Goliath, Meet David

A national charity tries to kill a Cleveland program for children. The little guy fights back.

By the time Cindy Dougherty arrived in Cleveland, she was an expert in delivering bad news. Twice in the two months leading up to February, she flew from her St. Louis office to faraway cities. Twice she faced unsuspecting staffs. Twice she announced she was closing their nursing homes. They were all out of work.

It couldn't have been pleasant, but it was part of being the National Benevolent Association's CEO in these recessed times. Affiliated with the Disciples of Christ church, NBA is the 51st largest nonprofit in the country, just behind the American Lung Association. It owns nursing homes, assisted living centers, and programs for troubled kids in 23 states. These services are seldom cash cows, and NBA hit a bad patch in 2000 that only worsened in 2001. Its financial woes reached their zenith in the weeks following September 11, with investment losses of nearly $38 million, according to NBA's newsletter.

In November, the agency's board decided that shuttering unprofitable locations would best stop the bleeding, so Dougherty headed to Martinsville, Indiana, and Jacksonville, Florida, in December to close nursing homes. The third casualty, the 99-year-old Cleveland Christian Home for Children, came February 14. Dougherty told staffers that NBA would close the agency June 1.

Unfortunately for her, the home's leadership had already vowed to not let it die.

The Christian Home serves kids with disabilities and behavioral problems -- kids no one else willingly touches. Some 30 children live at the home on West 114th Street and Lorain Avenue; 45 older teens depend on its independent living program. At least 90 kids are in foster homes supervised by the agency, and 100 families use its intensive counseling.

"When you think about the number of children and families we serve and their needs, we were not just going to close," says George Hrbek, the board's vice president.

Dougherty left soon after her announcement, and CEO David Lundeen returned to face his staff. Some were tearful. "I told them we had no intention of closing, and we weren't sure what we could do, but we wanted them to stay firm," he says.

Dougherty had made it clear the home was to be closed, Lundeen says. She offered no options for independence or assistance if Cleveland wanted to go its own way. NBA owned its buildings and controlled its endowment, and that was that.

It wasn't that easy, however. "We couldn't just walk away and say we were going to close after 100 years," Lundeen says. If Dougherty wasn't offering independence, the Cleveland Christian Home was prepared to fight for it.

Dougherty's announcement sent shock waves through Cleveland's nonprofit community. Jim McCafferty, director of Cuyahoga County's Children and Family Services, has seen smaller agencies fold in his 22 years in the field, but he's never seen a national organization force a local affiliate to close.

Yet NBA's decision made financial sense, says Rob Wetzler, a director at Fitch Ratings, which analyzes the fiscal standing of companies. "They've been reluctant to close any facility, but they're losing money. I would expect they're trying to close the institutions with bigger losses or less upside. That could help improve their profitability."

Some of NBA's financial troubles were beyond its control. Health care agencies were rocked when federal and state governments cut patient reimbursements even as labor costs skyrocketed, Wetzler says. NBA relies heavily on government contracts. "It's hard to get nurses and aides when they can go to Wal-Mart and get the same wages and not have to work nearly as hard."

Other problems might have been avoided. In 1997, a jury in Fremont, California, socked NBA for millions in damages after it closed a residential center for disabled adults. The patients' parents had bought the campus in the 1970s and given it to NBA. They claimed that NBA had promised their children could stay there for the rest of their lives. But in the early '90s, NBA sold the land to a developer and moved the residents to scattered rental homes. Claiming fraud, parents sued. NBA had set aside money for a settlement, but the jury's $8.7 million award went beyond the allocation, Wetzler says.

There were smaller problems, too. NBA's closure of a home in Columbia, Missouri, also ended in a class-action suit, which NBA settled in 1996. And when the agency tried to build a new nursing home in Jacksonville, residents opposed the plans. Appeasing neighbors added more than $1 million to construction costs, according to The Florida Times-Union. The project was eventually scrapped.

At the same time, the Cleveland home was trying to expand. It opened as an orphanage in 1901 and joined NBA two years later. For decades, it was well respected, if not particularly innovative. It wasn't until the 1960s, as traditional orphanages were closing, that the home shifted its focus to abused and neglected children.

In 1993, when Lundeen took over as CEO, housing those kids and providing day care was the extent of the agency's mission. Lundeen, soft-spoken and deceptively low-key, was eager to change that. "As a smaller agency, you're always running the risk of closing. We decided to grow." Over the next nine years, the home's $1.8 million budget grew by about $1 million a year, he says, sprouting new programs like counseling and training for foster parents.

