Valley YMCA gets healthy after several rough years

The YMCA’s doors have been open in Phoenix since well before statehood, but the challenges the non-profit faced in recent years were among the biggest in its 125-year history.

After reporting multimillion-dollar deficits nearly every year since 2008, Valley of the Sun YMCA has depleted more than half of its reserves, cut back on programs and paid $500,000 to a financial-turnaround firm, according to the organization’s financial reports.

It brought in a new chief executive 16 months ago and a new chief operating officer in June; both are working to bring the organization out of a financial tailspin that started with the Great Recession.

The recession led to a sharp drop in grants and contributions, and a dramatically higher percentage of families unable to pay their YMCA memberships,

the organization’s revenue.

By 2015, the YMCA picked up a portion of the tab for two out of every three of its members.

Bryan Madden, president and CEO, said non-profits like the YMCA lag behind the national economy by three to four years.

He said the Y cut back on some services to save money but keeps the organization’s goals of youth development, healthy living and social responsibility at the forefront.

“We weren’t built to produce a profit; we were built to figure out how to push mission into the communities,” he said. “Having said that, we still have to pay our bills like everybody else.”

The organization is now recovering and on the path to stability, Madden and Chief Operations Officer Peyton Tune said.

Madden and Tune said last year was Valley of the Sun YMCA’s best since the recession — and 2017 is on track to be even better financially, they said.

The organization is not scheduled to release its 2016 tax forms until mid-June.

“We may not be able to offer as many things as we’ve offered in the past. Maybe we have to shrink a little bit,” Madden said. “It’s going to be here for another 125 years.”

Valley of the Sun YMCA is a sprawling operation, with 14 locations in metro Phoenix, as well as one in Yuma and one in Flagstaff. It serves nearly 150,000 families a year and has about 1,500 employees at any given time. It operates fitness programs, after-school activities and youth sports; at its downtown location, it offers low-income housing.

John Graham, president and CEO of Sunbelt Holdings, learned about the YMCA’s challenges firsthand in 2013, as his development company worked on connecting Arizona State University’s downtown fitness center to the Lincoln Family Downtown YMCA.

Not long after, YMCA officials asked him to join the board because they saw how he efficiently ran his company and could use his help. He’s now chairman of the all-volunteer board.

“We needed to realign operations in a financial capacity, as well as leadership,” Graham said.

President and CEO George Scobas retired in April 2014. An interim CEO took over until Madden arrived in December 2015.

The board brought in Madden from South Carolina and Tune from Florida because the pair had shown abilities to balance the books at prior YMCA posts.

The Valley Y’s financial problems from the Great Recession had lingered, Graham said.

In 2015, the organization spent $3.1 million more than it brought in, according to tax documents. It ended 2014 in the black, but tax documents show it lost a total of $24.7 million in the previous six years.

The Y went from subsidizing about a third of its members in 2010 to about twothirds in 2015, Chief Financial Officer Sue Suman said.

The YMCA’s contributions and grants dropped from about $26 million in 2008 to just under $6 million in 2015, according to tax documents.

“Most companies — non-profits, too — were hit hard in the downturn,” Graham said. “So many of them rely on philanthropy and contributions, and people cut back on their contributions.”

The organization made various attempts at financial restructuring, tax documents show.

In 2013 and 2014, it reported an interest-rate swap — a move companies generally make to hedge against possible changes in interest rates. In a rate swap, one entity usually trades a fixed rate for another company’s adjustable rate, or vice versa.

In 2013, Valley of the Sun YMCA paid $3.2 million for the interest-rate swap, according to the tax returns. The next year, it incurred $3.8 million in a “swap termination fee.”

Current executives said they could not explain the move because it was done before they worked there. Scobas could not be reached for comment.

Graham, the board chairman, would not comment on the specifics of the rate swap.

“Honestly, I can’t comment on any of it except to say that we worked on financial restructuring,” he said.

In the same two years, the local Y paid more than $500,000 to a Chicago-based financial-turnaround firm, which current leaders also wouldn’t comment on.

The organization is taking steps to shore up its finances, including reducing services. In September, nine of the state’s 16 locations announced they would close swimming pools during the winter months to save upward of $375,000.

And the cutbacks included 20 percent fewer employees from 2010 to 2016.

Each of the Valley of the Sun YMCAs has its own semi-autonomous board of directors, and each board can make decisions for its particular YMCA on how to save money and responsibly operate.

While the organization’s statewide operations funds steadily shrank from $35.5 million in 2008 to $29.6 million in 2015, certain locations, such as El Mirage, chose to hold the line on spending by not offering programs like baseball until the community showed a bigger demand for it.

