(C) Minnesota Reformer
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Minnesota lawmakers gave nonprofits $1.1 billion last year. Will we know if it’s well spent? [1]
['Deena Winter', 'Michelle Griffith', 'More From Author', '- February']
Date: 2024-02-28
Minnesota lawmakers last year showered nonprofit groups with over $1.1 billion, with some receiving more money from the Legislature than they normally get in other grants and donations in an entire year.
Among them was a Minneapolis anti-violence nonprofit called A Mother’s Love, run by former police officer Lisa Clemons.
In the rush to support favored nonprofit groups, lawmakers may not have looked too closely at A Mother’s Love’s operations or finances, despite earmarking $3 million to the group in the two-year budget of the Department of Employment and Economic Development — eclipsing the $1.13 million the nonprofit raised from all sources in 2022.
Two years ago, a state unemployment law judge found A Mother’s Love had misclassified a worker as an independent contractor, which Attorney General Keith Ellison, DFL lawmakers and the administration of Gov. Tim Walz have sought to crack down on because it robs workers of basic protections like workers’ compensation insurance, overtime and unemployment benefits.
So even as DEED found that A Mother’s Love misclassified a worker, lawmakers directed DEED to give the nonprofit $3 million. A Mother’s Love still has 30 independent contractors, according to Clemons, its executive director. Clemons did not comment on whether she was directed to re-classify her independent contractors as employees after the state review.
A Mother’s Love’s IRS tax forms point to other irregularities: The group owns a $360,000 building — a home that was purchased for them in 2022. At the same time, it reported occupancy costs — such as utilities, insurance, repairs and maintenance — of $299,000 in 2022, according to its IRS filing.
“That’s a huge number on a $360,000 house,” said Ann Etter, a certified public accountant and president of Goodney & Etter in Northfield, who reviewed the documents for the Reformer.
A Mother’s Love is just one of hundreds of nonprofits that used their legislative connections to win money from lawmakers last year, sidestepping the onerous process of competing for grants from state agencies.
It was so much money that the state’s budget agency couldn’t provide an accounting of it all when the Reformer asked for one.
Nonpartisan Senate researchers asked departments for an accounting, and found over 300 direct allocations to nonprofits through 2025 — not counting the state departments of health and human services, which failed to provide the data. The Reformer counted 36 more allocations in health and human services budget bills.
State government increasingly relies on nonprofits to complete its work, from preventing violence to encouraging vaccination. State agencies typically award a grant after performing background checks and analyzing proposals, giving it to the applicant that best meets their criteria.
But nonprofits can also receive funding by being directly named in the Legislature’s budget bills — through what are known as legislatively named grants — and last year was a bonanza for this type of funding.
Lawmakers gave money to nonprofits to study ending cash bail, treat cops with post-traumatic stress disorder, construct buildings, prevent homelessness, and hold cultural festivals, for example.
In the case of A Mother’s Love, the grant is an attempt to solve a thorny political and policy problem that’s emerged, especially since the 2020 police murder of George Floyd: Crime, though falling, is still elevated from pre-pandemic levels, but many Minnesotans — city-dwellers in particular — lost confidence in conventional policing to stop the violence. So legislators turned to a bevy of nonprofit groups promising to quell violence without police.
Clemons, the executive director, founded the nonprofit in 2014 to help Black women enduring trauma. Inspired by her police experience, Clemons initially ran the nonprofit out of her own pocket.
“I wanted to use my lens as a Black mom in the community and a retired cop,” she says.
Operating out of the pink-trimmed North Minneapolis house it was gifted, the group has expanded its mission, wearing its trademark pink T-shirts while helping homeless and addicted people, working with Metro Transit to keep buses safe and responding to murder scenes to bridge the gap between the police and community.
“We’re there when moms are speaking out in anger and they want justice in the street versus the courtroom,” Clemons said. “We work to try to save the next life.”
Clemons understands how it feels to have a loved one murdered: Months after she founded the nonprofit, her 24-year-old niece was shot in the chest and killed.
Hers is one of several nonprofits hired by the city of Minneapolis to be so-called “violence interrupters,” although the effectiveness of such groups has been called “unproven” by a criminologist at John Jay College.
