Update on Management and Financial Issues

by Kim Kaufman

Pacifica is the last network of independent non-commercial radio stations operating in five of the largest media markets in the country. They are KPFK, Los Angeles, KPFA, Berkeley, WBAI, New York City, WPFW, Washington D.C. and KPFT, Houston, Texas. Many observers — and listeners — have written Pacifica off as a pathetic in-fighting mess as it has long been irrelevant in the larger media world. But the fact that this organization still owns and operates five very valuable radio licenses in major U.S. markets is worth taking a look at, especially from the financial aspect which is rarely exposed.

Since KPFK (and the other stations) are having another election for their Local Station Boards (LSB), what follows is information for anyone considering running, or voting, from a former KPFK LSB member. I will highlight some of the critical issues facing KPFK and Pacifica to consider.

This is also an update to KPFK and Pacific: A Quiet Coup from October, 2015 which detailed problems with the finances then — the lack of several years of filing annual audits to the CA Attorney General, the lack of adequate bookkeeping, etc. I advocated voting for one faction of new and returning former LSB members (which I had then been aligned with) to replace the other faction. They were elected and have had a majority on the local and national boards for the last three+ years. During this time, however, the financial picture has only gotten worse. Pacifica’s factional infighting is somewhat notorious but is the problem only the factions or is it something else?

As to my qualifications for addressing these issues, I was on KPFK’s LSB from 2009 to 2015 when I was termed out. I was, at different times, Treasurer of KPFK, on the National Finance Committee, Director on the Pacifica National Board (PNB), on the Audit Committee, on a Financial Recovery Audit Task Force, and other committees. I have been involved in and focused on the finances of KPFK and Pacifica for many years and in many capacities. I have written many analyses of budgets and actual income/expenses, been a whistleblower and advocated for transparency and honesty.

KPFK’s Finances

The main job of KPFK’s LSB is to approve yearly budgets from management and make quarterly reports on the station’s finances and to make sure the station is on solid financial footing. Good budgets are based on historical data and formulas that are specific to non-commercial radio whose revenue comes largely from on air fund drives. Management has not availed itself of those tools for the last two budgets and produced overly optimistic budgets. Nevertheless, KPFK’s Finance Committee brought the budgets to the LSB, which were approved with little to no discussion. The estimated $500,000 end of year surplus for FY2018 wound up being a ($67,000) deficit. This is a notable “mistake” but to date has never been analyzed by the Finance Committee.

Thus, the FY2019 budget repeated the same errors as were in the FY2018 budget. There have been verbal reports from the Treasurer, such as revenue was “better than the budget and better than the previous year.” But they have never been supported by documentation or actual data and were, in fact, false conclusions. This sort of statement is typical and shows a lack of attention and/or expertise that is needed for the required oversight duties of the board.

Because of decreasing revenue from KPFK’s on air fund drives, there are now various forms of desperate acts to raise money, most of which are forms of underwriting that violate FCC and CPB (Corporation for Public Broadcasting) rules. Underwriting is allowed and the FCC has specific rules that need to be followed but management is not complying with them. The Finance Committee has been made aware of these violations but have thus far not taken any action. Further, KPFK is misleading the public with programmers saying that KPFK takes no underwriting, it’s all “powered by the people,” etc. This is not true and has not been for about two years.

If there are discussions about the finances at KPFK going on, they are being made behind closed doors and not at either the Finance Committee or the LSB meetings.

The Loan

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This lawsuit of Empire State Realty Trust against Pacifica happened because of lack of oversight by the PNB.

In October 2017, a judge ruled against Pacifica and awarded ESRT [Empire State Realty Trust] a summary judgement of $1.8 million plus attorney’s fees. ESRT sued Pacifica in February 2016 to recover back rent and tower fees, interest and attorney costs. In the years-long dispute, Pacifica accused ESRT of price gouging and “holding the network hostage” with a contract that required WBAI to pay tower rent that increased about 9% per year. . — Inside Radio

Members and programmers from WBAI called ESRT “greedy capitalists” but Empire would not back down. In fairness to all of the involved parties, Pacifica voluntarily entered into the tower rental agreement with ESRT in 2005 with full awareness of all of its provisions for potential future rental increases.

