Verdugo Mental Health says its bankrupt

Verdugo Mental Health — an agency that provides counseling and mental health services to thousands of people in Burbank and Glendale — has filed for bankruptcy, but the facility’s leaders say a new operator will step in before a single appointment is cancelled.

Cost overruns from a 2008 construction project and severe drops in donations and state funding pushed Verdugo Mental Health, which opened in 1957 to help those who cannot afford mental health care, to seek bankruptcy protection Friday, Dr. William J. Smith, Verdugo’s chief executive, said in a court filing.

Didi Hirsch Mental Health Services, a Culver City agency that provides counseling and crisis care at 10 sites throughout the Southland, has offered to take over Verdugo Mental Health, which has an annual budget of about $5 million, but owes nearly $6.1 million on construction loans for its 1540 E. Colorado St. facility.

Didi Hirsch President and Chief Executive Dr. Kita Curry said she hopes to quickly get court approval to work with Verdugo’s 2,000 clients and to keep as many of the 64 staffers working as possible.

“We’re doing this in order to preserve needed services and quality services,” Curry said.

Didi Hirsch has taken over for troubled agencies in Los Angeles and Inglewood in the past, she said.

“We wouldn’t have done this if we didn’t think it made sense with our mission,” Curry said.

Smith declined to comment, but in court filings, he said agency officials saw the looming financial calamity coming, but could not prevent it.

In 2008, Verdugo Mental Health completed expansion of its Colorado Street center, relying on more than $6 million in loans from U.S. Bank and the Office of Statewide Health Planning and Development.

“Shortly after completion of the Verdugo Mental facility and in the wake of the worldwide fiscal crisis, a series of events and factors began to threaten the (agency’s) viability,” Smith said in court filings.

Construction cost overruns of $1.9 million caused the agency to tap credit lines and foundation funds, and private donations evaporated during the recession, Smith wrote, pointing out that the agency, which received more than $3 million in bequests over the years, has received none since 2009.

Finally, statewide budget problems forced Verdugo Mental Health’s main funder, the state Department of Mental Health, to reduce funding for some programs and cut others.

Smith referred questions to attorneys at O’Melveny & Myers, which is handling the case at no cost. Attorney Andrew Parlen said he hopes to have approval from the court for a seamless transition by May.

Even so, local schools might lose out on all or most of a $623,000 judgment they won in June from Verdugo Mental Health. According to court documents, a consortium of Burbank, Glendale and La Cañada schools known as the Foothill Special Education Local Plan Area prevailed in a financial dispute with Verdugo Mental Health over services to schools.

The lien that was subsequently secured against the Verdugo Mental Health property by the consortium will be subject to normal bankruptcy proceedings, Parlen said, with the schools to be repaid only if there are sufficient funds after the reorganization.

Burbank Unified Supt. Stan Carrizosa said that while he is concerned about the money Verdugo Mental Health owes, agency officials have made administrators aware of their plans and that he is hopeful things will work out.

“We feel fairly confident the services to students for the remainder of the school year are going to be maintained,” he said.