An Anchorage-based soup kitchen ran up huge profits during the pandemic courtesy of city contracts funded by federal taxpayers, including what city officials allege were hundreds of thousands of dollars in payments for services the organization never provided.
But the city’s efforts to resolve that billing dispute appear to have stalled, an investigation by Alaska Public Media and APM Reports has found.
Bean’s Cafe, a nonprofit, received nearly $15 million from city contracts to operate and serve meals at a massive, temporary homeless shelter in a municipal hockey arena during the pandemic.
Bean’s, which previously ran a break-even operation, racked up nearly $10 million in profit between fiscal years 2020 and 2022, according to an analysis of its tax filings and financial statements. That money later helped it open a new commercial kitchen and warehouse that serves the needy.
While the organization saw increases in donations, government grants and a federal paycheck protection program loan that was forgiven, its contracts with Anchorage were by far the largest driver of the windfall. The revelations about the vast sums poured into the temporary shelter come at a time when the city is grappling with how to pay for permanent solutions to its persistent homelessness crisis.
The saga around the shelter contract raises questions about the city’s stewardship of federal money under Mayor Dave Bronson and two predecessors, whose administrations repeatedly extended Bean’s contract. It also exposes a level of infighting and enormous financial stakes in the city’s response to homelessness that has not been previously revealed.
Bronson, who ran on a promise to address the city’s homelessness crisis, fired the city employee who raised concerns about the charges incurred under Bean’s Cafe’s contract to run the shelter. That action, referenced in a scathing letter publicly released earlier this year by an attorney for former Municipal Manager Amy Demboski, was part of what Demboski alleged was a larger pattern of “illegal and unethical actions” under the Bronson administration during the mayor’s first 18 months in office.
A spokesman for Bronson’s office declined to address those allegations and offered no explanation for why it’s taken so long to settle the billing dispute with Bean’s. He also declined to say exactly how much money is at stake.
“The municipality and Bean’s Cafe continue to discuss the dispute over payment for services performed at the Sullivan Arena,” the spokesman, Hans Rodvik, wrote in an email.
Bean’s top executive didn’t provide much clarity on the state of negotiations, either.
“We provided the services, we’ve been paid and fully satisfied at this point,” Lisa Sauder, the organization’s chief executive, said in an interview. “I’m proud of the work that we and all the partners at the (city) did during that time.”
But, she added, “nothing’s perfect.”
Big bills, empty beds
In the spring of 2021, the Anchorage city employee overseeing Bean’s contract noticed something peculiar: The organization’s monthly bills to the city didn’t seem to add up.
Shawn Hays, who was the city’s mass care branch director, expected that the Sullivan Arena shelter’s cost would go down as winter ended and residents increasingly chose to sleep outside.
But instead, Hays said, Bean’s reported that the shelter remained virtually full.
There was big money at stake. Bean’s was paid a daily rate of $40.79 per client. If all 400 beds were occupied, that added up to more than $16,000 a day, plus payments for extras like security staff, supplies and laundry soap.
So, early one morning, Hays decided to count the number of shelter residents. That’s when she discovered that fewer than half the arena’s cots were occupied.
Hays raised the issue with Bean’s, but the organization denied it was doing anything improper, according to a city document that summarized Bean’s response. Bean’s explained that it counted residents over a 24-hour period, not at a single point in time. Clients usually had to check in daily to retain their spots, but they weren’t required to actually sleep there under the terms of the contract.
In a subsequent letter to Bean’s, Hays marked that response “sufficient,” noting that she had “seen an improvement” in the numbers the organization was reporting. The average number of shelter residents Bean’s reported dropped by about 9 percent after she raised the concerns.
But Hays had other lingering questions about staffing levels, incomplete data and reporting of police calls, according to city correspondence with Bean’s that was released in response to a public records request.
In one case, Hays wrote that a Bean’s executive acknowledged the organization had shut down an in-house security program at the end of March 2021. But the nonprofit continued to bill the city some $130,000 a month for security in April and May, according to the correspondence.
After months of testy letters from its lawyers, Bean’s eventually provided documents to the city showing that Hays’ suspicions about the security fees were justified.
The documents showed it billed the city for more security staff than it actually provided.
“What business was fully staffed during COVID?” Sauder asked in an interview. “There was no business in the world.”
