Blurred Boundaries: An Effort to Funnel National Service Money to Local Nonprofits Goes Belly Up

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In late 2011, I was appointed by South Dakota’s governor to serve on the state’s newly created Commission for National and Community Service. The commission’s purpose would be to coordinate national service and volunteer programs like AmeriCorps, Senior Corps, and the National Civilian Conservation Corps, among others. In addition, as a state commission, we would be responsible for allocating at least $600,000 a year in federal funds to state nonprofits engaging in national service programs.

But the story of what happened then is a caution about the number and types of cooks (and recipes) in a single kitchen, especially when they don’t have enough of the right ingredients.

Establishing a state service commission to South Dakota was the idea of a small group of committed volunteers associated with the fledgling 501(c)(3) South Dakota Nonprofit Association (SDNA). They were not only passionate believers in national service and eager for our state to join the rest of the country, they also believed that the federal funds available to administer a state commission would provide the overhead necessary to sustain the SDNA, which would house the commission.

Using a nonprofit to administer a state service commission is not unusual—more than a dozen states do this. The most common model, however, is for commissions to be administered directly by state government. In addition, state governments typically provide the matching funds required to qualify for federal funding and leverage volunteer service opportunities.

South Dakota’s newly-elected governor was willing to sign the executive order creating the commission, but only on the condition that no state funds be used to support the commission or its activities. SDNA and its leaders were aware of this condition and accepted it. They believed that SDNA’s ability to use its capacities and those of the commission in formation would attract foundation and other funding. Ultimately, SDNA hoped state leaders could be persuaded to provide funding as well, based on results.

The state service commission’s governance and operations were problematic from the start. It was unclear to all of us how a state commission would relate to the small nonprofit responsible for its administration. Some SDNA board members were also commissioners, which led to both coordination and confusion. SDNA’s executive director (ED) was also executive director of the commission, more than doubling his workload, not least of which because the national Corporation for National Service (CNS) is well known for sudden and immediate requests for data and reports from state commissions. The ED had to establish a bewildering array of federally required policies and procedures affecting commission operations while simultaneously building SDNA’s membership and services. Not surprisingly, the job proved to be too much for one person and the ED resigned.

The SDNA board placed a new ED under contract and charged him with continuing the simultaneous work of SDNA and the state service commission. He set up an office and hired two staff members, predominately paid for with federal funds from the state commission budget, to assist him in this effort. In my opinion both as a commissioner and as a consultant to nonprofit organizations, one aspect of the work that did not receive significant attention during that time was the mixed governance of the SDNA nonprofit and the state-created commission with federal as well as state accountability.

This mixed, and often confused, governance played out in several ways. In-person SDNA and commission meetings happened on the same day for the convenience of staff and shared board/commission members. Commission agendas and briefing papers were produced on SDNA letterhead. Commission-specific budget and financial information was not available, resulting in commissioners being asked to review and approve SDNA financials that included both SDNA and commission funding and activities. Policies and procedures specific to commission operations were created in rough draft form by staff, but without formal involvement of commission members or committees of commission members. The ED told his two-person staff he didn’t believe these rough draft policy documents were “ready” for presentation to the commission, so they never reached the commission agenda.

Meanwhile, the hoped-for leveraging of SDNA and commission activity into additional philanthropic support did not materialize. One significant foundation grant to SDNA ended, and requests to the foundation to extend the grant or be allowed to reapply were not only rebuffed, but the foundation expressed concerns about whether its previously granted funds to support SDNA membership and service growth were used instead by SDNA to support the state service commission.

Often, a nonprofit relies on its board members’ connections to help open doors and provide needed funds. In the case of both SDNA and the governor-appointed state service commission, most of the leaders were, themselves, executives of nonprofit organizations or working for government agencies. Any funder relationships they had were pledged by employee loyalty to their employers, not their volunteer roles as nonprofit board members and/or commissioners.

