Phoenix Pride Faces Uncertain Future After Bankruptcy Filing

Earlier this summer, Phoenix Pride, one of the state’s largest LGBTQ+ organizations, filed for Chapter 11 bankruptcy with hundreds of thousands of dollars in debt and a lawsuit its attorney told a federal judge the organization could not afford to fight. Within a week, the organization had enough cash to pay only three of its four employees.

More than two months after filing for Chapter 11 bankruptcy, the nonprofit behind one of Arizona’s largest LGBTQ+ celebrations remains open and is preparing for another October festival. However, court records indicate that the organization is operating with little room for error as it approaches an Aug. 26 deadline to lay out its plan to avoid shutting its doors completely.

At a July town hall held at Community Church of Hope in Melrose, Phoenix Pride leadership spent most of the time addressing community concerns about accessibility, relationships with law enforcement, scholarships and changes to the upcoming festival.

Less than 20 minutes of the two-hour town hall were devoted to discussing the looming financial crisis.

When asked directly, Board President Daniel Eckstrom acknowledged responsibility for the organization’s debts and a commitment to repaying them: “Just because we filed bankruptcy, it doesn’t mean we washed our hands of it,” he said. “We know that there’s a responsibility. And part of that responsibility is to file Chapter 11 to try to pay them instead of just filing Chapter 7 and closing the doors.”

Chapter 11 provides entities with breathing room to continue operations while they attempt to restructure their finances. The alternative is Chapter 7, which generally involves liquidating the organization and attempting to repay creditors.

The repayment likely refers to the organization’s largest financial dispute: a lawsuit filed by Pride Group LLC, an event services company that said Phoenix Pride owes more than $418,000 for work connected to the 2025 Phoenix Pride Festival.

Phoenix Pride Has Filed for Bankruptcy

One of Arizona’s largest LGBTQ+ organization has filed for Chapter 11 bankruptcy amid financial struggles.

LOOKOUTLorenzo Gomez (he/him)

At a June 4 hearing, Phoenix Pride’s bankruptcy attorney, JoAnn Falgout, explained that the dispute directly factored into the decision to seek court protection. She said the organization could not afford the costs of fighting the lawsuit and disclosed that it was already short on cash for that week’s payroll.

In response, Phoenix Pride Executive Director Mike Fornelli agreed to forgo his pay to ensure that other employees could be paid.

In a conversation with LOOKOUT, Phil Giles, an Arizona bankruptcy attorney with Allen, Jones & Giles who is not involved in the case, cautioned that the cash shortage was not necessarily proof that the organization is failing and commended Fornelli for his decision to forgo his full pay.

“Most debtors in Chapter 11 are suffering from current liquidity issues, so that’s not necessarily unusual,” Giles said. “I think the director did a really good thing.”

The bankruptcy filing did not come without warning.

Tax filings for 2023 and 2024 showed substantial losses in both years. Late last year, the organization publicly disclosed a nearly $350,000 budget shortfall, attributing it to declining attendance, sponsorship losses and the broader political climate putting pressure on LGBTQ+ organizations across the country.

While Phoenix Pride has yet to file its 2025 tax return, a June monthly report showed the organization expected to continue receiving money, including restricted funds earmarked for its scholarship program. The court allowed it to continue spending those restricted funds for their intended purpose.

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LOOKOUTLorenzo Gomez (he/him)

In a statement to LOOKOUT, Fornelli said the organization is navigating bankruptcy “as thoughtfully and responsibly as possible,” while continuing its programs and preparing for its October festival and parade.

“Our mission remains unchanged, and we are focused on ensuring that Phoenix Pride continues to serve, celebrate, and advocate for our community for years to come,” he said. 

It is not the only queer organization facing difficult decisions. Earlier this year, Tucson Pride shut down after years of financial struggles and infighting. In late July, Prism Network, a community organization based in Yavapai County, decided to dissolve after limited resources and declining leadership halted normal operations. At the end of the announcement, the remaining two board members noted there were still some last-ditch efforts to save the organization, although nothing was final.

At the town hall, Fornelli explained that expenses for the festival kept getting “higher and higher and higher” until the cost of production exceeded revenue from attendance. The board also said it reduced the festival budget by 75% this year, cutting the main festival from two days to one on Oct. 11, changing venues to the Arizona Center in downtown Phoenix, and shifting its focus toward more local entertainment and vendors.

Board members also pointed to this year’s Rainbows Festival as evidence that scaling back events can work, telling town hall attendees that the event exceeded its financial goals.

However, the success of Pride’s events likely will not be enough to get Phoenix Pride out of bankruptcy on its own. The organization and its legal counsel must still show the court that it has a realistic path forward.

Giles explained that the reorganization plan must indicate a deal that is in the “best interests” of creditors — meaning the amount repaid will be the same as or more than what creditors would receive if the organization were liquidated.

“If creditors are better off in a chapter seven where everything is liquidated and they’re paid immediately,” Giles said, “that’s better than forcing creditors to accept payments over three to five years to get the same amount.”

In the coming months, the community will likely see what Phoenix Pride’s future looks like.

During the final question submitted in advance, Interim Treasurer Maury Rice said that while the organization revamps its budget, “Everything is on the table.”

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At its first public town hall since 2020, Phoenix Pride addressed finances, policing and trust. A LOOKOUT review found some claims supported by the record — and others that fall short.

LOOKOUTLorenzo Gomez (he/him)