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A lack of scrutiny
Over the past few decades, state governments have increasingly outsourced many functions to community-based nonprofits in an attempt to provide more effective, flexible social services. But the result, some say, has been the creation of what is essentially another arm of government.
“The function may be outsourced, but a lot of the funding is coming from government,” said Susan Lerner, executive director of Common Cause New York, a good government group. Ridgewood Bushwick, for instance, derived $13.4 million of its $15.5 million in outside funding in the fiscal year ending in June 2012 from government grants (affiliated groups pulled in some $42 million more, mostly in government health care contracts). When independent nonprofits spend that cash, rather than a government agency, Lerner said, public money does not receive the same level of oversight. “It has a tendency to fall into nepotism and favoritism and cronyism.”
Separating favoritism from efficient use of funds has proven to be a daunting task for state governments. Some ethics experts say states should draw a clear line: that lawmakers cannot be involved in sending funds to any group with which they have a direct link, even as an unpaid board member.
“Where there’s a real personal connection, financial or otherwise, I think it makes sense for the law to say that you can’t be involved in that,” said
Peter Sturges, who served as executive director of the Massachusetts State Ethics Commission from 2000 to 2007. “You can’t be making decisions objectively.”
But few states draw such a line. Most laws consider a situation a conflict only if an official derives a direct financial benefit; sending money to your pet project, regardless of merit, is fine as long as you don’t get a cut. In many states, lawmakers do not have to disclose if they hold an unpaid board position with a nonprofit in their community, or if family members or political staffers do (New York is among the few that do require this disclosure, though it does not extend to staff members of the lawmaker or grown children).
Ethics oversight bodies have weighed in on the topic in several states, and in most cases, they have allowed the lawmakers to help fund nonprofits with which they are associated.
In Texas, one lawmaker who worked for a nonprofit wanted to solicit contributions for the group (Texas, like most states, has a part-time legislature). The Ethics Commission said that solicitations “could be viewed as improper under certain circumstances” and advised the legislator to use “extreme caution,”
but in January the body gave its approval.
Two 2006 advisory opinions from Colorado’s Ethics Board allowed lawmakers to vote on or sponsor legislation that benefited nonprofits they were associated with,
one as a paid director, the other as an unpaid board member.
The general counsel for Florida’s House of Representatives has issued four relevant opinions since 2007, each time determining that soliciting funds or voting on a bill that could benefit the nonprofit did not raise a conflict of interest. In one case,
the lawmaker was a paid employee of a nonprofit,while the other three had volunteered for the group, co-hosted events, or were otherwise associated with an organization or its founders.
In one of these cases, a legislator wanted to solicit funds for a group the lawmaker volunteered for and sometimes partnered with on “joint community projects.” The general counsel said the lawmaker was free to solicit the funds, but
highlighted state laws against using an official position for personal gain or to grant special privilege, saying, “it would be prudent to keep these in mind.” The opinion adds that while “the law grants latitude to members,” because they serve part-time, “what may be a legally tolerated conflict of interest may be viewed as inappropriate or corrupt” by the public.
The counsel was sounding a common theme: the gulf between what is legally permissible but seemingly inappropriate.
“I’m certainly aware of a growing trend nationally of public officials having ties with nonprofits and those nonprofits perhaps, not always, benefiting from the public official’s position of power,” said Carol Carson, executive director of Connecticut’s Office of State Ethics. She said state employees, including executive branch officials, often come to her office to ask whether they can be involved in awarding a grant to a group they are associated with. As long as the grant doesn’t directly benefit them financially, she tells them yes. “That might not pass muster with the court of public opinion,” she said, “but under the Code of Ethics, that would be allowable.”
New York State Assemblyman William Boyland Jr. is facing 21 criminal counts and has financial and political ties to several nonprofits. (AP)
Trouble in Gotham
“It’s become a routine headline in New York: Politician pinched in charity scandal,” said a September 2012 article by
Andrew J. Hawkins in . Crain’s New York Business “The story changes little from case to case: An elected official funds a nonprofit and staffs it with cronies. Sometimes the group works on his campaigns — or does no work at all.”
