United Way May Tap Reserve Amid Lag in Donations

With donations to the Los Angeles-area United Way lagging substantially after disclosures last summer that its top officials engaged in financial improprieties, the charity may be forced to dip into its $12.8-million reserve fund to prevent cutbacks to member agencies.

United Way’s board of directors has agreed to the unprecedented action to ensure that its 350 agencies get at least the same level of funding--$40 million--that they received from the last campaign, the charity’s top officials said.

But in spite of the emergency measure, some agencies are scrambling to raise extra money--selling hamburgers and T-shirts, running bake sales, in some cases--in attempts to ward off cuts in social and health programs that serve hundreds of thousands, including abused children, the elderly, homeless and handicapped.

Although some United Way officials are privately predicting that the campaign could miss its $90-million goal by as much as 10%, the charity’s top leaders say its too early to make such projections.

“I’m not ready to make any projections. I think we will do better than 10%,” volunteer campaign chairman David E. Anderson said. “While the $90 million was a stretch goal to communicate what the community really needs, the potential is still there to make that goal.”

United Way President Frank McNamara said, “We are facing the toughest fund-raising campaign in my 37 years with United Way . . . but I believe we have the opportunity to make it.”

Even with assurances of this year’s budget levels, the agencies say they will be strapped to provide services because of increased costs and more clients.

For example, Denise Wheeler, executive director of Project SISTER, a United Way agency that provides sexual assault crisis services in the Pomona area, said her budget this year was $67,000, of which $57,000 came from United Way. Her proposed budget for next year is $110,000.

With operating costs “already streamlined” and no increase expected from United Way, she said her staff is beating the bushes for funds--selling hamburgers at a local fair and holding a jazz concert to help make ends meet.

“We hope to get $1,000 from a walkathon, $1,000 from the City Council, and there is the hamburger booth. But how many hamburgers can you sell? I’m afraid we won’t be able to do the things we need to do--community outreach and focusing more on combatting sexual abuse of the elderly.”

Another special group of 15 health charities that participate as partners with United Way in the annual fund-raising campaign are also expecting cutbacks.

These campaign partners, which include such organizations as Red Cross, American Heart Assn., Crippled Children’s Society, City of Hope, American Cancer Society, received more than $20 million from last year’s United Way campaign but could receive substantially less if this campaign falters. The “health partners,” as they are called, are not under the United Way umbrella. They have individual contracts for sharing proceeds and the campaign costs and are not eligible to receive money from the United Way reserve fund.

“It’s unfortunate, but it isn’t United Way who is hurt by all of this controversy. It is the people who use the services,” said Ralph Wright, spokesman for Los Angeles Red Cross.

Red Cross last year received about $10 million, nearly 84% of its budget, from the United Way effort.

“We are scaling back our budget, and while the last thing to be cut will be disaster victims, there will undoubtedly have to be cuts in some of our new programs,” Wright added. “We had hoped to be able to provide an expanding role in help for the homeless street people, but without the money we can’t move further into that.”

The reserve fund that will be used to aid the 350 United Way agencies was one of the issues that the Citizen’s Independent Study Committee investigated last summer after it was revealed that donated money was used to make loans to United Way staff executives.

At that time, the committee members questioned the size of the reserve--$12.8 million.

“Most charities don’t keep such large sums of unallocated money on hand. Donors like to see their contributions being used in the community,” said committee member Dr. Anelise Mosich, a USC accounting professor. “We felt that while it was prudent to have a cushion, it should be more modest.”

The reserve fund, which officials say is roughly equal to two months’ operating expenses, including allocations to agencies, has in the past been used only for occasional emergency allocations to various agencies, never to bail out a campaign, although several campaigns have missed their goals.

5.7% Increase Nationally

The problems with the Los Angeles campaign come at a time when United Ways nationally are showing a 5.7% increase in donations over last year. Other large Western cities, such as Seattle, San Francisco and San Diego, increased 10.1%, .5% and 5.9% respectively.

Orange County United Way was $2.5 million short of its goal, and President Merritt Johnson attributes losses in part to donor uneasiness about the Los Angeles loan controversy.