Other locations, such as the Mesa Family YMCA, don’t offer certain basketball leagues, according to the YMCA website.

By allowing the needs of the surrounding communities to dictate what services the YMCA provides, each location can tighten its purse strings in small ways.

YMCAs are well-known for their fitness centers, which generally bring in more revenue than expenses, but their youth-development programs continue to operate in the red because of subsidies for people who need financial help.

Although the youth-development programs lose money, YMCA executives say they don’t offer them to make money. The YMCA, they say, exists to meet community needs.

If that means losing money, they’ll find other ways to make it up, Madden said.

“The YMCA’s done it here nationally for nearly 170 years. Locally, 125 years. It’s who we are,” he said. “It’s how we’re built. We’re not ever going to shy away from our mission, and we’re not ever going to shy away from helping people who don’t have the ability to pay for the services we provide that they need.”

Charity Navigator, a national watchdog group that evaluates charity performance, gives Valley of the Sun YMCA three out of four stars but has concerns about the non-profit.

Sandra Miniutti, Charity Navigator’s vice president of marketing, said the organization looks healthy, although its sustainability bears some cause for concern.

The group estimates the Y would have enough reserve funding to operate for just more than three months if it lost all revenue. “We’d rather see that they have, like, six months to a year,” she said.

“It’s also a concern that their spending on programs is declining over time,” she added. “To see a decline can be a signal that they’ve cut back on programs.”

Madden said non-profits always operate on lean margins.

“If somebody walked in today and said, ‘Here’s $25 million,’ we don’t put it in the bank and make sure it’s in some kind of escrow account for a rainy day. We try to figure out how to drop it into 10 million more swim lessons this month.”

Madden and Tune, the top two executives, each earn six-figure salaries.

Madden’s annual salary is $260,000, according to Y spokesman Tobin Ernst. That’s about $30,000 less than Scobas made in 2013, his last full year running the Y. Scobas earned $200,000 in four months in 2014 before retiring in April.

Tune, the COO, makes $175,000 annually — also about $30,000 less than the former COO.

Graham said the salaries are in the “appropriate range.”

He said the board compares salaries with about 10 other similarly sized Ys, including the one in California’s Orange County. The CEO there earns a base salary of $369,305. The COO earns a base salary of $244,027.

The downtown Phoenix YMCA was the first location for Valley of the Sun YMCA, but the facilities scattered around the Valley offer contrasting facutting cades in disparate communities.

The Northwest Valley YMCA in El Mirage, which opened in 2014, is the newest in the state.

Although the facility is noticeably smaller than the downtown Phoenix YMCA, it serves a smaller population.

The exercise equipment is newer, and the kids’ camp areas are filled with children hurriedly running from one activity to the next. The pools are open from roughly Memorial Day through Labor Day.

The facility is surrounded by farm fields — a sharp contrast to the Lincoln Family location in downtown Phoenix.

The 125-year-old Y downtown is surrounded by concrete, a partnered Arizona State University gym and constant noise from public transit running through the heart of the city.

The differing architecture and surroundings give each YMCA its own flavor. However, the constant aspects of the non-profit keep members coming back.

“I like how nice the people here are,” Phoenix resident and downtown YMCA member Angel Lujano said. “I go there to play basketball and work out, and I like that the basketball court is nice wood.”

Adult memberships to the YMCA are $56 per month in downtown Phoenix and $35 per month in El Mirage, according to a YMCA spokesman. Family memberships are $99 per month in downtown Phoenix and $61 per month in El Mirage. Every location offers financial aid.

By comparison, the downtown Phoenix area has private gyms with memberships as low as about $20 per month and as high as $43 per month, according to online quotes for EOS Fitness and Mountainside Fitness.

El Mirage-area private gym memberships start around $30 per month, according to online quotes.

YMCA executives say private gyms don’t infringe on their business, regardless of competitive pricing, because the Y is more than a gym. Traditional gyms don’t offer summer camps for kids, after-school sports, swimming lessons and all the YMCA offers, they say.

“If you want to spend $10 a month and rent a treadmill from Planet Fitness, God bless you. That’s not what we’re after,” Tune said.

“It’s a lot bigger than adult fitness. (It’s about) being a part of a community. The more gyms that open, great — that’s wonderful. But that’s just part of what we do.”

The rates quoted for the YMCA are flexible. The organization doesn’t turn anyone away because they can’t afford a membership.

The YMCA asks the person to provide tax returns to prove they are in need and then helps float the membership the person or family needs.

“We view our members of the YMCA not as consumers of health and fitness goods and services, but we really view them much like a church would view their congregation,” Tune said.