May 28, 2011

Cashing In: Salaries of Modesto housing agency attract federal scrutiny

A government-funded nonprofit agency has proved profitable for the Modesto couple that runs it. Joe and Denise Gibbs earned more than $1.32 million in four years working for the Stanislaus Community Assistance Project. A federal investigation has been launched into how the city of Modesto spent federal tax dollars.

A government-funded nonprofit agency has proved very profitable for the Modesto couple that runs it.

Joe and Denise Gibbs earned more than $1.32 million in four years working for the Stanislaus Community Assistance Project, including more than $712,000 last year.

A U.S. Department of Justice investigation has been launched into how the city of Modesto spent federal tax dollars, including funds that ended up benefitting the Gibbses and their agency.

That agency — commonly referred to as SCAP — has received more than $20 million in government grants since 2004, including more than $8.9 million from Modesto.

The money was supposed to help low-income, sick and homeless residents by providing various housing and support services.

But Internal Revenue Service documents show almost 10 percent of SCAP's $7.9 million in revenue during the 2009-10 fiscal year went to compensate the Gibbses.

Denise Gibbs has been SCAP's executive director for 10 years. She supervises her husband, William "Joe" Gibbs, who is the director of business and program development.

Joe Gibbs' arrangement with SCAP earned him 4 percent of the agency's "assets and income he produced," in addition to his regular salary. So when the agency's income spiked last year, his compensation soared to $627,331, according to recently filed IRS documents.

Denise Gibbs was paid $85,014 last year, plus assorted benefits. She now is being considered for a raise.

Neither Gibbs would respond to The Bee's questions about Joe Gibbs' salary. The Bee on Tuesday was referred to a Los Angeles crisis communications specialist hired by SCAP. Then on Thursday, a Modesto attorney said his office would provide SCAP's response Friday afternoon.

A written "statement to the media" was issued Friday, which contends Joe Gibbs' high compensation resulted from SCAP being "a victim of our own success."

Compensation changed?

When Joe Gibbs was hired in 2004 "we understood we could not provide him with a salary commensurate to his experience and talents. Hence, with board approval a modest salary of $14 an hour plus 4 percent incentive based on the value of assets and income he produced was offered," the SCAP statement says.

The statement says it is from "Pastor Daryl Fair," chairman of SCAP's board of directors, but that is not how Darryl Fair spells his name.

The statement also says that after "reviewing SCAP's financial data for the year 2010, the board realized the 4 percent incentive to our director of business and program development exceeded what was appropriate for a nonprofit agency to offer."

According to the statement, the SCAP board agreed with Joe Gibbs "to rework his compensation" and pay him what was owed "over a six-year period." It says "we agreed to a new compensation package that provides only a flat yearly salary of $75,000, with no incentive package."

In a subsequent e-mail from Fair to The Bee, he clarified that he made "an executive decision" in late February to change Joe Gibbs' compensation agreement effective March 1.

That means Gibbs will get his 4 percent incentive for anything SCAP brought in from July 2010 through February. SCAP took in about $6.2 million in gross income during those eight months, and 4 percent of that would be about $248,000.

Many people are interested in how much Joe Gibbs will earn, including the family of Mario Martinez, a Modesto man who died in a confrontation with Gibbs in 2008.

Gibbs was convicted last year in Stanislaus County Superior Court of felony hit-and-run and misdemeanor vehicular manslaughter. He was sentenced to home detention, however, so he continues working for SCAP.

Gibbs, his wife and SCAP have been sued by Marti- nez's wife and two children for wrongful death. A civil trial is scheduled this fall.

Federal review looming

Concerns over how Modesto and SCAP have spent federal funds have triggered a federal investigation.

City officials confirmed a representative from the U.S. Justice Department's Office of the Inspector General arrived Monday in Modesto to look into how federal Neighborhood Stabilization Program funds are being spent. This is the first such financial review by a federal inspector in Modesto, according to city staff.

SCAP received $2.34 million from Modesto's first allocation of neighborhood stabilization money in 2008-09 and $6 million from Modesto's second allocation in 2010-11.

At least 21 foreclosed Modesto houses and apartment complexes were purchased by SCAP with those government funds from August 2009 through December 2010. Since then, more than $2 million in federal funds have been spent renovating those housing units.

SCAP rents the homes and apartments and keeps all the proceeds. Because it is considered a nonprofit agency, it does not have to pay taxes on its revenues or any property taxes.

"Once the properties are purchased by SCAP using NSP dollars, the property becomes an asset of the agency. Mr. Gibbs' incentive would reflect the 4 percent value of those properties. Currently this is valued at $7.7 million," explained Judith Ray, Modesto's deputy director for neighborhoods, which oversees the city's housing programs.

If Gibbs gets 4 percent of $7.7 million as an "incentive," that would be $308,000.

Gibbs also gets a cut of all rents from those government-financed homes.

"When the NSP properties are rented, those funds are unrestricted revenue to the agency and are deposited to the agency's general fund. Mr. Gibbs' incentive would include 4 percent of the value of those rents. In 2010, this was valued at $24,393," Ray said in her written response to Bee questions about Gibbs' salary.

Local officials suspicious

Gibbs' financial arrangement doesn't sit well with some Modesto officials.

