Germantown: Settlement Begins to Crumble

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The difficult issues of Germantown Settlement and its subsidiary Greater Germantown Housing Development Corp. (GGHDC) have been playing out in bankruptcy court like a bloodless coup d’état. The non-profit monopoly is being dismantled with apparently no recourse to restructure.

Most recently, Chief Bankruptcy Court Judge Stephen Raslavich ruled that Germantown Settlement and GGHDC would no longer be a Chapter 11. The case has been changed from Chapter 11, which would allow reorganization, to Chapter 7, which calls for the sale of assets to pay creditors.

In an unusual ruling, Raslavich also permitted members of the Germantown community, namely Germantown Community Connection (GCC) to have a voice for questions in future creditor meetings during the liquidation.

GCC President Betty Turner is excited about giving the community a voice.

“This ruling allows us to have a voice in shaping our community and shows the positive effects community connectivity and civic engagement can have on addressing common ground concerns and issues in Germantown,” she said. “It will provide opportunity for a shared vision for Germantown–what do we want Germantown to be and how do we get there from here? This ruling brought fresh favor to Germantown in many ways. It is great.”

The decision means at the future “341 hearings,” during which Settlement President Emanuel Freeman and other officials will be questioned as if in court about assets and liabilities of their organization.

Settlement’s remaining assets include the former YWCA on Germantown Avenue, The Burgess Center at Wayne and Chelten, 48 E. Penn St., and other housing developments would be liquidated. The monies collected from these properties will go directly to the secured debtors in the case, or those who have mortgages.

COMMUNITY

Debra White-Roberts, the director of Operations for the Wister Neighborhood Council attended the initial bankruptcy hearing.

“What I took from the hearing is that the judge is fed up. I am too. No more smoke and mirrors.” But she said this isn’t the whole story.

The Wister group had paid Settlement to do its bookkeeping. When White-Roberts became a board member in 2006 the NAC took over its own financial management. She said the taxes hadn’t been paid and financial statements to the IRS were incomplete. As a result, the council had to  pay about $10,000 in liens.

Even a police substation next to the Wister Council office remains vacant. For years Wister NAC has been trying to buy the building back, but the city vetoed the idea because there was a problem with the title for the property.

“We really need this station just for the police presence that we had. This block is hot with drug activity,” she said. “It would really help out.”

But a serious issue is still ahead. Because GGHDC owns over 45 properties, including residential single-family homes and vacant lots any development is impossible until the court case is finished.

Despite these challenges, the Wister council, a 40-year-old neighborhood organization, is confident in the future. White-Roberts said: “These buildings are beautiful and historic. They belong in use. But we don’t want just anybody purchasing these properties and building just anything so we want to be a part of the future process and we have plenty of volunteers.”

COURT MOTIONS

In a recent motion filed in court attorney Irv Ackelsberg argued that a history of “dishonesty, incompetence and gross mismanagement demonstrated during these bankruptcy proceedings” describes merely a reflection of what Germantown Settlement has done prior to the bankruptcy filing.

Secured debtors, those who have a formal mortgage on properties and loans, have come forward to foreclose on Settlement properties. But many creditors are silent. Despite over $2.7 million in unsecured creditor debt under Germantown Settlement and $2.2 million under GGHDC, no unsecured creditors or government authority have come forward to collect.

At an October hearing the proposed YWCA buyer was named as Germantown Housing and Land Holding Corp. State records reveal Germantown Settlement owns this for-profit entity. At the same hearing Settlement presented a buyer for the Burgess Center as Lower Germantown Limited Partnership. This too, according to state records, is owned by GGHDC, a subsidiary of Settlement. Furthermore, another for profit company called Lower Germantown II Development is a partner of Settlement listing President Emanuel Freeman as secretary/treasurer and Herbert Wetzel as president. Weztel is a former officer of Settlement.

Furthermore, operating statements submitted by Settlement were sparse, “facially incomplete and misleading,” according to the motion filed by attorney Ackelsberg. In an April operating report $6,144.93 in insurance and utility expenses were written as paid by a “loan from a related entity.” Upon further inspection of e-mails between Freeman and City Councilwoman Donna Reed Miller provided through a request of the Right to Know Act indicate the insurance and utilities of the YWCA were paid by the Mosaic Development Group in 2009. So were the masonry seals and security of the building. The Mosaic Development group could not be reached for comment.

In a recent Philadelphia Inquirer article, a large secured creditor, Parke Bank, filed a motion that GGHDC be held in contempt of court for illegally diverting the money and that the bankruptcy case be dismissed. In the April operating statement filed by GGHDC the organization tried to explain accounting absences by saying it did not collect the rent from the Burgess Center directly, but that Parke Bank collected it first. However, Parke Bank’s motion asserted that just the opposite happened. GGHDC continued to collect rent despite an agreement that Parke Bank would be paid first because of a $7 million mortgage on the property. Instead it was used to pay other GGHDC debts, the court filing stated.

