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How did we get here… a little background

The Missoula Community Food Co-op’s Relationship with The North-Missoula Community Development Corporation (NMCDC)

 

It seems that the relationship of the Co-op to the NMCDC can be source of confusion for a lot of Co-op members.  This is understandable given the complex interlinking of funds and personnel that came before the Co-op’s current status as an incorporated, self-supporting, independent, cooperative business.  The confusion can also partly be due to the fact that of the founding 12 Co-op Board members, at least 9 are no longer at all active and, of those, 3 of the very most active no longer even live in Missoula.  For the sake of documenting an organizational memory, I offer the following history:

The NMCDC first began exploring different types of cooperative business ventures in 2000 and, with some funds from the Montana Community Foundation, sent Allison Handler and then NMCDC BOD president, Janet Bush, to a cooperative development conference in Atlanta, that year.  Several neighbors had identified a food co-op as a neighborhood need in the 1990’s, an idea that was confirmed in a 1997 Northside-Westside survey (and again reconfirmed in a 2006 survey).  A number of people had also approached the NMCDC about the possibility of starting a cooperatively owned and managed commercial kitchen to create opportunities for adding value to locally harvested produce and to train people in cooking skills both for home or for micro-enterprise uses.

In 2002, the NMCDC got $500 from the State of Montana to pay for a little bit of Elizabeth Macasaet’s time to look into commercial kitchens.  An anonymous donor also contributed $5,000 that year to pay Jean Duncan for research for starting a kitchen/co-op.   Jean, Elizabeth, and Bob visited the Mission Mountain Market, that year, and started exploring a way to establish a much smaller, more modest, version in Missoula.

In 2003, the Catholic Campaign for Human Development contributed $10,000 to pursue the project and the NMCDC hired Molly Moody, in a part time position, to head the effort.  In 2003, we also contracted for a part time VISTA worker, Rae McMinn, who did some of the early project feasibility work.

Also in 2003 with some of the CCHD funds, the NMCDC contracted with the ICA Group (www.ica-group.org) for technical assistance.  The ICA consultant steered us away from a freestanding commercial kitchen, expressing the opinion that such enterprises only survived through ongoing subsidy of a larger entity, such as a culinary program of a community college.  Having been advised of the NMCDC’s broader co-op interests, the consultant also reported that deli-kitchens associated with food co-ops often did quite well.

After considering the ICA recommendation, the NMCDC directed Rae to start doing the market research on a food co-op with kitchen and café. She also participated as a member of the steering committee for the Missoula County Food Assessment on behalf of the NMCDC and attended the scoping class with the encouragement of Maxine Jacobson and Neva Hassenien. That group ultimately morphed into the Community Food and Agriculture Coalition (CFAC).  One of the group’s recommendations, to create small markets for locally produced food, fit well with the goals of the burgeoning food co-op.  After Rae’s departure, Molly continued as both a staff member of the NMCDC and its liaison to CFAC.

In 2004, CCHD began an additional two-year commitment of enough funding to pay for most of Molly’s salary and a small portion of Bob’s.  The Mission Mountain Cooperative Development Corporation (MMCDC) contributed funds for a second year full-time VISTA intern, Katherine Romano.  That same year, Elizabeth and David Macasaet were eager to move the buying club they had begun out of their home.  The NMCDC began using its offices at the Stone House for taking orders and as a staging area for monthly deliveries while looking for a more suitable site to locate the buying club while it transitioned into a something more.

In 2003 and 2004, LaNette Diaz interned with the NMCDC as a grad student in social work under Maxine Jacobson’s tutelage.  LaNette began property searches for possible co-op/kitchen locations, exploring at least 17 different centrally located sites — none of which panned out for reasons of availability and cost.