"I'm just appalled," said City Councilman Dave Lopez. "Every dime of that money should be going to help folks get into housing. This is taxpayer money. We should have paid more attention to this."

Lopez learned about SCAP's questionable compensation packages last month when a former member of SCAP's board of directors, Ken Hanigan, shared his concerns about the agency.

Lopez and Hanigan then met with Modesto City Manager Greg Nyhoff, and this month they were interviewed by agents from the Federal Bureau of Investigation. Lopez said he believes the FBI contacted the Office of the Inspector General to do the audit of the Neighborhood Stabilization Program.

The IRS document revealing exactly how much SCAP collected and paid its top employees did not become publicly available until late this month. The Bee provided a copy of that document to city staff members Tuesday, which apparently was the first time they had seen it.

Taxpayer contributions

While SCAP's largest government grants have come from the city of Modesto, taxpayers have given the organization millions for other projects.

SCAP has received numerous federal, state and local grants to buy housing units and run assorted social programs, many of which were supposed to benefit people with HIV/AIDS and chronic illnesses.

SCAP listed more than $14.9 million in assets on the financial balance sheet distributed Monday at its board of directors meeting. That's $3.4 million more than it had when its fiscal year started last July.

Hanigan said he became suspicious about SCAP's finances and money management practices after joining its board in February.

"In just 1½ months on the board, I saw stuff that made me uncomfortable," said Hanigan, who is the public benefits coordinator for the Modesto Irrigation District.

At his first meeting as a director, Hanigan said he read the board's January 2011 meeting minutes, which noted that directors approved $432,310 in "deferred compensation" for Joe Gibbs for the 2009-10 fiscal year.

"When I asked about that at the board meeting, I did not get any response at all," Hanigan said.

Hanigan said Denise Gibbs told him during a private March meeting that her husband gets 4 percent of whatever grants SCAP receives because he writes the grant applications.

During a private meeting later with Fair, SCAP's board president, Hanigan said he was told Joe Gibbs didn't have a written contract, but that the 4 percent commission was the agreement.

In IRS documents filed for the 2009-10 fiscal year, SCAP reported it had paid Joe Gibbs $195,860 in compensation, plus "other compensation" of $431,471. That document also disclosed that "99.140 percent" of SCAP's funding is from public sources.

The Bee asked city officials whether they thought SCAP was spending taxpayer money properly, considering how much was going to Joe Gibbs.

Ray said city officials have "had frank conversations with SCAP about this unfortunate situation regarding incentive-based compensation that without caps led to unacceptable salary levels."

Ray praised the SCAP board of directors' "decision to move forward with a different compensation structure that is not based on incentives."

Still questioning pay

There are conflicting accounts about when Joe Gibbs' compensation agreement was changed.

Hanigan said that while he was on the board, he was part of a compensation committee that was supposed to determine how much Denise and Joe Gibbs should be paid in the future.

In March, Hanigan said Denise Gibbs gave him a copy of Joe Gibbs' evaluation and a "sticky note" stating that he earned "$37,128 w/4% bonus." Hanigan said he asked for but did not receive a copy of Joe Gibbs' contract, and he said Friday that he never had heard of the "executive decision" Fair said he made March 1 about Gibbs' salary.

Hanigan was kicked off the board in April, and he believes it was because he had asked too many financial questions.

At last Monday night's SCAP board meeting, Denise Gibbs said Hanigan was removed for a "breech of confidentiality" and a "conflict of interest" because the MID had competed with SCAP for a government grant.

During that meeting, which The Bee attended, board members discussed looking for "an evaluation tool" to use to determine what Denise and Joe Gibbs should be paid. They indicated the Gibbses' compensation packages would be discussed at future meetings.

Also at Monday's meeting, the SCAP board made shifts to its membership. It announced that longtime board member Ralph Baldwin had retired, and it voted to ask absent board member Michele Abell to resign her position and become a volunteer instead.

Then the four remaining board members — Fair, Patrick Porkorny, Pamela Grassmidt and Roger Capps — voted to appoint four new board members: Jonathan Dattilio of Lincoln, Daniel Malakauskas of Stockton, Frank Ploof of Salida and Tom Drury of Modesto.

Dattilio said Friday that he thinks Joe Gibbs is "doing a great job" and deserved his $627,331 compensation.

"Without his skill and expertise, they wouldn't get the grants," Dattilio said. "None of that money would have gotten to Stanislaus County to help people if it wasn't for him."

But not everyone agrees with how Denise and Joe Gibbs run the agency.

A former SCAP board president, Art Weisberg of Modesto, said he has serious concerns about how the organization operates.

"Anyone who seems to have any strength is pushed off that board," said Weisberg, who was a director for three years before leaving in 2008. "Denise (Gibbs) runs the show and she gets very, very defensive if you ask questions."

Another former board member, Susan Azevedo, also questioned how well SCAP's board oversees its operations: "She (Denise Gibbs) stacks the board with people she can control."

Azevedo, who served in 2007, said she left the board "because of the way board members were treated" and because she feared she could have personal liability if SCAP did anything illegal.

Lopez said he wants the Modesto City Council to publicly address concerns about how SCAP has spent taxpayer money at a future council meeting.

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