After bankruptcy, Rainbows United is making its way back

07/11/2011 12:00 AM

08/06/2014 10:15 AM

Forced into bankruptcy two years ago, Rainbows United teetered on the brink. Today, one year into a court-approved restructuring plan, the long-time Wichita nonprofit is a leaner, more efficient organization, able to serve 3,400 children with special needs and their families while paying off millions of dollars in debt.

To pay its debts and keep operating, Rainbows has trimmed expenses by selling buildings, reducing staff and cutting day care services as part of its restructuring plan.

"We have come a long way, but the battle's not over," said Steve Cox, immediate past Rainbows board chairman who still serves on the board.

Rainbows United, which filed for Chapter 11 bankruptcy in July 2009, is on schedule to meet its commitment to repay creditors 100 percent over eight years, Cox said. It has reduced a $5.2 million debt to just under $3 million.

Rainbows owes $2.7 million to the IRS in unpaid payroll taxes. It has made 13 monthly payments of $43,000 each on a five-year plan to pay off the debt, Cox said.

It is making twice-yearly payments to pay off the remaining debt to unsecured creditors and has seven years to go on that plan, he said.

The community has rallied to help the 38-year-old organization. Rainbows is about to wrap up a year-long "New Day" campaign to raise $2 million to trim debt and keep the organization going.

The drive reached $1.8 million recently after a $200,000 gift from Cox Communications and a $120,000 gift from the Goebel Family Star Lumber Charitable Foundation. Other businesses, as well as board members and community leaders, have contributed.

As a United Way agency, Rainbows needed United Way approval to make the one-time effort to solicit funds from businesses and foundations.

"We've just had a lot of really strong support. It's been so gratifying because it just re-emphasized what we've known all along, which is that Rainbows is important to the community," Cox said.

Rainbows' problems

Rainbows' problems came to light two years ago this month with the unexpected resignation of its chief financial officer, Scott Richards.

Funding sources had tightened as federal, state and county budgets decreased, and the costs of its programs outpaced its revenues.

Funds were shifted within accounts to pay bills, and the organization stopped paying payroll taxes. Ultimately, it couldn't meet its payroll. Records were falsified and the board was kept in the dark.

Rainbows president Lorraine Dold, Richards' supervisor, was fired.

Deb Voth, chief operating officer, was elected new president by the board in March 2010. Kere Noel, a CPA, became chief financial officer.

"Rainbows could've very easily gone away," said Hale Ritchie, a retired Wichita businessman who stepped forward to serve as chief restructuring officer after the bankruptcy and now is Rainbows' board chairman.

As part of its restructuring plan, Rainbows sold two of its buildings, including its downtown office at 340 S. Broadway, terminated leases on other offices it had been renting, and consolidated operations in its Kids' Cove facility at 2258 N. Lakeway Circle, and its Kids' Point facility at 3223 N. Oliver. It also rents a building in El Dorado.

It reduced staff by more than 45 percent, cutting the number of employees from more than 400 to 250, which includes 100 part-time workers.

Rainbows' budget, formerly just under $14 million, has shrunk to $8.2 million.

Rainbows leaders also created a new culture of open communications and cooperation within the staff, and between the staff and the board of directors.

Ritchie credited Voth with nurturing the new culture.

"She wanted to bring the board closer to the staff, which was new and unusual for Rainbows," he said. "She's done a miraculous job."

The result of the restructuring is a more efficient and more transparent operation, leaders said.

"It's more focused," Voth said. "It's running the agency with a mission, but with a business framework."

"We are a smaller agency than we were, but no children in the entire system lost the therapies they needed," Ritchie said.

Rainbows serves children primarily in homes, day care facilities and other off-site locations.

The main loss in service was in child care for children ages 3 to 5 with special needs, which Rainbows provided free with therapy. The organization's long-term goal is to restore that service.

The organization wants to double its annual fundraising from $300,000 to $600,000, Voth said.

The need for its services is growing. Voth cited a recent survey showing one of every six children in the U.S. has developmental disabilities.

"We continue to see children referred to us on a daily basis. Our case loads are high," she said.

Cox credited Rainbows employees for keeping the organization alive.

"They've stayed with us through all of this, and it was a rough ride," he said. "The ride is smooth, but we still need help."

With the economy in its current uncertain state, Rainbows is experiencing the same financial crunch as other nonprofits. But it has additional liabilities due to its debt, so it needs extra support from the public, its leaders said.

"With the crisis over, the danger is everybody will just step back and say, 'I'm glad they made it,' and kind of forget about us," Cox said.

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