Another Misuse of Nonprofits? Local and State Agencies “Transform”

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April 29, 2015; Chicago Tribune

The trend to create nonprofit organizations to do work that had once been the responsibility of a government agency continues despite questions about effectiveness, transparency, and accountability. Recently, NPQ reported on a situation in San Diego where a development program is being questioned for its ability to spend public dollars on projects with no requirement to get approval or demonstrate that it fits an impact plan. Now, Illinois appears poised to join the ranks, considering creating a nonprofit agency that would replace the Department of Commerce and Economic Opportunity, overseeing economic development in the state.

Jim Schultz, the Director of the DCEO, commented at a hearing on the measure to create the new nonprofit that Illinois has lost many jobs in recent years and it is too slow and costly in its work to recover those jobs. He suggests that the new agency would make the state competitive once again. If the agency is created, it appears that Illinois would join as many as nine other states in establishing this kind of entity.

Wisconsin, one of those nine states, created the Wisconsin Economic Development Corporation (WEDC) a few years ago as a nonprofit organization to oversee economic development and the creation of jobs. Gov. Scott Walker sits as the president of the agency’s board of directors, which includes other public sector officials as well as members from the private sector. WEDC is demonstrated to have outpaced its public sector predecessor in responding to opportunities to attract companies and jobs to the state, but it also did a very bad job of tracking loans that had been made. Despite any gains WEDC may have made, Wisconsin ranks 40th among states in job creation. There have also been allegations that WEDC employees have used the company credit card to buy personal items such as tickets to football games.

In response to these issues, Gov. Walker is now proposing to merge WEDC with another development program, WHEDA (Wisconsin Housing and Economic Development Agency). The proposal has the new agency, Forward Wisconsin Development Authority, governed by a board of directors drawn solely from the private sector, with no public sector representation. This has been challenged, and there is currently legislation in the legislature to ensure that when this new agency is created, at least four public sector officials will be serving on the board. Governor Walker would appoint the other eight directors, the chief executive officer, and the chief operating officer.

The move to change the proposed corporate structure comes from a desire to have increased levels of accountability and transparency. The fear is that as a nonprofit organization, and without public sector representation, the agency would not be subject to the same open records regulations as a public sector agency. Therefore, it is argued, it will be impossible to determine exactly how public money is being spent. These same issues have been raised with similar agencies in states like California, Ohio (with JobsOhio being questioned), and even Indiana, where there is a quasi-governmental unit that is cited as being very successful. The Indiana Economic Development Corporation has claimed creation of thousands of jobs for the state, although those numbers, too, have been recently challenged. IEDC has also had to scramble recently, hiring an out-of-state public relations firm to repair damage done by the unpopular religious freedom laws the governor signed in Indiana that many people feel would lead to anti-gay discrimination.

Despite all of the questions and allegations of misuse of funds, lack of transparency, and overstated success rates, the trend to create these nonprofits continues. Illinois is one example, and Saratoga in New York is another, hiring someone from Indiana to help with a nonprofit agency there. As NPQ suggested in an earlier article, this is definitely a trend to monitor.—Rob Meiksins

  • Sarah Greenberg

    Great article Rob. It also begs the question, how does a nonprofit agency represent interests throughout the state when the entire Board is appointed by the Governor, who is always partisan? And if public sector officials are added, are they elected officials, and if so, who do they represent? Their constituents, or the needs of the entire state? An entity designed to generate economic development in the state needs a Board that broadly represents that state – urban, rural, public sector, private sector, the business community, citizens, etc.