Homeless Agency Faces Cash-Flow Crisis

The Los Angeles Homeless Services Authority is deeply in debt and has little money in the bank to pay its bills, according to a joint report released Tuesday by the city and county of Los Angeles.

Through July 8, the agency owed more than $5 million to subcontractors that provide services to the homeless, with more than $3.2 million in payments more than 30 days past due. But the authority had only $700,000 to pay its bills.

“It didn’t take very much delving and probing to come running out screaming, ‘This place is a mess,’ ” Los Angeles City Controller Laura Chick said.

The authority was created by the city and county in 1993. It is charged with ending homelessness in the county, but in June it reported that more than 90,000 people in the Greater Los Angeles area were homeless at any given time, and that the area had far more homeless people than other large metropolitan areas in the United States.

Mitchell Netburn, who has been executive director of the homeless authority for five years, said, “The good news for me is the assessment didn’t tell us anything we didn’t already know.”

He said the authority was not running a deficit, and that it could pay its bills after it properly coordinated incoming grant money with the money it owed to contractors.

City Councilwoman Wendy Greuel helped create the homeless authority as a member of Mayor Tom Bradley’s staff.

“We don’t know enough to know who to point blame at ... but it’s ultimately the general manager of the department who is responsible for the oversight of the agency,” she said. “I’d give [Netburn] some credit that he recognized there was a problem and had begun to address it. But I think he’ll be judged by his ability to resolve this problem.”

In late June, Chick said, she became aware through whistle-blowers at other city agencies that the authority was having difficulty paying its bills. A city-county investigation was quickly set in motion, she said.

Chick declined to identify the whistle-blowers.

The authority gets about $17.1 million from the city and $10.4 million from the county. Most of the remainder of its annual funding -- $20.9 million -- comes from the federal government.

The challenge for the authority is in taking money received from particular grants and using it to pay for particular services that nonprofit organizations are contracted to provide.

But the audit found that the authority “is unable to process and pay invoices from service providers” in a timely manner “because LAHSA staff do not know which grants to charge for multi-funded programs.”

In addition, the authority’s staff has been billing the wrong grants -- a potential violation of federal regulations -- and didn’t know which grants to bill for its own payroll, the audit said.

The authority has been without a chief financial officer since the last one resigned last spring, and hiring a replacement was among the audit’s suggestions.

Netburn said the authority’s problems began in 2001, and could largely be blamed on a shortage of staff when the authority’s budget was growing and there was more money to oversee. On July 6 -- at least one week after the assessment began -- Netburn said, he wrote the county and city asking for help.

“I said eight months ago to my board that we couldn’t adequately manage all the funds without an increase in staffing,” Netburn said. “We said to the city and county: We tried to fix it ourselves and we can’t, and please provide us with some assistance.”

In recent months, New Directions, a nonprofit that provides services to homeless veterans, had to use its line of credit to borrow about $100,000, partially because it wasn’t receiving money owed to it by the authority.

Toni Reinis, executive director of the group, said that even if she is properly paid, she’ll never recover the money she has to pay in interest on the loan.

“It has been a very challenging six months, I must say,” she said. Reinis said she could sympathize with the authority’s problems because it has become very difficult to find competent accountants who understand the finances of nonprofit groups.

Mayor Antonio Villaraigosa, who was traveling to Washington, D.C., on Tuesday, released a statement: “Homelessness is one of Los Angeles’ most pressing problems. We cannot afford to allow the agency responsible for homeless services to put this vulnerable population and the many fine organizations that provide services to them at risk because of poor management.”

Villaraigosa also said that he was creating two teams to help the authority right itself, and that an outside accounting firm had been hired.

The agency is overseen by a 10-member panel, with one member selected by each county supervisor and the other five by the mayor of Los Angeles. All five city appointees were picked by former Mayor James K. Hahn.

Joe Ramallo, a spokesman for Villaraigosa, would not say whether new commissioners would be named, though the new mayor recently selected a new batch of commissioners to oversee the Los Angeles Police Department and is in the process of doing so for other agencies.

Councilwoman Jan Perry’s district includes downtown and a large chunk of skid row. She checked in with one of the key downtown nonprofits Tuesday to ensure that its finances were in good enough shape.

“We can’t afford to shut down even for a night,” Perry said.