Nonprofit Earmarking Under Scrutiny as Politicians Play Fast and Loose

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[May 12, 2008] One interesting and not insignificant sub-category of pork barrel spending at the national level involves earmarks to politically connected nonprofits. Some of these are, of course justifiable but some are pure tit for tat or disguised self-dealing. In the wake of a number of scandals involving nonprofits and their sometimes intimate relationships to the likes of Tom DeLay, Rick Santorum, Duke Cunningham and Ted Stevens, we might have expected some lessons to be learned at the federal state and municipal levels but in some locales nonprofit earmarking does not fare well in the light of day.

The practice of state legislatures — and some large city councils — which gives legislators discretionary grantmaking powers for their pet projects and personally favored nonprofits is actually quite widespread. Some states such as South Carolina and Wisconsin are beginning to take halting steps toward making the lists of these earmarks public, though generally after the fact and with no improvements in ensuring monitoring and accountability. Waiting until the practice becomes a public issue is probably not wise. Without much in the way of criteria, transparency, or monitoring, some Hawai’i legislators awarded more than $200 million to275 nonprofits between 2003 and 2006. The process by which the money was spent was described by both decision-makers and nonprofit applicants as mysterious.

But the champion of state and local earmarking behind closed doors for legislators’ pet projects is clearly New York.

For many years, some New York nonprofits have budgeted anticipated income from something called “members’ items.” If your nonprofit was connected to a key politician in the state legislature or the City Council, he or she might make a small grant to your group from a discretionary pot of dollars at his or her disposal. The more powerful legislators got bigger pools to play with.

Until 2006, there wasn’t an accessible list of these earmarks at the state level until a conservative think tank, the Manhattan Institute’s Empire Center for New York State Policy filed a state freedom of information act request revealing 3 years worth (2003, 2004, 2005) of grants. The computer-busting 1,154 page document contained nearly 23,000 grants totaling $479 million.

We just looked at the pdf for the 2007-2008 so-called “legislative initiatives,” now 3,791 pages long. It’s not hard to see how the nonprofits that toil away to serve needy constituencies might think that they aren’t always competing on a level playing field.

Several of New York State’s members’ items are grants to reputable organizations performing critical functions such as the Legal Aid Project, the workforce development programs of the Chinese American Planning Council, the Grand Street Settlement, Asian Americans for Equality, the Empire Justice Center fighting redlining and predatory lending, and others.

But a quick review reveals lots of Red Cross affiliates, hospitals, Chambers of Commerce, local downtown development groups, and merchant associations appear to have won earmarks, and it’s no surprise to anyone who knows the how influence is wielded. Despite the good groups receiving many of the grants, most legislators’ intentions are simply to do favors for constituents who will hopefully have good memories and warm hearts come election time. The state agencies ostensibly charged with overseeing these grants know that there’s no political or financial upside in monitoring most of them.

With a municipal budget larger than most state budgets, New York City has its own list of members’ items — each city council member gets about $340,000 to hand out as pork-barrel goodies — but only recently, and reluctantly — cottoned on to the idea that the point of transparency in these freewheeling earmarks is accountability.

The council just recently received a legal shot over its relatively secret members’ item earmarking, questioning where members’ items seem to have resulted in self-enrichment, political influence-buying, and aiding phony nonprofits. Council members are lawyering up with government-paid criminal defense attorneys (at $600 an hour for the council chair, paid for by the taxpayers) now that federal prosecutors are launching the first of what seems to be many fusillades of indictments. Among these are some cautionary stories:

  • The Council has routinely appropriated members’ items grants to nonprofit organizations that simply do not exist — oversights amounting to $17 million since 2001 . This practice of parking money with fake nonprofits or over-allocating money to real ones, (but not making the grants so that the moneys can be used by council members for future pet projects) is euphemistically called using “holding codes”.

  • A Brooklyn councilman funneled $350,000 to a purported nonprofit run by his chief of staff and his former campaign director. This organization was also coincidentally located at aide’s home address. Some of the funding was channeled through clearly fake nonprofits with names like the New York Foundation for Community Development and the American Association of Concerned Veterans.

  • The aforementioned council aide allegedly used $145,000 for personal purposes, including $31,000 sent to members of his family in Jamaica and $21,000 for political campaign expenses. He now faces the possibility of 80 years in prison and another aide faces 40 years if convicted while the councilman has not yet been indicted.

  • A Bronx council woman sent one of her members’ items to a tenant association in the building where she previously lived and which currently houses her campaign manager but the tenants association doesn’t appear to exist.

  • Another Brooklyn councilman directed $200,000 in members’ items to a community council run by his wife. One councilman from Queens clipped nearly $100,000 from a Little League account he funded from members’ items. A Brooklyn council member funneled money to an organization run by her mother-in-law.

Not surprisingly these revelations have left the council and state legislature scrambling to show their new commitment to accountability.

The state has already come up with an RFP system for members’ items. Now they’re toying with preventing legislators from awarding or announcing members’ items during campaign season, though when campaign season starts and stops is hard to determine. The attorney general, Andrew Cuomo, has been doing an item-by-item review of the state’s pork barrel grants and put a hold on 42 percent of 3,785 contracts until some questions are answered by the heretofore reluctantly transparent grantees.

At the city level, the Council is considering its own RFP process, garnering the blowback from favored organizations that have gotten used to their free access to no-questions-asked pork barrel grants with no reporting requirements. And the head of the council has started asking council members to fill out 3-page conflict of interest statements — not that council members couldn’t still funnel slush funds to their favorite, family-connected charities, they would just have to admit the conflict of interest.

Whether it is New York, Hawai’i, Wisconsin, or South Carolina, efforts to bolster nonprofit accountability are undermined when state legislators can make back room grant awards to favored nonprofits based on little or no standards, minimal transparency, and just about nonexistent monitoring. While the case of New York is egregious, the oft-used “few bad apples” argument would seem to merit some old fashioned show-the-money-trail skepticism in other states as well.