But Bean’s calculations suggested that the problem wasn’t as big as the city said. It submitted an internal audit showing that it billed the city for about $110,000 of security work that it didn’t provide — less than half the city’s estimate.
The dispute dragged on for several months, escalating to the point that the city withheld some $817,000 in payments that Bean’s said it was owed. An attorney for Bean’s even threatened to sue the city to force it to pay up.
Bean’s never filed the lawsuit, however. And even after the two sides hired a mediator more than a year ago, Bronson’s administration says it’s still trying to reach a settlement.
Rodvik, the mayor’s spokesman, would not release any details about how the city is working to resolve the dispute.
As of this March, the assistant municipal attorney assigned to the case hadn’t exchanged emails with Bean’s lawyers in nearly a year, according to a review of email records provided through a public records request.
From break-even to bonanza
Bean’s Cafe has been serving residents of Anchorage experiencing homelessness since 1979.
Before the pandemic, it operated a smaller, seasonal homeless shelter during the winter. But its core business was running a soup kitchen that provided free meals to hungry Anchorage residents.
As the coronavirus pandemic loomed, city officials knew they needed more public shelter space to ensure guests’ safety, given that the virus could spread easily in close quarters.
They picked Sullivan Arena — a 100,000-square-foot, heavily-used, city-owned indoor rink and event space — and they asked Bean’s Cafe to operate it. (The city also hired Bean’s to operate a second, neighboring rink, Ben Boeke Arena, as a shelter during the first year of the pandemic before operations were consolidated at Sullivan Arena.)
Because the city determined there were no other available vendors, it hired Bean’s without a competitive bidding process, amending a pre-existing contract to cover the much larger shelters at the arenas.
The cost was steep: Bean’s maximum monthly payment rose more than tenfold, to $889,000 from $74,000, even though the maximum number of clients it would serve rose by far less, to 480 from 150. The bill would ultimately be covered by the federal government.
“I know it seems like a big number, but it was like going to a different planet,” said Robin Ward, who was working as the city’s real estate director and helped negotiate the contract. “We didn’t know what we were getting into, and they certainly didn’t. The risk was great.”
Ward said the hockey arena was a “vastly different environment” from the far smaller shelter Bean’s ran previously, requiring a much larger staff. Sauder said the organization went from 47 to 197 employees in just a month and a half.
“No one knew what was going to happen in the next 30 days, 60 days, three years,” Sauder said.
Bean’s financial statements show the contract paid off.
For most of the last decade, the organization’s yearly revenues maxed out at about $3 million. Sometimes Bean’s ran a small surplus, sometimes a deficit, but revenue generally matched expenses in the years before the pandemic, its tax forms show.
With the opening of the Sullivan shelter in 2020, Bean’s revenues more than doubled, to more than $7 million. In 2021, they rose to more than $14 million, driven largely by its city contract, before falling to $9.5 million in 2022.
Bean’s expenses grew at a far more modest rate during those years. As a result, the organization turned a profit of $9.8 million during its three fiscal years ending June 2022, its tax forms and financial statements show. The biggest driver of those profits were the city contracts.
Other government programs also bolstered Bean’s bottom line, including more than $2 million in federal grant revenue in fiscal year 2022 and more than $500,000 from a federal paycheck protection program loan that was forgiven in fiscal year 2021.
Sauder acknowledged the contract paid Bean’s more money than it cost to run the shelter. But she justified that by saying the organization faced uncertainties launching a massive new shelter during the pandemic.
“Our organization, as a grassroots, independent organization, took on huge risk,” she said.
The contract money boosted Bean’s financial reserves, Sauder said, and helped fund a $7 million project: the renovation and construction of a huge new commercial kitchen and warehouse, which the organization now uses to help produce 5,000 meals a day.
“That’s the thing about a nonprofit,” Sauder said. “We reinvested right back into the community, into our programs.”
While Bean’s revenues increased substantially, Sauder’s $123,000 salary has been at roughly the same level since she took the job 10 years ago.
Sauder received a bonus between $4,000 and $5,000 around the time the shelter contract was coming to an end in 2021, according to her testimony during her divorce proceeding last year.
Taxpayer money fueled profits
Prior to the pandemic, Bean’s Cafe generally broke even. But a generous contract from the city of Anchorage boosted its bottom line starting in 2020.
