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SOUTHWEST FROM PAGE 3
A history of growth Southwest grew from a small community mental health agency launched in 1972 into one of the region’s largest and most impactful human-services nonprofits, serving tens of thousands of people each year in Detroit through a structure of four connected nonprofits. Its programs range from mental-health services to supportive housing assistance and services for the homeless and veterans, affordable housing development, urban entrepreneur support and microlending, financial and homebuyer counseling, financial literacy and homeownership, workforce development, small-business training and support, and community engagement. Southwest has gained a national reputation for social innovation and was named Crain’s Best-Managed Nonprofit in 2005 for expanding its work well beyond mental health and managing a large number of programs to more fully meet the needs of its clients. And last spring, the Washington, D.C.-based National Council on Behavioral Health presented Van Camp with its Visionary Leadership award for his decades of work to strengthen behavioral health care. But the heart behind Southwest’s social services programs didn’t always keep pace with the business side of things. With about 70 percent of its annual budget coming from government contracts and grants and gifts that didn’t always include adequate overhead to operate programs, the strategy of taking on programs no one else offered was bound to catch up to Southwest. It ran a deficit of about $3.9 million in fiscal 2017, based on federal tax filings for the four nonprofit entities, as decreased funding for programs like Head Start and mental health services, along with other factors, began to impact its bottom line. Its revenue dropped to $45.9 million in fiscal 2017 from $49.8 million the year before. Tasse said Southwest expects to report a net loss for fiscal 2018 when it completes its accounting for the year. Southwest Solutions’ programs are delivered by three separate nonprofits that share back-office functions: Southwest Counseling Solutions, Southwest Economic Solutions and Southwest Housing Solutions. Could it consider spinning off any part of its operations? “We’ve had discussions about whether there ought to be some legal separation here,” Lloyd said. The breadth of programs that Southwest developed came to be because each helped move clients to self-sufficiency, he said. “If we ... cut off an arm or leg, our ability to do that has been depleted.”
Aligning costs with revenue Over the past year, Southwest has made a number of moves to bring its costs in line with revenue. It exited Head Start and Early Head Start early-childhood programs that served more than 400 children at the end of calendar 2017, after funding cuts made the operation unsustainable. Then, in May, it brought in Fred Leeb, principal of Leeb Partners LLC, as interim president and CEO to
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REPORTERS
Veterans at Piquette Square participate in a class on healthy eating.
identify strategies to help turn the nonprofit around. He stayed on for six months before turning his recommendations over the Southwest Solutions’ board and Tasse as incoming interim CEO last fall. “The whole plan we’re looking at really looks at certain domains of operation that we’re having to address. Some of it is organizational restructuring, asset sales, revenue enhancement, span of control,” Tasse said. Those moves are expected to reduce costs by several million during the current fiscal 2019 and fiscal 2020 years, he said. Among other moves, Southwest has eliminated three programs that didn’t have adequate or any funding streams. “I would say we’re kind of at a point now, if we can’t support it financially, we may not be able to do it as much going forward,” Tasse said. “Or, we’ll have to rely on the philanthropic community.” Southwest eliminated its Assertive Community Treatment program, which provided home-based mental health services to about 50 clients. It shifted about 40 of them to its integrated health clinic services program which also provides primary health care through an agreement with Covenant Community Care and referred the other 10 people to other providers. “We’re in a fee-for service environment,” said William Ward, executive director of Southwest Counseling. “The Medicaid codes that are attached to that (integrated health) benefit are a little bit more generous than the ones under ACT,” he said, noting that move, alone, is expected to produce a net gain of $50,000 to $60,000 this year. It also eliminated its Go-Getters Drop-In Center, a day center for mental health clients funded by a daily per-customer fee from Detroit Wayne County Mental Health Au-
thority that did not cover the costs of operating the program, Ward said. And it eliminated an evaluation department that provided outcomes data that went above and beyond what funders require but didn’t have revenue supporting it. The hope had been to ramp that evaluation department up and sell those services to other providers to help cover its costs, Lloyd said, but that never materialized. “We were left with something that was nice to have, but it was a luxury.” Southwest has also cut layers of management by increasing the number of people reporting to supervisors across its operations and cut positions with other program eliminations and expirations. With the exit from Head Start and additional moves and attrition, Southwest has shrunk from 460 employees in 2017 to 269 today. Over the past year, Southwest has been circumspect about looking at consolidating and eliminating some programs and identifying properties that are not essential to mission to reduce costs and generate needed cash, Tasse said. It has sold two buildings, yielding a combined $2.5 million: J The Go-Getters building on Vernor Highway, near the Michigan Central Train Depot to Christos Moisides for $700,000. J The former Third Precinct building at 21st Street and Vernor Highway in Southwest Detroit to Detroit School for Digital Technology for $1.8 milion. Today, Southwest is operating about 50 programs serving about 10,000 people annually on a budget of $40 million for fiscal 2019. The other third of its revenue beyond government contracts and philanthropy stems from areas including rehab of bank-owned homes and development of affordable housing and property management.
SOUTHWEST SOLUTIONS
Preparing for future “Once we have the core organizational development work done ... now we can begin to envision the future,” Tasse said. Southwest’s information-technology infrastructure hasn’t kept pace, he said. “Because we’re so grant-, government contract- and foundation-dependent, there’s a lot of reporting with that ... and I don’t think we’ve really geared up for that,” Tasse said. The organization is working with APEX Digital Solutions to assess its IT infrastructure and needs and considering a seven-figure investment in a new IT system. It is already approaching foundations for support. The new IT system would be “a game-changer,” Tasse said, improving client services, making financial reporting more efficient and programs more nimble by enabling, for example, electronic sharing of medical records between its mental health and primary care programs and strengthening billing and grants management to make sure dollars Southwest is owed are collected. “It’s grant management to make sure we don’t give money back, and we have in the past,” he said. On the leadership front, Southwest isn’t actively searching for a permanent CEO right now, Lloyd said. “We want to make sure when we do begin a (CEO) search in earnest, if we do … we want to make sure that we’ve got something … that will attract the best and brightest nationally to apply for the job.” “To the extent that we can provide a stable, well-run organization, which is what’s happening under Joe’s leadership, we’ll be far better able to attract interest on the part of the kind of people (we’re seeking.)” Sherri Welch: (313) 446-1694 Twitter:@SherriWelch
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