Event:2015/09/02 Meeting with Jesse Palmer

Meeting with Jesse Palmer at Omni Commons, September 2, 2015

Yar and Jenny were taking notes in parallel each unaware of the other

Yar's Notes

who's here?

jesse, libbie, yar, laura, jenny

meeting

• jesse: give me updates?
• yar: since june 23?
• laura explains situation with donor, lender baclt
  • donor waiting on lender
  • lender is traveling, hard to reach
  • met with baclt on monday, working on details
  • owner's been informally notified - he wasn't surprised. having friendly meeting with DK
• jesse: what do you want baclt's role to be? board could meet next week, you want to close by oct 1. would they own the ground and lease the improvements?
  • yes
• jesse: you don't have a lease yet?
  • he sent us a sample, 99. need to read through
• jesse: what do you want their role to be?
  • laura: we dreamed to be involved with affordable housing in the area, the community, the neighborhood. baclt needs younger participation. working together in multiple ways.
  • jesse: their goal is to have 1 person from every project on board with ownership experience. sfclt does the same thing. so you'd purchase building as this corporation then donate the land to baclt? then they'd lease it back to you.
• yar: need to talk about 501c3 but jenny might know more when she gets here
  • jesse: on omni's lease, groups were set up as "projects". fiscal sponsor for projects. 1/3 of income needs to come from "public sources", so income coming from your own fiscally sponsored [educational?] projects the better. way it's set up is: you have a board of directors for your corporation. they can form a committee - baps committe for example. it can have internal structures, a bank account, etc - but to be kosher w/irs the omni board needs oversight which resolution i sent you a year ago has in there. idk the exact list of projects, but easiest way is "we are an educational corporation".

• jesse: because you've been operating over a year, applying for 501c3 is harder. need to put actual income for last year & so far this year into form. every dollar needs to be in a certain category. 1/3 from public sources, what's called "exempt function income" like a public workshop. large donors can't get you there because it only counts up to 5k or ~2% towards the 1/3 for each donation.
  • should have applied last summer. do it asap. needs to be 27 months after filing articles of incorporation. money gets more complex when you operate. also, your paper trail about what you say you are gets complex. you have to say on the internet what your articles say you are. this happened to a group of mine once. mostly what you write will be what you're doing but there'll be some things you think of differently than the way you're gonna write it. irs doesn't care about "good, interesting, alternative, exciting". very specific definition. "we're doing education". art is considered education. i have no question you'll be fine with tax exemption. you don't know when they're gonna look at your website but it'll happen.
• yar: that'll be hard because people see the place as political. reddit AMA, etc
  • jesse: gov sees political as very narrow. campaigns, etc. even revolution is ok, unless you're talking about violence, blowing things up. most of that's gonna be under educational. can't have bernie sanders for president stickers on the front of the thing.
  • yar: we had the mayoral debates
  • jesse: but you weren't supporting any particular one. probably fine. also, some projects fiscally sponsored, ie they are you doing it. ie baps. you can just rent to someone else but that just doesn't count towards your 30%, and tenant can be political. application can say "we have these facilities, we can use them to rent sometimes". they don't like having a trade or business, which irs defines as paid employees selling goods & services for a profit regularly. some complexities - museums have cafes, gift shops. found to be subject to "youbit taxes" on income taxes- so you have to pay taxes but doesn't compromise the rest of the exemption.
  • jesse: we'll submit a projection of all these numbers.
• libbie: do kickstarter & grant monies count as donations?
  • jesse: grants complex. if it's from a public charity that counts towards 1/3. something private like gates foundation it's not. complicated, just accept it. kickstarter yes, it's small donations, pretty sure nothing over 5k and you have all their contact info. occupy oakland was complex...
  • yar: they shoot you with rubber bullets and still charge you taxes
  • talk about going through quickbooks categorizing everything
  • jesse: application will take at least 6 months. people donating money that want a tax deduction meanwhile ... as long as they file taxes by the time you get you rexemption, they're fine. but if they file taxes then they have to amend it later. so people filing in 2014 who claimed it as deduction could get in trouble.
  • jenny: it was through food not bombs
  • jesse: FNB probably doesn't want to do the million, but that donor does want deduction.
  • robb: october's our deadline
  • jesse: you can automatically extend 3 months but don't want a legal grey zone
• what's holding us up? jesse wanted to do it last year [something funny]
• jesse: app has 3 components.
  • 1. who's on the board? addressess, whether compensated, etc.
  • 2. narrative description of what you do, why you're charitable
  • 3. financials: send me. if they're good, i plug it in.
  • have to disclose contracts with outside groups. not every event rental but definitely subleases
  • this can be ~80% my work and maybe a point person to get all documents. i'm gonna guess 4-8 hours of work to get it done. $850 filing fee.

