Is $400,000 too much to pay the CEO of a nonprofit behavioral-health organization in Tucson?
In a lawsuit, Southeastern Arizona Behavioral Health Services argues it is, and that such excessive pay shows the Community Partnership of Southern Arizona has been acting more like a for-profit business than a charity.
SEABHS ("See-bus"), as the Benson-based behavioral-health agency is called, also points to the community partnership's amassing of tens of millions of dollars as a sign.
"CPSA's financial accumulation of over $60.7 million in net assets conclusively establishes that it is not and has not operated as a nonprofit tax-exempt charitable organization for the past decade," SEABHS says in the June 30 suit.
Neither assertion is necessarily true, experts said. A nonprofit CEO can justifiably make a high salary, and nonprofit organizations not only can but should make a profit if possible, they said.
The issue of salary comes down to a question of comparisons, said Kathleen Kitagawa, a local executive-compensation expert who led the determination of the salary of Neal Cash, the community partnership's CEO. He made $404,602 in salary and bonus in 2009, plus $60,000 in retirement and related compensation.
There are three ways to compare the size of organizations - by revenues, by operating budgets and by the number of employees, Kitagawa said.
The ideal comparison for Cash, she said, is to the head of a nonprofit managed-care organization, but good comparisons don't exist in Arizona.
"A Pass-through"
Measured by its revenues, the community partnership is large. It took in $303 million from the state in 2009, distributing most of it to behavioral-health agencies for treating clients. The same year, Flagstaff Medical Center had $377 million in revenue and paid $400,000 or more to five executives, including $675,000 to its medical director.
But such a comparison to the partnership isn't necessarily good, said Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy in Washington, D.C.
"This is a case where they're primarily a pass-through, so they don't have a huge fundraising arm to raise those revenues, and they don't have a huge program staff to deliver services," Dorfman said.
When measured by jobs, the comparable salaries drop. After recent layoffs, the partnership has 269 employees, Cash said. Intermountain Centers for Human Development, a Tucson nonprofit, had 255 full-time-equivalent employees at the beginning of 2011. In the same year that Cash made $404,000 in salary and bonus, Intermountain's CEO, David Giles, made about $152,000.
The process of making comparisons can drive up salaries to excessive levels, Dorfman said.
"Everybody takes the most inflated comparisons that justify the highest level of compensation," Dorfman said. "The whole thing keeps going up and up."
Cash said he has nothing to do with establishing his compensation. His performance and compensation are reviewed by an independent committee of the board of directors who use an independent compensation analyst, said Cash, who has headed the community partnership since 1999.
This year, the community partnership made across-the-board cuts to the agencies it funds and cut its staff by 30 filled positions and 20 vacant ones. Cash also took a 15 percent pay cut.
That didn't settle the issue for laid-off employee Mike Aquino. He was disappointed that CPSA didn't use alternatives to layoffs, such as hour reductions, salary cuts and furloughs.
"I don't know (Cash's) pre-pay-cut salary, but considering that mental-health services in the state are on the brink of extinction, it would only seem logical to me that the CEO and executives could have sacrificed a little more to save jobs," Aquino said via email.
Profits at issue
The issue of profits is another one entirely, said Dorfman, whose organization serves as a watchdog on foundations and other charitable organizations.
"The essential element that distinguishes a nonprofit from a for-profit is not whether you make money from year to year," he said. "It has to do with what you do with that profit. You can't distribute your profits to shareholders."
Instead, the profits must go back into the organization and its mission, he said.
Two for-profit businesses are operating in Arizona as regional behavioral-health authorities - the same function that the Community Partnership of Southern Arizona plays. Magellan of Arizona and Cenpatico of Arizona are part of larger, publicly traded corporations. The state's other such authority is a nonprofit, the Flagstaff-based Northern Arizona Regional Behavioral Health Authority.
All of the authorities, nonprofit and for-profit, are governed by the same regulations of administrative costs and profit. They are limited to taking 7.5 percent of the money they receive from the state in administrative costs, and of that sum, they can only keep up to 3 percent in profit.
Charles "Chick" Arnold, a Phoenix attorney who led a key lawsuit on behalf of Arizona's mentally ill, said for-profit entities have conflicting duties to their shareholders and the people they're treating.
"I see that creating a tension that can never be resolved," he said.
But Terry Stevens, CEO of Cenpatico of Arizona, noted that her company has given customers more choices in providers since taking authority over Cochise, Graham, Greenlee and Santa Cruz counties last year.
The company, a subsidiary of St. Louis-based Centene Corp., also made less than 2 percent profit in recent years, Stevens said.
"The contracts we have with the state are very prescribed. What differs is the management of each of the companies. It's not about for-profit versus not-for-profit."
Contact reporter Tim Steller at 807-8427 or tsteller@azstarnet.com
