The Southeast Raleigh Assembly, a group tasked with improving economic conditions in one of the city’s lowest-income areas, received more money from City Hall last year than any nonprofit except the Carolina Ballet.
Under a plan that would push nonprofits toward self-sufficiency, SERA’s funding could be slashed by two-thirds by 2018.
That funding – $207,000 in the current budget – represents as much as 79 percent of the group’s yearly revenues.
City staff have proposed the change alongside broader reforms in the wake of a critical audit of the Raleigh Business and Technology Center, which is not affiliated with SERA. The move has the approval of some City Council members.
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The nonprofit’s director believes it can weather the change. But Eugene Weeks, councilman for Southeast Raleigh, worries that the move will hobble a group that was founded to address economic disparities.
“I’ll be honest with you – that would almost close down the Southeast Raleigh Assembly,” Weeks said.
“You’re almost taking the Southeast Raleigh Assembly out of existence.”
The African-American Cultural Festival’s city support also would be reduced under the new nonprofit plan. The new approach isn’t set in stone but will appear in the next proposed budget.
What the two groups have in common, financially, is their reliance on the city’s tax dollars.
Council staff first outlined the new rule in November, then fleshed it out in subsequent months before it was discussed at a council work session last week. It says that nonprofits must match every dollar of city money with three dollars from other sources.
In other words, city money can make up only 25 percent of a nonprofit’s budget, unless the council makes an exception. Only SERA and the festival, which gets half its funding from the city, fit that criteria of using more than 25 percent city funding.
The rule does not apply to the Downtown Raleigh Alliance and the Hillsborough Street Alliance, which are largely funded by extra property taxes and fees in the districts they serve, rather than by grants.
The affected groups will have three years of “step downs” in their grant funding, with help from city staff in shoring up their budgets.
“Our commitment in Southeast Raleigh is certainly not any less than it’s ever been,” Mayor Nancy McFarlane said.
“All we’re saying is that all of these groups have to have the same standard for accountability. ... It’s all about helping groups become self-sufficient.”
‘This is not ideal’
SERA was founded in 2001 as a council-appointed city board, with goals that included creating “long-term economic development solutions” for its area. It was incorporated as a nonprofit in 2009.
“There was a magnitude of wealth coming into the area, but also there’s a huge piece of Southeast Raleigh that is totally kind of disenfranchised and under-served,” said CEO Rita Anita Linger.
Linger doesn’t want the cut, but she said the city has long expected SERA to move toward independence and she appreciates the early notice of the change.
“This is not ideal at all – I think the programs should be supported and sustained – but this is not a new concept in terms of how governments in many states work with regard to funding,” she said. “They like their money to be considered seed money.”
The initial reduction could be $50,000, or a quarter of the current city funding, Linger said. She hopes to make up the money through other grants and funding from foundations.
She doesn’t expect SERA to cut its work in “compassionate economics,” which includes programs such as Dancing in the Park, education for homebuyers and business owners, and a local help hotline.
Audit showed lapses
City staffers and councilors said they began to take a closer look at the funding of nonprofits after an audit revealed discrepancies in the nonprofit Raleigh Business and Technology Center’s finances.
The results, which showed missing cash and unexplained checks, led the council to pull funding from the business incubator. Police filed search warrants in an investigation last month, while city staff for a year have sketched changes to the city’s grant program.
“What we want to make sure right now is that we have accountability – and there’s scrutiny that goes along with that,” said Councilwoman Mary-Ann Baldwin.
But she, along with McFarlane and several city staffers, said they had no particular complaints about SERA’s or the cultural festival’s use of city funding.
Instead, they said the new funding role arose as part of a general overview.
Among other changes is an expectation of more measurable outcomes in grant contracts and the creation of a new flagging system to identify potential problems with nonprofits.
“We don’t want to gut them, but we want accountability and certainty that we’re going to get the maximum utilization for our resources,” Councilman Wayne Maiorano said in a council work session.