POLITICAL CONNECTIONS

So how did over $100 million of public funds get funneled into Germantown Settlement? Life-long resident Jim Foster believes that you can’t even think about Settlement without noticing the close political ties especially between Settlement President Freeman and Councilwoman Miller.

“The Settlement relationship with the political structure of the area, which is a significant relationship, the impact of Settlement within the political structure was kind of well known. Because there was such significant political relationships in starting Germantown Settlement and funding it, of its subsidiary corporations of which there were 30, became the largest owner of real estate in Germantown and the largest employer. ”

Foster described how Freeman began creating non-profit and for-profit corporations under the umbrella of Germantown Settlement. “It became obvious to me as someone who grew up here and had watched what happened to Germantown–what negatively happened it was impossible to separate the impact of Settlement with the fact Germantown went downhill economically, socially and safety wise,” he added.

The city  began cutting off Settlement’s funding in September 2009, but some residents support the organization because it represents something bigger.

“You have to understand, years ago black people weren’t allowed to even walk through Vernon Park let alone sit down. Germantown Settlement began as an example of something for the black community to be proud of, when for so long things were controlled by whites, “ explained a senior citizen, who wished to remain anonymous. The rise of African-American men and women ascending to positions of power was a sense of pride for many people in Germantown.

Debra White Roberts worked for Settlement in the 1980s. She said staff at Settlement were committed to the mission as a service agency. She said that Settlement did provide some services and complete projects such as Freedom Square, a strip mall near Wister and Germantown avenues and Elders Place I and II. But the quality of those projects is not evident today as the Freedom Square Mall has many vacancies and Elder’s Place needs many repairs.

Connie Winters, a longtime resident and historic property developer in Germantown, said she knew something was wrong with Settlement long ago.

“At one point about 10 years ago, I found out all the properties owned by GGHDC in southwest Germantown and there were a lot of them. I went around and took pictures of them. None of them were in the process of being redeveloped, and most of them looked occupied. And I realized, if you rented each of those houses at $400 a month and get paid in cash, they money could not be traced.”

A span of three years worth of e-mails between Freeman and Miller were obtained through a Right to Know and the Freedom of Information Act request. One of the most recent e-mails was in September 2009. Freeman wrote to Miller urging her to convince Mayor Nutter to give Germantown Settlement more time to get its audits done without losing city contracts and agree to release funds for community projects.

“Now that the budget crisis has been averted, can you press Nutter on giving us the time we need. We want him to agree to the following: Keep all of our existing contracts in place until the end of this year [2009]. And release our city funds,” the e-mail stated.

“We will deliver the audit reports for 06, 07, by Dec 31 and 08 by Jan 31. The city is closing down all of our contracts. This is do or die for GS.”

City Controller Alan Butkovitz revealed in late October that over $3 million in audit reports for fiscal years 2006-09 have still not been submitted to the Department of Human Services.

Miller and Freeman both declined interview requests.

Miller isn’t alone with close ties to Germantown Settlement. In an interview Democratic State Rep. John Myers said he supported Germantown Settlement’s reorganization just as he would support any non-profit because the community needs services.

“It’s unfortunate they haven’t been able to more forward at this particular stage, but they do have a strong history and I think that people should not forget the good work they’ve done and just focus on the problems that they’re having,” he said.

Historic property owner Connie Winters recalled a meeting with Miller regarding a building purchase. Miller promptly called Myers. Winters’ offer was turned down and a local church was given the lot some time later.

“I just really don’t think that makes sense when the city is strapped for cash,” she said.

Miller previously served as a Settlement board member and was in City Council while she held a seat in the Central Germantown Council too. In January 2007 Freeman requested favors from Councilwoman Miller in an email where he asks Miller to sign an agreement for the YWCA deal. He also requested a five-year agreement that GGHDC pay only the principle amount of real estate taxes for Freedom Square, lower interest, penalties, and cancel city liens against GGHDC.

And Councilwoman Miller was more than willing. In July of 2008 her response to Germantown Settlement laying off fifteen staff, “We need to get together and talk, we can not let this agency go under—God Bless you and GS.”

In September 2009 Freeman wrote to Miller in desperation. “We are in a bad situation. The city will not release funds until they receive at least the 2006 audit and we need their funds to help pay for the audits. Needless to say we can’t even pay our staff.” He asked her to approve more funds from the city to cover expenses.

Miller was influential in securing the RDA loan of $1.3 million to buy the YWCA.

“I had no knowledge of their financial situation then [in 2006],” Miller said in an interview with the Philadelphia Inquirer. “I just knew it used to be one of the city’s best social service agencies.”

According to the IRS Form 990 in 2008 for Germantown Settlement, Freeman made $158,814 and paid compensation to his wife of $94,818. During a bankruptcy hearing meeting of the creditors in May Freeman described his salary as “insufficient, let me say that.”