Perhaps unfairly, the backdrop of the Legislature’s efforts to boost nonprofits is what’s become known as the Feeding our Future scandal, the wide-ranging scheme in which 70 Minnesotans (so far) have been charged with funneling pilfered government money through nonprofits. Federal prosecutors say the nonprofit called Feeding Our Future orchestrated the theft of about $250 million worth of federal child nutrition funds, the nation’s largest pandemic relief-related fraud.
The Feeding Our Future scandal has nothing to do with the investments lawmakers made in nonprofits last session, said state Senate President Bobby Joe Champion, DFL-Minneapolis, who helped A Mother’s Love win its legislative grant.
“Something unfortunate happens and we start holding everyone else hostage,” he said. “I have not and will not do anything that jeopardizes Minnesota. … We’ve been responsible, we haven’t been careless and we will continue to be responsible.”
State government already struggles to oversee money it sends out the door, according to a 2023 audit. The Office of the Legislative Auditor found “pervasive noncompliance” with grant management policies, “signaling issues with accountability and oversight” of the $500 million the state sends out in a typical year.
In 2007, the OLA found the state had a fragmented approach to managing grants and lacked oversight and accountability. So the Legislature set up a Grants Management Office to strengthen accountability, but last year auditors still found compliance problems in numerous state agencies. Agencies failed to do financial reconciliations, site visits and progress reports, and didn’t withhold payments to grantees with past-due progress reports.
The 2023 audit found the situation is even worse with legislatively named grants. The state Department of Education, which was the pass-through agency for the stolen federal child nutrition funds, “consistently documented less fiscal and programmatic oversight of legislatively named grants compared to competitively awarded grants,” according to the audit.
The widespread use of these legislative grants has divided Minnesota’s robust nonprofit sector, with some questioning the wisdom of a system that favors politically connected nonprofits.
Joel Carlson, a longtime pro bono lobbyist for Violence Free Minnesota, said relying on legislative largesse can politicize the grant process: “We don’t want funds to victims of family violence to be based on who has the best lobbyist,” he said.
Among the best nonprofit lobbyists is Nancy Hylden and her lobbying firm Hylden Advocacy & Law, which successfully lobby for millions of dollars for their nonprofit clients every year.
American Indian OIC, the Northside Achievement Zone and Somali Museum — three of Hylden’s nonprofit clients — received nearly $8 million total in legislatively named grants.
Through the direct appropriations, lawmakers are tackling Minnesota’s “deeply embedded racial disparities,” Hylden said in an email.
‘How can we oversee it?’
Rep. Fue Lee, DFL-Minneapolis, said legislatively named grants are a way to help smaller, grassroots nonprofits — often led by people of color — do good work in underserved communities.
As the House Capital Investment chair, he aims to support marginalized communities through the infrastructure package — also known as the bonding bill around the Capitol because the state relies on borrowed money to fund the construction projects.
“I believe that the government has missed the opportunity to invest in our local communities, and so funding for capital projects to nonprofits and underserved communities is really important so that those communities can actually further move forward with having a brick and mortar (asset) that will actually serve some of their needs,” Lee said.
Lee’s bonding bill last year, for instance, included $6 million for an emergency shelter expansion for Avenues for Youth, which is in his district.
Sen. Eric Pratt, R-Prior Lake, is bothered by grants that were given to groups to construct buildings. For example, $4 million was granted to a nonprofit called Every Meal to purchase a building it partially occupied for seven years, and $2.75 million was awarded to nonprofit CornerHouse to buy property for a new Hennepin County facility.
“They got instant equity and we have no say in it,” Pratt said.
(That’s not to say he doesn’t approve of any aid to nonprofits: He helped a nonprofit horse therapy program in his district, Abijah’s on the Backside at Canterbury Park in Shakopee, get $500,000 to treat first responders for PTSD.)
Rep. Mohamud Noor, DFL-Minneapolis, said if the Legislature wants something done, the government should do the work, not nonprofits. By outsourcing to nonprofits, Noor said, “We’ve essentially shifted that work to another institution.”
