Mired in an ever-deepening financial crisis, the YMCA of Stanislaus County may be forced to sell its building to keep from going under.
After program, staff and other cuts have failed to turn things around, YMCA leaders are exploring selling the facility at McHenry and Floyd avenues in Modesto, which includes two indoor swimming pools, a gymnasium and fitness center.
One option would be to find a wealthy benefactor to buy the building and lease it back to the nonprofit organization for a nominal fee. That would allow the Young Men's Christian Association of Stanislaus County to keep its doors open, some board members reluctantly acknowledged.
The YMCA has been heading in the wrong direction for several years, suffering from declining revenues and rising liabilities, increasingly putting its future in peril.
An internal document obtained by The Bee shows the YMCA owing creditors more than a half-million dollars on Aug. 31, with no cash and current assets of less than $93,000. And the YMCA's line of credit from Modesto Commerce Bank swelled from $86,250 in June to $145,750 in August.
Asked whether the YMCA is in danger of folding, longtime board member Dennis Wilson said, "Let's hope not."
But some board members acknowledged the YMCA has been plagued by a number of problems in recent years, including declining membership, difficulties with vendors and its bank, and using previously sacrosanct endowment money, bequeathed by community leaders, to secure loans to pay bills.
At the same time, the board members expressed deep affection for the YMCA and a commitment to bridging the financial sinkhole.
Over the past four decades, thousands of children and adults have learned to swim, played sports and worked out at the YMCA. But time took its toll, and even a major renovation of the 43,000-square-foot building
in 2004 failed to reverse spiraling money problems, three board members conceded Tuesday.
"Yeah, we're struggling," said Steve Ward, board president. He said leaders must "turn this (bad news) into an appeal to the community."
United Way hires CEO
Steve Smith took over as chief executive officer of the YMCA in May 2002, at the beginning of its five-year tailspin, and left last week. He became chief marketing officer at the United Way of Stanislaus in June and split time between both jobs until Thursday.
Two days earlier, Ward, Smith, Wilson and board member Allen Layman told The Bee they are exploring every avenue to save the YMCA, but they offered few ideas other than hiring Smith's replacement. They acknowledged that the difficult financial situation might have played a part when two finalists recently rejected the board's employment offers.
"We didn't sugarcoat it," Wilson said.
Federal tax forms suggest the YMCA was on an upswing in the five years before Smith replaced former CEO Karen Servas. From 1997 to 2002, membership dues and total revenue more than doubled, management aggressively beefed up the YMCA's core programs, and leaders embarked on a capital campaign to upgrade deteriorating facilities.
By 2004, the YMCA had shrunk operating hours and eliminated 38 employees. By 2006, Smith had reduced spending on core programs to a level preceding 1997. The YMCA's fund balance, or the difference between assets and liabilities -- $1.15 million strong in 2000 -- plummeted to $11,548 as of April.
$1.8 million in debt
Board members Tuesday confirmed an item from their April meeting agenda, obtained by The Bee, citing $1.8 million debt. In addition to $542,805 in current liabilities, the YMCA owed $171,429 on the bank loan, $392,904 on the renovation and $756,860 in unspecified long-term debt.
Minutes from the board's September 2006 meeting read, "In general, we are looking at any savings to help us meet our bank commitments."
Minutes from a board meeting five weeks ago show the board deploying Smith to try negotiating with auditors demanding payment "before they continue working on the audit." The state requires annual audits of nonprofit groups that gross more than $2 million a year.
Smith said he secured an extension on filing the YMCA's 2006 tax form because audits for that year -- and the year before -- are not completed.
Other documents obtained by The Bee show that the United Way -- Smith's new employer -- was troubled in June that the YMCA had not submitted its audit as required for United Way money. United Way reported giving the YMCA $64,150 in 2005, mostly for after-school child care and Camp Jack Hazard.
United Way Executive Director Tom Ciccarelli, who hand-picked Smith and created his position six months after Cicca- relli started in January, said the YMCA has complied with audit requirements. He said he had not reviewed the YMCA's financial woes and refused to discuss why he hired Smith to oversee the United Way's marketing and fund raising.
"All nonprofits suffer from not enough money," Ciccarelli said. "That's part of why they're called nonprofits -- they're not supposed to make a profit."
Ciccarelli and Smith refused to release Smith's salary at the United Way. In the year preceding April 2005, the last for which figures are publicly available, the YMCA paid Smith $93,356 in salary and benefits.
Interim CEO Linda Bourcier, who joined a workout class 24 years ago and became a paid instructor eight years later, declined to discuss the YMCA's problems but said: "Steve Smith had the vision. I have to tell you, this is the best it's ever been. The members are happy -- you see it in their eyes."
Many longtime members
Clearly, Modesto's YMCA is much more than an iconic Village People song.
John Tatting, 78, of Modesto and Merle Whitten, 84, of Oakdale, both heart patients, have been lifting weights and walking on treadmills at the YMCA since rehabilitation clinics closed in local hospitals a few years ago.
"Oh yeah, it's good for me," Whitten said.
Anjean Hofland's achy back can't stand the stress of walking around her Modesto neighborhood. So the 69-year-old "walks" and exercises in the YMCA's 90-degree, 4-foot-deep pool.
"This is great therapy," said Hofland, who said she has made several friends at the YMCA. "When you walk in the pool (with others), you can't help but talk."
Evan Lintt, 19, learned to swim at a YMCA in San Diego and works as a lifeguard at the one in Modesto.
Jim Niskanen, Modesto's incoming interim city manager, began a year's break from YMCA board activity in June when he became president of Sunrise Rotary, whose meetings conflict with the YMCA's. Niskanen, the city's parks director, said he had asked to join the YMCA board to shore up its relationship with the city and said he is "very, very impressed with Steve."
