Updated: 4:07 p.m.
In the lead-up to its demise, a recently folded Rochester nonprofit used funding meant for smaller organizations with which it worked as collateral against a loan that would fix its financial woes.
The Diversity Council, which was among the oldest organizations in the city focusing on diversity and equity, was the fiscal sponsor for about a dozen smaller nonprofits — meaning it held and managed funding for those groups.
But recently, it has been plagued by personnel and financial concerns. These came to a head earlier this year when its former executive director abruptly left. Last week the group announced it was folding on March 8 after the board said it reviewed those concerns.
“After a comprehensive review of the previous year and taking the entire picture of organizational health into account, it quickly became apparent that the Diversity Council did not have the financial and human resources or sufficient stakeholder support to continue,” the board statement said.
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According to an email sent Wednesday by the group’s interim leadership, back in December 2022, the Diversity Council used all of its assets, including money held for these smaller nonprofits, as collateral against the loan.
“The Diversity Council is unable to repay this loan at this time, which means that all assets are frozen until the lender decides how to handle the situation,” they wrote.
“It means that at this time, no funds can be transferred and no bills can be paid,” the email continued.
“We sincerely apologize for the significant impact this has on you. We are doing everything in our power to remedy the problem as soon as we can,” it said.
But former executive director Dee Sabol disputes this characterization. In an interview with MPR News she related how she left the organization abruptly in January over what she said was a growing disagreement over the direction of the organization between her, the board and some staff members.
“It’s called a bridge loan and it's to bridge from end-of-year cash flow deficit to the income coming in. If there was not income projected coming in to satisfy the loan and to keep the business operational [the lender] would not have made the loan,” she said.
Sabol declined to reveal the size of the financial gap. She said it was not enough cash to be in compliance with internal governing rules, but it wasn’t zero, either. Rather the loan was meant to ensure it could cover payroll. And she said she didn’t put up money from other nonprofits as collateral to secure the loan.
Meanwhile, she said four employees who were unsatisfied with her leadership left last summer, which also meant that the Diversity Council scaled back its future work to match its staffing level — a move made, Sabol said, at the board’s request.
In a statement, the remaining board members said that they have been looking into past decisions made at the Diversity Council for nine months.
“Board members have acted ‘in good faith’ and ‘with the care an ordinarily prudent person in a like position would exercise under similar circumstances’ as Minnesota nonprofit law requires,” they wrote. “We have sought legal and expert advice over the last few months to help guide each step we have made.”
Left in limbo
Nonprofits that rely on the Diversity Council to take donations on their behalf, manage their books, and administer grants, are left in limbo.
That includes Southern Minnesota Immigrant Legal Defense, which hires lawyers to represent detained immigrants who can’t afford legal representation. The organization’s Board Chair Michael Resman said it’s now in a jam.
“Our lawyers have been working for us since January 1. That’s most of this first quarter is done, so we owe them for their services,” he said. “We've contacted them and asked them not to take on any additional work for us … but in effect, we have $0 in our account.”
Resman said his group is formulating a plan to raise the roughly $10,000 it needs to cover those legal fees, and they’re seeking another fiscal sponsor. Meanwhile, interim leadership at the Diversity Council is hoping to have clarity from its lender on the situation this week.
Operations at the Rochester Cambodian Association are also on hold, said Kim Sin, who leads the group.
“It’s kind of putting us at a freezing point. Like, ‘Okay, if we want to do other things, we can't, and we don't know the direction,’” he said.
Sin sees the loss of the Diversity Council as a loss for the community, in part because it helped small groups like his secure grant funding by bringing together multiple organizations to apply for funding and then implement projects.
For Sin, the group’s fall is personal. He came to Rochester as a refugee 40 years ago, and even worked with the group as a teenager.
“I love it here and I want to see Rochester grow but then provide a safe place for everyone, and there's a lot of work,” he said.