How did an Anchorage soup kitchen make millions on its homeless shelter contract? A reporter explains.

A joint investigation by Alaska Public Media and APM Reports has found that an Anchorage nonprofit organization made nearly $10 million in profits while it was running the city’s pandemic homeless shelter. The money came from a generous city contract funded by federal taxpayers.

Bean’s Cafe also billed the city hundreds of thousands of dollars for services the city says were never provided. And more than a year after Bean’s lost its contract to run the shelter at the Sullivan Arena, the billing dispute remains unresolved.

Nat Herz reported the story with Alaska Public Media and APM Reports, and he explains what led to Bean’s making those millions of dollars.

Listen:

Nat Herz: So, Bean’s opened Anchorage’s massive pandemic shelter at the Sullivan hockey arena at the beginning of the pandemic, when they needed more space to house people experiencing homelessness, so the virus wouldn’t rip through smaller existing shelters. Bean’s got the contract to manage the shelter without going through a competitive bidding process, because the coronavirus had popped up, the city needed to move fast and Bean’s already had a contract to run a smaller homeless shelter. But what we discovered was that when the city opened the new, larger shelter, the cost also went way, way up.

The maximum number of guests Bean’s was serving at the Sullivan went up by about three times from the smaller shelter they’d operated before. But the amount they were getting paid went up more than 10 times, to as much as $800,000 a month. Over a year and a half of operating the shelter, that added up to more than $13 million. And what Bean’s financial documents show is that even though this is a nonprofit organization, it was making huge profits during this time, roughly $9.8 million.

Casey Grove: Did city employees know about this?

NH: So, at the time city employees obviously didn’t have the benefit that we had, three years later, of looking at Bean’s financial records. But what’s interesting is that the city employee who was responsible for overseeing Bean’s contract eventually came to the conclusion that the city was getting a bad deal and also that Bean’s was sometimes billing for services that it wasn’t actually providing. This all started when the employee, her name is Shawn Hays, noticed that the number of people that the city was being billed to host at the shelter wasn’t falling in the spring, when you’d expect more folks in the shelter to start camping outside. So Hays actually went over to the shelter early one morning and started counting the number of people there, and she was surprised to find that many of the beds were empty.

But Bean’s explained that by saying that it counted guests over a 24-hour period instead of a single point in time.  So as long as someone checked in once a day, Bean’s got paid. Under the contract, folks didn’t have to actually sleep there.

But Hays ended up flagging a number of other problems with Bean’s billing records and the way it was handling its contract, things like data reporting, documentation of 911 calls and, most importantly, charges for security workers. Hays and other city employees found that Bean’s was charging the city for security staffing that wasn’t actually being provided. The exact amount is in dispute, but Bean’s acknowledged that this happened and that these un-staffed shifts were worth at least $100,000. The city ended up withholding about $800,000 in money Bean’s said it was owed while the two sides were negotiating.

READ THE FULL STORY: City contracts drive millions in pandemic profits for Anchorage soup kitchen

CG: Wow. So, Hays alleges that Bean’s has all these problems. How did this all end up playing out?

NH: This is really interesting. It’s been two years since Hays first did the head count and started noticing these problems. But Mayor Dave Bronson’s administration says the dispute over Bean’s billing still hasn’t been settled, and they say they’re working on it. But they won’t say what form those discussions are taking, and as of a few weeks ago, the assistant municipal attorney assigned to the case hadn’t exchanged emails with Bean’s lawyers in nearly a year, according to emails we got through through a public records request.

Bean’s took a really aggressive tack and fought Hays’ findings. Here’s how she put it:

Shawn Hays: If the city came to me and said, “Hey, like, we have these concerns,” I would have came back to my office and had been, like, pulling up records and, you know what I mean? And if I, you know, if there was, I’d say, “Oh, gosh, we overbilled you. How much do we owe you?” You know what I mean? We did not get that. We did not get that at all.

NH: At one point Bean’s even threatened to file a lawsuit to ensure it got paid. But now the organization says it isn’t seeking any additional money from the city.

CG: And what happened to Hays?

NH: Hays actually was fired by Bronson. This came later on, after the billing dispute started, and after Bean’s lost its contract to run the Sullivan shelter. And it appears to connect to that letter that former municipal manager Amy Demboski’s lawyer released earlier this year.

CG: The one that alleges the mayor and his administration did all of these illegal and unethical things, right?

NH: Right. So after Hays raises all these concerns about Bean’s and its bills, she pushes to put the contract up for bid. And she says that right before the city awarded the new contract for the Sullivan shelter, she ran into the mayor’s top homelessness advisor, John Morris, in City Hall. And she says Morris made it clear he wanted the city to keep Bean’s Cafe in charge of the shelter.

The panel that Hays sat on gave the contract to the other bidder anyway. That was a for-profit company called 99 plus 1. A month or so later, the mayor fires her.

The letter from Demboski’s attorney doesn’t name Hays, but there was a reference in it to “improper retaliatory termination.” And Hays says she’s sure that the letter is talking about her.

CG: What do Morris and the mayor say about this?

NH: Well, the mayor isn’t saying anything. But Morris disputes Hays’ and Demboski’s accounts. He says he wanted the city to keep working with Bean’s for stability’s sake, that switching operators at the Sullivan could lead to chaos.

CG: And what about Bean’s Cafe? What do they say about the nearly $10 million in profits they made?

NH: First of all, both Bean’s and city officials who worked on drafting this contract said that Bean’s really had to take on a ton of risk in running the Sullivan shelter. Nobody knew how this was all going to go during the pandemic. Bean’s quadrupled the number of employees in a month and a half. They also said, “Look, we’re a nonprofit.” Its top executive, Lisa Sauder, is paid $123,000 a year, and her salary didn’t go up during the years we were looking at. The profits, they said, were plowed into this huge new warehouse and commercial kitchen that Bean’s just opened that prepares free meals for Anchorage residents in need.