The streets of Silver Lake were quiet last weekend. The bands slated to play at the annual Sunset Junction Festival performed at local venues or not at all. The street blockades that have generated hundreds of neighborhood complaints were absent. Local businesses had a quiet weekend, a return to normalcy after years of contention.

When the Los Angeles Board of Public Works last Wednesday rejected the Sunset Junction Neighborhood Alliance's last-ditch effort to save the 31-year-old street fair, the vote marked what could be the final chapter for a homegrown event intended to promote camaraderie but that instead divided the community.

Organizers of the Sunset Junction Neighborhood Alliance say it is uncertain the group will survive. Its youth programs and local farmers market could be in limbo. Its finances are tenuous, raising questions about how an organization that generated hundreds of thousands of dollars and brought in nationally known music acts could be left with nothing.

“The community really wants spontaneity — the idea of spunk and creativity is prized,” says Paul Michael Neuman, a 30-year Silver Lake resident and a representative on the Silver Lake Neighborhood Council, which has sparred with the Alliance in the past.

“But we don't need a youth program or a farmers market that justifies a festival where there's a reason not to trust the people running it.”

The nonprofit Sunset Junction Neighborhood Alliance began as an exercise in trust. Founder Michael McKinley formed the organization in 1979 as a way to repair relations between gay and Latino residents after a series of violent assaults. Its first street fair, in 1980, was a low-budget endeavor staffed by gang members acting as peacekeepers.

The event became an annual fundraiser for the Alliance's youth projects and other nonprofit organizations, drawing more than 250,000 attendees just five years into its run. Co-sponsors included the Hollywood Sunset Community Clinic, RSVP Senior Center and Central City Action Committee.

But what began as a labor of love — McKinley told the L.A. Times in 2000 that he had all but given up his job as a hairstylist to oversee the youth programs — evolved into an event that made many Silver Lake residents uncomfortable. Sunset Junction's sponsors shifted from community groups to national corporations. Its entry fee skyrocketed from a nominal donation to $25. Its founder became a polarizing figure.

“One thing that was very, very troubling to me was constantly hearing that all this was done with cash,” Renee Nahum, who's also on the Silver Lake Neighborhood Council and is married to Neuman, says of the festival fees. “The Neighborhood Council for many years asked them to open up their books and see what was going on … but even if you're looking at the books, is this stuff going to show up?”

The tax records of all nonprofit groups are public. Filings obtained by the Weekly show that, despite the festival's success, its assets are meager. The Alliance frequently reports only several thousand dollars on hand at year's end. Bank records show the average daily balance of the account to which it made recent deposits was $963.

McKinley has earned either a modest salary or none at all, according to records. McKinley's attorneys from the well-known firm Sheppard Mullin Richter & Hampton last week warned Los Angeles officials that without the proceeds from the 2011 festival, the organization, which owes the city more than $250,000 in unpaid permit fees for last year's event, would be insolvent.

“Without the proceeds … SJNA cannot afford to run the Sunset Junction Youth Program,” the law firm wrote on Aug. 19 to the Board of Public Works. “If the SJNA is forced to cancel the 2011 festival at this late date, they will suffer hundreds of thousands of dollars of monetary damages, as well as a loss of goodwill and damage to reputation that may make it impossible to ever stage the festival again.”

But last week's drama over the Alliance's sizable debt to the city, which the organization is contesting, is not what choked the Sunset Junction Festival of money and bled its youth programs. Records show that the Alliance's huge overhead, as compared to its revenue, dried up cash originally meant for youth programs.

Though the festival generated nearly $400,000 in 2009, the most recent year for which tax records have been filed, by the time organizers paid the musical acts, permits and other expenses, less than $500 was left for youth outreach. The year before, the festival just broke even, generating nothing for its youth-employment project at the now-closed Tsunami coffeehouse on Sunset Boulevard — or for its sports or school programs.

McKinley continues to promote the event as a “fundraiser” in statements and at meetings, but documents show the youth programs are funded with their own revenue, or from contributions unrelated to the festival. Tax filings for 2009, when the organization's revenue was $668,433, show that money spent on youth outreach was modest: about $14,037 for Tsunami coffeehouse, and $56,084 for other programs.

A document provided to the Weekly by City Councilman Eric Garcetti's office shows youth program expenditures from September 2005 to August 2006 were higher: $81,048 for the coffeehouse, and $72,520 for other Sunset Junction youth programs.

McKinley, through his attorney, declined to discuss the specifics of the organization's finances. He said he continues to be “committed to my original commitment to the community” and that the nonprofit group is “evaluating our next steps.”

The festival's last profitable year appears to be 2007, when it charged a modest entry donation to watch acts such as Ben Harper and Blonde Redhead. The festival grossed nearly $800,000, of which $345,000-plus was left after paying expenses.

Despite the festival's relative unprofitability, many in Silver Lake have come to see it as a corporate event that has moved away from its history as a community fundraiser and abandoned the independent shops that dot the neighborhood.

The Silver Lake Neighborhood Council reached out to McKinley and the Alliance repeatedly, email records show, but McKinley largely rebuffed them. Members of the council say that only when the dispute with City Hall over unpaid permit fees came to a head did the Alliance respond — by sending lawyers and lobbyists to the neighborhood council meetings.

In one recent quarter, the Alliance spent $12,000 on lobbyists and lawyers.

Miranda MeGill, owner and chef of the vegan restaurant Flore, remembers that in 2010, after the festival had grown and booths and music acts were relocated away from the shops, she calculated Flore would lose more money being open than closed. Other businesses, including Intelligentsia and the Cheese Store of Silver Lake, also began closing for the festival.

“It was a bitter disappointment,” MeGill recalls. “There seemed to be a lot of hatred [surrounding the event] and I tried to stay away from it. … But to be losing more money than if you were closed is really frustrating.”

That the overpriced, oversized festival also was losing money was a sign to some that it didn't belong. “Silver Lake is one of the few places in Los Angeles that sustains mom-and-pop businesses,” MeGill says. “People are afraid that the Casbah is going to turn into a Starbucks.”

Even so, critics wish things had ended differently.

“The Sunset Junction Neighborhood Alliance made the choices that led them to be in the position that they're in,” says neighborhood council member Sarah Dale, owner of the Pull My Daisy boutique. “There was a note of profound contrition on Wednesday [at the meeting] when they realized they weren't going to get their permits. But things grow and things change.”

LA Weekly