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					Distributed on:
JUL 1 0 2009
CITY OF ~

by City Manager’s Office

SAN JOSE
CAPITAL OF SIEICC)N VALLEY

Memorandum
FROM: Leslye Krutko Albert Balagso DATE: July 9, 2009
Date ~,. ~ ~ ~

TO: Honorable Mayor and City Council SUBJECT: SEE BELOW

INFORMATION
SUBJECT: UPDATE ON THE MEXICAN AMERICAN COMMUNITY SERVICES AGENCY (MACSA)

You may have read a number of newspaper articles in the last few months regarding fiscal challenges being faced by the Mexican American Community Services Agency (MACSA). More recently, the organization’ s Chief Executive Officer (CEO) resigned from her position and the Chief Financial Officer (CFO) and Chief Operating Officer (COO) positions for this nonprofit organization are also currently vacant. Through direct contacts with MACSA in the past week, we have learned additional details about MACSA’s financial condition that more clearly show the financial challenges the agency is facing. These challenges are clearly threatening the stability of this non-profit agency that has provided important and valuable services to the residents of San Jose for the past 45 years. The City of San Jose provides considerable grant assistance to MACSA for the implementation of its youth and senior programs. The organization’s health, and the services it provides to our residents is therefore of considerable concern to the City. This report summarizes the concerns actions taken so for and next steps. Services MACSA Provides MACSA operates a number of programs for the community: Family Literacy and Early Childhood Education -- MACSA provides a number of services, including financial education, homeownership counseling, parent education, and school readiness. Additionally, MACSA has operated two gharter schools, the Cesar Chavez E1 Portal Leadership Academy in San Jose, and the Academia Calmecac in Gilroy.

Honorable Mayor and City Council Subject: Update on Mexican American Community Services Agency (MACSA) July 9, 2009 Page 2 of 5

2. Health and Wellness Services -- MACSA’s adult day care services include nursing care, occupational therapy, physical therapy, speech therapy, social services, nutrition services, social and cultural activities, and fitness and athletic activities. 3. Youth Services -- MACSA administers two youth centers, one in San Jose and one in Gilroy. Youth service activities include academic support, social and personal development services, health and recreation and enrichment, summer day camps, gang intervention, mentorship and life skills, among other activities. 4. Real Estate Activities -- MACSA owns, through limited partnerships, three affordable senior housing developments with a total of 157 units. Additionally, the non-profit owns several other non-housing buildings: the MACSA San Jose Youth Center, the Cesar Chavez Multipurpose Center, the Cesar E. Chavez E1 Portal Leadership Academy Charter High School, an Intervention Center, MACSA’s Headquarters/Administration Office, which also houses its Adult Health Care facility. 5. Consulting Services- MACSA’s services include assistance to other non-profits with accounting and other back office staff. MACSA has scaled down this service and is cun’ently providing services only to two small non-profit agencies. In addition to City financial assistance, MACSA receives funding from the State of California, the County of Santa Clara, First 5, the Council on Aging, and various other grant programs. In addition, MACSA has received funding from the Department of Education and school districts for the administration of two charter schools. MACSA’ s overall revenues, for the fiscal year ending June 30, 2009, were just over $10 million.
City Financial Assistance

Of this $10 million, the City provided MACSA with a total of $815,085 in FY08-09 (see detail in the chart below). The Council has approved funding for FY09-10 as well; however contracts have not yet been signed pending additional discussions of certain conditions prior to the execution of the agreements. AMOUNT PURPOSE PROGRAM Community Development Youth Center Programming (Youth Opportunities $114,549 Unlimited--YOU) Block Grant Program Youth Center Services $112,911 $26,919 Adult Day Health Programs Adult Day Health Scholarship Programs $49,400 Healthy Neighborhood Venture Program Adult Day Health Caregiver Support and Respite $37,500

Project
BEST

Safe Summer Initiative

Gang Mediation/Intervention/Crisis Response, Community Gang Awareness Training and Capacity Building

$18,700 $148,000 $268,380 $38,726 $815,085

General Fund TOTAL FY08-09

Youth Center Operations Youth Employment

Honorable Mayor and City Council Subject: Update on Mexican American Community Services Agen~cy (MACSA) July 9, 2009 Page 3 of 5

