Weighed down by debt, Seward Neighborhood Group forges ahead

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Volunteer efforts and revenue stream constitute silver linings

At the Seward Neighborhood Group’s (SNG) annual meeting on Nov. 6, outgoing Board President Jean Johnstad told the 90-plus people in attendance at Matthews Park that she had been quashing rumors that the organization was no longer operating. “I realized we had returned to the grassroots organization that was started in 1960,” said Johnstad in an emotional address, during which she announced she would be leaving the board for health reasons.

After the tumultuous happenings of recent months — including the resignation of former Executive Director Lori Stone and former Treasurer Perry Caranicas, the levying of a possible $135,000 penalty by the Neighborhood Revitalization Program (NRP), and the firing of all paid staff after the organization discovered it is tens of thousands of dollars in debt — SNG is marching on, albeit as a changed organization with a still-uncertain future.

Johnstad and Board Member Kevin Brown received rounds of applause for their work in recent months to sort out SNG’s operations and finances, and an ongoing, independent audit should shed even more light in the coming months on how the organization — Seward’s official, city-designated neighborhood group — got into its current position.

There are some positive signs: incoming revenue, ongoing committee work and even a new online neighborhood forum. NRP monies still exist, and at least one program, the long-successful Seward Youth Peace Garden, is currently funded. Board members report that longtime funders such as the McKnight Foundation have pledged continued to support to SNG, and board members have pledged to resurrect programming if at all possible.

With an estimated $50,000 in debt, however, it could be a long road to recovery, and it remains to be seen how willing foundations will be to grant money to the organization after two financial collapses in the past four years.

The work of SNG leadership and the almost 100 attendees at the November annual meeting prove that SNG is alive — if not yet well — as a volunteer organization, and the board — refreshed after elections at the annual meeting — is pursuing funding for a part-time coordinator to help steer the ship out of troubled waters.

Into the red

The majority of questions from the audience at the Nov. 6 annual meeting were for Brown, who gave an update on SNG’s murky financial picture.

Brown opened his report by repeating a common refrain from the board this year: “It’s important to increase accountability and transparency,” he said. “We have been working hard to achieve that.”

Brown reported that SNG’s estimated deficit is $50,000, not including the possible $135,000 penalty to NRP, which is likely to come due early next year.

Brown presented two balance sheets at the November meeting. One from the end of July — the last one presented to board by former executive director Lori Stone before her resignation, according to Brown — shows the organization $22,779 in the black.

The second was a Sept. 30 balance sheet — prepared by Brown with the assistance of independent bookkeeper Christie Rock, who has contracted with SNG and several other Minneapolis neighborhood organizations for years — showing SNG’s general fund more than $32,000 in the hole, just two months later.

Both Stone and former SNG Treasurer Perry Caranicas resigned at the end of July. Stone stayed on until late August. Although both Stone and then-Board President Johnstad spoke of a “smooth transition” after Stone’s resignation, there is little evidence that one was accomplished.

Stone did prepare for the board an outline of SNG’s programs and operations, and she told The Bridge in an interview in September that she had submitted $27,000 in invoices (presumably for receivable income) before leaving at the end of August.

However, Brown reported that board members did not go into the SNG offices until after Labor Day — and Stone’s departure — when they found “financial records in a state of disarray,” Brown said at the Nov. 6 meeting. An investigation of August finances showed more than $28,000 in expenses, “but deposits were zero,” he said.

In comparing balance sheet statements given to Stone by Rock, the contracted bookkeeper, and those shown to the SNG board by Stone, Brown reported that, “in some cases, financials that were given to the board had been altered from the bookkeeper.

“In a number of cases, liabilities were higher and assets were lower than reported,” Brown told the crowd.

Based on a review of available financial records, the only hard, consistent evidence of this that The Bridge was able to find was an ongoing discrepancy between the balance on an approximately $34,000 line of credit reported to Stone by the bookkeeper Rock and the $25,000 Stone consistently reported to the board of directors.

Balance statements prepared by Rock show the credit line balance fluctuating within $500 of the $34,000 mark throughout the year, according to information for the months of February–April, August and September. Rock said that she began including the full line of credit balance on the balance sheets she gave to Stone, but that the amount appears to have been changed on the sheets shown to the board.

Stone said in the September interview that she and then-treasurer Caranicas “were treating the interest paid [on the line of credit] on the income and expense side of the financial statement, and the line of credit, since it was all accrued on the bill, we were separating the interest paid out and keeping the line of credit stable, because we weren’t paying the principal at that point.”

The explanation did not hold water with Brown, who said he told Stone during an exit interview: “Lori, if we owe someone money, that’s a liability.”

In her September interview with The Bridge, Stone said she and Caranicas showed the SNG board everything they needed to know about the organization’s finances. Stone blamed the rapid financial collapse, which came to light the first week of September, on the lack of a transition plan on the part of the SNG board. “They could have been on more solid ground, if they’d been smart about it and had a plan and worked it through in a positive way,” said Stone of the board during the transition. “It’s a struggle, but it didn’t have to be the way it is right now.”

