Cities Want to Know How the Nonprofits They Fund Spend Their Money

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April 2, 2014; News & Record and Los Angeles Times

Amanda Lehmert, a reporter for North Carolina’s Greensboro News & Record, blogged this past week about a debate that is not unique to that city: a City Council debate about nonprofit transparency. It brings to mind a similar controversy in Los Angeles that resulted in a state judge ordering the nonprofits to show their books to the city.

Lehmert blogs on the News & Record site that the council asked for staff salary information from all the nonprofits Greensboro funds. Some members asked for the salaries of the top two employees. Others felt the request “put a number of organizations in our community in a tailspin.”

Councilman Mike Barber, who runs a local nonprofit (although it is not funded by the city), said it was an arbitrary and false measure to get the top two employee salaries, instead requesting that the city ask for the nonprofits’ most recent tax forms and be willing to meet with a city finance employee to answer questions about their viability.

The tax forms, commonly known as IRS Form 990s, are already public information, although not all of them list top salaries and other expense and revenue details. And the blog points out that the city already visits nonprofits annually to review their financial information.

“I don’t want to take challenges with one or two nonprofits and continue to create more ordinances, more regulations, more staff challenges for all of those incredibly successful and effective economic impact drivers that we have that are nonprofits in this community,” Barber said. What followed was a heated debate, at the end of which all the council members except one agreed with Barber’s request.

Predating this exchange, a superior court judge in Los Angeles denied a request from the city utility’s largest employee union to block subpoenas issued by City Controller Ron Galperin. The controller wants to audit two nonprofits jointly operated by the Department of Water and Power and the International Brotherhood of Electrical Workers that have received $40 million in ratepayers funds over the last decade with virtually no public accounting for how that money was spent.

The nonprofits are supposed to address safety and training issues for the utility’s workers. The union has refused to turn over any financial records aside from the public 990s, and instead went to court. But Los Angeles Times reporter Kerry Cavanaugh blogged that the judge said what the controller, city attorney and mayor had been saying: “This is all about knowing where your money went. I don’t see how the city controller doesn’t have that authority.”

The judge also criticized the department’s managers for poor oversight of the nonprofits. Cavanaugh points out that this failure “extends to the previous mayors and council members who voted to fund them and ignored news reports from nearly a decade ago that raised concerns about the nonprofits’ lack of transparency.”

But things changed for the union, which enjoyed a close relationship with previous mayors—in the last election, it supported the loser, and this time, new Mayor Eric Garcetti has made reform a top priority. It is not clear if the union will continue to fight against the audit.

In both of these instances, local elected officials are insisting that there be greater scrutiny of the nonprofits they fund. It is another example of the importance of community agencies engaging a city’s political leadership in a proactive and constructive manner before they end up as a punching bag at council meetings—or worse, in court.—Larry Kaplan

  • P Zeiler

    While I somewhat agree with Mr. Barber’s comments that salaries for nonprofit employees are too limited a request, I believe both of these problems could be addressed by requiring nonprofits doing business with a municipality to provide copies of their yearly audit, yearly tax return, and be rated at least a Silver charity on the GuideStar Exchange. With the amounts mentioned in the LA case, both of these nonprofits should have a yearly audit.