Accepting a recent $800,000 award from City Hall could further jeopardize Zulu Social Aid and Pleasure Club’s tax exempt status.
That’s because its unusual IRS status requires that it get at least 65 percent of its gross income from membership dues. Its latest tax filing, for 2007, shows that it apparently violated that provision, with only $61,000 coming from dues — about 2 percent of its income.
If the organization’s finances are similar for this year, the $800,000 award – either as a gift or a loan – will only worsen the situation, reducing the percentage of income from dues.
Reached by phone Thursday evening, Zulu Vice President Naaman Stewart said he would call The Lens later, but did not.
A close look at tax documents filed by the venerable African-American organization reveals that the IRS classifies it under the tax category typically assigned to athletic clubs or amateur sports organizations.
This 501(c)(7) designation sets Zulu apart from the more common non-profit organizations, most of which are designated as 501(c)(3) or 501(c)(4). For instance, the Carnival krewes Orpheus and Bacchus hold 501(c)(4) status.
Zulu’s traditional Lundi Gras celebration at the riverfront last month was punctuated by the presentation of an oversized $800,000 check to the organization from one of its own members – Mayor Ray Nagin. Later that week, Nagin administration officials couldn’t say whether the award was a loan or a gift from the city.
The money comes from the federal Urban Development Action Grant fund, which is administered by the city. Typically, UDAG grants go to public community centers, housing or job-creation programs with the goal of helping poor communities after decades of urban decay and population loss.
An important qualification of the UDAG-eligible projects is their potential to generate new jobs. The Zulu proposal projects 10 permanent “service and maintenance” jobs and 225 temporary construction jobs.
The Zulu application asks for $850,000 to go to the cost of constructing a $1.25 million reception hall and clubhouse. The new building would replace the club’s existing Broad Street headquarters. Zulu president Charles Hamilton wrote in the cover letter of the application that the organization has “received a commitment from the SBA for a portion of the projected cost” of the new building. Later in the application, though, Zulu notes that “to secure the full loan amount from SBA the organization must show the source of the total construction cost of $1.25M.”
A condition of the city’s application for the money was the ability of the project to stand on its own without continued public investment.
In its application, the organization projects earnings of $12,000 a month from the rental of the space for parties and meetings, $18,000 a month from membership dues and $25,000 from sales at its gift shop. The publicly funded 10,000 square foot clubhouse would nearly triple organization’s current Broad Street quarters.
Competing proposals promise far more jobs and provided more details as to how the larger community would benefit from the investment of public dollars. The Lens will post all four applications for the money Friday.
In a Times-Picayune story last month, a Zulu official couldn’t provide details on how the organization came to apply for the money.
A Nagin spokeswoman asked The Lens to e-mail questions about the Zulu award, but she has not yet responded.
In 2007, the organization took in a total of $2.7 million, according to its most recent tax filings. That same year, the organization only took in $61,081 in membership dues. Though the return is for 2007, it wasn’t filed with the IRS until March of 2009.
If Zulu were a more conventional 501(c)(3), it wouldn’t need to be concerned about the percentage of income from dues.