Sacramento Public Radio Station Facing Insolvency Following ‘Mismanaged Funds’

September 1st, Sacramento’s public radio station Capital Public Radio (CapRadio), a NPR affiliate, announced it laid off 12% of its staff and canceled four shows because of “ongoing financial issues.”

Perhaps those “ongoing financial issues” stem from the “$3.3 million in outstanding bills CapRadio has yet to pay from the 2022-23 and 2021-22 fiscal years,” and this:

“CapRadio announced the layoffs the same day the board approved the budget for the 2023-24 fiscal year, two months after the year began. Of the $21 million in expected revenue, at least $5 million are one-time funds, according to information Board Treasurer Bena Arao presented during the public meeting Wednesday. Operating expenses are projected at $19.2 million, an increase of 8% compared to the prior year.”

What business is allowed to carry over $3.3 million in outstanding/unpaid bills for 3-4 years?

CapRadio Management laid off 12 employees total – nine Sacramento employees and three Chico employees at North State Public Radio, which CapRadio operates, the NPR affiliated radio station announced.

CapRadio Board Chair Andrea Clark said in a press statement, “Our board is working closely with CapRadio’s management team and our license holder Sacramento State to strengthen leadership, ensure financial sustainability and safeguard the organization’s journalistic independence.”

By September 28th, an audit of CapRadio by the California State University Chancellor’s office turned up “numerous instances of financial mismanagement at the Sacramento-based NPR member station.”

Ya think?

It gets worse. Those “numerous instances of financial mismanagement” include:

• failure to make payments the past two years on an $8 million loan the station’s FCC license holder, Sacramento State, assumed for tenant improvements to the station’s planned downtown Sacramento building.
• failure to pay rent for the past year on the building the company now broadcasts from on the campus of Sac State, according to the report released on Wednesday.
• specific instances of poor financial practices and record keeping, adding CapRadio “lacked complete and current policies and procedures in almost every financial and operational area reviewed.” Those included processes such as cash handling and disbursements, the issuing of gift receipts and procurement.
• CapRadio took out more than $1.1 million in loans for studio equipment and furniture that had not been approved by the station’s board of directors.
• In one notable case, auditors reviewed a vehicle donation transaction and found that the station listed the vehicle’s gross value, not its net value — a $5,480 difference — in their reports to the Corporation for Public Broadcasting.
• incomplete records found several financial discrepancies. In one notable case, CapRadio purchased a piano for $90,000 that was appraised to be worth $175,000, with the station recording the difference as a “gift in kind.” The audit found the appraisal did not meet IRS requirements.

Sacramento State President Luke Wood, who just took over in July from recently-retired Sacramento State President Robert Nelsen, announced that “operational management of CapRadio will be placed directly under University supervision, while the news and entertainment programming of the National Public Radio affiliate will remain independent.” The university said in a statement it will also “oversee and manage CapRadio’s accounting department, endowment, and finances.”

Former CSUS President Nelsen requested the audit in 2022 after the university recognized discrepancies in financial statements, according to CapRadio. What took so long?

Oddly, the president of the Sac State Associated Students, Inc. called on the officers of the CapRadio board to resign in a letter to the student-run State Hornet news service: “…under their oversight, CapRadio has suffered financial instability, lack of accountability, lack of connections with Sac State students and lack of willingness to work with University officials,” as well as “poor board management and internal handling of this issue.”

What about the fiduciary responsibility of the CapRadio Board members? When you join a board of directors, you also accept fiduciary responsibility.

According to the National Council of Nonprofits:

“Board members are the fiduciaries who steer the organization towards a sustainable future by adopting sound, ethical, and legal governance and financial management policies, as well as by making sure the nonprofit has adequate resources to advance its mission.”

National Public Radio is an independent, nonprofit media organization. NPR Member Stations are independent, locally owned and operated broadcasters. More than half of stations are licensed to, or are affiliated with, colleges or universities, as is Capital Public Radio, licensed to CSU Sacramento. According to Influence Watch, NPR receives funding for less than 1% of its budget directly from the federal government, but receives almost 10% of its budget from federal, state, and local governments indirectly.

By October 2nd, Sacramento State appointed its CFO, Jonathan Bowman, to oversee the operations of Capital Public Radio, who apparently had questioned financial inconsistencies back in 2021:

“The university said that in 2021 Bowman noticed inconsistencies with CapRadio finances which led to the university requesting the audit. He was appointed to the CapRadio board of directors earlier this year, and his finance and accounting team took over CapRadio’s finances in August.”

How did the CFO questioning inconsistencies with CapRadio finances in 2021 not get addressed by the Board?

By October 4th, 14 CapRadio Board of Director members resigned blaming Sac State for “failing to inform and engage with the board in a good faith effort to resolve CapRadio’s financial issues.” SF Gate reported, “Amid disagreements between the university and the radio station regarding hiring a new general manager, board members felt their only recourse was to step down, CapRadio wrote. According to a current job posting, the position pays up to $325,000 per year.”

Sacramento State President Luke Wood accepted the resignations. Curious.

“In the resignation letter, the board members contend that Sac State leadership has rejected multiple requests to meet to “better understand the decisions that were made” and felt uninformed with announcements that were made to the public.”

“They also stated that any financial inconsistencies identified by Bowman were not shared with the board in 2021. “Any such inconsistencies were not shared with the board; had they been, we could and would have acted immediately to avoid the current financial crisis,” the letter reads.

The CapRadio board of Directors had already voted to replace the general manager at nearly $500,000 a year, according to the Sacramento Business Journal:

Did Sacramento State allow the CapRadio board of Directors to resign because the university failed to collect on the $8 million loan payments and monthly rent payments? How do unpaid loan payments and rent payments go unnoticed by Board members when looking at monthly or quarterly financials? What about Board Treasurer Bena Arao?

By October 5th, Sac State President Wood said the station’s finances are “dire” and that it could be under investigation by the Corporation for Public Broadcasting:

The audit also raised significant questions about whether CapRadio can afford to pay for its current and future office spaces, including two long-delayed downtown Sacramento buildings that cost “$218,245 per month,” auditors wrote.

CapRadio’s downtown projects include a new headquarters at 730 I Street — which Wood described as “opulent” — and a separate live event space at 1010 8th Street.

Wood also flagged possible conflicts of interest between some former board members and the costly projects.

CapRadio’s new downtown headquarters are located in a building owned by 730 I St. Investors LLC, the Bee reports, composed of several local developers, including Bay Miry. The station announced the plans to move in early 2019, and a lease wasn’t officially signed until 2021.

Also in 2019, Katherine Bardis — Miry’s wife — joined the CapRadio Board of Directors. In a statement sent to the Bee, former board chair Andrea Clark said that Bardis was asked to recuse herself from a late 2019 discussion about the lease.

When asked if any of the audit’s findings could rise to criminal charges, Sac State President Wood said “we don’t know” and that though he was not a lawyer or accountant, “the math ain’t mathing.”

Rick Eytcheson retired as general manager in 2020, after serving in that role since 2006. He stayed on as president emeritus until June 30, 2023.

But all in all, Sacramento State President Luke Wood “Now is the time for the community to continue its support for CapRadio. Given the changes the University and CapRadio board are putting into place, donors should feel confident moving forward that their generous contributions will be well stewarded.”