One of Councilman Bernard Parks' strongest arguments against his challenger in next Tuesday's election is that she does not have his experience of balancing a $4-billion budget during a recession.
That is true. But as the CEO of Community Financial Resource Center, Forescee Hogan-Rowles has faced a severe budget crisis of her own. The banking meltdown nearly put the South L.A. non-profit out of business. But it has stayed alive, at least for the time being, mostly by cutting back.
Her record gives one clue as to how Hogan-Rowles would serve on the L.A. City Council. For instance, despite her campaign rhetoric about not balancing the city's budget “on the backs of employees,” she did slash her non-profit budget by laying people off. Out of a staff of 21 employees, she laid off 13.
“It's a balance,” Hogan-Rowles said. “You don't want to lose the ability to deliver service, but you have to maintain the integrity of the budget.”
The L.A. Weekly reviewed three years of tax returns for CFRC, available on the Guidestar website, plus the non-profit's most recent audit. which CFRC provided. The documents show that it has struggled mightily to keep the doors open as its funding sources have dried up. According to the audit, there is “substantial doubt about its ability to continue as a going concern.”
CFRC was established in the wake of the 1992 riots to encourage investment in South L.A. Most of its funding comes from large banks, which invest in low-income communities to fulfill requirements under the federal Community Reinvestment Act. CFRC uses that money to make low-interest microloans to small businesses, like laundromats, hair salons and small trucking firms. CFRC also offers job training and homeownership counseling programs.
Hogan-Rowles became CEO in 1995. In 2008, the last year for which the figure is available, she made $102,000.
In a mailer, she takes credit for helping to create 3,000 jobs. Parks has countered in a mailer of his own that CFRC only generated 877 permanent jobs, which he called “an absolute failure of a performance while collecting a six-figure salary.” (Hogan-Rowles' campaign shot back that the jobs figure, from Greenlisted.org, was outdated.)
In a troubling sign, the tax records show that CFRC's expenses outpaced revenues even before the banking crisis hit. In 2006, the non-profit took in $1.45 million and spent $2.22 million.
Since then, revenues have dropped by more than half. CFRC brought in only $717,000 in 2009, against expenses of $1.09 million. (Hogan-Rowles said the deficit has since been reduced from $300,000 to under $150,000.) Those yearly deficits have taken a toll on CFRC's overall financial well-being. In 2006, CFRC had $1.7 million in bank. In 2009, it was $755,000 in debt.
In an interview, Hogan-Rowles said her leadership team saw the iceberg coming in early 2008, when funders started to renege on their pledges. By August, only half of the promised grants for that year had materialized, which was well below normal.
“That's when we made the recommendation that we let our staff go,” she said. “We kept the core folks to maintain our core programming and do what we could do.”
A couple weeks later, Washington Mutual went under. WaMu had a strong presence in low-income communities, and had been a major funder. The audit shows that CFRC still owes $500,000 to WaMu's community development branch, though it notes that the payment is in deferral.
“We don't have a new note,” said Tara Taylor, CFRC's chief operating officer. “But they are not pursuing us in terms of a default.”
At the same time, CFRC noted that some of their own clients were having difficulty paying on their loans. In at least one case, court records show, CFRC took the owner of a party-supply store to court to recoup a $35,000 loan. The store had stopped making payments, and avoided paying off the loan by declaring bankruptcy.
“Our story mirrors what most of the banks have gone through,” Hogan-Rowles said.
Before the crash, CFRC made 50-60 microloans (each up to $5,000) per month. Now, it's down to 10-15. The non-profit also made two to five larger loans a month, up to $250,000. Now they may make one.
CFRC responded to the crisis by persuading their lenders to give them extensions on their loans. At the same time, they reached out to new non-profits in search of new revenue streams, sought new government grants, and stepped up professional fund-raising.
According to the audit, CFRC hopes to be “near break-even” by 2012.
“We had a lot of people say 'If you got to 2011, thank heaven,'” Hogan-Rowles said.
Roberto Barragan led CFRC for the first two years of its existence. At the time, fresh from the riots, there were few bank branches in South L.A., and there was a strong focus in the charitable world on making commercial investments there. As more bank branches have opened up, such programs have fallen out of fashion, Barragan said.
“After '92, everyone talked about economic development,” he said. “Now, it's out of vogue. Housing became much more important. Basic needs became more important. Business development is less in vogue.”
Barragan said CFRC had also suffered as Fortune 500 companies have left L.A. over the years, which means there is less charitable giving to go around.
“The concept of being able to bring banks together is a great idea,” he said. “The ability to provide services with bank support hopefully will continue.”
Hogan-Rowles is backed by city employee unions, and it's fair to expect that if she is elected, she will hew to labor's budget priorities. That means preventing layoffs and furloughs and raising new revenue.
But Hogan-Rowles argues that her real-world experience meeting payrolls will also inform her service on the council.
“I've had to understand how budgets work, how the public sector works, how foundations work,” she said. “What I see in this is that it really is doing much of the same kind of work I've been doing for the past 20 years, and expanding that to serve thousands more people.”