Supervisors Lend Name to Aid Charity

In a novel, cost-free and risk-free way to assist a charity, the Orange County Board of Supervisors has agreed to lend its name to a Fullerton youth shelter so that the operators can arrange a $15-million loan at tax-exempt rates.

The money will be used by Florence Crittenton Services of Orange County to almost triple the size of its home, which houses pregnant teen-agers and other youths. With the expansion, the facility will hold 205 beds, compared with today’s 77, and add an administrative center and school.

County officials will put up no money, but they agreed to sign a certificate of participation with the organization for the expansion project.

In return, the county required Florence Crittenton Services, which is a national organization, to obtain a letter of credit from a bank so that the public would not bear any cost if the group defaulted.

“We don’t incur any liability,” Supervisor Gaddi H. Vasquez said. “We’re basically providing the financing structure so that they can secure a loan. It’s not anything we’ve done in the past, but the letter of credit provides the necessary security for the county.”

Eileen Walsh, the county’s director of public finance and advocacy, said that the county agreed to the arrangement on Wednesday so that the group could borrow at lower tax-exempt rates.

It is called conduit financing, and it has never been done by Orange County, although it has been used occasionally by other California counties and cities since Proposition 13 was adopted, usually to help social service organizations such as shelters for the homeless. The arrangement is sort of like co-signing for a loan, but without the risk.

“The county’s not putting its credit on the line,” Walsh said. “The bank will make good if Florence Crittenton cannot make good on the payments.”

County supervisors hailed it as an innovative, expense-free way to help a nonprofit group. But they also are concerned that the arrangement sets a precedent, and other charities could begin descending on them to ask for similar assistance.

Vasquez said the county is working on a policy to handle any further requests. The youth home is a special case, he said, because it provides services for and takes referrals from county agencies.

Walsh said other groups would have to show that they serve “some essential public purpose” and have sufficient assets to get a letter of credit to protect the county from liability.