In 2004, Kate Keller followed Katherine Romano as coordinator of the buying club and also took on the role of Neighborhood Food Project Coordinator, working with the Women’s Economic Justice Group and Tessa Johnson, also interning under Maxine Jacobson’s program at the University, and running the Real Meals Program while acting as liaison with the elementary schools and a number of social service organizations.  Kate and Tessa worked closely with Molly on all these related food projects.  Starting at the end of 2005, all of Kate’s first year work running the Co-op and Real Meals was funded by a grant to the NMCDC from Strannie Ventures.

Molly Moody got some early legal advice on co-op incorporation from a firm recommended by Jan Tusick of Mission Mountain Cooperative Development Center and then some additional advice from a local attorney at Worden Thane and Haines, Peter Dayton.  Peter highly recommended establishing the co-op as a 501(c)3 charitable benefit supporting-corporation of the NMCDC both in order to carry out the NMCDC’s charitable mission, and because he believed capitalizing the co-op could be more easily accomplished through tax-deductible donations and grants.  We then began an agonizing process of determining the most likely strategy for success – official co-op versus charitable benefit organization (See old discussion points below this history **).  On the one hand, the NMCDC had good experience with grant writing, on the other hand, a charitable-benefit nonprofit couldn’t be member owned.  Some of the most passionate early founders including David and Elizabeth Macasaet were very dedicated to forming a true cooperatively-owned (rather than simply cooperatively-run) business.

Molly consulted a specialist lawyer in the start up of cooperatives in Vermont, Laddie Lushin and also Jim Kaze from the Montana Cooperative Development Center, both of whom helped guide her through a co-op’s complex incorporation process.  Continuing doubts on the nonprofit decision were ultimately resolved with the recommendation of Kiwi Consulting who the NMCDC hired to craft a business plan for the co-op.  The rationale was that any benefit to be derived from grants and charitable donations could be offset with the sale of preferred stock.  Kiwi’s Fraser Mcleah also felt that any possible future subsidization of the co-op’s rent by the NMCDC (that would be an unallowable nonprofit contribution to a for-profit business) would be offset by wholesale product discounts available to official co-ops but not to charitable-benefit nonprofits.  The funds for the business plan and, ultimately, the preliminary architectural plans for the Burns Street building retrofit came from a $37,000 grant from the Montana Department of Agriculture to the NMCDC. (Hard copies of both the business plan and architect’s report are archived at the Co-op.)

In 2005, the NMCDC succeeded in augmenting the CCHD funding with a $90,000 piece of a USDA grant done in partnership with CFAC.  Ultimately, $20,000 of the NMCDC component went toward purchase of the building and $20,000 was reserved to buy co-op memberships for low-income persons.  Other co-op supplies, Sarah DeSilvey’s farm coordinator work (the “Farm Database” formerly on the Co-op’s website) and a contribution to NMCDC staff salaries came from the same source.

Over the years there were several disappointing false starts in obtaining space for the Co-op that included preliminary negotiations for the old Pacific Fruit Building above the Orange St. Underpass (now the Northside KettleHouse), the old St Joseph’s School building next to St. Francis Church (now demolished), and the Caras-owned complex on Toole Ave. where the 3:16 Mission and Spirit of Peace Church are located.  In 2005, the NMCDC received a cash award from the Northwest Area Foundation and approximately $57,000 of that award was used to contribute to the $675,000 purchase price of the Burns street property including a nonrefundable $15,000 option-deposit that held the property for a year while other funds were raised.  The Burns Street site offered the unique opportunity of being able to co-locate the Co-op with the NMCDC’s Burns Street Square housing development and bring a variety of funding sources into play to acquire the whole property.

Additional money for the site’s purchase came from $354,747 of HUD funds.  (An additional $200,000 contribution of HUD funds from the State helped subsidize the housing next door to the Co-op.)  In addition to its dedication of reserve funds and the USDA’s $20,000 contribution, the NMCDC entered into loan obligations of $250,000.

The NMCDC finished repayment of the $50,000 loan from Missoula County in 2013 and continues making payments on a remaining balance of $118,000 currently owed to the Montana Community Development Corporation.

