Latino Agency in Danger of Folding : Social services: Founders of the troubled organization that has run Head Start centers search for a survival strategy since losing federal funding.

Luis Flores will never forget the taunt hurled 50 years ago at him and other Spanish-speaking kids--”M.R.” for mental retard.

Rudy Acuna recalls with anger his struggle to escape being pegged as a slow learner in kindergarten because he couldn’t speak English.

And Irene Tovar can still taste the soap her teacher used to wash out her mouth when she dared utter a Spanish word in class.

Those grim memories drove them and other Latinos in the San Fernando Valley to launch the Latin American Civic Assn. 30 years ago, hoping to improve educational opportunities for Latinos in the Valley.

The organization, which first provided English lessons to low-income preschoolers in a public park, continued to grow even after the founders moved on, becoming an important voice for the Latino community with 300 employees and millions of dollars in federal Head Start funds.

But now LACA’s founders are dismayed by revelations that the agency has mismanaged funds and violated federal conflict-of-interest and nepotism regulations.

Late last month, Los Angeles County officials stripped LACA of $5.3 million in future federal funding, saying it was riddled with financial and other problems. If the association does not succeed in overturning the decision on appeal, the once-proud agency could fold, because Head Start is its biggest program.

Deeply concerned, a handful of founders met privately Saturday in Mission Hills to map out a strategy for saving LACA.

“We cannot allow this to happen,” said Tovar, an activist who represents the Valley on the Rebuild L.A. board of directors. “It’s wrong to indict a whole organization without considering its history and the good it has done.”

The founders hope to meet with county officials this month to request that either their association or some other Latino group be allowed to continue providing nutritious meals, medical services and instruction to the 1,800 mostly Latino poor children that LACA serves in the San Fernando and Santa Clarita valleys.

The county has said those services will continue without disruption, despite the lost funding, because it or other nonprofit agencies will take over LACA’s program by the beginning of the 1993-94 fiscal year on July 1.

“To have an outsider come in and do it is a slap in the face--it’s not acceptable,” said Acuna, a Chicano studies professor at Cal State Northridge. “The county was notoriously racist when we first applied for funds, and my fear is that, because of some indiscretions, the powers that be are seizing upon this opportunity to take the leadership away from the Mexican community.”

County officials hotly deny that racism is a motivating factor.

“I’m Hispanic, and the other two top administrators of the program are black,” said Gil Anzaldua, assistant superintendent of educational services for the county Office of Education, which administers Head Start locally for the federal Department of Health and Human Services. “To me, fiscal accountability has no color.”

The county is willing to meet with the founders, but LACA’s fiscal problems are so severe that officials may have to take over the program before July 1 to prevent services from being interrupted, Anzaldua said.

The agency’s problems began last summer, when county investigators found that complaints by parents and employees were justified: LACA had violated federal regulations by renting office space and vans from its own employees, overpaying staff members and engaging in nepotism, including hiring Director Ralph Arriola’s wife.

In December, the association was ordered to repay $104,700 in federal funds. The county also classified it as a high-risk agency and continued to scrutinize its books.

Since then, the county has discovered that the association is $822,000 short of meeting its $5-million budget for the remaining four months of the current fiscal year, Anzaldua said. Among the problems is the failure of the agency to fill five empty Head Start centers. The agency receives $3,800 in federal funds per child, and it lost about $380,000 because of the flagging enrollments, he said.

A top-heavy staff and the order to return $104,700 also contributed to the agency’s deficit, Anzaldua said.

“It’s a house of cards,” Anzaldua said. “They’re not living within their means.”

Anzaldua also said LACA expanded in areas that were not approved, such as Chatsworth and Northridge, while the five centers remained empty in such areas as Saugus and North Hollywood. Also, according to a review of the minutes from mandatory meetings of the agency’s parents council, LACA failed to keep parents informed of its actions in violation of federal requirements, he said.

“We could close them down based just on that,” Anzaldua said.

Arriola, head of the agency for more than 15 years, did not return phone calls from The Times. He has previously acknowledged committing some of the violations, including hiring his wife, but denied that he profited from doing so.

In January, the county suggested that LACA pare part of the deficit by cutting some top-level agency jobs. Instead, the agency proposed cutting 60 positions, 40 of which were teachers or teacher’s aides, Anzaldua said.

It was then that the county moved to deny LACA’s future funding.

“It makes me very, very unhappy,” said Antonia Tejada, a real estate agent who was LACA’s first president.

LACA started out in 1963 with so much promise, others recalled in interviews last week.

At the time, bilingual education had not come into vogue, and few Latinos had entered teaching and other professions, said founder Miguel Montes, a dentist who was the only Latino in his class of 104 at USC in the late 1950s and early 1960s.

Education became LACA’s main focus as a result, he said. The first classes were offered in Las Palmas Park, and LACA volunteers went door-to-door and visited churches to recruit students.

“We were committed because the unfair things that happened to us were so fresh in our minds,” Tovar said. “We figured there had to be a better way to treat kids.”

LACA applied for $10,000 in federal Head Start funds in 1965 but was rejected by the county Economic and Youth Opportunity Agency, which administered the program. Some LACA founders believe the county discriminated against the organization; others thought officials failed to recognize that there was poverty in the Valley.

The founders refused to give up. With the help of former Democratic Congressman James Corman, who represented the northeast Valley, the founders obtained another application and stayed up all night filling it out. Montes then flew to Washington at the group’s expense to meet directly with Head Start officials.

A few weeks later, a telegram arrived announcing that the program had been granted $1 million--100 times as much as had been requested, Montes said. Even after the founders learned that the government had made a typo and the group would receive only $10,000 after all, spirits remained high.

“It was the most exciting time in the sense that America was reaching out to make some changes and we were in the heart of it,” Montes said. “The fact is, if we hadn’t been there, the money wouldn’t have gone to the Valley.”

Eventually, the founders drifted away into other pursuits as LACA became more established. Heartsick about its current plight, they vow to become involved again until the organization is back on its feet.

“If the current management did something wrong, then let’s focus on that,” said Ed Moreno, a retired school principal and LACA founder. “Why should LACA as a whole have to pay?”