Report: Fumo's nonprofit deserves to carry on

Once, it was banking millions of dollars and was a key redoubt in the power base of former State Sen. Vincent J. Fumo - and a supporter of his luxuriant lifestyle.

Today, it has only about $80,000 in the bank, its board of Fumo cronies has been cast out, and the former senator is nine months into a 55-month federal prison term.

But the nonprofit Citizens' Alliance for Better Neighborhoods, which Fumo founded, can still do good for a commercial swath of South Philadelphia, its interim overseer recommended Wednesday.

Paul Levy, the expert appointed by Commonwealth Court to study the fate of Citizens' Alliance, called for a "relaunch" with a new name, fewer programs, and a smaller turf.

By concentrating on its 15 or so storefront properties in a gentrifying section on Passyunk Avenue, Levy said, Citizens' Alliance could ultimately serve as a model for how to revitalize similar neighborhoods.

"It can be viable if it can be freed from this legacy of the past," Levy said in an interview.

In his report, he wrote that the issue he faced was whether there "was indeed a baby immersed in a lot of dirty bathwater." He said he had decided the answer was yes.

Fumo, once one of Philadelphia's most powerful Democrats, used his political muscle to raise a massive amount of money for his tiny nonprofit group, whose executive director, Ruth Arnao, was a Fumo legislative aide.

In a secret deal, he persuaded Peco Energy Co. to give it $17 million. He also struck a deal with the Delaware River Port Authority that ended up netting the organization an additional $10 million.

With that money, Citizens' Alliance invested heavily in the storefronts and other real estate. It also engaged in projects to clean up South Philadelphia and helped a pair of charter schools get going.

Fumo and Arnao, meanwhile, used Citizens' Alliance as a cash cow for personal purchases, among other abuses. Fumo was convicted last year on corruption charges related to the nonprofit group, as well as to charges that he ripped off the state Senate.

Arnao was also found guilty. Before her conviction, the nonprofit organization spent at least $2 million on her legal bills.

Commonwealth Court Judge Dan Pellegrini is to hold a hearing in about two weeks to review Levy's 10-page report and other documents. It will be up to the judge, with input from the state Attorney General's Office, which monitors nonprofit groups, to decide the future of Citizens' Alliance.

Among other disclosures in Levy's report was the fact that the IRS had begun an inquiry into Citizens' Alliance. In an interview Wednesday, Levy noted: "The IRS has the power essentially to put the organization out of business."

He said, however, it would be best if it kept serving its community, helping spur the growth of restaurants and other businesses and helping clean streets and beautify the neighborhood.

Levy revealed that the organization takes in about $730,000 yearly in rents from its buildings, which are worth $16 million and are owned free and clear. Still, it netted only about $200,000 a year out of that, and it had only about $80,000 in the bank at any time, Levy said.

Aside from paying Arnao's legal bills, the organization ran up $1.1 million in other charges from lawyers in costs incurred representing the old board and dealing with the Attorney General's Office, which has sued the organization. Of this, $500,000 has been paid and an additional $600,000 is still owed.

Still, Levy said, the group's finances should rebound somewhat in the future.

For one thing, he noted, it has agreed to sell the building at 12th and Tasker Streets that had served for years as Fumo's legislative office, obviously renovated at the nonprofit group's expense. Levy would not disclose the sale price, but it was listed for $650,000.

Levy also is working to sell the Citizens' Alliance buildings now used by Christopher Columbus Charter School to the school, which is in South Philadelphia.

He said such sales would allow Citizens' Alliance to pay off its debts and move forward.

Levy, who heads the Center City District, a development corporation that helps clean, increase safety, and otherwise improve Philadelphia's main business area, said he would not be interested in leading Citizens' Alliance if it survived.

His report also sheds new light on another Citizens' Alliance fiasco. At Fumo's direction, the nonprofit commissioned an original painting by maritime artist John Stobart of the sailing ship Gazela Primeiro, which for years had been anchored at Penn's Landing.

Citizens' Alliance paid $150,000 for the painting and for 1,000 prints, which were to be sold at a fund-raising event for the Independence Seaport Museum. Fumo sat on the museum's board.

Levy obtained estimates on the value of the painting and prints from two auction houses. The first, Samuel T. Freeman & Co. of Philadelphia, said the painting was worth $15,000 to $25,000. Northeast Auctions of Portsmouth, N.H., estimated its value at $25,000 to $40,000. The prints, they said, were worth almost nothing.

Northeast will put the painting up for sale this summer.

The report also explored another financial mess facing the nonprofit group.

In 2001, Citizens' Alliance invested $2.5 million in Covenant Partners, a limited partnership whose managing director and founder is William B. Fretz Jr. - who was also a financial adviser to Citizens' Alliance. In 2003, Fretz made a $4,500 campaign contribution to Fumo's Senate campaign committee.

Lawyers for Citizens' Alliance have not been able to put a value on the Covenant stake because the underlying investments are interests in closely held companies, Levy's report said. In late 2008, representatives of Covenant Partners offered to buy Citizens' Alliance interest in their partnership for $700,000. Levy declined the offer because, he said, Covenant has refused to provide information that would help him determine the investment's actual value.