Unpaid Bills

Out of the blue, into the red: POP's tax bill took Jerry Northrup by surprise
Craig Lassig

He'd regret it later, but Jerry Northrup figured serving on the nine-member executive council for the People of Phillips (POP) neighborhood group back in 1996 for a good idea. A plan to spend some $18 million in Neighborhood Revitalization Program (NRP) bucks had just been green-lighted, and things were looking up for projects close to Northrup's heart in troubled South Minneapolis. He was working long hours for Indian Family Services at the time; still, he signed onto the council anyway--for a few hours a month, strictly volunteer.

For all his good intentions, what Northrup didn't know then was that the nonprofit POP had been in hot financial water for some time before he joined up, and, due to a series of snafus and inept management, would by this February be sucked under and sunk. Late last year and many months after his stint on the council ended, Northrup opened his mailbox to find a letter from the state's Department of Revenue notifying him that he and other members of the 1996 council were on the hook for some $18,000 in payroll taxes that POP had failed to pay in 1996, along with fines and interest racked up since--for a total of $25,000. Bottom line: If POP the nonprofit won't pay up, then POP's volunteer executive council will be next in line when the DoR comes collecting.

"We're innocent volunteers caught in the middle," Northrup says, adding that a lot of nonprofit board members live on lean budgets and have no inkling that they could be held responsible for paying off debts accrued by organizations that, like POP, go belly-up. For his part, Northrup understood that POP's 1996 payroll taxes had been squared away, and didn't think twice about it until the letter showed up at his door. As far as insurance that might have exempted the council from liability--a fairly standard policy by now among nonprofits--he recalls that "we were told at meetings that the organization was going to get it."

Depending on whom you talk to, accounts of just how things went wrong at POP--and just how wrong they went--vary wildly. What is a matter of record is that in October 1995 POP's approved NRP plan put the nonprofit--run mainly by neighborhood volunteers--in charge of one of the largest contracts the NRP had ever granted. By 1996 POP had expanded from a shoestring, fly-by-night collective to include some 30 paid staffers responsible for everything from managing retail stores to rehabbing the shuttered Franklin Theater and acting as fiscal agents for a fledgling credit union. Too, say ex-council members, core POP staff were juggling 65 contracts with 40 different vendors--social service agencies, mostly--worth millions, and 20 new committees that had sprung up in the wake of the NRP windfall. It was no secret then, as now, that among the staff and volunteers ranks, no one had much, if any, skill in managing finances on the scale the Phillips neighborhood was suddenly blessed--or cursed--with when the NRP money started flowing in.

There's no easy answer as to what went awry, says Robert Cooper, who works in the citizen-participation division of the Minneapolis Community Development Agency (the MCDA is the city's development arm, and acts as a go-between agent for NRP funds to neighborhood groups like POP). The problems in Phillips, he concludes, weren't as simple as checks not getting cut by the paid staffers in charge of accounting--whether for liability insurance or payroll taxes. "Each check had its own story," he says. "Some were written and never sent. In some cases the organization took on activities for which it had no source of funding." At other times, staffers continued to collect salaries after their contracts had run out. Add to that mess POP's sudden growth spurt and the complexity of all the projects on its wish list, Cooper reasons, and you've got a time-bomb waiting to blow.

It did, finally, in January. After months of serious spelunking of POP's books, the state auditor's office released a report raising serious questions about the dispensation of nearly $295,000 related to the nonprofit's operating budget. In February, Phillips residents delivered the death blow when they voted to dissolve the embattled and sinking POP. All that's left of its former glory is a vacant lot, a youth center on Franklin Avenue, and some office equipment set out for creditors to pick up.

And a $25,000 bill at the Department of Revenue. That council volunteers like Northrup and his colleagues should be fingered to foot it is a threat rarely made in nonprofit circles, says Jon Pratt, executive director for the Minnesota Council of Non-Profits. Usually, he explains, the law views corporations like POP as "whole entities"--a classification that dismisses individual members from liability when the organization goes under. Laws concerning nonprofits even protect volunteers from paying for mistakes made in "good faith" on the part of a group's administrators. However, Pratt continues, there are exceptions--among them, board or council members who fail to perform their fiduciary duties.

Cooper says he's still trying to figure out if all the members of POP's 1996 executive council received some version of the DoR's notification letter. As to the matter of general liability insurance, he goes on, the city of Minneapolis requires it for the neighborhood groups it works with, and keeps close track to make sure they carry it; those policies, however, don't include coverage for board or council members or for the group's executive director. That extension of the basic policy is still optional.

From what he can make out, Cooper says that at one point--he's not certain just when--the NRP reimbursed POP for money it spent on such an extension. "I understand they had a policy, but didn't keep it current," he says. The NRP now offers the more extensive coverage for neighborhood groups, Cooper says, but the insurance company providing the policy, Executive Risk, informed the city at the outset that POP would be excluded from coverage due to its financial instability. "This is when things were tumbling down," he notes. "They weren't a good risk."

The revenue department reports that while it does have a tax lien against POP, it isn't yet pursuing liens against individual members of the group's 1996 executive council--or any other staffer or volunteer, for that matter. Still, Robert Albee, POP's treasurer in 1997, says that this fiasco should draw the attention of the MCDA and city officials alike. "This needs to set in motion policies of protection. The city should insist on proof of insurance to protect those who don't know [they need it]. Most board members never see the policy that covers them. Whether staff says they're going to buy a policy and doesn't or merely lies to you is another matter."

Pratt agrees. "The state auditor's office finished the audit and held a press conference and lorded it over the organization. They said, 'We have proved conclusively that these mostly lower-income people were grossly underqualified and mismanaged this organization.' But let's ask this: Where is the state auditor's office in providing support for communities who want to do right with their finances? They should add this to their plate. We should want these people to succeed."

As for Jerry Northrup, he says he's in a holding pattern, waiting for further word from the DoR as to its strategy for collecting on POP's tax bill. In the meantime, he's keeping tabs on negotiations over the sale of the POP-owned youth center in Phillips as a way to make good on the debt. Should that deal work out, the proceeds may cover some, if not all, of POP's expensive instruction in Finance 101. Still, all the wrangling hasn't soured Northrup on the hope he went into POP with two years ago. "As far as the NRP alone is concerned, it is a good, good thing that this city has done," he figures. "I will still volunteer. I will continue in what is right, but this has been a lesson."

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