Councilman Breneman sets off GECAC bomb on social media, full statement

The following is an open letter from Jay Breneman, Chairman of Erie County Council, that was posted to his Facebook page and GECAC's statement in response to Breneman's comments at the last County Council meeting:

Jay Breneman writes:

Note: this is a rather lengthy read. I can no longer pursue this matter as my term on council is coming to an end, so I’m leaving this for the benefit of an informed public.

During the course of the 2018 Erie County budget review and deliberations, I requested all 19 recipients of unrestricted county grants to provide copies of how they spent those grants in the previous year.

These grants amounted to nearly $2 million.

From what I was told, such a request for information has never been made before, and for years prior the grants were normally renewed year-after-year, including the occasional increase.

Prior to 2007, many of these grants were paid for out of the general fund, but since then have been paid out of the County’s portion of gaming revenue.

As of right now, there is no formal grant request process for an organization to seek these funds, be it their first-time or for the yearly renewal consideration. Nor is there a meaningful review or reporting framework for how the grant was utilized.

A few of my colleagues and I have advocated for better reporting, and better standardization of how these county grants are accessed and used, and I am hopeful that council and the administration will see fit to continue down this path in the coming year.

After seeing how some of these grants were used, council reduced or eliminated some of these grants, and has restricted the grants to one such organization, GECAC.

In restricting those grant dollars to GECAC, we sought further information regarding how and why GECAC used these funds.

Many of us were shocked to see that GECAC used their grants to pay for such things as:

  • Their annual dinner at around $25k
  • Meals and other expenses for GECAC board members at around $10k
  • Meals and other expenses for GECAC staff at around $9k
  • Conference expenses at around $22k
  • Insurance for their board members at around $9k
  • Organizational membership fees of around $13k
  • And sponsorship of events at around $23k… mind you this is county taxpayer dollars sponsoring such events with GECAC’s name on it

This led me to question why we pay them anything, and what I discovered is that GECAC is truly an outlier in Pennsylvania.

Under further analysis, I learned that the majority of Community Action Committees (CAC) and Area Agencies on Aging (AAA) in nearby and comparable counties have significantly lower overhead and administrative costs. Secondly, GECAC and Erie County is an anomaly in that Erie County provides this organization with an unrestricted grant for purposes that seemingly every other like-organization in Pennsylvania is able to do independent of their County.

Even counties that have the CAC or AAA in-house are able to do so largely without additional county dollars; they are able to meet their mission goals through the block grants they receive, and other revenue to include fees and fundraising (something GECAC reports they don’t do).

Years ago, I was initially told that GECAC uses County dollars in order to bring in even greater state and federal dollars. However, this is largely a false narrative, because GECAC receives those grant dollars—over $28 million—by nature of being the designated CAC and AAA for Erie County.

They receive that $28 million dollars irrespective of what the county gives them. For instance, if any other organization or county department had their designation or contracts, they too would receive that amount from the state and federal government without additional local match.

Out of the roughly $700,000 we provide unrestricted to GECAC, only about $97k is used as match dollars for small programs that are indeed good programs, but are not core services for AAA’s. These match dollars are for ancillary programs that are often run by United Ways, church groups, Chambers of Commerce, and so on.

GECAC uses the remainder of the county grants for administrative expenses.

I must commend GECAC for providing most of the information requested of them in a timely matter, though they were not entirely forthright. It was like pulling teeth to get GECAC to provide the true match dollar amounts, and we were often provided the vague line that they use the county dollars to “support administrative costs.” This regularly provided remark is unusual because, again, seemingly every other entity of this type in Pennsylvania is able to meet their mission without such a financial contribution from their County.

Earlier this month, at a meeting held by the administration, council, and GECAC, we informed them that many of these expenses were not acceptable even under county practices. GECAC executives explained that they would happily oblige not to use the funds for such purposes but were adamant that their grant amount stay the same. This to me demonstrates their lack of concern for the public’s money, because if anything, they should request less dollars if merely to comply with such county practices.

GECAC executives even admitted that they have kept certain programs at level-funding even though the state has shifted their focus—and thus grant dollars—on other services. If GECAC were a county department, such a shift in state funding would likely have led to changes in county funding as well. Sit through any budgetary meeting regarding the County Health Department to see this.

What also stood out to me were their rental expenses. I had thought that GECAC owned their building, so I looked up the property on the County website and discovered it was owned by another entity, the Greater Erie Economic Development Corporation (GEEDC).

Because their names are so similar, and because they are registered as one, I will hereafter refer to GEEDC as “the foundation.”

This prompted me to learn more about GECAC, the foundation, and their relationship. Over the past two months I have collected a mountain of information though federal filings and information provided both in-writing and in-person by GECAC.