With a majority of fund drives at major corporations completed and less than two months remaining in the nine-month campaign, which was extended an additional two months because of the difficulties, United Way reports that as of last week, it has raised $68.7 million, or 76.4% of the $90-million goal.

(Last year, $84.6 million was raised. Of that, about $20 million went for campaign expenses, administration, allocation and planning. Health partners received about $20 million and the 350 agencies $40 million.)

But United Way officials, noting that it is a year like no other, contend that there are too many variables--companies not yet accounted for and new ones being contacted during a second effort--to estimate how close they will come to the $90 million goal. This week, for example, a corporation gave a matching gift and a foundation gave a first-time gift, totaling $225,000, Anderson said. “We are working on a number of things like that.”

They do say that the problem area in the campaign has been contributions from employees, which make up two-thirds of the United Way donations. Anderson says these contributions “have been mixed,” with some worker groups giving more than they did last year and others giving less.

Brighter spots in the campaign this year have been donations from companies, which are up 9%, and gifts of more than $10,000 from private individuals, which are up 28% this year, according to Anderson.

Officials of several Los Angeles-area companies said in interviews that workers’ concern over the loan controversy was a major reason for poor showings in some employee campaigns.

Questionable Decisions

The controversy was sparked by revelations last summer of a series of questionable financial decisions by United Way, including lending donated money to agency executives. The dealings were investigated by Citizen’s Independent Study Committee and by the Los Angeles county counsel.

The citizen’s committee found that top officials and volunteers of the charity had used poor judgment in authorizing almost $330,000 in loans to five agency executives, but concluded that there had been no dishonesty. Most of the borrowed money was not repaid until late last year.

The panel also criticized officials for using $260,000 in donated money to bail out the now-defunct United Way credit union and for lending $150,000 to an East Los Angeles human services agency. Panel members recommended that United Way make major changes in accounting and personnel practices.

The investigation by the county counsel’s office concluded that while some of the United Way transactions may have been “improper,” the United Way officials had acted in “good faith.” United Way officials hoped that the investigations will put the issue to rest, and there are indications that the concern may be lessening, although possibly too late to help this year’s campaign.

United Way volunteers say donor concern was highest last winter when many of the large company campaigns were held. Some companies postponed their campaigns until spring to make certain that United Way had taken care of its problems. Other companies, which received lukewarm response from workers, went back to them in the spring.

Anderson said employee concern seems to be lessening this spring as adverse publicity about the loans subsides. The organization has also announced that a new president has been named to take over June 30.

Campaign workers said recent fund raising has been more successful. They point to the local government employee campaigns as an example.

Spring Recovery

Last winter’s county government employee drive was off 10%, while its Brotherhood Crusade, which calls itself the Black United Way, was up 11%. But this spring, a Los Angeles city employee campaign raised $604,000, an increase of 20% over the previous year.

The county’s campaign manager, Evelyn Gutierrez, said the United Way controversy, still fresh last winter, had an adverse effect on the campaign. But city campaign leader Wendell Meyer said that while there were still some questions about the controversy among some donors, such events as a health fair showing who is helped by United Way agencies seemed to spur contributions.

‘Meet Them Head On’

Lorraine Vidic, a United Way loaned executive (some local companies “donate” one or more employees to United Way to work on the campaign, continuing to pay salaries), said that when corporate executives ask questions about last summer’s controversy, “I meet them head on,” sometimes giving them copies of the investigation reports.

But she said, “Recently we’ve noticed a change in people’s attitudes. There are less questions and more support.” For example, she noted that one industrial executive, who previously refused to answer her calls, surprised her by agreeing to a campaign.

United Way officials have been counting on the large aerospace industry, which usually holds campaigns in the spring, to give the campaign figures a boost. Although corporate giving at some of these companies has been up, employee donations have been mixed.

Hughes Aircraft Co.’s corporate gift is up 10% this year, according to spokesman Mike Murphy. However, employee giving remained at last year’s level. Rockwell International reports that employees donated about the same amount as the last campaign. The corporate gift was $1 million, and employees gave about $1.1 million, in spite of the fact that the company will lose several thousand employees when an Air Force bomber project winds down, said spokesman Earl Blount. McDonnell Douglas West employees also gave at last year’s level.

