Nonprofit Newswire | Bypassing Ban on Earmarks by Establishing “Nonprofit”

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July 4, 2010; Source: New York Times |  In its attempt to rein in some of the worst excesses of Congressional earmarking, the House of Representatives announced a ban on earmarks to for-profits. So what happened?

A defense contracting firm in Ohio figured out how to circumvent the ban and incorporated a nonprofit research center—to do the same work and located in the same place as the for-profit—and immediately got Congresswoman Marcy Kaptur (D-OH) to recommend $10.4 million for the “nonprofit.” Is it a coincidence that the family of the owner of the for-profit and the “nonprofit” have been big sources of campaign contributions for Congresswoman Kaptur?

The New York Times says that there have been $150 million in earmarks recommended for for-profit nonprofits since the announcement of the ban, including the nonprofit Interactive Media Institute (created and controlled by executives of the Virtual Reality Medical Center in California which sells visual simulation headgear) and the Copper Development Association in New York (created by copper manufacturers promoting copper products in New York City subway cars).

The Ohio defense nonprofit was one heck of a quick-change operation. On the day of the earmark ban announcement, the head of the firm (Imaging Systems Technology) filed papers with the Ohio Secretary of State creating the nonprofit and naming herself as the executive director. Even though it hadn’t received a 501(c)(3) approval from the IRS, that was enough for Congresswoman Kaptur to give the nonprofit a “yes, they did” answer to whether it met the standards of the earmark reform. The president of the for-profit (whose sister is now head of the nonprofit) was quite candid about her thinking: “it’s not illegal—so what?”

We’ve seen Congressional earmarks to all-but-for-profit nonprofits before, typically military-oriented earmarks, such as the late John Murtha’s seven-figure earmarks to Concurrent Technologies Corporation and its subsidiary, Commonwealth Research Institute.—Rick Cohen