A Section-8 Subsidy of Greed? Nonprofit CEO Builds an Empire

February 9, 2018; Asbury Park Press

Some stories about nonprofit leaders make you want to beam with pride. Scarce resources are used wisely by dedicated staff and volunteers for the benefit of people at risk. And then there are those stories that make you want to hang your head and hope that few people will read them. While there are far more of the former than the later, the tales of malfeasance, misuse of funds, and selfishness leave a stain on the nonprofit sector that makes all our work harder. But we can’t just ignore them; we need to look at them carefully and learn lessons.

NPQ reported at the end of last year on the exorbitant salary of Rabbi Meir Hertz, who leads the Lakewood Tenants Organization, which distributes vouchers for Section 8 subsidized housing. At the time, one of the organization’s board members said the rabbi’s salary was none of his business—and perhaps that goes for other governance responsibilities as well. Further investigation by local reporters in Lakewood, New Jersey, have found that monies meant to support low-income housing have been used to support a private religious school and privately developed luxury housing. According to the Asbury Park Press (APP), Rabbi Meir Hertz is simultaneously the CEO of a nonprofit association that receives a million a year to manage the community’s low-income housing program and the dean of the Tashbar of Lakeview School. Rabbi Hertz has been able to mix these very different organizations together into a questionable relationship—to his apparent benefit.

Beginning in 2002, the housing organization issued a $4-million loan to the school. In turn, the school has loaned funds to a private real estate development organization managed by Hertz’s brother, which has proceeded to develop luxury homes on property acquired from the school. The APP asked Lynn Albala, a New Jersey–certified public accountant and former head of the New Jersey Society of CPAs’ nonprofit group, to describe how these transactions were handled by both organizations. Her conclusions were that “the housing organization hasn’t properly documented its loans to the school, and that omission could be problematic…Giving a loan to a Jewish day school is not part of their mission, and they’re not reporting that.”

Rabbi Hertz maintains that once administrative funds are given to his housing organization, they can be used as the organization sees fit, including making loans to other organizations. The housing organization has asserted “in a pending lawsuit against HUD that the money is ‘defederalized,’ not subject to…federal spending rules once it’s passed through to the organization.” MaryAnn Russ, a former HUD deputy assistant secretary for public and assisted housing operations, disagrees, saying to the APP “there are strings attached to how HUD dollars can be spent. That’s where the Lakewood Tenants Organization may have violated federal rules, if you have extra administrative fees, you don’t get to spend them on what you want. The money is only for housing purposes.”

While the benefit of these activities to low-income families may not be very clear, the benefit to Rabbi Hertz is. His compensation package was $469,000 in 2016, almost half of the housing organization’s annual budget and well beyond federal guidelines. What’s more, he shares in the profits from the real estate development efforts of the family-owned company that has been helped by the school.

Low-income housing needs are being shortchanged in New Jersey. The lack of proper board oversight is clear. Neither the leadership of the housing organization nor the school have challenged Rabbi Hertz’s mixing of the finances of two organizations with different purposes so closely. The nonprofit sector needs a response to this kind of challenge. Are there sector-led solutions, or does the responsibility just lie in the hands of vigilant government officials to catch problems and fix them?—Martin Levine