Assemblyman William Boyland Jr. accounts for several of these tales just by himself. Boyland Jr.
comes from a line of Brooklyn legislators: he gained his post through a special election in 2003 after his father resigned; his uncle held the seat previously. The district is covered with the family name — a street, a school, a housing project and more are all named for the elder Boylands.
Boyland Jr.’s activities first came to light in March 2011, when federal prosecutors charged him with taking bribes, in the guise of consulting fees, from the executive of a nonprofit that operates hospitals in exchange for helping the organization, MediSys, secure millions in state funds. Boyland Jr. had worked for MediSys before taking office, and continued earning a salary after his election without reporting it as required, prosecutors said. The MediSys executive was eventually convicted of offering bribes to Boyland Jr. and two other lawmakers, but a jury acquitted Boyland Jr. in November 2011. One juror
told , “We could not say that because he got the money, he advocated for MediSys. … We couldn’t do that beyond a reasonable doubt.” The New York Times
Within a month, however, prosecutors charged Boyland Jr. in another, unrelated bribery case. The allegations include the solicitation in an
Atlantic City hotel suite of more than $250,000 in bribes from undercover FBI agents posing as real estate investors. According to the indictment, in exchange for the cash, Boyland Jr. was to help with development deals in his district and secure state financing for the purchase and resale of a hospital building. Prosecutors had just filed the first set of charges against him, so Boyland Jr. needed cash to pay his lawyers, he allegedly told one of the agents.
In May, prosecutors updated the new charges to include allegations that Boyland Jr., from 2007 through 2010,
sent public funds to a nonprofit group while directing some of the money to be spent on political events and expenses for the lawmaker, including the printing of T-shirts that said “Team Boyland.” (The family reportedly had handed out these shirts for years.) Boyland Jr. is facing 21 criminal counts and has pleaded not guilty. The trial has yet to start.
Boyland Jr. has ties to another, upstate New York charity, the Altamont Program, which also has operations in Brooklyn. The FBI and state authorities raided the upstate offices in December. The
to Altamont and a related group from 2004 to 2009, using a controversial legislative vehicle called “member items” that put state funds at the discretion of individual lawmakers. Boyland Jr.’s father went to work for the organization as a consultant after he resigned as a legislator in 2003. Boyland Jr.’s sister also reportedly worked for the group. Albany Times Union said agents were looking into Boyland Jr.’s direction of $1.2 million in state grants
Boyland Sr. says he worked for the group from 2008 to 2010. He was reportedly fired after the organization discovered that he had used a company credit card for personal expenses. In an interview, the elder Boyland did not deny using the card for the purchases, but said that in consulting work, it’s impossible to distinguish between business and personal expenses.
A spokeswoman for Boyland Jr. referred questions to his lawyer, Nancy Ennis. She did not return phone calls and emails requesting comment.
Many a similar scandal in New York, including Huntley’s and Lopez’s, has been fueled by those “member items” — part of a gentlemen’s agreement between legislative leaders and the governor that for years disbursed hundreds of millions of dollars to groups of lawmakers’ choosing with no oversight or trail of who got what. In 2007, Gov. Eliot Spitzer pushed a bill that required the legislature to disclose each member item. The same year, the Attorney General’s office reached an agreement with the legislature that required recipients to certify the funds were being used appropriately. But even with this level of oversight, watchdogs and some legislators ridiculed the practice as corrupt and wasteful.
“It’s a system which invites abuse,” said Lerner, of Common Cause.
In 2010, Gov. David Paterson vetoed thousands of member items in the budget, citing fiscal austerity, and Gov. Cuomo has continued to veto the requests, effectively ending the practice for now. But there are still funds from multi-year grants that have not yet been spent. And political insiders in New York say new tricks have taken the place of the “member item” abuses.
