Nonprofit Newswire | A CDC’s Indiscretions Puts Low-Income Housing at Risk

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July 10, 2010; Source: Washington Post | What happens when a nonprofit executive director is charged with forgery—even if he didn’t personally benefit from the forgery—and resigns, or is forced to resign? The answer is, it’s not a lot of fun.

In Fairfax County, Virginia, the executive director of the Robert Pierre Johnson Housing Development Corporation of the National Capital Area was forced out after county officials accused him of forging a zoning document, although no charges were ever filed against him. Meanwhile, the county canceled all of its grant support to the CDC, amounting to $578,000 and banned the group from receiving county contracts for three years. Not surprisingly, an audit of RPJ Housing revealed that the CDC was about ready to go belly up, primarily due to overleveraging as a result of what the Washington Post described as “unusual” credit swaps.

It seems like the group took on more debt to acquire rapidly disappearing properties, encountered increasing holding and maintenance costs, and began tapping its dwindling reserves. In 2008, the CDC had an operating loss of $379,000 and listed $1.24 million in assets compared to $35.8 million in mortgages and outstanding loans. An effort to restructure the group will likely lead to the end of RPJ Housing’s transitional housing and volunteer home-rebuilding programs. Because of disappearing reserves and nonexistent government grants in the pipeline, over 100 units of affordable housing managed by the CDC are also at risk.

The lessons? Honesty and integrity are crucial in nonprofits, top to bottom. There’s no room for playing fast and loose—forging zoning documents for example. The RJP Housing story also tells us that usually individual incidents aren’t individual; a little digging will generally reveal others, such as the financial freefall that emerged after the revelations about the forgery.

The answer? This is one case where the county shouldn’t walk away, because the housing of low-income families is at risk. Moreover, national and regional community development intermediaries ought to be intervening, even if they haven’t participated in the financing of RPJ Housing deals, because the collapse of any CDC with a housing portfolio of consequence chips away at the reputation of CDC’s in the entire region.—Rick Cohen