option to buy

• jesse: do it soon. want commitment from lender first. they should give you a doc from their lawyer, otherwise i'd write it up. secured promissory note
  • amount of monthly payments
  • 5 year loan amortized over 30 years? have to refinance in 5 years. you don't want ballooning, sets up future crises.
  • laura: usually with bank loan you pay interest first and principle increases?
  • jesse: yeah usually. can't avoid it. math always works out that way unless you aren't paying interest on interest.
  • 2 ways to think. organizational theory. i have clients that could just dump reserve fund on mortgage but i advise not. it's a bargain w/the future. barometer of monthly income shows health of project. if things are too cheap sloth sets in.
    • libbie: we could do so much else
    • yar: bring on the sloth
  • jesse: you've made a donation to the future. you may not be involved by then. so much else you could do now. having a loan isn't bad, connotes there's energy, forces people to have energy.
• jesse: you could also give lender a nonbinding term sheet saying "we propose to borrow 1.1M at 5% 10 year term amortized over 30 years, secured by property." easy for them to not take your needs seriously. this moves that discussion, then they make a counter offer. this is what we did with john - went to first meeting with proposal.
  • yar: letter of intent? yes
  • laura: maybe we should bring one on friday...
  • jesse: he'd been doing things for years but never signed anything. boxed him in.
  • yar: i remember him saying "i was drunk when i signed that"
  • jesse: just propose terms to him. better for you.
• jesse: it's not a purchase agreement, option is easy. title company will just do it. in general try to frontload costs & fees, you just need the money
  • no transfer tax if escrow doesn't close. $300 opening cost.
• talk of scrambling for october rent
• baclt needs somethign specific to approve. need terms of ground lease. need to meet & draw this up so everyone can agree.
  • libbie: we need to figure out what our "founder's intention" is before we start enforcing it
  • jesse: a lot harder than residential. building needs reserve fund. requiring you to put money away for that is reasonable. beyond that, we can say you need to do charitable stuff. irs also wants that. but that won't be bad. objective enough to put that in there. say in 50 years there's radicals in oakland but not in omni which is using the space for really boring stuff. hard to define objectively.
    • robb: we'll not cater to bourgeousies. is that legally binding?
    • jesse: with RPS being evicted and first fridays continuing who knows. it'll get farther from DIY vibe. in NYC it's a rich scene but intended to be peoples'. guggenheim is charitable.
    • yar: i guess our lawyer can't solve this problem
    • jesse: rick has your back, he's part of the counterculture, he understands this, we just need something objective. we can ask other land trusts for similar situations.
    • libbie: i can ask dudley street neighborhood
    • jesse: it's hard, omni is pretty unique
    • laura: we're pioneering! also lender is concerned about this.
    • jesse: we could send lender a sample draft of ground lease
• talk about assessed value of property. value in option to buy is already recorded, so no way around that.
• libbie: changing collective members?
  • jesse recommended just riding out the existing lease. gave DK paperwork but not sure if john signed it. let's talk if you don't get this loan. i guess john would have a hard time w/it. time sink.
• yar: we'll also have to rewrite the sublease agreements
  • jesse: they're pretty garden variety. have issues come up? maybe you don't have to do anything but if you have a good relationship you may want to sign something new
  • get lender in order, open & close escrow, then do paperwork
• sudoroom is getting its own status
  • maybe won't count towrads 33%. big variable is external events. 4-year average but might trend in a bad direction.
  • not many downsides to being fiscally sponsored. they can have their own bank account. and website would need to say "a project fo omni commons".
• laura: cal lawyers suggested making a for-profit entity for ballroom rentals.
  • jesse: but that money has to get in somehow
  • yar: but we could pay utilities, etc with that. plenty of places for it to go
  • jesse: using a charitable asset for profit is exactly what they don't want you to do. renting 40% of the building for that... how about renting it for $500 but you request a $1000 donation. that would eliminate problems.
  • yar: but you can't advertise as a venue ... you're winking & nodding forever
  • laura: whole point of ballroom is to make money...
    • disagreement
    • yar: we gotta make money!
  • jesse: charging admission for wedding e.g., that stuff is deductable. if any events have artistic or educational component, get them to do it as you. "sponsoring" it. if they're taking door money and giving you a cut, that's profit. but if omni collects the money and donates a cut to the event host, that's better. also you don't need this for every event, just enough big ones to slide past 1/3.
  • laura: so say metallica comes and we make 10k
  • libbie: we individually negotiate every contract every time. more clarity would make sense about how we can make it exempt