In 1999, the home merged with Cleveland Crossroads for Youth and took on an independent living program for older teens making the transition from foster care to adulthood. Susan Rhee, longtime president of Crossroads' board, says the merger was helpful to the county. "They like agencies that are large enough to do one-stop shopping."

Two years later, the county selected the home for a pilot program serving troubled kids and their parents. Instead of separating child from parent and sending them through different bureaucratic mazes, the new program handled them as a single unit with symbiotic needs. "We'd never tried it before in Cuyahoga County," McCafferty says. "We had trouble getting it up and off the ground."

That meant start-up costs of about $300,000. But Lundeen was confident the program would eventually pay for itself. "If we're growing, we have to invest money to do that."

The home ran deficits, but they weren't huge -- $272,091 in 1998, $24,344 in 1999, $270,028 in 2000. Rather than panic, the home borrowed the money from NBA.

NBA wasn't pleased. A good bond rating is essential in getting low-interest credit for future building projects, but the loans hurt NBA's balance sheet. In October 1994, Fitch Ratings lowered its rating from A- to BBB+. Fitch dropped it again in February 2001, this time to BBB.

NBA needed to restore profitability, and Cleveland's expansion efforts looked like a fiscal drain. "When NBA's income goes down, we must lower our spending," Dougherty was quoted as saying in an agency newsletter. "If we don't, we risk damaging the good name which has enabled NBA to serve so many."

Bob McCarty, an NBA spokesman, refused repeated interview requests, although he did offer a written statement. He says the Cleveland home registered a deficit of more than $3.4 million since 1993, a source of constant concern in the St. Louis office.

"NBA officers and staff have met with the CEO and the NBA Cleveland Christian Home board on numerous occasions to discuss concerns relating to the operational losses and the erosion of NBA Cleveland Christian Home's financial reserves," he writes. "In light of this, the decision to close NBA Cleveland Christian Home could not have come as a surprise." He adds that Cleveland isn't close to becoming a self-sustaining operation.

But Cleveland's board believed NBA was exaggerating its role in the fiscal mess. An NBA press release in February said the national organization was underwriting the Cleveland home for "over $1 million a year in losses." That may have been close to true in 2001 -- a horrible year for nonprofits everywhere -- when the home's shortfall reached $878,847, according to the home's financial records. But in the years before that, it never exceeded $275,000.

In fact, the Cleveland home actually paid NBA "supportive service fees" of $1 million from 1997 to 2001, though it seemed to get little in return. "I don't know what that bought," Hrbek admits. "It seems like the only thing that gave us was the ability to be part of a larger collective." NBA allowed the home to buy insurance in bulk, for example, but the home still covered the tab, Hrbek says. Without the fees, the Cleveland home would have posted a $300,000 surplus through the end of 2000, Lundeen says.

Even before February, some Cleveland board members were questioning the benefits of NBA's umbrella. Rhee, who took over as the Cleveland home's board president in 2002, says NBA was heavy-handed concerning money, but otherwise uninvolved in the home's operations. "They didn't have any idea what sort of programs we were running, and they never sent anyone to find out."

"The question I used to ask was 'Does NBA exist for these ministries or do these ministries exist for the sake of NBA?'" Hrbek says.

Even if both agencies saw plenty of reasons to split, NBA's method of making it happen bewildered the local board. Lundeen attended the November meeting, when NBA voted to kill the Cleveland home, but he wasn't even aware the plan was on the table. He was told that the board was meeting in executive session and he was not welcome. The vote was taken in secret.

Even then, NBA didn't inform Cleveland or allow it to develop an alternate plan. It wasn't until February that Dougherty announced the three-month-old decision.

In his statement, McCarty writes: "In the case of Cleveland, the board decided to wait on announcing the decision until year-end financials were available in hopes of an unexpected turnaround. When that turnaround didn't happen, the executive committee of the NBA Board reaffirmed the decision at its meetings February 11."

When Dougherty arrived in Cleveland, some officials -- including Lundeen -- thought Dougherty had come to fire the CEO because she was unhappy with the home's financial state. Instead, she offered grim news. "She said, 'We're here to let you know we're closing you,'" says Lundeen.

"I was speechless," says board member Tim James, pastor of Fifth Christian Church. "It was like we'd been cut off at the ankles, because they decided it in November and here it is, February. And the way they presented it, it was a done deal."

Hrbek was angry. "For an operation that has its roots in a church, their reason for making this decision indicated a whole different sense than what the church is about. At one point, they said something like 'This is what corporations do.'"