As the funding crunch became critical, a few commissioners (including me) continued to ask tough questions about current and future organizational capacity. Ultimately, in the summer of 2013, the ED resigned the day before a scheduled in-person SDNA and commission set of meetings. One of the remaining staff members agreed to become acting ED (she later became ED in her own right), and the respective organizations’ leadership were brought up to speed on the nature and extent of the funding shortages. Following the meeting, the acting ED worked to assemble specifics on all outstanding programs, perform liaison with the federal government, and cancel a contracted SDNA annual conference for which there were no funds available.

In the end, it was easy to decide that the South Dakota Nonprofit Association was not viable, owing to lack of membership and lack of revenue. The SDNA board and the state service commission decided to rename SDNA as Serve South Dakota, with the sole mission to support and operate the commission. This process took until the end of 2013 to complete, and was not without its own stresses. For example, we learned that SDNA had inappropriately and inaccurately elected to file an IRS Form 990-PF as a private foundation rather than file a Form 990 as a public charity. This error would have taken five years to remedy, had the nonprofit stayed in operation that long.

In addition, the new nonprofit structure identified all commissioners as board members of the nonprofit. This dual status of state service commissioners as board members of Serve South Dakota needed to be reconciled. Governance duties—and board member liability—are different for nonprofit board members than for state commissioners. Bylaws needed to be rewritten and education of commissioners needed to take place. What role should—or could—appointed commissioners take in fund development for the nonprofit managing the commission? When were the members meeting as a nonprofit board, and when were they meeting as a commission subject to public meeting laws? Could the two roles be separated meaningfully for purposes of group action?

The reconstituted Serve South Dakota (Serve SD) had two related problems to confront. First, the organization needed funding to meet the escalating federal matching fund requirements placed on new state service commissions. Our commission’s state matching fund requirement for operating funds (i.e., overhead) started at 15 percent of federal support and topped out at 50 percent in the fifth and succeeding years of commission operation. Second, the commission needed new members, as there were a number of vacant positions on the commission due to resignations. A couple of new commissioners had been appointed by the governor in 2013, but attrition had caused the commission to fall far below its authorized maximum of 25 members and nearing its minimum requirement of 15 as set in both federal law as well as state executive order. Further, there was a complex set of federal and state requirements for assuring equitable and broad-based state service commission membership. Not having a full complement of members made these quota requirements impossible to satisfy.

The resolution to both these key issues lay with the Governor of South Dakota and the Governor’s Office. Unfortunately, the governor’s office had become even less supportive of the commission than it was when the commission was formed. The governor’s former chief of staff had been sympathetic when the executive director and I met with him in the summer of 2014. He stressed, however, that his was the only voice on the governor’s staff that was supportive in any way. Three months later, he had resigned to return to the private sector. We were never able to secure a meeting with his successor, and his successor never replied to any phone or email inquiry we made.

The low-level staffer assigned to oversee more than 140 state boards and commissions, including ours, was either uncommunicative or indicated that our requests for additional commissioner appointments were under consideration but delayed. We recruited commissioner/board members in the fall of 2014 using the federal and state-required criteria. We assembled a recruiting packet, giving it to potential commissioners. In addition, we sent copies to the governor’s office and requested that they supply us with names the governor wanted to see on the commission.

We never received any names from the governor’s office. In January 2015, the ED and I as commission chair attended a meeting with the low-level staffer and her immediate supervisor at the Capitol building. We were told that the names the state service commission had assembled were either unknown to the governor or, as in one case, opposed by the governor. None of our recommendations would be accepted, and the governor’s office would let us know who would be appointed. Ultimately, we waited for months while the governor’s office debated whether there should even be a state commission for national and community service. There were numerous contacts between Serve SD and the federal Commission for National and Community Service (CNCS) headquarters during much of 2015 for ideas on how to break the logjam. Federal officials were stumped, because no state government had ever resisted having a state service commission. If anything, states were competing for additional federal funds and the opportunity to expand national service programs. Offers by senior federal officials to come to South Dakota to meet with the governor and his chief of staff (who is also the governor’s son-in law) were rebuffed by the state.

