EXECS EARN BIG MONEY AT DRUG TREATMENT CENTER

Salaries at a Tarzana Nonprofit Far Exceed Others in the Field.

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.

Federal grants for drug treatment now total more than $2.5 billion a
year. But the basic requirement has remained the same: Only
nonprofits need apply. Nobody was supposed to get rich.

Tarzana, named Free Men Inc. when it opened in 1973, started as a
collaboration between Taylor, a young lawyer, and a social worker who
had run a drug program at a state mental hospital.

Senella, a high school dropout and a former patient at that hospital
program, was among the first hires, he said. He started as a
20-year-old drug counselor and climbed the ranks.

"Albert has the blood of Tarzana," said Silvia Cadena, who joined
Tarzana as a bookkeeper in 1979 and now earns $280,422 a year, plus
deferred compensation, as chief financial officer, the No. 3 executive.

In the late 1970s, after drastic state budget cuts, the nonprofit
adopted a more entrepreneurial strategy, Senella said. It began
expanding its services, eventually adding mental health programs,
basic medical clinics and HIV treatment, which attracted more
government funding and qualified Tarzana for some private insurance plans.

With about 600 employees, the center treats more than 6,000 people a
year for drug addiction and alcoholism, about 2,000 of whom are in
its residential programs.

In Sacramento, Senella has gained the ear of state legislators as
head of the California Assn. of Alcohol and Drug Program Executives,
an advocacy group that often lobbies for drug treatment funding.

He was an outspoken proponent of Proposition 36, the successful state
ballot measure in 2000 that allowed some drug offenders to get
treatment instead of jail time and pumped $120 million a year into
the industry.

If Senella is the public face of Tarzana, Taylor is its management
guru. He has always been president of the board, and in the mid-1980s
he took over as chief executive.

It was natural for him to handle contracts, corporate filings and
some litigation for Tarzana, said Bruce Glickfeld, an outside
attorney who said he steps in when Taylor has a potential conflict of interest.

Taylor's legal contract has never been put out for competitive bid,
but the amount is less than Tarzana would have to pay an outside
lawyer for the same work, Glickfeld said.

Glickfeld also defended real estate deals among board members as fair
and in taxpayers' best interest, saying that no one was collecting
inordinate rents.

In the early 1990s, the building that Tarzana had been renting as its
headquarters was for sale. Taylor and Lane Weitzman, a real estate
investor on the board, saw buying it as a way to ensure that the
business would not have to move, Taylor said.

Taylor, Weitzman and Weitzman's brother, Barry, bought a 50% stake in
the building, the first of six arrangements that allowed board
members to collect rent from Tarzana.

Many Patients Are Repeat Customers

With long waiting lists for residential drug treatment in L.A.
County, there is never a shortage of patients, many of them repeat customers.

Simon Yebio grew up in Alexandria, Va., got hooked on crack cocaine
and methamphetamine and wound up on skid row in Los Angeles, he said.
He is now in residential treatment at Tarzana headquarters; it's his
first time at Tarzana but, at age 29, his 14th time in taxpayer-funded rehab.

"As far as being professional, this place blows the others out of the
water," he said.

Yebio said he's been clean since he moved in late last year, but he
is not hopeful about what will happen when he reenters the outside world.

"I don't think it is going to work," he said of his treatment.

L.A. County, like most other jurisdictions, doesn't keep track of
what happens in cases like Yebio's. It is considered too expensive,
treatment experts said. Public funding of the treatment industry has
largely been a product of tradition: Treatment centers with contracts
tend to get more contracts, interviews and records show.

Each typically runs for two or three years and, as long as money is
available, renewal is almost a given.

"They don't change hands very often," said Jim Gilmore of Behavioral
Health Services, L.A. County's second biggest provider with a
$16.8-million budget.

The county routinely conducts audits to monitor how money is being
spent. But the incomes of Tarzana executives have not been questioned.

"Everyone agrees that they are one of the better providers in the
area," said John Viernes Jr., director the county Alcohol and Drug
Program Administration. "We don't tell them what to pay their executives."

Tarzana executives said their compensation is based on a report by an
independent consultant who looks at the going rates in the market,
but they declined to release the report.

"It's pretty tough to compare us to anybody," Taylor said, explaining
that Tarzana offers a range of services beyond basic drug treatment.
"I think we are so unique."

Senella said the board of directors has "gone through great lengths
to make sure that what we are doing is done openly and properly."

But experts in nonprofits said the board itself is problematic.

Six of the nine members were receiving income from Tarzana -- three
executives, two landlords and a psychologist who until recently was
paid $26,500 a year as a consultant, tax filings show. Three
directors have been in place for at least 30 years, three more for at
least 20 years and one for 15.

"It shouldn't be an old buddy network," said Berger. The head of
Charity Navigator said he favors term limits. He also explained that
industry best practices restrict compensation to a third of board
members or fewer.

The board may soon be tested by some difficult financial choices.

To help rein in the state's budget deficit, Gov. Arnold
Schwarzenegger wants to slash funding for drug treatment. Tarzana
would lose about $10 million a year, said Senella, who visited
Sacramento last month to lobby against the governor's proposal.

With $12 million in cash reserves, Tarzana is in a better position
than many centers -- a testament to its management, Senella said.

Still, he said, employees would lose their jobs; two dozen were laid
off last year in response to state budget cuts. Salaries could go
down, including those of executives.

"The system is just too underfunded," he said.

Researcher Maloy Moore contributed to this report.