Noor also noted that privatizing government services could mean less oversight. Government agencies are more likely to face closer scrutiny from the Legislature, the Office of Legislative Auditor and journalists with access to public records.
Legislative grants are supposed to be subject to the same oversight and monitoring as all other state grants, said Marie Ellis, public policy director for the Minnesota Council of Nonprofits. Sometimes, she said, the direct grant doesn’t even get awarded if a nonprofit doesn’t pass the pre-award risk assessment, which was strengthened last year. (This conflicts with the 2023 OLA audit, however, that found the oversight isn’t happening.)
Ellis said the OLA audit made clear that state agencies don’t have the resources they need to oversee grants, so the nonprofits council helped lobby to add more staffing and funds for the grants management office.
Chuck Johnson, former DHS deputy commissioner, said direct allocations to nonprofits can be a headache for agencies to oversee.
“It’s particularly frustrating when (the Legislature does) that and when they somehow expect an agency to oversee those dollars,” Johnson said. “How can we oversee it? We didn’t have any role in the money being allocated.”
‘We couldn’t tell if these were legitimate organizations or not’
Pratt said the DFL trifecta approved far more direct allocations last year than usual, and he questioned the vetting.
“There were some that just came through (that were) brand new, with no track record, no nothing. We couldn’t tell if these were legitimate organizations or not.”
Pratt recalls when the Legislature approved a $35 million package of “equity grants” in 2016 to alleviate economic and employment inequality and “the reporting coming back was horrible.”
In 2017, DEED froze payments for over a year to a nonprofit collaborative called Emerge Community Development for not meeting goals and problems with financial management and progress reports. Emerge sued the state to release the remainder of a $4.25 million grant.
“I think it was symptomatic of a problem overall: lack of followup,” Pratt said.
Champion, the current Senate president, was an author of the equity grants bill.
“One of the things that is always near and dear to me is really making sure that we are invested across the state — investing in traditionally disenfranchised communities,” Champion said.
One of Emerge’s partners was the Stairstep Foundation, a nonprofit founded in 1992 to work with churches on social issues. Champion worked for Stairstep until about 2004. When Emerge and DEED got into a legal dispute over the grants, Champion sided with Emerge, accusing DEED of not acting in good faith.
Last summer, the Reformer reported that Champion’s executive assistant Shemeka Bogan was moonlighting for the Stairstep Foundation.
Emerge supported a workforce bill last session, co-authored by Champion, with $25 million per year for small, community-based nonprofits to conduct job training for 400 workers.
As chair of the jobs committee, Champion oversaw over $300 million in direct allocations to nonprofits — including two to Stairstep: over $500,000 in “community-based workforce development efforts” and $1.2 million in tourism dollars for African American cultural festivals and events. Separately, Stairstep was awarded $1 million for housing and homelessness prevention.
Stairstep’s 2022 tax filing shows nearly $1 million spent on contractors and more than $153,000 on office expenses.
Etter, the accountant consulted by the Reformer, said that’s about 10% of Stairstep’s gross revenue spent on office expenses, which “seems out of proportion.”
The Legislature’s grants to Stairstep totaled $2.7 million, dwarfing the group’s total 2021 revenue of $1.5 million.
Emerge also got a $1 million direct appropriation through DEED.
Champion has long advocated for Stairstep funding, introducing legislation in 2015 to have nonprofits reduce health disparities, pressing MNSure to give Stairstep a grant in 2018, and saying in 2022 the state would be better off giving Stairstep $1 million than investing in a pro-cop advertising campaign.
Upon being told lawmakers approved over $1 billion in direct appropriations to nonprofits last year, Stairstep CEO the Rev. Alfred Babington-Johnson said, “Hallelujah!”
Lawmakers were right to give money to groups that haven’t always been at the table, like African American and Latino groups, he said.
But as the Legislature giveth, it taketh away, too.
Most of the money to nonprofits was one-time funding, and the state’s fiscal outlook has changed after the go-go 2023 session. Forecasters now fear a “structural imbalance” in the budget, beginning in 2025.
If legislators are forced to make tough choices about schools, health care and housing, nonprofits may be first on the chopping block.
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