The end of South Dakota’s state service commission was as strange as much of its history. The Serve SD board decided in September 2015 to dissolve the nonprofit and return oversight of the state commission to the governor effective January 1st, 2016. Upon being informed of this, the governor replied by letter, incorrectly stating that the commission had decided to dissolve (only the governor can dissolve a commission he creates) and issued an executive order rescinding his executive order establishing the commission. In all this time, as commission chair and an appointee of the governor, I never had any contact from the governor or from his chief of staff.

Not surprisingly, by this time the commission/board membership had dwindled to a precious few. As chair of the board and commission, it fell to me to work with the ED and staff as we dissolved the Serve South Dakota nonprofit and returned oversight of federally-funded state service commission activities to CNCS. The orderly dissolution of a nonprofit is a complex task—even more complex than changing the name and mission of an existing one.

To this day, I am the remaining contact person for the nonprofit and commission, because I was commission and board chair after the staff had all departed. The governor’s office never worked with me or the staff to wind up the commission’s operations, though a letter indicated they would do so. Presumably, once the governor had pulled the plug on the commission, the governor’s staff simply walked away. In a way, this was very fortunate, because it meant we could do what needed to be done without either seeking permission or explaining our steps.

The seeds of the commission’s downfall were present in its creation, and should be familiar to those with experience in nonprofit management, governance, and operations:

  • Starting a new organization to prop up a weak one
  • Lack of stakeholder support
  • Lack of sufficient funding
  • Gaps in staff and board capacity
  • Unclear governance and management between a nonprofit entity and the government-created commission it was tasked with overseeing
  • Insufficient fund development strength

All contributed to its demise. The commission sputtered along until it ran out of what little fuel it had and was denied both financial and volunteer resources by the state government that created it. The SDNA board members advocating for the state service commission’s creation believed it would bring dollars and infrastructure that would support SDNA’s core mission. In the end, the nonprofit couldn’t support either its own mission or that of the commission. The hybrid commission/nonprofit Serve South Dakota struggled to be sustainable, ultimately failing due to lack of state governmental support.

As has been true most years since the mid-1990s, 49 of the 50 states have state commissions administering and coordinating national service within their borders. To the unknown extent South Dakota still has any such national service programs operating within its borders, they are administered from Washington, D.C., by federal employees without state input or participation. As a founding commissioner and past commission chair, I feel that lost opportunity for my state keenly. Perhaps a different governor, a different organizing group of people with a passion for national service, and the resources committed to support the effort to build and sustain a state service commission can succeed where SDNA and Serve South Dakota did not.

  • JCL

    Thank you for writing this important article and sharing lessons learned. Especially in current times, I greatly appreciate NPQ’s coverage of nonprofit leaders and organizations operating in South Dakota and the many other parts of the US where there is not strong public support for nonprofit organizations or the services they provide.

  • David Patt

    How did you handle political matters affecting this issue? Were the Governor and Board members from the same party? Was the existence of the organization a liability for the Governor? You seem to blame the Governor for a lot of the problems, but did you didn’t discuss any political concerns that must have been in play.

    • The commission membership was bipartisan, as required by federal law for all state service commissions. South Dakota is a very red state, but I don’t think that had much to do with the governor’s stance. I’m a Republican and have, in the past, been very politically active, so I don’t think the governor’s lack of communication with me or the commission had to do with party or ideology. I’m not a friend of the governor, but we are acquaintances and my wife/partner once worked for the same nonprofit he led before he became governor.

      I believe it was a simple lack of knowledge, lack of interest, and the strong inclination to not commit ongoing state funds to anything that we as a commission faced. To be fair to the governor, he never promised anything else – he was consistent in his lack of interest and lack of support. The question is, should the state commission even have been established in the face of this lack of state government support?