The NMCDC is both interested in, and highly invested in, the co-op.  We worked on its creation for more than six years.  Not including property purchase, the NMCDC has invested approximately $250,000 in supporting the co-op’s start up.  These moneys were raised to help the co-op form but, ultimately, the Co-op must rise or fall on its ability to operate as a successful business – one whose cash flow comes from sales and membership investment.

Molly Moody, while in the NMCDC’s employ, spent much time over her tenure investigating co-op models and researching the comparative operations of co-ops across the country.  Molly was the first to propose the Park Slope model for our consideration.

A point of conjecture at the time was whether the Park Slope model could perform as successfully in the much less densely populated city of Missoula.  (In 2000, the Park Slope neighborhood of Brooklyn had a population of more than 62,000 persons.)

Molly was responsible for seeing through the co-op’s legal work and incorporation as only the third consumer food cooperative in the State of Montana. Molly also spearheaded the outstanding federal appropriations request for the remodel of the Burns Street Building.  On a third attempt, that potential source of funding for the NMCDC’s building as home for the Co-op, and the kitchen came real in 2009 with the award of $950,000 to, in 2010, begin the remodel of the derelict motor freight depot into its current configuration.

That building remodel was focused on the needs as presented by a committee of the Co-op’s board.  The current design and floor configuration, including the hallway to the loading dock, was largely designed by the Co-op itself.  Later kitchen-side infrastructure development was primarily funded, at a later date, with a number of successful foundation grant applications by the NMCDC.  After it was realized that the Co-op would not have the capacity to assume a primary role in kitchen operation, the Bistro was identified as turnkey business owners and it later added more infrastructure to create the current business.

The original building concept envisioned the Co-op eventually taking up roughly half of the building’s footprint in an approximate 5,000 square foot area, with the kitchen using the approximate other half.  The store space would have been comparable to a number of other small size co-ops around the country and would have been similar in size to the old Good Food Store before its relocation to the current S. 3rd St. site.  In lieu of having a tenant for the back of house space, the NMCDC offered it for lease to the co-op who could then sublease it to another tenant while building capacity to add the space to the store.  The Co-op Board at the time declined the offer and did not want to be a landlord.

In the absence of a food enterprise user for the back of house area, the NMCDC leased the space on a year-to-year basis to the “Real Deals” home decor business until the Growers Co-op came along and agreed to lease the space for its aggregation and distribution center.  The WMGC has invested significantly in remodeling that space to its uses and the NMCDC is happy to have them as a mission-fulfilling tenant in the “food hub” building, which was remodeled to help encourage local food system systainability.

In terms of the Co-op’s rent payment, at the time that the first board made the determination to become an official for-profit, fully-licensed, consumer food cooperative.

The NMCDC, on advice of a second attorney familiar with IRS 501c3 regulations, was not able to give a deeply subsidized initial rent but only a low-market rate.  On the Co-op’s behalf, Jack Rowan researched Missoula area rents for comparable facilities and estimated market value as $8 to $10 a square foot.  Subsequently, the NMCDC charged the Co-op $6 a square foot and has not increased the rent since that time of first occupancy in the refurbished space.

 

The NMCDC has, of course, recognized that one of the main driving factors of the cooperative model is democratic control of the business and that guiding principal continues to play out in the current, highly difficult, deliberations.

 

___________________________________________________________

**

 

Email to Co-op’s founding board in May of 2005:

“Hello Everyone,

Again, my two cents.  I know this is really long but please give it your thorough consideration.  Here are some options that the co-op could pursue:

 

Organizational Structure

  1. Be an official co-op, have its own business and legal structure, embrace the co-op model of member ownership and cooperative values, pay taxes, sell memberships and rely on loans of various types for capital investment and improvement.  The land would be leased from the CDC and the building could be leased or leased-to-own from the CDC.  If the co-op got some windfall money, up front, it could buy and rehab the building outright.  Keep the kitchen/deli as a program of the NMCDC so that it can raise charitable donation funds for its development as a job incubator for low-income and at-risk people.  Memberships in this scenario have real monetary value and can be cashed out (how to handle donated memberships will be something to work out).

