Fiscal Review: Sudbury’s Transitional Housing

The transitional housing project approved by Sudbury’s City Council on 11 March 2021 is an aspect previously discussed in the first piece published (you can find it on the main page) and now we’re taking a look at the numbers behind this new approval to support Sudbury’s homeless. The piece here takes some aspects of the SARS-CoV-2 crisis into consideration but is about a pre-existing issue.

Transitional housing has many benefits but most cities lack the capacity — either in financial resources or the actual housing — to bring a project of this significance to fruition. With city council unanimously approving more than $2 million, much of it in one-time funding, but shows the commitment to solving an issue that has plagued the downtown core for too long.

As the councillors noted, many people in the city are dying from opioid-related deaths and don’t have the help required to live a better life. Transitional housing has this benefit: bridging a gap between homeless and permanent housing while offering support services for those with mental health and addiction issues. Transitional housing is also effective because with the ability of offering wrap-around services (see previous piece titled “Sudbury: Social Concerns Downtown, the city’s Fiscal Imperative, and the Economic Opportunity”) so we can help these people get back on their feet and into the workforce, thus stimulating the economy with new spending through rent (the permanent housing), food, and general consumption. Sudbury has permanent housing through various rental offerings and houses for purchase for those seeking to buy, but having the transitional housing for these residents is important to provide some footing while they fully launch their lives back into society.

These are just some of the benefits.

On the other hand, cost is always a factor with these projects because there is a the assumption that it doesn’t generate revenue. Indeed, some transitional housing don’t charge rent but most do, and the project Sudbury council has approved would have a $300/month rent charge for the occupant. Fiscally, this make the project more worthwhile because some of the operational costs attributed to the project can be offset with rental revenues; the motion passed would have $100,000 in rental revenues (projected).

As previously mentioned, many of the funding requirements for the project are one-time payments/grants/reductions of funds. For example, there is a one-time reduction to the Healthy Community Initiatives of $100,000 in 2021. At first glance, this was probably to show the city’s resident and council “we just want this one-time allocation to demonstrate the viability of this initiative,” which if I were seeking funds, would do so some credibility can be built but with agreement that the project will be worthwhile.

Another one-time contribution comes from reserves for $295,309. There was some hesitation from council members about such a request because “reserves are running low.” If we look back to 2019 financial statements (2020 not yet released at the time of writing), there was more than $55 million in reserves, making this one-time contribution 0.54% of the total reserves amount, an amount that is obligatory to set aside and increased every fiscal year. The concern is valid, though, it’s minor on a macro scale. For the Phase 3 of the initiative, there is a planned one-time contribution from the Social Services Relief Funding of $478,739. This sum of money is crucial to supporting the project in its final stage because it’s going to improve and establish the service of transitional housing, which is crucial to backing an economic recovery for Sudbury. Initially, there was $148 million allocated to this provincial fund and in total, roughly $510 million has been allocated. Overall, the proceeds, though a small sum, makes a significant impact on the community because we can have an upward revision in economic growth assuming the transitional housing project will contribute positively to the city’s economic situation.

Out of all of this spending, there is no impact to the tax levy in 2021 and 2022.

It’s important to point out that for the transitional housing project in Sudbury to be successful, you’ll need to have engagement with private donors, non-profits (local and international), and federal and provincial organization that fund projects such as these in the long-term. Some politicians and private sector players view these projects as “non-revenue generating” and so will not be implemented by private promoters. However, this investment can be classified as an impact investment because it will generate a financial return via rent collection and make a social impact, that is, through addressing homelessness.

The Urban Institute (Brennan and Massey, 2018) describe a few ways — using the pay for success (PFS) mechanism — for impact investing to combat homelessness. First, PFS is “an innovative financing mechanism that shifts financial risk from a traditional funder — usually government — to a new investor who provides up-front capital to scale an evidence-based social program to improve outcomes for a vulnerable population.” As an investor, it’s looked at through the lens of social impact in this case, and the capital put up to it has not only a quantitative outcome, but also to improve the image of the organization, which in turn should drive higher revenues for the firm as customers want to be associated with a company that cares, does good for the community, and has motivation to support local initiatives. Now, let’s take a look at how impact investing can help end homelessness:

