After backlash, House DFLers back off plan to alter equity funding

At a hearing in the state House on Wednesday, Steven Belton, CEO of Urban League Twin Cities, ripped into DFL lawmakers.

Party leaders had just unveiled budget plans that included a spike in money for organizations working to shrink Minnesota’s racial disparities. But the plan would also put stricter government oversight on the package of equity money.

Guaranteed money for some groups providing education and job training had evaporated, including a collaboration that includes Belton’s Urban League. “The underlying idea that there is an accountability issue or there should be some inherent distrust in community organizations is simply misplaced,” he said. A long string of others objected to the DFL plan as well.

By Friday, Democrats had backtracked. Under pressure, they altered their budget plan to continue direct payments to organizations that had received them in the past — without the new conditions.

Despite that U-turn, the episode was likely a preview of turbulent weeks ahead for lawmakers as they negotiate deep rifts over the future of state equity money. Begun in 2016 under former Gov. Mark Dayton, the money is seen as a vital piece of Minnesota’s efforts to combat severe inequities. It also represents a significant chunk of state spending on workforce development. Since 2016, the state has doled out $59.3 million for its equity initiative, funding that has helped programs throughout the state serve roughly 50,000 people.

How much money to spend on the initiative will certainly be at issue this year. But the debate about oversight is likely to be just as contentious, as lawmakers try to reconcile the desire for data and measurable outcomes with ​​​​questions over how best to work with minority communities that have been historically overlooked.

A push for competitive grants

In the past, cash for the equity programs has primarily been divided into two buckets. Some organizations competed for grant money overseen by the Department of Employment and Economic Development (DEED). But since 2016, $23.9 million was given directly by the Legislature to 12 nonprofits and government programs.

EMERGE Community Development, which includes the Urban League, received $5.25 million — the largest of the so-called “direct appropriations.”

That would have changed in the House DFL plan. Nearly all of the money for direct appropriations would instead have been distributed as competitive grants by DEED. The agency would have far more latitude to dictate how much money each program gets based on its judgment of effectiveness.

Rep. Tim Mahoney, a St. Paul Democrat who created the proposal as chairman of the House Jobs and Economic Development Finance Division, pegged the overall spending on equity programs at $75 million in the next two years, higher than Gov. Tim Walz’s package.

Mahoney said his plan would create new “parameters” around the equity money to ensure it’s being used well. Without proper monitoring, the government is relying on a program’s “good senses” to be effective, he said. “I don’t think it’s unfairly singling anyone out,” he said. “I think what it is doing is trying to track what cash it is they’re spending and find out data. I am sure most all of them are doing a great job.”

While Mahoney said lawmakers could ultimately create their own parameters for direct appropriations, DEED already has expertise in administering grants and measuring success.

Nonprofits receiving equity money are already subject to some oversight by the state. DEED even withheld money from EMERGE in 2017 after a visit from grant monitors. EMERGE maintained it had done nothing wrong, and sued the state to get the money awarded by the Legislature. The lawsuit was settled in January, shortly before Walz took office.

‘Fox in charge of the chickens’

While the notion of competitive grants and more data may seem fairly benign in an age when companies measure practically everything, the idea was met with intense backlash.

For one, many organizations feel they’re being targeted based on foul stereotypes and distrust of minority communities. Belton noted the state directly pays plenty of other nonprofits and hasn’t asked them to be part of a competitive grant.

He also said EMERGE had a “fraught” relationship with DEED. He viewed the agency as overstepping its bounds and interfering with good work. “This is the equivalent, from our perspective, of putting the fox in charge of the chickens,” Belton said.

Champion was a chief architect of the original equity plan and is the top Democrat on the Senate’s Jobs and Economic Growth Finance and Policy Committee. He said legislators are the people most in touch with their communities, and know best where to put money. “The direct appropriations and the equity grants said: ‘We have to find a different way to intentionally empower the communities,’” Champion said. “Not empowering [DEED] to say who should do the work in their various communities.”

The notion of data collection has proved difficult as well. In a report on the equity program, even DEED said coming up with standard metrics that rate programs was a tall task. Each program has different goals, according to the agency.

Mahoney, the House DFLer, acknowledged his effort to build metrics into the equity program was difficult. He also said the more time and money used by nonprofits in reporting data, the less time they can spend on helping people.

The budget plan released by Walz and DEED would continue the two-pronged approach to equity spending, and at current rates. Those getting direct payments would continue to do so, and DEED would not have any greater control than it does now.

Mahoney ultimately reversed course on his own plan after the friction. The updated measure, which more closely mirrors Walz’s proposal, was voted out of committee Thursday.

In an interview, Mahoney made clear, however, that his updated proposal was not the result of a change in heart. “I got a lot of pressure from people with a higher pay grade,” he said. “They thought it would be a good idea to put [direct appropriations] back in the bill.”

Mahoney declined to say whom he was referring to.

Senate discussions next

Even though Mahoney caught heat for his plan last week, he’s far from alone in pushing for changes to the equity program. Leaders in the Republican-led Senate are likely to follow his initial lead in some ways.

“There’s a really good argument to be made that some of the direct appropriations should graduate to a competitive grant,” Sen. Eric Pratt, R-Prior Lake, said in an interview Wednesday. Some nonprofits that have been paid directly should be able to compete for grants now that they’ve had some government help, he said. Pratt chairs the Senate’s committee on jobs.

In addition, Pratt said they may want to “foster and seed” some new programs with direct appropriations, and said some existing nonprofits might need “a little more oversight” from DEED. “I think what you’ll see from us is somewhat of a mix between the existing process and Representative Mahoney’s [original bill],” he said. A budget plan released Friday afternoon, after the interview, showed a slate of changes to the organizations getting direct appropriations and grants.

There appears to be general agreement about the value of the equity program. Champion brought a state demographer to a Senate hearing on March 27 to note that retiring baby boomers are creating a shortage in workers and the only growth in state population is coming from immigrants and racial minorities. And yet, unemployment for black residents and other people of color lags far behind that of whites.

But debate over exactly how the state should distribute that money appears likely to continue. “You can’t say what I need without having me at the table and without having me lead the conversation,” Champion said. “And when you give (more oversight) to DEED, you’re saying ‘DEED, I want you to lead the conversation.’”