The local nonprofit Urban Alchemy, which took on favored-contractor status at San Francisco's Department of Homelessness and Supportive Housing in recent years, is increasingly coming under the microscope of city leaders amid signs of contract violations.

Urban Alchemy, the organization that employs formerly incarcerated people to work as street ambassadors and to staff supportive housing facilities in SF under multiple city contracts, is making the news again this week. At issue is a contract renewal for their management of a homeless shelter at 711 Post Street — the Ansonia Hotel, which served as a youth hostel in the last decade before becoming a shelter in 2022.

While the nonprofit continues to have favorable status at the Department of Homelessness and Supportive Housing (HSH), the SF Board of Supervisors has been asking more questions about its contracts — and Urban Alchemy has already seen BART cancel a contract with them, and they appear to be losing a contract in Austin, Texas as well over a misreporting issue at local shelters.

Since launching in San Francisco in 2018 as a project of the nonprofit Hunters Point Family, Urban Alchemy has grown to operate in seven cities, including Los Angeles, Austin, Portland, and Oakland.

The Chronicle reported two weeks ago that Urban Alchemy was put on notice and relegated to "tier 2" status for city contracts, following a warning letter sent by San Francisco Controller Greg Wagner in August. The letter said that the nonprofit was now on a watch list over "serious fiscal or programmatic concerns," due to imadequate and noncompliant tracking of employee hours. And unless the issue is resolved, Urban Alchemy stands to risk seeing its contracts renewed with the city.

Urban Alchemy is a key piece of what critics have referred to as the "homeless industrial complex" in San Francisco, receiving upwards of $50 million across multiple contracts in recent years. The contract for 711 Post Street alone is worth $22.7 million, and HSH is seeking to increase that to $27.6 million, and have the current contract extended through March, while Urban Alchemy addresses an issue with overspending.

The main issue, as the Chronicle reports, has to do with employee pay bumps that were not authorized under the contract — which led to overspending of $800,000. Urban Alchemy countered that they had requested $800,000, but that their overspending actually only amounted to $336,000, including salary increases and other expenses.

"We often are in a situation where we’re asked to do work and we don’t always have budgets in place for that work," said Melek Totah, CFO of Urban Alchemy, at a hearing this week with the supervisors' Budget & Finance Committee, per the Chron. “We have to be a lot better about saying no when we’re asked to do things where they’re not budgets already approved."

The organization issued an official statement on the issue, saying, "We take the stewardship of our finances and the responsibility to meet all government standards seriously."

How much Urban Alchemy currently gets per year in revenue from San Francisco city contracts is kind of opaque. That $53M figure was from 2022, and the current HSH budget mentions nothing specific about HSH — just an overall $610 million in "grants" and $106 million in "programmatic projects." In total, 24% of the department's $846M budget for FY24-25, around $200 million, was earmarked for "shelter and crisis interventions."

And Nicolas Menard, a financial analyst with the Board of Supervisors, said during the hearing that Urban Alchemy had "knowingly overspent" its contract for 711 Post, and that issues like this are fairly rare among contractors. "We look at a lot of nonprofit contracts," Menard said, per the Chronicle, saying this example was "extreme."

Supervisor Connie Chan, who chairs the Budget & Finance Committee, says that Urban Alchemy's issues are not just with this one contract but are "overall," and she called for an audit of their contracts last year that still could be coming.

So far, though, Urban Alchemy has managed to remain in the city's good graces, and  the Chronicle notes that the 711 Post Street contract likely will be extended. But we could hear more about this story come springtime.

Related: Street Ambassador Nonprofit Urban Alchemy Seen as Force of Good, Mostly