“There are lots of ways to direct money,” said state Sen.
Liz Krueger, who has co-sponsored a bill that would ban legislators from giving member items to groups that employ family members or staff and would apportion them equally to each district. Traditionally, the majority party controlled most of the funds and disbursed them as it pleased.
Machine politics in Illinois
Lawmakers in other states have their own ways to send money to charities, particularly in states with hefty budgets. In Illinois, legislators can direct funds without having to disclose they were the source, much as in New York. In 2009, for example, a paragraph tucked into an appropriations bill included a $98 million grant to the United Neighborhood Organization, a Latino community group that builds and operates charter schools in Chicago.
Over the past several years, the group built close ties to the state’s most powerful politicians, pushing the boundaries of appropriate activity by tax-exempt charities, which are barred by federal law from working on political campaigns. After the organization’s CEO, Juan Rangel, co-chaired Rahm Emanuel’s successful campaign for Chicago mayor,
Emanuel jokingly referred to the fact that the charity is not supposed to be directly involved in politics. The organization’s staff and lobbyists include former city officials, and some of them have left to enter politics. Rangel regularly endorses candidates. Contractors hired by UNO (often with public money) have contributed to those candidates. Rangel hosted a fundraiser for state House Speaker Michael Madigan in October, with the organization’s contractors giving more than $24,000 to Madigan, according to a . Chicago Sun-Times report
The close relationships paid off with that 2009 grant of $98 million. But in February, a report by the
Sun-Times revealed that UNO had spent millions from the grant on insider contracts with relatives of the organization’s staff and political allies. Within days, Rangel said the organization had launched an internal review and had suspended some of the suspect contracts. He also said, however, that all of the contractors were qualified and that the work had been fulfilled. The organization’s vice president, whose brothers had won a contract, resigned. The state determined that the practices constituted apparent violations of the grant, and in March suspended what remained of the grant. In response, the group hired a full time compliance officer and Rangel stepped down from the board of directors (though he stayed on as CEO). In June, the state restored the flow of funding.
Officials at UNO did not respond to requests for comment.
Steve Brown, a spokesman for Madigan, who sponsored the spending bill that included the grant to UNO, said the speaker is a supporter of the organization, but that the grant had nothing to do with the contributions from the Rangel fundraiser, which he described as modest in relation to Madigan’s overall fundraising.
Rey López-Calderón, executive director of Common Cause Illinois, said some nonprofits have become modern-day political machines in Illinois, citing UNO as the prime example. Groups receive state grants with the help of politicians and in return, he said, their members contribute money and even time to the officials’ campaigns. “That kind of activity is rampant in Illinois.”
Other nonprofits or their employees in Illinois have been questioned about the extent of their ties to legislative patrons. In 2010, for example, a federal grand jury
subpoenaed records related to dozens of state grants for nonprofits linked to at least one lawmaker. Thomas Homer, the state’s legislative inspector general, said there are no requirements that lawmakers disclose their ties to nonprofits unless they receive a salary from the group, and that there are no ethics rules that apply to the situation beyond general laws prohibiting bribery and kickbacks. He said his office refers complaints of schemes involving nonprofit groups to the FBI, and that there are several open cases, though their nature and number remain confidential.
In addition to state grants, lawmakers have found another source of funds they can direct to nonprofits: corporate contributions. It’s become common practice in many states and in Congress for corporate donors and lobbyists to contribute money to specific charities at the request of lawmakers, in what’s often called a behested payment. A few states have formal systems to regulate this, but in many cases it’s an uncharted field.
The payments present a “win-win situation all around,” said Nola Werren, a client specialist at State and Federal Communications, which provides corporate clients with information about state lobbying laws. “The lawmaker gets this benevolent image for his constituents and shows that he cares,” while the corporation gets its name on the donation and the nonprofit gets the money. But the arrangement can also serve as a route around restrictions on gifts to lawmakers or campaign contributions, allowing corporations to curry favor with politicians, frequently without disclosure.