Current Situation To address cash flow problems, MACSA used restricted funds intended to be placed in employee retirement accounts to pay for general operations. While we do not yet know the full extent of the cash flow problems that caused the agency to enter into this transaction, MACSA has indicated two reasons -- the inability to sell a parcel of land on Alum Rock Avenue and the loss of funding as a result of housing development project shortfalls. The loss of grant funding and slow payment of other grant programs is apparently another reason for the cash flow shortages. There are concerns that the Agency is struggling to make payroll. Following is a discussion of the various concerns with MACSA’s current condition. Development Issues -- MACSA owns a parcel of land on Alum Rock Avenue that it is trying to sell for the development of a project that would include affordable housing and a Cesar Chavez library, and for which it believes it can sell for $1.9 million. MACSA had originally intended to develop this parcel itself, but has recently been working with other partners. MACSA thought that the sale of this property could happen quickly by accessing City funds for this purpose. Unfortunately, there is significant predevelopment work that must be accomplished in order to get the zoning approved for this site, a requirement for receipt of City funds, and there are a number of development challenges. Additionally, the City’ s Housing Department does not have at this time funding available for new projects, and when funds do become available, there are other developments that are further along in the application and development process. MACSA has developed several housing projects over the past 15 years, including three senior housing developments and one for-sale project through its affiliate, Ketzal Community Development Corporation. Last year, MACSA wrote off a $571,658 commitment from Ketzal that was determined to be uncollectible. The three senior projects all have section 8 contracts, and have sufficient cash flow to operate. Charter Schools -- MACSA has closed the Gilroy Charter School. On June 25th, the East Side Union High School District took action to close the San Jose Charter School. As we understand, MACSA has fully repaid the pension funds to the Gilroy Charter School. However, funds are still owed to the San Jose Charter School pension fund, estimated at $175,000. MACSA will need to continue paying salaries for the two schools until mid-August as part of the severance agreement. On July 10th, MACSA expects to obtain information on the outcome of the investigations by the County Office of Education on this matter. Funding -- In recent years, MACSA has lost key funding, including contracts with the Work2future Program and with the County Probation Department. Problems with reporting have resulted in delayed payment from the State for MACSA’s adult day health program. And, concerns with paperwork for the City’ s grant funds have resulted i~ payments not being approved.

Honorable Mayor and City Council Subject: Update on Mexican American Community Services Agency (MACSA) July 9, 2009 Page 4 of 5

Actions that Have Been Taken/Next Steps City staff is working with MACSA to help the agency address these challenges. There are a number of steps that have been taken in an effort to ensure that the services MACSA provides continue.
Steps MACSA has taken: 1. Leadership -- Maria Elena de la Garza was appointed the Interim CEO. Ms. de la Garza has worked for MACSA for many years and is familiar with its operations. 2. Audit -- The Council on Aging has provided MACSA with $20,000 of in-kind funding for an internal financial review that will help to determine the use of funds. MACSA anticipates having a fiscal recovery plan in place this week. 3. Funding -- As we understand, MACSA is making contact with key officials who may help with fundraising, and with select lending institutions. Steps the City has taken:

1. Financial Counseling -- The City asked SCORE, a non-profit association that is dedicated to educating small businesses, to provide MACSA with organizational consulting and financial counseling services. The City’s Non-profit Platform includes SCORE as a key part of the City’s plan to respond when a non-profit needs assistance. SCORE has met with agency officials and will be at MACSA’s offices starting this week to complete this assessment and work with MACSA on a plan for improvements. MACSA will use the City’s QLBS Assessment tool to self-assess all areas of the agency’s operation; SCORE will help MACSA officials interpret and implement the results of the QLBS effort. 2. Funding Consortium m A consortium of funders that provides grant funds to MACSA, including the City, has requested a meeting with MACSA’ s leadership and board on July 28tn in an effort to discuss MACSA’s future and lay out concerns and requirements. These requirements will likely include assurance of strong leadership and that the agency will focus its efforts on core services. 3. Grants -- Staff is carefully reviewing invoices submitted by MACSA staff to verify expenditures. All funds that can be verified are being disbursed; any in question are being held pending additional supporting information. The City is doing its due diligence to ensure that City funds are being used for their intended purpose. 4. Development Projects -- City staff is working with MACSA to help it sell assets. First, with respect to the Alum Rock project, the City is working with MACSA to see if there is bridge financing available to help MACSA sell or refinance the site while waiting for longer-term financing. Additionally, City staff is working with MidPeninsula Housing (MidPen) and MACSA to determine the feasibility of MidPen purchasing the three senior developments from MACSA. The sale of these assets may provide equity to MACSA that will help with cash flow.

Honorable Mayor and City Council Subject: Update on Mexican American Community Services Agen~cy (MACSA) July 9, 2009 Page 5 of 5
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Contingency Planning -- The City is making plans for the continuation of needed services - including summer youth programming - in the event that MACSA is unable to continue some or all operations.

The City has emphasized to MACSA that the key to a successful resolution of these problems is strong leadership from both staff leaders and the Board of Directors, and a willingness to be completely open with funders about the problems the Agency is facing. To date, MACSA has shown a willingness to do what it takes to survive this difficult period. We are hopeful that the steps being taken will make this possible, and that critical services for San Jose residents are maintained. We will continue our efforts to assist MACSA through this difficult period and to update the City Council on the organization’s progress.

Director of Housing

Director of Parks, Recreation and Neighborhood Services

For questions, please contact Leslye Krutko, Director of Housing, at (408) 535-3851 or Albert Balagso, Director of Parks, Recreation and Neighborhood Services, at (408) 793-5553.


				
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Description: A memo released July 10 to the San Jose City Council lays out new details of the financial plight of the nonprofit Mexican American Community Services Agency.