1. It brings key players together. The promise of a new funding stream can catalyze dialogue between people and organizations who work on different components of an interconnected social challenge. This is an immediate “Ahh ha!” moment for the public sector to engage in discussions with the private sector take on a project such as transitional housing.
2. It surfaces issues that must be dealt with through traditional channels. In the case of homelessness, using PFS, this is targeting a portion of housing to a specific population, providing capital for service delivery, and tracking outcomes so we can improve the project and make it more sustainable. Including precise metrics that are specific, targeted, and measurable will make the project much more viable financially. Following on from this, it presents the fact that there is a shortage in low-cost rental units available. The public sector has to be willing to work with real estate developers to bring these projects to life because part of the electorate will be opposed to having their property taxes increased and to alleviate this problem, the private sector has to be involved.
3. It can lead to lasting changes. This point doesn’t need a long-winded explanation, but it can be reinforced with the following commentary. PFS transactions are time-limited, say 1-year or 6-months, and have transaction costs that will eat up the majority of resources. However, we’re seeing substantial social bond issuance for a variety of projects notably in the EU, where €96.5 billion (CAD$150.5 billion) was raised for a regional jobs program. In the country where I studied, Italy, they blew other EU countries out of the water by raising more than €80 billion (CAD$125 billion) for its €8.5 billion sale of 2045 securities, with the proceeds being used to fund projects from renewable electricity to biodiversity. Ontario raised a bit more than CAD$1.8 billion on a CAD$1.25 billion offering for their green bond in January 2021. A project of CAD$2.2 million can surely garner some investor interest.

We’re seeing a major shift in investor appetite for non-traditional investments, and now is the time to work with the private sector to bring these social impact projects that Sudbury has longed-for to center stage.

While the one-time cost outlay is controlled, the potential for increased investment in Sudbury improves.

This project is expected to create 16 jobs (full time and part time) with an average salary of $95,342 (includes the salary of a general physician and psychiatrist). This money will be put back into the community through food (restaurants and groceries), gas, and rental/mortgage, and employ people in the process through good-paying construction jobs and materials suppliers. So not only is the transitional housing project going to stimulate economic growth in the short- to medium-term, it’ll create long-term jobs for residents of Sudbury.

Given this project needs to be housed, it’s also been proposed to bring it to an existing facility and revamp the building to accomodate the requirements of the operations. Pursuing this option is probably best because it manages costs to meet the needs of a multi-unit residential building. However, it might also be fiscally beneficial to purchase a multi-unit residential building and revamp it to make it habitable, meet the requirements of the wrap-around services being offered, and support the tenants.

In conclusion, the project brought forward and approved is an excellent step in the right direction, and one that I have previously described in my first essay on this topic. Most importantly, it helps those who desperately need help to improve their lives and rejoin society in an affirmative manner.

Austin Martin is a Master in Corporate Finance graduate from SDA Bocconi School of Management in Milan, Italy, and previously earned a Bachelor of Business Administration degree specialized in Finance with Honors from Laurentian University in Sudbury, Canada.

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References

Ainger, J., & Hirai, J. (2021, March 23). Bloomberg.com. Retrieved March 25, 2021, from https://www.bloomberg.com/news/articles/2021-03-23/eu-speeds-up-landmark-social-bond-sales-amid-resilient-demand?sref=IhXD6rDm

Cormier, F., McIntosh, D., & Landry-Altmann, J. (2021). Finance and Administration Committee Resolutions, Transitional Housing amendment (p. 3, Rep.). City of Greater Sudbury: Finance and Administration Committee.

Duarte, E. (2021, January 28). Ontario wraps up FISCAL funding plan with green bond sale — BNN Bloomberg. Retrieved March 25, 2021, from https://www.bnnbloomberg.ca/ontario-wraps-up-fiscal-funding-plan-with-green-bond-sale-1.1555834

Facey, S. (2021). Finalization of the 2021 Budget (pp. 1–59, Rep.) (1275380859 941522111 E. Stankiewicz, Ed.). City of Greater Sudbury: Finance & Administration Committee.

Gaetz, S. A. (2014). Transitional housing. Retrieved March 26, 2021, from https://www.homelesshub.ca/solutions/housing-accommodation-and-supports/transitional-housing

KPMG. (2020). Consolidated Financial Statements, City of Greater Sudbury (pp. 1–40, Rep.). Sudbury, Canada.

Maya Brennan, M. (2018, February 08). Three ways that impact investing can help end homelessness. Retrieved March 25, 2021, from https://pfs.urban.org/pay-success/pfs-perspectives/three-ways-impact-investing-can-help-end-homelessness