More extensive audit is underway

While there appear to be many other factors and issues involved in the organization’s short- and long-term financial problems, the intricacies are hard to see clearly, given the incomplete and sometimes contradictory financial information available. The more extensive independent audit, currently underway, should do more to clear the murky water of SNG’s finances. At SNG’s Nov. 28 board meeting, it was reported that Mike Wilson, who is conducting the financial investigation, expects to complete the 2006 audit by the end of December, by which time he will move on to 2007’s finances. Wilson told Johnstad he wants to talk to NRP about possibly expanding the scope of the audit.

In the past, Wilson has performed required audits of SNG finances for NRP, and he has also prepared the organization’s tax filings. New Board President Sheldon Mains said at the board meeting that it was problematic for Wilson, as well as former SNG bookkeeper Tim Dornfeld, to conduct an “independent” audit. Johnstad said she asked Wilson about that very issue — whether his conducting the audit gave the impression that he was “investigating himself.” Johnstad didn’t indicate what Wilson’s response was.

SNG’s financial issues date back further than 2006, however. A review of SNG tax filings shows the organization with an increasing defecit — $17,269 at the end of 2005 and $63,072 at the end of 2006.

An even older issue — but one that may perhaps weigh heaviest on the organization — is the $135,000 penalty that SNG will likely be required to pay to NRP early next year. The penalty stems largely from revenue from a loan program that was misappropriated to other areas of the SNG budget.

Silver linings

There are signs of hope for the long-standing organization, even financially. At the November board meeting, Brown presented his last financial report as interim treasurer before handing the job off to new Treasurer Diann Anders. (Brown remains on the board.)

Brown told the board that SNG received some “unexpected income” in October: almost $10,000 from NRP Phase I money that was “sitting in the pot,” Brown said. Although its use must be carefully documented, the money can be used for more general things, such as administration and overhead, Brown said.

In addition, the board raised close to $5,000 at the annual meeting through a silent auction and membership donations, and SNG received $4,921 for its part in Preservation Alliance’s wildly successful Milwaukee Avenue Home Tour.

While the financial boosts do not cover the organization’s debt, Brown said, “We’ve got some money now, but this is our opportunity to take a chunk of that and see how we’re going to move forward.”

Brown has said that SNG’s first obligation is to pay contractors — such as Anna Sonmore Costello, who heads the Youth Peace Garden project — who have not been paid for all of their work.

Looking ahead, however, SNG hopes to invest in a part-time coordinator to help the all-volunteer board run the organization. Board Member Bill Svrluga said he met with the McKnight Foundation and asked about the possibility of funding half of a new SNG staff position for the first six months, while the organization begins to rebuild. Svrluga said he intends to send McKnight a formal proposal about such funding in the near future.

With no current staff, SNG may cut its losses by moving out of its existing office space, which Brown said is the organization’s biggest expense right now.

The neighborhood group’s work is surviving and even flourishing in other ways, as well. Mains — who is currently sits on the Minneapolis Library Board of Trustees, as well — moderates the new Seward e-democracy listserv, on which Seward residents and stakeholders post daily communiqués about issues and goings-on in the neighborhood. (Watch for a more detailed report of both Seward and Prospect Park’s e-lists in the coming months.)

Longtime, but now former, SNG staffer Bernie Waibel emails the monthly SNG newsletter chronicling recent and upcoming news and events of interest.

Friends in low places

In her address at the annual meeting, Johnstad reported that some former SNG-backed programs — such as Restorative Justice Community Action, the Seward Towers Sewing Circle and other Towers programs — are continuing without the group’s financial support. Johnstad said that SNG would work on a survey “to find out what the neighborhood wants SNG to do, so we can prioritize the funds we have.”

Johnstad, who has lived on Milwaukee Avenue since 1988, told a story at the annual meeting about the organization’s youngest supporters — children, aged 4–8, who live nearby, “who come to my door when they’re out on their trikes or bikes… for cookies,” she said. “On the day of the [Milwaukee Home] tour, they saw all the people and decided to do a lemonade stand. It was hot, they had a lot of business,” Johnstad told the crowd.

Afterwards, the children approached Johnstad and said, ‘We’re going to give half the money to SNG, because we know you need money,’ she said. In late November, the kids came to her door — “I figured they were coming for cookies again,” she said — and handed her an envelope with $56 “from the lemonade gang.”

“Here they are, 4-8 years old, and they have enough trust in this organization to fund us and give us money,” Johnstad told the annual meeting attendees, whom she had thanked earlier. “You’re all here tonight because you care about SNG,” she said. “Thank you all for being here.”

Johnstad said that, rather than give the money to SNG, she planned to put the money towards one of the bike racks that the Milwaukee Avenue Homeowners Association — another partner in the successful tour — hopes to install along the pedestrian walk.

Despite these silver linings, SNG will likely need more than lemonade-stand funds to sustain itself, whether as a volunteer or staffed organization. While there was obvious financial and emotional support at the annual meeting, no one was rushing to serve on the SNG board; all three individuals nominated from the floor declined the invitation to run, and a revitalization committee formed in response to the financial collapse has not met for a month, Mains reported at the Nov. 28 board meeting.

Still, the longstanding Crime and Safety and Environmental committees continue to meet, and the board has discussed creating a membership and funding committee and a “cohesive public relations plan” for SNG.

The full board will meet twice in January after a December break: Wednesday, Jan. 2, 7–9 p.m. and Wednesday, Jan. 30, 7–9 p.m; call 612-338-6205 for location.

— Liz Riggs contributed to this article.

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