Nonprofit survives 5-year funding freeze

2013-12-22T21:45:00Z 2013-12-24T00:25:08Z Nonprofit survives 5-year funding freezeMarc Chase marc.chase@nwi.com, (219) 662-5330 nwitimes.com
December 22, 2013 9:45 pm  • 

EAST CHICAGO | It survived an attempted hostile takeover by a former mayor and five years during which a state legal battle froze its revenue.

The Foundations of East Chicago weathered political wrangling and a lawsuit filed by the state's attorney general, surviving -- with diminished funding.

Even with those struggles, East Chicago churches, social service agencies and schools throughout the financially strapped city hail the Foundations as an important tool in funding education and other programs through about $3.8 million per year in casino revenues.

A remnant of a deal forged by Robert Pastrick's administration to divvy up a portion of East Chicago's casino revenues among municipal, nonprofit and private interests, the Foundations faced criticism for being top-heavy on administration expenses and salaries.

Foundations Executive Director Russell Taylor, a Darien, Ill., man who earns $126,393 a year, concedes recent reforms prompted by the state lawsuit helped make the organization more efficient.

Taylor hails the millions his organization spends each year on scholarships, school equipment, shelters and other projects as important economic development initiatives.

Weathering the storm

Seven years ago, then-Mayor George Pabey sought to muscle in on Foundations finances.

When Showboat Casino came to East Chicago in the mid-1990s, Pastrick's administration brokered a deal under which 1 percent of casino revenues went to city government for economic development, 2 percent to the nonprofit Foundations and another .75 percent to a for-profit private interest known as Second Century, which was supposed to be enhancing housing stock in the city.

Shortly after Pabey became mayor in 2005, he maneuvered to wrest control of the Foundations and Second Century casino dollars.

Indiana's attorney general joined the fray through a civil lawsuit, which sent all Foundations casino revenues into escrow between 2007 and a legal settlement in 2011.

But Taylor and the agency's administrative board kept the Foundations going, still distributing millions each year to various community programs.

In the end, the agreement with the private company Second Century, run by Pastrick allies Michael Pannos and Thomas Cappas, was dissolved as the company had failed to provide transparency regarding how the millions it had received over the years was being spent.

In a settlement with the state, casino revenues for the city and the Foundations changed to 1.625 percent of the annual house take for each entity, a gain for the city but a reduction for the Foundations totaling millions each year.

But the Foundations survived.

Foundations officials, who had been running the operation as two separate foundations -- the Twin City Education Foundation and the East Chicago Community Development Foundation -- agreed to consolidate into one organization.

Pabey wasn't present for the end of this fight. In 2010, a federal jury convicted him of stealing from taxpayers in a case unrelated to the casino battle, and he was sentenced to 60 months in prison.

Taylor said the Foundations survived five years of no revenue by funding its operations and community grants through banked money and interest from surplus funds.

Foundations tax forms obtained by The Times show the ship was righted in 2011, when the legal settlement deposited $29.8 million in back revenues into its coffers.

Community programs

The Foundations continues to funnel revenue from the casino, now known as Ameristar, into education, church and municipal programs that encompass private nonprofit and government initiatives, a Times review of the organization's tax filings shows.

Through the years, the Ivy Tech Community College campus in East Chicago has been a key beneficiary of Foundations grants. In 2012 alone, it received a $2 million grant to update educational equipment, Taylor said.

Sister Maria Giuseppe, of the East Chicago-based St. Joseph's Carmelite Home, said her shelter has relied on Foundations grants over the years to fund programs for children.

Cythia Rivas, executive director of the nonprofit Healthy East Chicago Inc., said her organization relies on Foundations money for most of the $150,000 needed annually to run its Moms Taking Charge program.

The program links economically challenged mothers in the city with social service resources.

"We help evicted moms look for shelters," Rivas said. "We do outreach through city court, referring some moms to parenting programs. We help women and children find shelters to get free of violent situations. The Foundations grants are very effective resources for this."

Top heavy?

Despite the millions that have flowed from the Foundations to community programs, the agency has been targeted by critics claiming it is top heavy with administrative expenses.

In 2012, the Foundations spent $1.8 million on administrative and operational expenses, its tax forms show. That accounted for about 25 percent of its spending, which also included $5.5 million in grants to community programs.

The 2012 administrative expenses included Taylor's $126,393 salary, a total of $202,343 to three of Taylor's programming or services managers or directors and a total of $94,015 in compensation to the Foundations five board members and treasurer.

But the percentage of administrative expenses versus grants and contributions has been declining.

A Times review of Foundations tax forms showed that in 2004, about 30 percent of overall expenditures went to administrative costs, as compared to 2012's 25 percent.

Taylor credited the Indiana attorney general's recommendation to reduce the Foundations from two separate bodies into one with increased efficiencies.

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