“There was concern,” McDonnell spokeswoman Beverly Hoskinson said. “Our employee committee that oversees charitable contributions had calls from workers who were concerned about our support of United Way. Some felt very strongly that we shouldn’t give, but the board felt there were a lot of individual agencies depending on that money.”

Economic Impact

United Way officials say that they are as much a victim of economic conditions--company mergers, consolidations, labor problems--as they were the loan controversy. But some companies have managed to make good showings despite economic problems.

For example, Union Oil of California, which lost 332 employees, still gave an employee gift of $452,000, off only about $40,000 from last year. This was accomplished because individual gifts increased from $163 to $169, said spokesman Barry Lane.

Donna B. Johnson, vice president of United Way’s Region 1, which includes the San Fernando Valley, Glendale and Burbank, noted:

“We had a rough start last year. Some of those employee campaigns were difficult. But we have 200 volunteers out contacting new companies of at least 100 employees. Just recently 25 new companies have agreed to have campaigns. New accounts are usually more difficult to enroll, but I feel really reassured that events are behind us and people will respond favorably.”

In an attempt to recoup momentum lost last year, United Way this spring has launched a massive 11th-hour effort that includes:

- Enticing first-time corporate contributors with promises of matching contributions from several large local foundations and companies.

- Sending out more than 2,600 volunteers to beat the bushes for new contributors in smaller companies that have not been solicited.

- A telephone blitz of residents who have given more than $10,000 in past campaigns.

- A door-to-door campaign in downtown high-rise buildings to find new contributors.

The $700,000 matching program is funded by the Leavey Foundation, Carnation and General Telephone to spur new companies to give a first-time gift to United Way, Anderson said.

The chairman of Leavey’s board of trustees, J. Thomas McCarthy, said it was the first time that the foundation had given to United Way. (Started by Thomas Leavey, the founder of the Farmers Insurance Group, and his wife, Dorothy, the foundation mostly supports private colleges, hospitals and awards scholarships.)

But such successes and the ambitious spring campaign, which includes sending campaigners back to some companies to hold unprecedented second fund-raising efforts, may not be enough to ensure a healthy economic picture for the agencies and partners.

Supplemental Money Sought

The recipient agencies have been told to expect no new money and are tightening their belts and seeking supplemental money elsewhere. But they say it has been extremely difficult to find new sources. With federal, state and county governments cutting back financially, they have to compete with thousands of other nonprofit groups for smaller amounts of grant money.

And the agencies are also handicapped because under their United Way contracts they cannot solicit any of the companies that have already held United Way campaigns.

Some of the agencies have resorted to expensive direct mail solicitations, organizing special events and even using such old-fashioned money-raising techniques such as hawking T-shirts and baked goods.

But while most say the board action will enable them to prevent disastrous cutbacks, they note that there will probably be some curtailments of service among present clientele, and that there will be little hope of expanding services to the many people on waiting lists.

Likewise, Katharine Krause, executive director of Legal Aid Foundation of Los Angeles, noted that the financial crunch could not have come at a worse time. Legal Aid, aside from its usual programs, is running a hot line for immigrants applying for citizenship under the amnesty program and training other agencies how to help them.

“While most funding sources fluctuate, United Way has always been one of the few reliable sources. So this hurts a lot,” Krause said.

Bernice Bratter, executive director of Senior Health and Peer Counseling Center of Santa Monica, said her organization, which has a $650,000 budget, received $39,000 from United Way last year. It also receives funds from the California Department of Health Services and county Department of Mental Health, both of which have also held appropriations at old levels.

“We will have to raise $400,000 for programs,” she said, “and we are a small agency.”

The group, which provides health screening and mental health services for the elderly, has been brainstorming on new money-making projects. They are in the process of organizing Perfect Age Enterprises, which will develop marketable products. The first fund-raising items are bright T-shirts and sweat shirts with the logo “I’m the Perfect Age.”

Even with the new venture, it will be tough going, she said.

“We are doing everything humanly possible. But there is just no way to make up all these cuts. One of our volunteers told me last week that we can’t afford to do the work we are doing. But for the sake of the seniors we can’t afford to stop either.”