  • jesse: exempt means public paying directly for a good or service which is somehow charitable. so admission to artistic or educational event is "exempt function".
    • laura: public paying for permission to see metallica?
    • jesse: arguably maybe. la pena is doing concerts, it's all artistic not commercial. who's to say metallica is art and a latin american band isn't? freight & salvage is 501c3, gilman street maybe not. ashkenaz is. if you're just serving food that's harder. some nonprofits are a cooking school training students but that's not you. any kind of edu. forum, sure. just a birthday party or wedding, maybe not.
    • robb: this could keep us on our mission
    • libbie: so can't be given to us as rent, has to be an admission fee
    • jesse: if you're providing good or service to another edu entity. just the space maybe not ...
    • laura: so our sound person?
    • jesse: no... providing trainings for another org maybe.
    • libbie: phat beets event had lots of different kinds of things. serving drinks, food, installations...
    • jesse: i like it but they're the ones collecting donations. can you partner so you're collecting and give them some money for putting it on? omni runs the door, then you just did an edu thing and all income is exempt.
    • laura: they were trying to increase awareness about fermentation
• libbie: does it make a difference who sits at the door?
  • jesse: who's to say who you are? you're volunteering. even if they're paid you could work it out.
  • just need events committee to make sure you're doing enough of the events "as us"
  • would have to advertise events on calendar as "joe blow doing event at omni" vs "joe blow doing an omni event"
  • couldn't let a nonprofit rent your space for below market value anyway. how do they turn straw into gold?
• talk of sudoroom being partially sponsored - sudomesh, etc. parts of sudoroom could be discrete. fermentation station, network closet.
• libbie: next steps?
  • jesse: list all projects. i need to know who's here, who is/could be sponspored, short description of what they do. application will say that, plus a catch-all category for artistic & educational forums in the ballroom, plus anything else you're doing which ... i must've written your articles of incorpioration. pretty sure i threw in the kitchen sink, very broad. everything you're doing now or think you might possibly do. anything that could potentially happen in this space. "serving low income people". planning to shut down the port of oakland ... that's education. who's doing it, where, when, how it's related, and what % of org time is doing it. i'll draft all this, you send me critiques. need board members, their address, any transactions w/them.
• libbie: clarity over board members?
  • ambiguity - every week the delegates are different. jesse needs to look at bylaws but thinks doesn't matter. 501c3 app is just a photo in time. whatever happens next week is irrelevant. annual 990 form needs some kind of list too. irs might write a letter asking for additional info, and then i might suggest mentioning new changes in a footnote. if it's the day before the 1M donation you don't have to mention it. owning is simpler, if you have a lease, send a copy, but who knows.
  • big unwieldy groups take a while. i'll write my end but you have to follow your process. could happen in september.
  • by the building wg has been empowered by the delegates to act quickly. might not have time to check in with everything but they're ok with that.
• jenny has a long list of things she'll get together
• need a "ground lease committee". need to draft something based on residential but different. asap.
  • talk to institute for community economics in boston. they developed land trust model, may know what's going on out there. residential, agricultural, then what?
  • yar: is there a book about all this? no, it's not in the law books. something activists do.
  • jesse: right now a publicity campaign to save world with land trusts. like in SF. that's a stretch because you need billions first.
  • libbie: eminent domain, buying up foreclosed properties. detroit...
  • jesse: berkeley's green plan in early 90s... houses were cheap, and crazy guy bought 7 big victorians, had 40 people living there.
  • yar: but people can put it in their will
  • jesse: it's hard, for most ppl it's their savings. discouraging to have pockets of cheap housing surrounded by wealth. it's like winning the lottery
    • yar: and what happens when it burns down...
  • libbie will call another land trust in boston with many properties. ask for sample nonres, nonag ground lease. community garden maybe ... not farmer thing tho.
  • occupy oakland was sponsored by long haul, needed permission to spend money on things. only issues were alcohol, thigns which were arguably weapons. walkie talkies, bullhorns, sign making equipment. lots of food. buses, toilets. couldn't do bail, that's why that was separate. talk to leslie. didn't seem worth it doing its own nonprofit, but account ended up open for 3 years.
  • laura: michael, DK, talking about opening up bail fund
  • jesse: we just need more protests. consistently going down even since the early 80s. used to be you could go to a protest every single day. there should be a committee for that.
• jesse leaves at 3:15. libbie schedules interview with him
• jenny suggests looking at cooperativa integral in barcelona

