Foundation defaults on city loan – where’d the money go?
City Council members are asking where more than $400,000 loaned to a nonprofit organization went after the organization defaulted on the loan.
Now that organization faces an audit and accusations that they used some of the money in ways that violated the loan agreement.
“We’re scraping together pennies to keep public safety and the most vital city services afloat,” City Councilwoman Angelique Ashby said Tuesday. “To lose money on something like this absolutely requires that we look into it more.”
The Sacramento Regional Sports Education Foundation borrowed the money to put on an outdoor track and field event that, according to preliminary budget documents, was expected to generate approximately $600,000 in revenue, enough to repay the loan.
The foundation’s estimates proved to be off by about $900,000, however, as the event, the World Masters Athletic Championships, actually lost $300,000.
Now the organization has declared itself unable to pay the loan, leaving Sacramento with a $400,000 hole that it can ill afford at a time when the city is facing a $15.7 million budget gap.
The foundation is overseen by the Sacramento Sports Commission, a joint city/county commission which is under the umbrella of the city’s Convention, Culture and Leisure Department. The city granted the loan to the foundation on the recommendation of the sports commission in March 2010.
The city contends that, in violation of the loan agreement, the foundation spent about $250,000 of money intended for the event on unrelated operations and other events, according to Barbara Bonebrake, director of the city’s Convention, Culture and Leisure Department.
The terms of the loan also required the loan proceeds to be segregated from operating accounts, but, Bonebrake said, that didn’t happen, making it even more difficult to determine precisely where the money was spent.
“It appears their operating revenues have been short for a couple of years, and at the end of the day the revenue was used to balance the operating budget,” Bonebrake said.
Sacramento Sports Commission Executive Director John McCasey disagrees.
“They cannot say that with certainty,” McCasey said. “We are confident the money was spent on the (WMA) event.”
McCasey did not dispute that the funds were not segregated, and attributed the problem to his organization’s lack of resources.
“We don’t have a big staff or a lot of behind-the-scenes administrative staff to support us,” he said. “It was just a clerical error.”
Ashby said that answer isn’t quite good enough for her, though.
“When I hear those comments, I want to know more,” she said. “I don’t think that is a reasonable response. It’s a good start, but it necessitates a deeper look.”
Last year was the first time the WMA Championships were held in California in more than 35 years, and the 12-day event attracted more than 10,000 visitors to Sacramento.
The event was free to attendees, so revenues were not dependent on ticket sales, but were based on registration and athlete spending, according to McCasey.
“That’s what fell short,” McCasey said. “Once they got here, they didn’t spend what we expected.”
But the event loss alone doesn’t explain the loan default, Bonebrake said, so the city has initiated a compliance audit of the foundation.
“As for the balance of the funds that were not available to pay back the city and the county, we still need to get down to the bottom of that,” she said.
The line-item budget documents that cover the period of spending for the WMA event were not immediately available, according to McCasey.
When asked whether it was a mistake to ask for the loan, McCasey declined to answer.
“That’s a stupid question,” he said. “I’m not going to go there.”
Bonebrake said the city anticipates the loan will be paid back, but they need more information to determine the best way to achieve repayment.
“They can pay it back through fundraising and other revenue sources they might have,” Bonebrake said. “Or, another way is for the city to reduce its annual funding to the organization to, in effect, pay itself back.”
Ashby said that, after seeing the results of the audit, if the city continues to provide any level of financial support to the commission, corrective action will have to be taken to prevent the situation from recurring.
“We have to make sure they learn from the mistake,” she said. “If, at the end of the audit, it appears to have been caused by negligence, we need to think about not contributing to this organization any further.”
The city’s compliance audit of the Sports Commission and the foundation is slated to begin as early as next week, Bonebrake said, and it should be complete by the end of August.
Sacramento Press staffer Anil Sinha contributed to this story.
Melissa Corker is a staff reporter for The Sacrametno Press. Follow her on Twitter @MelissaCorker.