The board made up its mind that evening. "We had a mission to children and their families," James says. "To close us point-blank -- we deserved more integrity than that, and so did the people we serve." Whether NBA liked it or not, the Cleveland Christian Home intended to stay open.

It would not be easy. NBA owned the property and the endowment. The local board couldn't stop NBA from sending out letters announcing the shutdown. When NBA insisted the home take down a website detailing its plans to stay open, it had no choice but to comply. NBA also insisted the residential center accept no new charges after April 1. And despite its determination to continue, the board couldn't even raise money without its legally belonging to NBA.

So the board set up a separate nonprofit entity, headquartered at Crossroads property that had never been transferred to NBA. The new Greater Cleveland Christian Home for Children hired lawyers and a public relations firm and set up a "war room," in Lundeen's words. At a February 26 press conference, board members announced that NBA was trying to close the home's doors, so they would go it alone.

Tireless networking lined up powerful supporters, from county commissioners to Congressman Dennis Kucinich to state Senator Eric Fingerhut. It was an easy cause for politicians to get behind. "For all we talk about the fact that we have these kids with deeply complex issues, we have very few programs that actually serve them," Fingerhut says. "They're there to serve the least of us, and they're serving children no one else wants to touch. And the arrogance of the national organization to come into town and pull the rug out from under them. It's David against Goliath."

Just one week before Dougherty's announcement, Lundeen had solicited local foundations for $900,000 to start a program for foster children with sexual aggression. After Dougherty's fait accompli, Lundeen returned to the foundations, canceled the plea for program money, and instead asked for money to stay alive. The foundations were receptive.

But the most important support came from the Disciples of Christ church. Unlike Catholics or Lutherans, Disciples of Christ lack a strict hierarchy. The church depends on "covenant relationships," says Don Baird, senior pastor at Community Christian Church in North Canton and chairman of the denomination's Ohio board.

When the regional board learned what NBA had ordered, it felt its covenant with NBA had been broken, Baird says. "The home is a ministry that our churches have supported for 99 years. It's a historic tie and an emotional tie. We have little old ladies who've baked cakes and knitted stuff for them. We've all given money."

The Ohio board invited Lundeen to Columbus the following week. Dougherty was also invited to tell her side of the story.

After hearing both leaders, the board approved an emergency resolution supporting the Cleveland home's quest to continue. The resolution urged NBA to release its entire endowment "as an act of good faith," and established an escrow fund to accept donations and a legal fund to help the home cover the costs of splitting.

"That was the turning point," Lundeen says. "I knew we'd taken a major step, and suddenly things got very quiet at NBA."

When Lundeen arrived at the home's March 8 staff meeting, he carried the stress of the previous three weeks. His smile was tired. In his hands were two tall Styrofoam coffee cups from the Donut Connection. He wasn't sharing. With the home locked in a bitter battle to stay alive, two cups were hardly enough. "They say it's a bad sign when you wake up tired," he told workers. "I wake up tired now."

Yet during the weeks of uncertainty, not a single staffer jumped ship. Instead, lobbying and public pressure apparently convinced NBA to backpedal. By March, it was discussing the Greater Cleveland Christian Home's proposal to keep its property and full endowment, in addition to future donations earmarked for it.

The plan was not without a catch. The home offered to pay NBA $2.4 million, Lundeen says. The figure includes $300,000 for the Lorain Avenue building, $700,000 to pay off long-term debt, and $1.4 million to pay off loans from NBA.

The home doesn't exactly have $2.4 million, Lundeen admits. But if that's the cost of freedom, he plans to raise it. He'll ask the county for an increase in its contracts. He'll hit up charities. He'll take out a mortgage on the property. James is already lobbying congregations to give all they can.

McCarty declined comment on any plans for asset division, but Cleveland leaders say that NBA's board was scheduled to vote on the plan Tuesday, March 19, just as Scene went to press. If NBA agrees to the plan, the home can look to June 1 as Independence Day. "The NBA has its own business problems, and they're serious," Lundeen says. "They need to be free of us by June 1, and they will be."

The divorce goes both ways. Though hard feelings remain, Cleveland board members want to resuscitate a sense of mission that goes beyond money.

"You'd think that service to kids in need is a mission, not a fiscal thing," McCafferty says. "You hear NBA talk, and it's like it's a Chevy plant. It's not. They're talking about children and the rest of their lives."

That's what Lundeen and his board hope to keep talking about, long after NBA and the price of freedom are paid in full.