Calls placed to YMCA board members Dave Cogdill Jr., Bill Floyd, Greg Reed and Brian Ullrich were not returned.
Mark Sconyers, a former board treasurer, said the YMCA's money problems had nothing to do with his resignation. He refused to comment on Smith's performance. Pressed for a reason, Sconyers said: "Good luck. I'll look forward to knowing what's going on."
James Ferguson and Mike Navarro, who left the board recently, did not return calls.
Neither did Modesto certified public accountant John Sereno, who terminated the YMCA as a client "due to ethical and independence issues" two years ago after serving the nonprofit for 20 years.
In a discharge letter dated Aug. 1, 2005, obtained by The Bee, Sereno blasted Smith for negotiating a $1,365 discount on Sereno's $8,665 bill and reneging for four months on a promise to make monthly payments. Sereno wrote that Smith had not responded to preliminary audit documents delivered to Smith's office six months earlier.
Sereno wrote that his firm had donated "over $25,000 of our time during the past five years for the good cause the YMCA serves our community."
Asked about the rift, Smith said Tuesday that he had advised board members to obtain another accountant because the YMCA hadn't explored using someone different "in many years."
Dipping into endowments
The board's balance sheets, obtained by The Bee, show the YMCA's line of credit with Modesto Commerce Bank at $86,250 in June, increasing to $132,250 in July and $145,750 in August. Board members admitted Tuesday to using endowments earmarked for poor and disabled children to leverage loans instead, to keep the YMCA from going under.
Brandon Murphy, a Modesto Commerce Bank officer, refused to comment Thursday, citing a confidentiality policy.
Smith said board meetings reflect rocky relations with the bank "because they're asking the same questions (The Bee is) asking."
"We pay our bills every month according to our ability," he continued. "We're fortunate to have great relationships with our vendors. We talk to them all the time. (Patience) is part of their way of supporting the Y."
Board members said many of the 2,663 YMCAs across the United States are struggling.
A YMCA founded more than a century ago in Stamford, Conn., closed Wednesday, blaming financial woes on declining membership, according to the Stamford Advocate newspaper. Like many YMCAs, it had operated a hotel along with its health club.
Others have sold property and rented it back or opened elsewhere, board members in Mo-desto said. They declined to name people they are approaching to solicit a deal.
The YMCA occupied part of five acres acquired when the association moved to McHenry Avenue 43 years ago, but sold the northern half years ago.
Wilson said board members considered selling the venerable club before sinking $650,000 into the 2004 renovation. "But when we looked at the cost to duplicate it (elsewhere), it just wasn't feasible," he said.
Membership figures conflict
Membership in Stanislaus County is difficult to track, partly because people who pay partial fees to enroll in a single sports season are considered members as well as those who work out year-round.
IRS forms show membership dues declining drastically from 2001 to 2004, but unaudited numbers provided by Smith for 2005 and 2006 indicate an upward trend to an all-time high in April 2006.
Smith provided additional figures showing membership steadily climbing from 5,413 when he took over to 6,709 in April 2006.
But internal documents obtained by The Bee suggest an opposite trend.
According to a detailed "Membership Trend Statement," the YMCA had a net decrease of 150 people over all membership categories in the year preceding April 2007, with total membership at 2,167. Asked to explain the discrepancy, Smith said that spreadsheet reflects families while he counted individuals.
Board members Tuesday said it's no secret they've lost members and offered several reasons:
Teens across the United States are less interested in sports and fitness. "My kids call it the geriatric center," Wilson said.
Year-round school schedules hurt summer camp attendance.
More schools are providing on-campus after-school care.
Competition for donations among nonprofit groups is increasingly fierce, and costs for services keep escalating. "We depend on financial contributions to exist," Wilson said, "and there is a lot of competition out there."
Although newer fitness clubs have proliferated, the board members said those clubs attract a different sort than the YMCA. It accepts anyone, including those who can't always afford to pay, and caters to families, senior citizens and the disabled. "A lot of people who use (the Y) are not high and mighty," Layman said.
Enthusiasm for the Gallo Center for the Arts in downtown Modesto -- though justified, board members said -- has siphoned off the community's pool of charitable donations for several years.
Families don't seem as willing to part with discretionary income as in generations past. "Did the housing crisis cause our problem? No," Layman said. "Is it related? Yes, it is."
Beyond membership fees, the YMCA relies on fund-raising events such as its annual sports banquet, Winter Treasureland dinner and auction, and Christmas Tree run.
No staff member or consultant is designated to apply for grants, Smith said.
"The Y is only going to be as strong as its community support," he said.
In a farewell e-mail to staff and board members Wednesday, Smith said his 5½ years had been "incredibly rewarding as we have reinvented the Y, given it a new look, brought in hundreds of new people and watched many others return."
He predicted that the YMCA's success will depend on "the level of faith you have in the purpose of the organization, in each other and in God's plan.
"While it's time for me to accept what the Lord is calling me to do now, I will always be willing to help when I can and where I can as a volunteer in your efforts to keep the YMCA relevant to our community," Smith wrote.
To The Bee, Smith said, "I'm certainly leaving it stronger than when I got there."
The family of Tom Norquist, 68, has enjoyed the YMCA for at least 50 years. He said he still works out there three or four times a week.
"You ought to see the people in wheelchairs and on ventilators who get in there and improve their lives," Norquist said. "The Y has been around a long time and served a lot of people. The Y has its ups and downs, and it may be in a down right now, but there is a lot of value there."
Bee staff writer Garth Stapley can be reached at firstname.lastname@example.org or 578-2390.