June 2009

Dear Governor,

With regard to current economic conditions that negatively affect the state's nonprofit sector, HEFA is uniquely qualified to assist your efforts to address the crisis. In your letter to me earlier this year, you expressed your interest to "expand HEFA's portfolio." You asked specifically that HEFA merge activities with those of the MDFA in order to better assist the state's nonprofit institutions.

As you know, the purpose underlying HEFA's formation in 1968 was the desire to focus a single agency specifically on the financing needs of nonprofits in the health care and education sectors. By contrast, MassDevelopment's predecessor, then known as the Massachusetts Industrial Finance Agency (MIFA), was formed with a much broader economic development mission to assist proprietary and for-profit businesses that make up all other sectors of our economy.

In the intervening years, and in contrast to MassDevelopment, HEFA developed a specialized mission to assist nonprofit, tax-exempt institutions access the capital markets. MassDevelopment developed a more far reaching mission to stimulate the economy. This distinction also evolved in the organizational structures and practices of the large financial institutions and private firms that engage in bond financings. The separation of nonprofits from other businesses gives rise to a constructive focus and expertise that enhances the overall efficiency of the financing process.

In merging the practices of HEFA and the MDFA, HEFA established an advisory committee to help make sure that any changes we propose do not give rise to unforeseen and negative consequences in the marketplace. As we proceed to define a merger of HEFA and the MDFA, we will do so in a way that builds on the specific skills and areas of expertise that each agency possesses and that the financial markets recognize.

Apart from these structural concerns, there are areas in which we have been gathering data to anticipate the consequences of any proposed change. One area, for example, is the fee structure by which the two agencies derive revenue. It looks to be an area where we can expand our capacity to assist nonprofit institutions without imposing an undue burden on any one segment.

In this context and in other areas where we may propose to merge the activities of the two agencies, we'll work to identify measurable outcomes that indicate how any proposed change will affect our process and its costs. We'll work also to identify measures that indicate the extent to which proposed changes enhance the ability of nonprofit institutions to obtain needed financing.

Allen Larson