February 17, 2015; Daily Business Review

Community-based nonprofits often play a critical role in local economic development and the creation of affordable housing. But when is their role key to success and when is it nothing more than “street money” to curry favor with politicians and community leaders? And how transparent is their involvement?

The Daily Business Review reports on a Miami city agency taking $500,000 away from a $43.5 million low-income housing fund in one of the city’s poorest neighborhoods in order to pay two local nonprofits selected without a competitive bidding process.

The developments are being built primarily with money borrowed by the city’s Community Redevelopment Agency. The paper reports that the money going to the nonprofits “has puzzled some familiar with the development plans. The official role of the charities is as an ill-defined ‘nonprofit conduit,’ according to Miami-Dade County documents.”

The money borrowed by the CRA was moved to the nonprofits, which then conveyed the funds to the project’s developer. It’s a process used to secure federal tax exemptions for the projects, so each of four developers paid the Urban League of Greater Miami a $125,000 fee for its role as the conduit. The article explains that the Urban League kept $200,000 and re-granted $300,000 to Urban Philanthropies, a smaller local nonprofit “with no stake in the development deals.”

Some of the grant will create a fund for small businesses, entrepreneurs, and technical assistance for economic development in Overtown, a primarily African-American community. But it seems the issue for the Daily Business Review is that the funding took place largely out of the public eye.

The “nonprofit structuring fee” was never disclosed in line-item budgets considered last year by city commissioners (councilmembers), who approved public borrowing for the projects, but was revealed in an audit late last year. Three of the five city commissioners on the CRA board were unaware of this specific fee until the reporter contacted them, although CRA staff said that such fees were not uncommon and were envisioned when the program began.

The leader of Urban Philanthropies is a politically connected, high profile booster of Overtown initiatives with a mixed record of success. The CRA said it considered other nonprofits but couldn’t reach a deal with them. Its executive director told the paper that the money was not a grant, but a fee for services rendered and “fair payment for the conduit role the Urban League is playing in the deal.”

As in most U.S. cities, it’s not unusual for developers in Miami to involve nonprofits that bring such resources to a project as land, state tax credits, political clout, community support or public funding. In this case, however, the board of the county’s Housing Finance Authority questioned the fees going to the non-profits without any competitive bidding process, although it ultimately approved the county’s portion.—Larry Kaplan