Nonprofit's financial, management struggles have taken a toll

A 35-year-old Austin nonprofit that operates education and job training programs for youths is struggling with severe money problems that have led to layoffs, sporadic employee paychecks, bad debt and trouble with the Texas Education Agency.

American Youthworks recently laid off 14 of its 90 staffers. Employees have gone weeks without paychecks, and some have agreed to pay cuts .

The TEA , which gives the nonprofit about $1.5 million per year for its charter school and routinely reviews its performance, has tagged the school with a "warned" accreditation rating for the past two years because of its high debt.

The rating doesn't affect the school's state funding, but it is a red flag to families and donors that the school is on shaky financial ground,chicken coop said TEA spokeswoman Debbie Ratcliffe .

"They've been really good about checking in, informing us about what's happening and asking for advice," she said. "You can tell they're really trying to get the school back on track."

But the road back has been bumpy. Several months ago, student attendance — which always fluctuates — dropped lower than expected, which meant less state money. American Youthworks had anticipated an 80 percent attendance rate in one of its charter school programs between September and November 2010. Instead, it hit only 65 percent. That meant the school received $120,000 in TEA funding instead of the $190,000 it had anticipated, said Chief Operating Officer Chester Steinhauser .

Also, some state and city payments, which can take 90 to 120 days to arrive, had not appeared.

American Youthworks suddenly found itself in a cash crunch, Chief Executive Officer Parc Smith said . With no line of credit cover it, the nonprofit ran out of money to pay its employees. Staffers stayed anyway, he said, some at lower pay.

The nonprofit is doing everything it can fix the problems, Smith said. It is slowly paying off its debt, bringing in new financial leadership, working closely with the TEA and cutting expenses. Some of the buildings from which it once operated — a 17,000-square-foot office building and a 30,000-square-foot warehouse on Fourth Street in downtown Austin — are on the market for $9 million .

But unraveling financial problems that were years in the making has been a complicated, time-consuming process, Youthworks officials said. Founder and former Executive Director Richard Halpin retired in 2009 . Finance officers have come and gone. Board members say they don't have a clear memory of the series of events that led them here. And the nonprofit has a labyrinthine funding structure that involves dozens of grantors.

"Everybody has trouble parsing it out," said Steinhauser, who has been chief operating officer since 2010. "Unless you were there when they were weaving it, it's hard to understand."

Decades of involvement

American Youthworks was started in 1976 when Halpin, a one-time social worker, launched the Creative Rapid Learning Center , a nonprofit that offered job skills to youths and adults in East Austin. Over the years, it evolved, changing its name and broadening its mission to include General Educational Development classes, an energy-efficient home-building program and environmental projects such as water quality testing.

In 1996 , the nonprofit started one of the first open-enrollment charter schools in Texas. Its students were the kinds of kids who often abandon traditional education: homeless, pregnant, struggling with learning disabilities or saddled with criminal histories.

By the mid-2000s, American Youthworks programs were reaching about 500 students a year through the traditional charter school and job training. As the nonprofit grew, its finances became more complicated, with its roughly $7 million annual budget coming from dozens of federal, state, local and private funders, such as the U.S. Department of Housing and Urban Development and the TEA. The nonprofit also made money through its service learning job programs, in which students are hired by state and local governments to perform tasks such as restoring grasslands, removing trees or doing stonework at local parks.

But by 2006 , American Youthworks was struggling to stay afloat, according to the nonprofit's board minutes in December of that year.

"Serious financial problems," the documents state. "We do not have the resources to do what we are doing for another year or two."