rent to the Veterans Administration’s space.

“The Veterans lease payment is offset by their having leased us the land which the building sits on,” Payne explained in an email. “Additionally, from a tax-exempt bond issuance perspective, the federal government, i.e. Veterans Administration, is a private party and tax-exempt bonds have restrictions as to private use. We built the space the Veterans occupy with cash, not bonds -- so the debt service on the bonds because of this error was reallocated to all the tenants, resulting in an increase of 17 percent.”

Still, he said, the tenants knew the cost when they signed the lease.

Payne said the county’s working on refinancing the debt.

When the Center for Community Health opened in January 2006, it was welcomed as one-stop shopping for the community, with a mix of government offices and nonprofit service providers.

A month after it opened, then-Director of General Services Doug Johnston and Mike Piper, the former director of the Department of Community Services, were honored by commissioners with a Special Award of Excellence for Community Vision and Leadership for their dedication in making the Center for Community Health a reality.

McCauley, who took over after Johnston retired, said he knows some tenants are having remorse at signing leases.

It’s a beautiful building, he said, and easily accessible by bus.

“From a service provision point of view it was a major improvement,” McCauley said.

Stephanie Rice: 360-735-4508 or stephanie.rice@columbian.com.