What I discovered was worrisome. Though I have attached to this memo even more details on their finances, the following are the key highlights that should speak for themselves:

  • Since 2001, GECAC has paid the foundation over $8.5 million in rent for a building that is assessed at only $1.4 million
  • This rent is paid for by the programmatic occupancy fees granted to GECAC by county, state, and federal grants, including a significant portion of the county’s unrestricted grant
  • For charitable purposes, the rent is claimed to be below market value, at about $5-$6 per square foot, but GECAC assumes the cost of maintenance which effectively puts their true occupancy cost at double that rate
  • According to their IRS filings, this rent has varied wildly since 2001 from as low as $200k to as high as $1.2 million
  • If GECAC owned the building with a mortgage, for comparison, they could have saved over $5 million for that same time period
  • For over 40 years, GECAC and the foundation have shared the same CEO, from R. Benjamin Wiley, to Ronald Steele, and recently Georgia Del Freo who (according to federal filings) was Acting CEO for both organizations.
  • This shared CEO collected a salary from both organizations, with the foundation claiming that the CEO worked for them for 20 hours per week. This combined salary usually amounted to around $200k a year
  • This relationship of having a shared CEO ended recently, and apparently informally, when there was disagreement between the two organizations about whom would succeed Mr. Steele as CEO for GECAC
  • The foundation board members also collect a salary of between $60k-$110k per year, combined. According to their IRS filings, their board members work 8 hours per week.
  • The foundation maintains a sizable pension, presumably for their CEO and perhaps their board members
  • Because of money granted to the foundation from GECAC, the foundation recently cashed-in on investments worth over $16 million
  • Despite serving as a revolving revenue source for GECAC, there is word now that the foundation is seeking to distance itself from GECAC, leaving GECAC without what has effectively been their de facto foundation for over 40 years

For anyone who is interested, I have shared all of this information and the mountain of source documents with Council’s office, our financial advisor, the administration, the County Controller, and the press. I believe that the public deserves to know how their dollars are spent, and they should know that—at least in this case—those dollars could serve a more meaningful purpose elsewhere.

I want to point to the gravity of why this is all so very important: often we hear from nonprofits, like the community centers, who approach city or county governments requesting supportive funding. They are often turned away with such lines as “we don’t have the money” or that “we’d like to give you funding but we cannot simply afford to fund everything.”

Furthermore, county officials regularly critique every penny spent by county departments and some authorities, while overlooking such a significant expense that has amounted to millions and millions of dollars virtually unchecked and right under our nose.

To be perfectly frank, I think any rational person can see that the County has been unfair and indeed reckless in funding GECAC in this manner, and that the County should end this practice immediately.

Aside from the $97k in county dollars that GECAC utilizes for true local match, the County should limit any future funding to GECAC to contracted services only. The remainder of those funds should go to support other programs and agencies, including the community college.

GECAC, who has essentially been using these County dollars as a slush fund, should streamline their administrative costs so that they operate as efficiently as similar agencies around the Commonwealth. They might also want to consider purchasing the building they currently rent, or find another building elsewhere.

Additionally, the foundation has a responsibility to GECAC because not only have the two organizations been joined at the hip for over 40 years, but the foundation owes every penny they have to GECAC, and GECAC (with the support of the County) should do everything in their power to ensure the foundation continues to fulfill their financial duty to support GECAC.

No one should simply accept the separation of those two organizations (if such information, provided by GECAC executives, turns out to be true) because such a separation would be financially abusive and negligent to GECAC, and would negatively impact the credibility of the foundation.

Lastly, I would encourage the foundation to end the practice of paying their board members, and to operate more visibly in supporting the needs of the Erie community.

I am making these facts public because I understand the pressure elected officials and agency leaders can feel when it comes to practices that have gone on for decades, and given the stature of the organizations and people involved, such pressure could make it difficult for the necessary changes that need to occur.

The vast majority of this information exists in the public domain already, but when put together tells a story no one can ignore. Because my term on council is almost over, I am unable to pursue such changes officially, so I will leave it up to county officials and an informed public to see it through.

This matter affects the public’s dollars, our community’s designated anti-poverty and aging-services agency, and an organization that owes its nonprofit status to provide a charitable purpose to our community. Given the rate of pervasive poverty in our community, and the roles of everyone involved, it is my hope that this becomes a teachable moment, and a catalyst for positive change.

Don’t just take my word for it, look at the facts and decide for yourself.

Relationship between GECAC and GEEDC:

  • In 1977 GEEDC, which was formed under the leadership of the then GECAC CEO, purchased the property on 18 W 9th St to capture the state, federal, and local program dollars for rent and to turn around and give it back to GECAC for further programmatic use and for other community-related purposes
  • For over 40 years, GECAC and GEEDC shared the same CEO
  • For over 40 years, GECAC and GEEDC has shared the same address, 18 W 9th St.
  • While GEEDC does maintain a PO Box, they use the 18 W 9th Street address on their filings with the IRS
  • GEEDC’s sole income comes from renting to GECAC, and from interest earned on their savings (shares of Erie Telecommunications Inc, publicly-traded securities, and equity funds)
  • From 1975-1980 GECAC granted GEEDC at least $500k that allowed GEEDC to purchase shares in Erie Telecommunications Inc (GEEDC held 10% of ETI shares)
  • See Teleprompter of Erie Inc vs. City of Erie WD PA 1983:

“The Greater Erie Economic Development Corporation, (hereinafter "GEEDC") a 10% shareholder in ETI, received as a matter of course a portion of its funding from GECAC. This funding consisted of cash grants of at least $200,000 from early 1975 through April 1976, a cash grant of $150,000 in about September 1978 and a cash grant of $150,000 in about February 1980”

  • In 2013, GEEDC cashed in much of these investments for a windfall of over $16 million
  • The 2001-2003 990s filed by GEEDC listed GECAC as a “related 501(c)3” in reporting the earnings of the CEO which they shared
  • A 2001 990 filed by GEEDC listed GECAC as an “affiliated 501(c)3” in describing its sole source of income
  • From 2000-2006 GEEDC held a fundraiser for a scholarship in conjunction with GECAC, with GECAC handling the financial activity and transferring the funds to GEEDC
  • Until his death, GECAC/GEEDC CEO R. Benjamin Wiley received a second salary from GEEDC of over $100k a year. After his death, the GEEDC board paid the new GECAC/GEEDC CEO, Ronald Steele, a second salary of $40-60k a year, and the GEEDC board members began paying themselves a combined total of $60-110k a year
  • In a 2008 990, GEEDC listed their renting to GECAC as the primary reason for why GEEDC qualifies as a “public supported charity” under 501(c)3 status
  • The GEEDC Board has not changed significantly (or for many years at all) in the past 15 years
  • Long-standing GEEDC Board Member Barbara Drew, married to the late John Drew, Board Member of GECAC
  • Former GEEDC Board Member Catina Odom was employed with GECAC
  • Former GEEDC Board Member Nicole Johnson is employed with GECAC
  • Long-standing GEEDC Board Member Gerald Blanks was a top-level employee of GECAC
  • Since 2001, GECAC has paid GEEDC over $8.5-million in rent. This rent is paid for twice by County dollars both in the granted funds allocated for rent, and also a portion of the “administrative fees” allocated for rent. A portion of all federal and state funded programs paid to GECAC do the same
  • Since 2001, GEEDC has paid its Board Members over $600,000
    • Note: GEEDC claims in their filings its Board Members work over 8hrs per week each
  • GEEDC Board Members doubled their salary in 2013, the year after they cashed in the ETI investments for over $16 million
  • Since 2001, GEEDC has paid the GECAC CEO a second salary of over three-quarters of a million dollars
    • Note: GEEDC claims in their filings that the CEO works for them 20hrs per week
  • GEEDC maintains a pension fund of over $500k for employees, which presumably covers the shared CEO with GECAC and perhaps the paid board members
  • Since 2001, GEEDC has “donated” over $4 million back to GECAC
  • Since 2001, GEEDC has donated around $1.5-million in sponsorships, dinners, and small scholarships
    • Recipients of some of the scholarships appear to be relatives of GEEDC board members and perhaps relatives of GECAC employees/board
  • Since 2001, rent from GECAC to GEEDC has varied wildly from $200k to over $1.2mil and everywhere in-between despite the fact that GECAC continues to occupy the same amount of space
    • In a November meeting, GECAC executives say they currently use all but maybe 10 small offices no bigger than the desks inside them
  • GEEDC does not have a separate office, website, or staff
  • Maintenance on the GEEDC-owned building is done by GECAC
    • GEEDC claims to rent the building to GECAC “below market rate” (currently $5-6 per sq.ft.), however, GECAC VP of Operations stated that GECAC absorbs another $6 per sq.ft. for maintenance and labor, taking the true occupation expense to $11-12 per square foot, which is not below market rate
  • There is no true landlord-tenant relationship between GEEDC and GECAC
    • When asked to provide contact information for their landlord, GECAC executives looked perplexed, mysteriously referring to GEEDC only as “the landlord” and did not have an easy ways of conveying the contact information for the landlord
  • Since 2001, GECAC has requested 34 grants from GEEDC and all were approved
  • GECAC knows when their grant from GEEDC was approved when they “get a check in the mail”
  • GECAC VP of Operations, Georgia Del Freo, served as the GEEDC Acting CEO after Ron Steele passed away, having signed the organization’s 990 under said role on 11-11-2016
    • She denied having served in this role during a December meeting between the administration, council, and GECAC
  • GECAC executives claim that GEEDC is distancing them from GECAC because GECAC did not hire GEEDC board member (and former GECAC executive) Gerald Blanks as the new GECAC CEO. They state that they never received anything in writing formalizing this separation
  • GEEDC is currently sitting on over $15 million in cash and savings, none of which they would have earned without the early investments and ongoing rent by GECAC

 

The following is GECAC's response to comments mirroring some of those made above at the last County Council meeting:

"Mr. Breneman’s comments about GECAC at the last Erie County Council meeting referred to last year’s budget expenses. GECAC operated under the county guidelines that were in place during 2016. While Mr. Breneman was on the council in 2016, he never questioned our funding. 
Since 2016 the county has changed some guidelines, which we have complied with, and we anticipate that there will be other adjustments to funding parameters in the future. GECAC will also comply with those requirements."


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