New Horizons' troubles bared

CITY HALL — At the same time New Horizons Family Center was facing mounting financial problems with little money for a new building, city officials continued to dole out hundreds of thousands in limited federal funding to the project, records and interviews show.

Founded in 1994 to serve low-income families in south Glendale, New Horizons has long been a nonprofit darling at City Hall — receiving more than $1 million in federal community block grants and stimulus funding for social services and capital improvements in the past decade.

Facing significant cash-flow issues, New Horizons founder Maria Rochart last month scrapped plans for the "Children's Village" project and announced she had placed the vacant property and the nonprofit's adjacent mental health facility on the market.

Proceeds from the sale, she said, would help a significantly downsized center keep its doors open and allow her to repay $300,000 in federal funding that was appropriated to the now-abandoned project by the City Council.

Rochart has said the construction project was a victim of the economic recession, but financial records show she had never secured much funding for the multimillion-dollar project outside of grants through the city.

City officials say they were unaware of the issues, but some at City Hall said the warning signs should have been caught.

"The news just keeps getting worse and worse," said Mayor Ara Najarian. "Where is our oversight on this? We always need to be responsible. And even though it wasn't our money directly, we still have that duty to provide the oversight on these projects."

Missing grants

In May 2009, Rochart told city commissioners that she needed only minor financial help to make her long-awaited "Children's Village" project a reality.

"What is holding up the parade is the $131,000 so we can break ground," Rochart told the Community Development Block Grant Advisory Committee. "I just want to speed up and break ground because the [number of] children keep growing, and I don't know where to put them."

In a June 2009 letter to Glendale officials, Rochart listed $4.7 million in foundation grants as "earmarked" for the project, in addition to a "significant contribution" from an anonymous donor.

But when the City Council voted in July to allocate stimulus funding to fill the project shortfall, financial records show a bank account dedicated to the project had a balance of just $10,000. And interviews and records now show that none of the $4.7 million in grants listed as "earmarked" were ever committed to the project.

Jennifer Gordon, senior vice president of events and public relations for Caruso Affiliated, said the $1-million grant Rochart listed as being from the company's foundation was "never committed."

And Jacqueline Caster, founder of the Every Child Foundation — also listed as having earmarked a $1-million grant — said she had never even heard of New Horizons.

"That's fraud," she said. "And we are going to be investigating that."

Rochart defended her stumping, saying she used the term "earmark" to mean she had the applications for the money ready to go. But she said she never submitted them after $2.5 million in planned private donations from three major donors fell through because of the economy.

"It was mostly going to be private funding," Rochart said. "If all the private funding had come in, we wouldn't have even had to go to the foundations."

Commissioners' reaction

City commissioners who recommended that New Horizons receive the grants said they were alarmed to hear the project's other funding sources had not been confirmed before the stimulus funding was allocated.

"The assumption that the [Community Development Block Grant] Committee makes is that the staff has done the legwork in terms of making sure the minimum requirements have been met," said then-Chairman Zareh Amirian, who now serves on the Audit Commission.

City officials had warned the committee that other projects were more shovel-ready than the New Horizons project.

"To be perfectly honest, we aren't sure that we can say that the New Horizons project would be ready to start construction by Dec. 15," Jess Duran, assistant director Community Services & Parks Department, said at a June 2009 committee meeting.

But when he later addressed the City Council on the issue, he did not mention those concerns.

In a recent interview, Duran said city officials had to rely on the documentation they received, including the mention of a significant anonymous donor.

"We did not see the signs," he said. "New Horizons had been demonstrating up to this point that they were effective at fundraising and completing projects."

Najarian said the issue needs to be analyzed to determine what went wrong.

"This fell through the gaps, and perhaps it was a situation where we had placed too much trust on the applicant and did not think that we had to look any further," he said. "I hope it wasn't anything more nefarious, such as undue pressure, put on staff."

Officials from the U.S. Department of Housing and Urban Development said that while Glendale officials adhered to oversight requirements, rigorous financial vetting is encouraged so that grants are funneled to the most viable projects.

"No one wants to be in the position to repay money or to go back to the drawing board," said Brian Sullivan, a spokesman for HUD.

In the wake of the controversy, City Council members and city commissioners say they need to use extra discretion in future federal funding allocations.

"This whole chapter with New Horizons is something that we look at as a lesson, I suppose, and makes us more cautious, I think, as to how we allocate funds," said Councilman John Drayman.

'Big warning signs'

While the degree of New Horizons' money troubles did not surface publicly until this year, financial records show they had been brewing long before Rochart abandoned plans for the new child-care facility.

As of July 31, New Horizons owed about $153,000 in back payroll taxes, according to financial records submitted to the city.

The nonprofit also had $338,000 in outstanding loans. Records show Rochart's family members held the majority of the outstanding loans — nearly $300,000.

Records also show multiple lines of credit, overdrawn bank accounts, several years of running at a deficit, no significant savings or an updated financial audit — all signs that finance experts said point to major cash-flow issues.

Sandra Miniutti, vice president for marketing and chief financial officer of Charity Navigator, an organization that evaluates nonprofits, said operating so thinly leaves organizations with little safety net.

"If they are always scrambling to make payroll, how ambitious can they be?" she said. "Those are big warning signs."

When evaluating a nonprofit's financial sustainability, Miniutti said she and other officials look for a "rainy-day fund" that could support at least six months of operations.

New Horizons had no cash savings, with center facilities and the vacant Maryland lots making up the majority of the organization's assets.

Miniutti said overly ambitious expansion plans likely added to the financial problems.

"I think that's where a lot of charities go astray," she said. "They don't really accurately consider what costs are involved and plan for that."

Rochart said she and her board of directors had been kept in the dark on the growing financial problems for several years.

"My mistake was leaving this in the wrong hands," she said. "I don't know anything about finances … I got the grants, the fundraising. I brought the money. Someone else was handling the books."

While she would not name her accounting administrator, the unpaid payroll taxes appear on financial records at around the same time as the departure of former New Horizons Controller Aristedes Ferral. He could not be reached for comment.

Now, Rochart said she is looking to rebuild as the nonprofit consolidates operations to its youth center on Glendale Avenue.

"We are having financial difficulties. It's been coming. It's not like it happened overnight," she said. "But I thank God we're still here."

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