Habitat for Humanity of Sonoma County says it overextended in post-2017 fires homebuilding plan

Nonprofit homebuilder Habitat for Humanity of Sonoma County announced on Monday that it has “sharply curtailed spending in response to a severe decline in contributions.”

“Currently we are facing unprecedented financial difficulties brought on in part by the overextension of our resources in our recovery work after the 2017 wildfires,” said a statement from Tim Leach, board chairman since May. “Facing a cash-flow shortage, we have made the difficult and necessary decision to suspend most of our operations as we work to stabilize our financial situation…”

In the last year, Habitat has completed work on 12 affordable housing units and is nearing completion on two others.

“This work represents a significant increase over our building in past years and has proven unsustainable at the present time,” Leach said. “We are now pausing to reevaluate our business model moving forward.”

Current Habitat homeowners and families occupying Sonoma Wildfire Cottages on the Medtronic campus in the Fountaingrove area of northeast Santa Rosa will be unaffected, Leach said. He said his organization intends to complete the two Habitat homes currently under construction in Graton, but that Habitat’s other home development work will be suspended until further notice.

Cutbacks include laying off over a dozen full time staff members, beginning in October and ending Nov. 29, while continuing to operate Habitat’s ReStore home improvement retail outlet and donation center in Santa Rosa. Leach said ReStore characterized as a “healthy source of financial support for our mission.”

Having received what he called a “huge surge in donations” after the Tubbs fire, the nonprofit made a concerted effort to ramp up building activities and staffing in order to meet its target of building 600 new homes by 2025. It planned to do this by changing the scale and scope of construction activities performed in the past.

Leach said he didn’t have the latest financial figures. But in the latest IRS filing by the Sonoma County chapter of the national Habitat for Humanity organization, it reported $4.82 million in donations in grants for 2017, compared with $866,000 in 2016 and $519,000 in 2016. ReStore had just over $1 million in sales in the fiscal year ended in June 2018, according to the most recent private auditor’s report, completed that November.

However, in 2018 there was a general decline in contributions from strong donors, and this downward pace picked up in 2019, Leach said. This occurred as Habitat moved forward with its expansion plan until fall, based on internal financial forecasts, models and predictions.

“Our long-term goal was — and still is — to make a significant impact by helping to fill the housing gap for low income individuals and families, but we realize we took on too much, too soon, and have to retrench,” Leach said.

Sonoma County Habitat has to curtail spending for a time while working through alternatives and seeking options, he said. But filing for filing for bankruptcy isn’t anticipated.

“We hope this will just be a short-term funding issue, so we can reorganize and restart again in 2020 under a new recapitalization plan,” he said.

As Habitat’s financial position softened, a number of senior management changes were also occurring. Former Chief Financial Officer Kelly Hennessy resigned in July, and an interim financial consultant took his place as a search continued for a permanent CFO. CEO Mike Johnson also left Habitat and was succeeded by former Chairman John Kennedy, who then departed in late spring.

Harold Duncan, former senior vice president of operations with Korbel Champagne Cellars winery, came on board Oct. 1 as Habitat’s new CEO, believing that by making staff changes and cutting costs, the downward trajectory could be turned around, according to Leach. After reviewing financial records with the consulting CFO, he determined that positive predictions for Habitat’s future would not hold up, and decided to step down to save money.

“To his credit, Harold came in at the 11th hour to lend his executive experience to help us figure out how to save the organization,” Leach said. “He believes it is important for us to be captain of our own ship, and recognized the expense associated with having a CEO was not prudent right now, so he counted himself among the staff cuts.”

In an attempt to meet an accelerated home building objective, in June the Sonoma County chapter announced plans to lease 66,000 square feet of indoor manufacturing and outdoor storage space at 1500 Valley House Drive, Suite 100, at SOMO Village. That would house the Habitat Center industrial residential construction factory and trades training campus.

The goal for the new Habitat Center was to build key parts for 15 Habitat homes in 2019, 36 in 2020 and 60 in 2021, ramping up to an average of 70 homes per year thereafter.

This center was first announced to start production in August. The launch date was later delayed to November, and to date it has not opened. The future remains uncertain for this proposed factory, designed to make prefabricated home wall panels using volunteer workers. Leach said “it is too soon to tell” what will happen with it.

“We don’t have a lot of debt,” Leach said. “Our situation is mainly due to a decline in large contributions after the 2017 wildfire. We began to realize we had no fuel for the size of the engine we were building to drive ramped-up housing production.”

Leach said a recovery plan is already underway.

The initial step involves getting the word out about Habitat’s financial crisis and how it became overextended, while focusing on wanting to return to its core mission of bringing people together to build homes, community and hope as soon as practicably possible.

“We are talking with donors, supporters and key stakeholders and received strong support from Habitat for Humanity International in Georgia,” Leach said. “We’ve also reached out to local Habitat affiliates in San Francisco and the East Bay during lengthy two-hour meetings seeking advice and counsel on how to proceed. These conversations comprise the early stages of creating a blue-ribbon panel of experienced Habitat personnel, business and community leaders to help guide the process.”

The next step will include determining how much money is needed, by when and other details of what it will take to recover.

“We remain committed to addressing the home affordability challenges facing Sonoma County and look forward to restarting our operations when we have stabilized,” Leach said, thanking supporters, staff, volunteers, donors and other advocates. “We have no plans to leave Sonoma County.”

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Correction: Mike Johnson’s name was misstated in a previous version of this story.