California is one of the few states that does require disclosure, but that hasn’t discouraged the practice, said Phillip Ung, a spokesman for California Common Cause. Last year, 57 lawmakers reported such contributions, totaling $2.3 million.
Ung pointed to state Sen. Roderick Wright, who has directed $166,500 in corporate contributions to the National Family Life and Education Center from 2010 through 2012. In the fiscal year ending in June 2011, the last year records for the organization are available, the payments comprised more than half of the group’s outside income. Wright has co-hosted several events where the group handed out prizes, school supplies and provided health screenings to families in his district.
In an email, Ung praised the fact that the funds are helping the community but added, “there is the ethical question of why are these corporate interests giving at the behest of Mr. Wright and what do these behested payments earn them in political influence.”
Among the contributors are AT&T, Time Warner Cable, Edison International and the Morongo Band of Mission Indians. Wright is the chairman of the Governmental Organization Committee, which oversees gambling by Indian tribes in the state, and sits on the Energy, Utilities and Communications Committee.
Cine Ivery, Wright’s chief of staff, said the nonprofit helps mentor youths in the senator’s district, and that it couldn’t do the work without the corporate donations. The companies get nothing in return, she said. The organization did not return phone calls or emails.
The practice is on the rise across the country, Werren said. Her company has gotten so many requests from clients about the rules covering such payments that it decided to canvass state laws. According to State and Federal Communications, only 14 states require lobbyists to disclose such gifts. California is the only state Werren knows of that requires lawmakers to disclose them, and only New York and Maryland prohibit behested payments.
New York State Senator Liz Krueger has co-sponsored a bill that would ban legislators from giving “member items” to groups that employ family members or staff. (AP)
Changes slow to come
Even as experts say the questionable ties between nonprofits and politicians are on the rise, many states have been slow to enact reforms that might prevent them. One step would be to ban, or restrict, discretionary spending directed by a single lawmaker.
But there are many reasons why even advocates for reform say this could be a bad idea. “Legislators, if they’re good, know what their district needs. They know the good organizations,” said Sturges, the former Massachusetts regulator. “Why should they not be able to direct funds to the best organizations in their districts?”
There’s no doubt that many charities provide critical services in poor communities as a result of grants shepherded by their representatives. Sen. Krueger of New York pointed out that some small community groups do not fit the pre-packaged conditions required by many state grant programs, but are worthy recipients nonetheless. And, both Krueger and Sturges said, there’s no indication that leaving such decisions to governors or other executive branch officials produces markedly better results.
In lieu of prohibitions, many good-government groups are pushing for increased disclosure of all budgetary spending. They say that whatever discretionary funds do exist should have strict requirements tied to them that would dictate what types of projects can be funded and prevent staff, relatives or associates of public officials from being associated with any recipients of the funding.
Kaehny, of Reinvent Albany, has called for more disclosure from the nonprofit world as well. In New York, for example, he said that an independent body should regulate charities, rather than the politically charged Attorney General’s office, and that all the data that is already public from tax forms and other documents should be added into a searchable database.
Lawmakers have introduced bills that would require their colleagues to disclose positions with nonprofit organizations in
Arizona and Florida, but neither bill has passed. In response to a series of scandals, Pennsylvania’s House and Senate adopted rules in 2007 and 2013 restricting members’ ability to form and fund nonprofits. But two bills that would have gone further, including one that would have ended “legislative initiative grants,” the state’s own version of member items, failed to pass the legislature. The bill that Sen. Krueger cosponsored in New York to reform member items has also failed to pass.As have repeated efforts to require disclosure of Illinois’ own version of the funding, called “member initiatives.”
Nonprofit Quarterly, said that any changes face an uphill battle because most of those with the ability to enact them, from lawmakers to charities, benefit from the status quo. “There are a lot of players that have a stake in this,” he said, “and want to see it continue.”