 

  1. Become a membership-based 501(c)(3) subsidiary organization of the NMCDC (which is not itself membership-based), have a separate board of directors, separate articles of incorporation, separate bylaws, and be membership controlled(rather than a membership owned organization).  This  “cooperative venture” would: require non-refundable membership fees (whether donated or paid directly) to enjoy rights of membership, not pay taxes, and be able to solicit tax-deductible donations and foundation grants.  There would be no need to separate the kitchen/deli from the rest of the organization but could be done so if desired. Land and building ownership could function the same as in scenario #1.  The cooperative and democratic values and principles are written into the by-laws and a charitable benefit that is complementary to the NMCDC’s purpose would have to be more heavily stressed than in the current co-op organizational papers (could be done by amendment).  One-half of the initial BOD would have to be appointed by the NMCDC.  After that, the BOD would be elected by the membership.

 

  1. Become an autonomous membershipbased 501(c)(3) completely separate from the NMCDC.  The rest could be the same as #2, except that the organization would need to convince the IRS that it is being established solely for charitable benefit and wait a longer time than in scenario #2 to get the IRS determination.

 

  1. Become a program of the NMCDC and have a policy board that enforces member participation and cooperative principals and values.  Ultimate control and fiscal oversight would be the role of the NMCDC BOD.  The 501(c)(3) advantages come with the territory.

 

Discussion

Scenario #1 evolved as the first considered structure and channeled some of the co-op’s first planning.

 

Scenario #2 was recommended by attorney, Peter Dayton, fairly late in the game, partly because of his feelings about co-op laws in Montana and partly because of his feeling that it would provide a much more viable avenue for financial stability.  His opinion was that, if worded correctly, the purpose statement of the subsidiary would make it readily acceptable to the IRS.

 

Scenario #3 might be the most difficult to realize.

I’m guessing what Sarah ran into in her good research were cases in which existing co-ops started spin-off 501(c)(3)’s to help get  funding to support their more altruistic educational and service missions (i.e., their profit margin was insufficient to support those worthy goals).  We are actually doing something like this in reverse: a 501(c)(3) (the NMCDC) promoting development of an official co-op for the NMCDC to collaborate with, or spinning off a collaborative subsidiary 501(c)(3) to function like a co-op.  There probably aren’t too many models like these out there for us to look at.

 

My preferences

My major interests are that we develop an entity that can survive financially, for the long term, and make better food, and more freshly grown food, available to a broader range of Missoulians.  I want to see people with modest incomes involved both as consumers and managers of the organization.  (I would like to see more recruitment of lower income people for the current co-op board).  I want to see inclusiveness, community-building, and skills development remain central to the market’s purpose and function.  I think that either of the scenarios, #1 or #2, could meet these interests of community benefit.  So the questions, for me, are “Would either of them not satisfy the core interests of co-op board members?” and, “Would one of the scenarios have enough compelling financial advantage over the other to make it the smart choice?”  I’m lazy, and I’d like the co-op BOD to answer those questions — as soon as possible.  I would support hiring a facilitator to help us over that hurdle.

 

I think scenario #4 should probably be considered only as a fallback.

 

I hope this helps.  It is confusing and it’s because we’re trying to do something different.  Our first T.A. provider told us we could never be a successful whole foods cooperative and serve a low-income neighborhood.  We also heard that we could never expect to have a successful store where haves and have-nots were expected to rub elbows.  We’re gambling a lot on being different and I think it’s a worthwhile gamble.

 

Bob

 

p.s. Some elements of the scenarios could shift with different properties.  Right now, I have the Burns St. opportunity in my thinking.”

 

 

 

 

 

 

Permanent link to this article: http://missoulafoodcoop.com/how-did-we-get-here-a-little-background/

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