You’ve no doubt read about the county taking out a $40 million loan to cover Kitsap County Consolidated Housing Authority (KCCHA) debts. This loan will cover KCCHA debt which the county guaranteed in the past. Most of it relates to the Harborside condo project in Bremerton and comes due this year. If KCCHA can’t repay the debt, the county is obligated to loan funds to KCCHA so that KCCHA can pay the bank.

The $40 million loan has several parts. The county guaranteed about $26 million in Harborside debt. KCCHA could not pay a $5 million loan on Harborside that came due April 1. The county had earlier asked KCCHA to purchase and operate low-income senior housing at the Poplars in Silverdale. In return, the county guaranteed the $5 million debt for the property. KCCHA has several properties for sale to repay the county and the bank but, because of the recession, it will take time to sell them. Accordingly, interest and carrying costs on the debt for four years is estimated to be another $4 million. Here is a more specific breakout:

—Harborside County guarantee, $26 million;

—KCCHA Harborside loan, $5 million;

—Poplars guarantee, $ 5 million;

—Interest and carrying costs, $4 million.

Total $40 million.

Even though the county loan totals $40 million, county taxpayers will not pay this much. Sale of the remaining condos and an adjoining “expansion site” could net about $18 million. KCCHA has pledged the sale of several other properties that could net more than $13 million. Given the current crazy market, it is impossible to predict just when or at what price these properties will sell. This loan gives the county four years to sell these properties in order to reduce the cost to county taxpayers. At the end of the four years, the county could be on the hook for $8 million or so (could be more or less). Without this loan, the county could be facing a demand for $26 million for Harborside debt this year and another $5 million next year for Poplars debt. Clearly, this “deal” is the best option for the county.

So how did we get here?

KCCHA is a joint agency created in 1982 by the county and the cities of Bainbridge Island, Port Orchard and Poulsbo. The mission is to provide housing for low-income populations. KCCHA operates about 1,000 units of low-income housing in the three cities and the county. One of the problems for all housing agencies in recent years is that the population they serve can’t pay market-rate rents and there has been little in the way of state and federal operating subsidies for such housing. Housing agencies have had to seek ways to raise money to subsidize operations. In the case of KCCHA, the agency got into various economic development activities that generated one-time fees to subsidize agency operations.

I have been concerned about this practice since coming into office because of the risks involved and because I think it is bad practice to try to support on-going operations with occasional and unpredictable one-time fees.

One of the things KCCHA did was to take on the role of being the “urban renewal agency” for the City of Bremerton. In that role, KCCHA was responsible for the construction of the Norm Dicks Government Center and the Harborside Condominiums. Because neither KCCHA nor the City of Bremerton were strong enough financially, the county was asked to provide security for these deals. At the time, these projects were heralded as the “jump start” projects needed to revitalize Bremerton’s blighted downtown. The Harborside project was not only expected to help turn Bremerton around, it was expected to generate a profit for KCCHA that could go to support housing programs. Unfortunately, construction delays, increased costs, and the recession all combined to doom the financial success of the Harborside condos.

The Board of Commissioners at the time agreed to guarantee $22 million in bonds for Harborside (the City of Bremerton provided a $2 million guarantee as well). More than $31 million in Harborside debt was due in 2009, beginning in April. No condos have sold for more than a year, and KCCHA did not have the funds to repay the debt. A default by KCCHA might have led to bankruptcy and a call on the county to loan more than $26 million to KCCHA this year in the midst of this recession and county budget cuts.

While this has been characterized as the county assuming KCCHA debt, most of this will be a loan to KCCHA. Given the precarious financial condition of KCCHA, it is uncertain when and if KCCHA will be able to repay the county. At the end of the four years, the county will sell long-term debt. The annual cost of that debt service will reduce funds available for county services.

As chair of the KCCHA this year, I have spent a great deal of time trying to find solutions that would allow KCCHA to continue while minimizing the damage to the county. Ultimately, the loan with Bank of America does both. In addition, it takes Harborside off KCCHA books and gets the agency focused back again on its core mission of providing housing to low-income residents.

There are four points to remember about the KCCHA problems: None of the current commissioners created the problems we are facing, The county is legally committed to make this loan, and the alternatives are much worse. The commissioners have directed that the county will not make such guarantees in the future and, as members of the KCCHA Board, have voted to return KCCHA to its core mission of providing low-income housing.

I wish I could tell you that this loan solves the problem. As of this writing (mid-May) there are other outstanding bank loans that threaten KCCHA. In addition, the organization continues to face significant operating shortfalls. The KCCHA board believes that meeting the needs for low-income housing requires a housing agency. This loan is just the first step in what I believe will be a long recovery for a vital organization that lost its bearings but is now returning to its core mission of providing low-income housing to our county’s most needy populations.