In an industrial zone a few blocks off the 101 Freeway, the Tarzana Treatment Center relies on government contracts and nonprofit tax status to serve drug addicts in poverty or trouble with the law.
A clerk sits behind protective glass in the lobby. Down a hallway in the detox wing, down-and-out men are curled on their cots. The coat hooks in the rooms flip down so patients can't hang themselves.
It hardly seems like the headquarters of a $45-million-a-year business.
Tarzana dwarfs most other nonprofits in the same line of work. By far the largest user of public funds for drug treatment in Los Angeles County, it draws 85% of its money from taxpayers.
Its top executives have also made it a lucrative operation for themselves, with compensation and business arrangements that are highly unusual in the industry.
Chief operating officer Albert Senella earned $428,057 in 2007, soaring above the highest paid county employee -- the medical director of Harbor UCLA Medical Center, which has a budget 12 times Tarzana's. Chief executive Scott Taylor made $330,732 working 32 hours a week.
The two men collected hundreds of thousands more in deferred compensation in recent years, boosting their earnings far above those of top executives at comparably sized treatment centers, such as Walden House in San Francisco, Gaudenzia in Norristown, Pa., and Gateway Foundation in Chicago, according to federal tax filings.
And that's not counting income from other arrangements involving legal services and real estate that several industry experts said they had never before seen at a nonprofit.
Taylor is also a lawyer with a long-standing contract to provide Tarzana with legal counsel. Tax filings show the deal paid him $237,956 in 2007 -- on top of his salary.
Taylor, Senella and two other board members also have ownership stakes in six properties that Tarzana leases as its headquarters and treatment sites.
In 2007, the four men collected rent of more than $2.27 million.
Taken together, the compensation and the other financial deals raise questions about Tarzana's public mission and about how the government allocates drug treatment dollars, experts in drug treatment and nonprofits said.
Although Tarzana gets more than double the public funding of its closest competitor, government payers can't say whether its patients fare any better than those at other centers after treatment. Nationally, no one comprehensively tracks whether patients use drugs again, find work or get arrested.
Steven Winston, who earns $173,000 a year as the highest-paid executive at Daytop Village, a New York-based nonprofit treatment center that takes in $53 million a year, was incredulous at the compensation at Tarzana.
"These people are making what for-profit people make," he said. "It's anathema to what real nonprofits and real charitable organizations do."
Frances Hill, a professor at the University of Miami specializing in nonprofit tax law, said conflicts of interest were inherent at Tarzana because the chief executive wears so many other hats: chairman of the board, lawyer and landlord.
"My jaw is dropping over this," she said.
The Internal Revenue Service allows self-dealing as long as a nonprofit can show that it considered alternatives and found that they were not as good a deal, said Marcus Owens, who led the IRS' tax exempt section during the 1990s.
"These are all hot-button issues for the IRS right now," he said.
Tarzana executives said they are meeting all legal requirements. They said board members always sought the best deal for taxpayers, disclosing potential conflicts of interest in tax filings and abstaining from votes on those matters.
The pay, they said, reflects decades of success achieved by chasing government grants and expanding services. Although the business is nonprofit, Senella said, "we are allowed to make money as individuals."
The federal government places a $196,700 cap on what an executive can earn from a contract, but that does not restrict what one can collect from other sources.
Senella and Taylor said they comply with that cap because much of what they earn comes from a subset of patients who pay out-of-pocket or with insurance, an assertion the county confirmed. In 2007, that was $7 million of the center's $45 million in revenue.
"That doesn't impress me," said Ken Berger, head of the nonprofit watchdog group Charity Navigator, explaining that such high compensation undermines a nonprofit's core mission of public service.
If the executives weren't paid so much, he asked, "how many more services could be provided to people who need them?"
An industry was born in the '70s
In the early 1970s, California shuttered its drug rehabilitation programs at state mental hospitals and, along with many other states, began contracting the work out.
An industry was born. From the early days of fly-by-night operations run by former addicts in rented garages, the treatment industry has grown rapidly, relying largely on federal dollars passed through states and counties.