On the PNB, there was dithering and inaction. Many secret and some public meetings were held, arguing between filing for voluntary bankruptcy or taking out a loan to pay off the judgment and the rest of the contract with Empire. The decision was to take out a loan. The argument against bankruptcy was that legal fees would be high — but the loan’s fees, legal fees and interest wound up being, by my calculations, about $900,000 or more, the same or arguably much more than bankruptcy would have been. Time will tell as to the real cost of taking out a loan.

Most elements of the reported 150 page loan agreement are still secret, with claims from the PNB there is a provision in the document that requires it being secret. Requests to provide that particular provision to the public have not been answered. While a press release about the loan is still on KPFK’s website, and easily found elsewhere on the internet, it is now forbidden to name the lender publicly.

This “Summary of the $3.7m Loan” was released to the public by the PNB. The figures offered in the Summary, however, are incorrect. It appears to be an early draft as the actual amountof the three year interest-only loan is $3.265 million and the adjustable interest for the first 18 months is $379,556. Pacifica could not get KPFK’s tower included as collateral because the US Forest Service, on whose land it sits, would not allow it. The tower was supposed to be used as collateral to borrow, and pay interest on, the first 18 months of interest payments.

Thus, two buildings adjacent to Berkeley sister station KPFA were sold to pay part of the ESRT settlement and the rest used for the first 18 months’ interest. One building housed the Pacifica National Office, with offices for the Executive Director, CFO and accounting staff. The other building had been vacant for a decade or so.

The CFO at the time resigned when the loan was signed, claiming the loan was in default because Pacifica could not provide any of the lender’s required financial documents, such as a current audit, profit and loss, etc. In a leaked document, Pacifica’s general counsel also weighed in on problems with the loan.

Pacifica must start paying the interest for the second 18 months starting October, 2019. It’s hard to see how Pacifica can come up with monthly payments of $21,000+, especially since KPFK is unlikely to be able to cover its own basic operating expenses going forward and will need help from the rest of the network, which has no help to give. There’s even less hope for paying off the $3.265 million balloon payment due March, 2021.

Those supporting the loan have made repeated claims that Pacifica can easily refinance for a better loan, that “a loan is not in default until a judge says it is,” and that the loan is secured by real estate only. This paragraph #4 from the Summary, however, shows this is false:

“[i]n addition [to the real property: buildings & land, three buildings housing radio stations KPFK, KPFA (Berkeley) and KPFT (Texas)], the Collateral includes accounts receivable, tangible goods, equipment, rental income, sales proceeds, contracts, intellectual property, furniture, cash and proceeds of insurance or sales — in short, virtually every real, tangible and intellectual property right in which Pacifica has an interest.”

This provision also includes the Pacifica Radio Archives. It’s much more than just real estate. Whatever the outcome of a potential default on the loan, lawyers will be involved — and Pacifica is required to pay legal fees for both sides.

It’s hard seeing a way to a refinance since Pacifica has not complied with requirements for the loan and has no way of paying the balloon payment in March, 2021 — unless they sell or swap one of the five licenses (which are under the jurisdiction of the FCC andcannot be used as collateral). The lender did not do its due diligence according to its own website. The mystery is: why did they lend to the obviously deadbeat Pacifica? The loan broker, Marc Hand, made at least $50,000 on the deal. Some speculate the loan has already been sold to a third party, see comment 3 of 3.

The idea of refinancing this loan they cannot pay back or pay the interest on, while adding more fees, interest, legal and brokers’ fees, seems like little more than a distraction to divert and delay the board from dealing with the realities of its insolvency and failing operations.

Pacifica’s Finances

Some on the PNB imagined they could save money by outsourcing Pacifica’s accounting and not replacing the CFO. The new outsourced accountants have, as of this writing, produced nothing since their hire almost a year ago. Supposedly, an interim CFO was hired for three months in January but he produced nothing. The PNB just hired a new part-time interim CFO, an employee of the outsourced accountant firm. KPFK’s Finance Committee was told she was being paid “a small amount.” She was supposed to produce financial reports for the last two years by June but now it might be July.