(Source: Bean’s Cafe IRS tax forms and audited financial statements)
Allegations fly amid bidding war
Hays now believes her decision to challenge Bean’s Cafe set off a chain of events that ended in Bronson firing her.
It all started, according to Hays, with her effort to open Bean’s contract to competitive bidding in the summer of 2021. Prior to Bronson’s tenure, the city extended Bean’s contract more than a half-dozen times without a competitive process.
“I wanted to see if there were any more responsible bidders, ones that we could work with transparently and ethically,” Hays said.
She hoped an organization like the Salvation Army or Catholic Social Services might take over the work. But when the bidding closed, there were just two competitors: Bean’s, and a new, one-year-old, for-profit business called 99 Plus 1.
Hays, who served as an alternate on the panel that reviewed the bids, said that as it was poised to award the contract, she ran into Dr. John Morris, the mayor’s top homelessness advisor at the time, outside the City Hall elevators.
Hays recalled that Morris, who wasn’t part of the panel, told her that it “would be a shame” if Bean’s didn’t continue as the shelter operator.
And Hays said Morris implied that she had a conflict of interest, because she had previously worked for Bean’s Cafe.
“‘You can see the issue, right?’” she remembered him saying. “‘You used to work for them. And now they work for you. And you have this power over them that could destroy them.’” The message of the conversation was clear, Hays said: She should make sure the panel awarded the shelter management contract to Bean’s again.
“I felt like it was wrong. It was inappropriate,” Hays said. “It was just so highly political.”
Hays said she immediately told her supervisor, Bob Doehl, about her encounter with Morris. Doehl, reached by Alaska Public Media, confirmed that Hays reported her conversation with Morris to him.
Despite the perceived pressure, the selection panel awarded the new contract to 99 Plus 1, abruptly ending Bean’s contract in September 2021.
Morris, an anesthesiologist who worked for the Bronson administration for less than four months, declined to be interviewed.
But in a written response to questions, he said he “at no time” acted “in the manner alleged by Ms. Hays.”
Morris acknowledged speaking to city leaders about an array of concerns he had with the bidding process. But he said he did not remember sharing them with Hays directly, or that she was present when he shared them with others.
Morris said he wanted Bean’s to keep the shelter contract because it had received “years of real-time, on-the-job training.”
“I warned municipal leadership that a change in operators could pose a serious risk to existing operations and a major loss in years of learned experience and knowledge,” he said in his response.
Morris also suggested Hays’ previous employment with Bean’s was a conflict of interest — the same concern she said Morris raised to her outside the elevators at City Hall.
Hays’ version of events closely mirrors allegations contained in a January letter written by the lawyer for Demboski, the former municipal manager.
The letter alleged that an unnamed “close associate” of Bronson attempted to influence an unnamed employee overseeing a bidding process, technically known as an RFP, in exactly the timeframe when Hays was reviewing bids for the Sullivan shelter contract. The associate, the letter alleged, told the employee to direct the contract to “his friend.”
“This employee was very uncomfortable with this action and she reported it to several people, including her immediate supervisor,” the letter said. “The contract was eventually awarded, and the friend of your close associate did not receive it. At this point, your close associate complained to you about the employee who chaired the RFP panel, and you had that employee terminated.”
Rodvik, Bronson’s spokesman, declined to comment on Demboski’s account, citing a possible lawsuit from her. Demboski and her lawyer also declined to comment.
Morris, in his response, called the accusations about his time as Bronson’s homelessness deputy “wildly false,” and he denied the interference alleged by Hays and Demboski.
Sauder was once quoted as describing Morris as a “genius,” and in an interview said the two are “friendly.”
“That’s Anchorage,” she said. “It’s one degree of separation everywhere you go in Anchorage.”
Morris wouldn’t directly comment on the reason Hays was fired. But he pointed out that it happened shortly after the Anchorage Daily News reported that a 62-year-old man was found languishing with life-threatening infections at the Sullivan, which was by then under the management of 99 Plus 1.
Morris left the Bronson administration a few days after Hays’ firing. Sauder told reporters at the time that Morris was trying to convince the city to reinstate Bean’s contract before his departure.
It didn’t take Hays long to find new work. 99 Plus 1 quickly hired her to run the Sullivan Arena shelter in November 2021.
She now runs a new nonprofit, Henning, Inc., which took over the shelter operations in October.
Good journalism is essential and our newsroom needs you. Donate today to keep local journalism strong.