Community Action of Minneapolis closes down after state raid

State officials raided an embattled Minneapolis nonprofit organization Friday, seizing records, files and computer hardware.

The dramatic events capped a week of upheaval at Community Action of Minneapolis, which abruptly closed down after decades serving the community.

About a dozen state officials, including a lead auditor, arrived at Community Action of Minneapolis' downtown office as it was opening its doors Friday. Subpoena in hand, officials began removing boxes of financial records, files and computer hard drives.

By 11 a.m., dozens of staffers were unemployed and low-income Minneapolis residents were left looking elsewhere for energy assistance. Within hours, two more board members resigned.

"Our first priority must be to ensure that low-income people in Minneapolis and other parts of Hennepin County are getting the help they need," state Human Services Commissioner Lucinda Jesson said. "The state's action will make sure these Minnesotans have services that will help their families improve their lives and ensure basic needs are met, especially with the cold winter months around the corner."

Bill Davis, the organization's longtime chief executive, arrived at Community Action headquarters after state officials had begun taking files. He declined to comment.

The Star Tribune first reported Sunday that a state audit found that leaders of the organization misspent more than $800,000 in taxpayer money on travel, a celebrity cruise, spa visits and even a personal car loan for its chief executive. The audit, covering 2011 to 2013, concluded that the organization spent too much on administrative costs and not enough on its mission, providing winterization, heating assistance and career guidance for low-income Minneapolis residents.

In a recent interview, Davis defended the financial management of the organization, which gets about half its funding from tax dollars. He said they sent the state more than 100 pages of documents to refute the most damaging findings, but state leaders never included it in the final report.

Davis and the board can appeal the state's decision.

Leaders with Minnesota Community Action Partnership, the umbrella group for the state's community action organizations, said the raid is a crucial and needed turning point.

"Local Community Action agencies are good government institutions," said Arnie Anderson, head of Minnesota Community Action Partnership. "Now, we can get this fixed. It will be better than ever."

Human services officials say they do not intend to audit other Community Action agencies because they have not been flagged as a high risk by auditors. Auditors began probing the Minneapolis organization after seeing administrative costs creep up higher than similar organizations. Jesson said they intend to fully recover misspent tax dollars.

Minneapolis City Council members Blong Yang and Abdi Warsame, who were recently appointed to the board, abruptly resigned Friday, hours after auditors arrived.

"We cannot in good conscience continue to have our names associated with Community Action of Minneapolis," they said in a statement. "We hope and have every confidence that, if the allegations are confirmed, appropriate action will be taken by the responsible federal and state governments."

Mayor Betsy Hodges and City Council President Barbara Johnson said they were "extremely disappointed by this entire situation."

Johnson served on the board during the time covered by the audit, but selected an alternate to serve on her behalf. Johnson said previously she was not aware of misspending by the director.

A few board members remain.

Manuel Rubio, one of the board members who served during the time covered in the audit, said many board members were shocked and surprised by the allegations and strong action by the state.

"There is so much that we did not know about," Rubio said.

Earlier this week, Democratic state Sen. Jeff Hayden and U.S. Rep. Keith Ellison resigned from the board. Both served during the time covered in the audit, but had appointed alternates.

The issue has started to reverberate at the Capitol during a high-stakes campaign season.

Senate Republicans filed an ethics complaint against Hayden alleging that he participated in the misuse of funding, a claim Hayden flatly denies.

Hayden declined to comment Friday.

Gov. Mark Dayton supported the action taken by the state agencies.

"The governor believes the Departments of Commerce and Human Services are acting properly," Dayton spokesman Matt Swenson said.

Senate Minority Leader David Hann, who presented an ethics complaint against Hayden earlier this week, said the state's action strengthens their complaint for the senator's lack of oversight.

"While I welcome today's action by the Dayton administration regarding Community Action Minneapolis, I have to ask why it took a front-page story during an election year to get them to act?" asked Hann, R-Eden Prairie.

State officials are scrambling to make sure those served by Community Action of Minneapolis still have access to the services they need, particularly as winter draws near.

In Minneapolis, Community Action doled out state and federal aid to residents needing heating assistance and weatherization to cut utility bills.

"The Commerce Department has taken the urgent steps necessary to ensure Minneapolis residents get heating and weatherization assistance as winter approaches," said Commerce Commissioner Mike Rothman. "We are immediately transitioning the Energy Assistance and Weatherization Programs from Community Action of Minneapolis to neighboring community action agencies."

Residents seeking energy assistance were told to apply through Community Action of Suburban Hennepin.

On Friday morning, half a dozen residents showed up at Community Action of Minneapolis to apply for assistance. They arrived to find a sign on a window saying the organization would no longer be accepting applications.

"Yesterday they acted like everything was OK," said Anita Nunn, who came down to submit an application.

Throughout the morning, employees streamed out with looks of shock, some with boxes full of belongings.

Staffer Leslie Powell had been trying to help Community Action employees secure a new contract since 2011.

"We're upset. I care about the community because I'm part of it," Powell said.

Alejandra Matos • 612-673-4028