Pacifica is also under investigation by the Department of Labor for violating ERISA laws, which has to do with pensions promised to employees of the five stations. This has been a problem for over two years and, as far as anyone in the public knows, is still unresolved and unpaid. Including penalties, this could amount to a large sum to be paid out.

The audits

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Pacifica has been trying to catch up on its late audits since 2014 for which Pacifica has been under investigation by the CA Attorney General. The current auditor has been working to complete the FY2017 audit since last fall (originally estimated to take three weeks). It was due to the CA Registry of Charitable Trusts June, 2018. The auditor finally told the audit committee he’s only been able to get about 50% of the documentation he requested and suggested they stop searching for more. He will finish what he has but it will be “qualified” which is auditor-speak for: there are serious problems. In this case, he can only audit what he has and the rest is undocumented and unknown. The FY2018 audit, due June 2019, will miss this deadline and will also be “qualified” for the same reason. Two qualified audits that say your organization is too messed up to audit is not likely to persuade donors, foundation grantors or the Corporation for Public Broadcasting to give funds to Pacifica. It’s unknown whether the CA Attorney General or the lender will accept them.

Corporation for Public Broadcasting (CPB)

There was some anticipation that Pacifica would get current on its audits by this June and would again be eligible for CPB grants. That is not to be as CPB’s deadline for qualification is June. When Pacifica last received those grants, in 2012, it received about $1 million a year. Pacifica needs to get current on its financial reporting and compliant with other CPB requirements in order to be eligible for the 2020 cycle in order to receive funds in 2021.

Why The Secrecy?

Why the secrecy and obfuscation? Why the complete lack of financial oversight and fiduciary responsibility? Is it only incompetence?

In my earlier article, I wrote about the KPFA Foundation, a shadow corporation formed for the purpose of taking over the assets of Pacifica. Before that, in 2009, there was another secret 501(c)(3) formed for the Pacifica Radio Archives, supposedly to raise money (which never happened) but rumored that “in case” something happened to Pacifica, i.e., bankruptcy, the Archives could be moved into this non-profit. It was created by former PNB Chair/Interim Executive Director Sherry Gendelman with Matthew Lasar as Secretary. Lasar, a Pacifica historian of sorts, has advocated for breaking up the Pacifica network in alliance with the KPFA Foundation people.

After that came another secret effort from Berkeley by then-KPFA LSB chair Carole Travis who had been soliciting celebrities to join the board of “Big Tent Radio,” a nonprofit she claimed to be starting to acquire Pacifica’s assets after it “collapsed.” Attempts were made to get her to resign as she was clearly working against the best interests of Pacifica but no bad deed goes unrewarded at Pacifica and she remained on the local board, soon to be on the PNB.

There is presently another plan to break up the network from Berkeley, reports of a similar plan from Los Angeles, plus a long-time plan from one faction in New York. None of the breakup and takeover plans seem particularly viable but the absence of any other plan or even a discussion on how to pay back the loan, or interest payments, seems puzzling considering Pacifica’s precarious financial situation. Are they waiting for a sudden “shocked” awareness of financial problems and an orchestrated rush to “reorganize,” creating the opportunity for the licenses going to current favored board members with waiting 501(c)(3)s?

You can hear PNB Director Donald Goldmacher in this clip at a recent Strategic Planning Committee meeting suggesting selling off Pacifica’s assets (possibly to him and his allies around the network). He was recently re-elected to the KPFA LSB and is a long-time member of the Berkeley faction which created the KPFA Foundation, above.

Thus the sale of the Berkeley buildings and elimination of the Pacifica National Office and its accounting staff, which become unnecessary if the organization is going to dissolve, or privatize, itself into board members’ hands, and makes complete sense in this context. There’s no need for a permanent in-house CFO if there’s no intention of Pacifica continuing as a network. Further evidence of short-term planning: the outsourced accountants have a two-year contract.