Jenny's Notes

• Need to create a projected budget
• Grants from public charity count in the 33%, but from private foundations only up to $5K
• If don't have tax exemption by the time people file their taxes (April 15), can't deduct
• Send Jesse the activities / zoning
• Current Board list, financial transactions & addresses
• Description of charitable purposes
• Financials (historical & projected)
• All the contracts and subleases
• Some examples of event contracts
• Board Meeting Minutes
• $850 filing fee & 4-8 hours of Jesse's time
• Email from Jesse about exercising the option
  • Commitment from lendor
  • Secured promissary note w/ amount, payback term, monthly payments
  • 30 year amortization, set monthly payment
• Good to have 'some fire' under folks to pay monthly rent, otherwise sloth can set in
  • So not all large donations should necessarily go to paying the mortgage, use it for more immediate, useful purposes/projects
• We propose to borrow $1.1 million in a 10 year term over 30 years secured by the property
• Get lendor to open escrow
• BACLT - purchase the whole thing, donate ground to them
  • Terms for ground lease: need to revise the residential component; Jesse will draw up after talking with both parties (eg affordability standards, reserve fund, charitable mission, need to brainstorm how to keep omni radical in the long-term)
    • Reserve fund req't: Needs study to see how much we are required to put away every month
• Look up examples of community spaces & their ground leases w/ land trusts (eg community garden, community space, commercial space)
• Working draft of ground lease to present to lendor (see above for list)
• Restructuring the sublease agreements? Not really necessary, may want to re-sign for clarity
  • Sign at close of escrow, make sure all the groups sign
• Could have collectives 'donate' rent money, but that's kinda clunky and difficult
• Try to get as many groups as possible to be fiscally-sponsored projects, need to say somewhere on their website 'A project of Omni Commons'
• Creating a for-profit subsidiary for event rentals, as recommended by the Berkeley folks, would be too clunky and suspicious to the IRS
  • Rather can request a $1000 donation for ballroom use
    • Or can have educational events & charge admission, this would be legit
• Omni could sponsor artistic / cultural / educational events in the ballroom
  • Eg; an event organizer could take a small cut and give the rest to Omni
• Exempt Function Income - public paying directly for a good or service that is in some way charitable.. eg; admission to an artistic or educational event
  • Look into Ashkanaz, Institute for Community Economics in Boston (developed land trust concepts)
  • Art, exhibits, and music qualify - simply serving food does not. Forums are definitely charitable.
  • If you're providing a good or service to another entity that's educational... eg; a nonprofit providing trainings for other organizations
• Partner with event organizers, better if we're the ones collecting the donations and give a portion to the organizers
• Need to do events in the ballroom *as Omni*
• Ask event organizers to do some percentage of their events as benefits for Omni
• Try to get as many projects as possible to become fiscally sponsored by Omni & list all possible projects
  • Sudo Mesh
  • Fermentation Station
  • Optik Allusions
  • Material Print Machine (?)
  • BAPS
  • Hardware Hack Night
  • BAAM?
  • Some of the literary groups using TIL's office?
• List all potential educational / research / artistic / charitable activities that could happen in the space - what, who, where, how related to charitable purposes, % of time org is doing this