Close Quarters: Nonprofit Leaves One Florida City with a Big Debt

July 11, 2016; Palm Beach Sun-Sentinel

In its nonprofit news reporting, NPQ has written about how complex the relationships between local government and community-based nonprofits can sometimes get. You see this quite often with arts institutions meant to anchor a downtown, for instance; the financial relationship can at times be speculative, as it’s based on the potential to raise other capital. While many of these partnerships turn out well, sometimes they leave taxpayers on the hook, making other public entities hesitant to do likewise. This story from Florida serves as a cautionary tale to nonprofits with such relationships: they need to be treated responsibly.

A story in the Palm Beach Sun-Sentinel informs us that the Office of the Inspector General in Broward County, Florida has accused Margate city officials of “gross mismanagement” in losing nearly a half-million dollars to the Alzheimer’s Family Center. The report recommended that other cities should reconsider similar arrangements, adding that while helping families associated with nonprofits is “noble, there are more fiscally responsible means of achieving that end.”

The situation is slightly unusual in that the city of some 50,000 residents, located north of Fort Lauderdale, has had an arrangement since the 1980s to manage the nonprofit’s bookkeeping and cover its bills out of public money. The city was then to be reimbursed from the charity’s future fundraising. As late as 2009, what was owed was estimated at $90,000. But then, according to the organization, fundraising began to fall off. Even as the debt mounted, city staff didn’t inform the Margate City Commission until a new city manager took over in 2014. By that time, the sum had hit $300,000, and the agency eventually left the city and moved elsewhere.

The inspector general’s report criticized the city for not assigning a point person to oversee the arrangement. The inspector general said that the “city’s gross mismanagement resulted in a $467,000 loss,” but that amount was lowered to $290,000 after a settlement agreement with the Center last fall. The Sun-Sentinel reports that the city will try to recover all of its taxpayer money through a set of speedy maneuvers. Margate’s Community Redevelopment Agency bought the Center’s building last year for $312,000, with the funds being used to pay off the mortgage. City officials told the paper that the building is worth about $492,000, which could potentially mean a profit if it were ever sold. The Agency will move into the building after renovating it.

Despite the problems, the city commission appears more sanguine about the situation than the inspector general. One city commissioner said they assumed things were under control, although he added that even if it had known, the commission may not have done things differently: “How do you treat an organization that’s been in the city for 25 years that had a good track record and helped a lot of people, and say, ‘OK, we’re going to throw you to the curb now?’ […] In the long run, what we did was OK. We have an asset, maybe even make some money on this.”—Larry Kaplan