The Previous Election

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Pacifica just had another election for the LSB which ended in March. Those running for re-election were micro-managing their own election. It was delayed, disorganized, over-budget, and the public and members were not properly informed. A 10% quorum of membership is required and KPFK had an 11% quorum — but 9% of the ballots were blank ballots. There was a quiet campaign advising voters that if they didn’t want to vote or if they didn’t know who to vote for, to send in a blank ballot to help reach a pseudo quorum. Those who were asking the membership for election or reelection received so few votes that they amounted to a vote of no confidence. They did not earn even the 10% required votes from the membership.

But like Trump losing the popular vote or George Bush, arguably never legitimately elected either time, that will not stop these illegitimately seated LSB members from acting as if they have a mandate. They are planning a big rewrite of the bylaws. The Pacifica bylaws are terrible, complicated and, in places, contradictory. They were written by a “listeners” after the lawsuits of 1999–2002 were settled. A rewrite by another group of “listeners” will not be better. The problem is not the bylaws, or Robert’s Rules of Order, the problem is electing “listeners” without skills or knowledge of broadcasting, basic finance, management or anything related, and no record of success in anything except getting elected and becoming board members of a multi-million dollar media organization which has only shown consistent decline for the last 20 years under their stewardship. Some of these people have been in and out of Pacifica’s governance for two decades or more. Due to Pacifica’s current structure, it’s impossible to replace them in favor of competent people. Bylaws rewritten by them will only entrench them further.

Conclusion

The first line of The Pacifica Foundation Mission Statement is:

To establish a Foundation organized and operated exclusively for educational purposes no part of the net earnings of which inures to the benefit of any member of the Foundation.

Insiders love to toss the Mission Statement around but never remember that first sentence. The reason the federal government mandates that non-profits have outside, independent boards, and also why they’re under the jurisdiction of Attorneys General is that they are funded by public money. Boards are supposed to make sure the public’s money goes where donorsthink it goes. The main job of a board is to report to the public about its financial operations. Pacifica’s board cannot or simply will not do that. The idea of public service appears long forgotten within Pacifica. One might assume this is just run of the mill incompetence, but it seems way past the time we can blame the chaos only on that.

It’s no wonder the members of KPFK’s Finance Committee refuse to answer awkward questions dealing with the financial realities of the operations. The board members paint rosy pictures of how well they’re doing to “save Pacifica” but, in reality, KPFK is in extremely bad shape and declining. You can hear it in the increasing fund drive days which are not bringing in enough to cover their expenses. Nor is Pacifica, as a whole, faring any better under the present PNB than it was under the previous PNB.

Instead of focusing on finances and complying with federal and state regulatory agencies the favored subject of discussion by board members has always been programming. The ultimate prize for aggressive board members is to be able to control programming to suit their tastes and ideologies — from expected old guard Trotskyism/Marxism/Revolutionary Communist Party/anarchism (etc.) to Scientology with a few progressive Democrats and black or Latino nationalists in the mix. The boards hire weak managers who they can then micromanage and work to create their own patronage system by giving program slots or jobs to their friends and allies. The resulting mediocrity and lack of cohesion of the program grid is the result. It obviously drives away listeners and extends fund drive which only turn off more listeners. Now those PNB members making decisions are actually proposingprograms for the sole purpose of enticing funders. This shows a lack of imagination and any pretense of journalistic integrity. This is only the latest of ideas thought up by amateurs who have done little more than master the byzantine governance system of Pacifica to get themselves into these undeserved positions of authority. Look for sketchy health programs, celebrities and other unimaginative pandering unlikely to excite funders or listeners.

Anyone Still Interested in Running For the Board of this Experiment in Democracy?

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For anyone still considering running for KPFK’s board, or any of the other stations, these are some of the bigger problems KPFK and Pacifica are facing. You will need to be a fighter with an independent mind because the entrenched board members of both factions are not really open to questions or open discussions, especially about financial matters.

The election information is here and the nominating deadline is June 30. If

you have skills, Pacifica needs you. But Pacifica doesn’t have a history of treating talented people well.

The sad irony is that just at the time this country needs a vibrant non-corporate media, Pacifica continues to make itself even more insolvent, unlistenable and irrelevant.

Kim Kaufman can be reached at kim.kaufman@att.net