The Legislature talked a lot about changing Minnesota’s approach to equity funding. Here’s why it didn’t happen.

The future seemed uncertain this year for Minnesota’s equity initiative, a bundle of money earmarked in the Legislature since 2016 for nonprofits and other groups that aim to help shrink racial disparities through job training and education.

Following a series of conflicts between state officials and several nonprofits, a budget plan written by the majority-DFL House would have stiffened oversight and increased competition for the money. Senate Republicans proposed cutting much of the spending altogether.

But in the end, the equity package passed the Legislature without significant alterations — a victory for supporters who fought changes and see the funding as a moral imperative that can also help Minnesota’s tight labor market. While businesses around the state say they have a difficult time finding workers, the unemployment rate of black and hispanic Minnesotans is double that of whites.

Sen. Bobby Joe Champion, a Minneapolis DFLer who has been a staunch advocate for the equity money, said this year’s package of roughly $23.5 million in new spending is just a “haircut” shy of what Gov. Tim Walz had asked for. While the money is just a small portion of the state’s $48.3 billion two-year budget, it represents a significant amount of state spending on workforce development.

Since 2016, the Legislature has allocated $59.3 million through a series of competitive grants and direct payments to organizations that work with underrepresented communities. Both the grants and direct payments will remain in place at levels similar to what they were in the last two-year budget.

While Champion said he always strives for equity money, the latest package will help minority communities get “off the sidelines” and “involved in our economy so that it benefits our entire state,” he said.

Initial questions

The equity program has been fairly popular around the state Capitol. But since it began, there has also been friction between some nonprofits that have received money and officials at the Department of Employment and Economic Development who oversee the cash.

The coalition has been awarded the most money in the equity package from the Legislature — payments chosen by lawmakers that are referred to as direct appropriations. Yet agency leaders under former Gov. Mark Dayton said EMERGE was not meeting performance goals and questioned its financial responsibility.

EMERGE denied any significant problems and accused DEED of being combative, needlessly punitive and slowing down critical work to fight racial disparities. The organization also sued DEED to get the money back, eventually settling with Dayton’s administration the same day Gov. Tim Walz took office in January.

Neither side admitted fault, but court documents show the state will pay EMERGE $1.7 million in back payments and continued funding. Under Walz, new DEED commissioner Steve Grove fought to secure new funding for the collaboration.

Nevertheless, Rep. Tim Mahoney, a St. Paul DFLer who chairs the House Jobs and Economic Development Finance Division, proposed ending direct appropriations from the Legislature and instead doling out all money in the equity package through competitive grants overseen by DEED. That would have given DEED the final say over what organizations get money.

At the time, Mahoney said he’d like to add more parameters around the state money, including more data collection. One way to increase scrutiny was to give DEED more latitude to ensure taxpayer dollars are spent wisely and are sent to effective organizations, he told MinnPost earlier this year, since the agency evaluates workforce programs as part of its mission.

Mahoney said his proposal wasn’t meant to question nonprofits in the equity package, but said it could help stem off any problems that do arise and build public trust. Through a party spokeswoman, Mahoney did not respond to a request for comment this week.

Defending the status quo

Backlash to ending direct appropriations, led by the EMERGE coalition and other nonprofits who had been getting direct payments, was swift and fierce. Mahoney ultimately swapped his plan for one that matched Walz’s proposal to keep the direct appropriations and fund the equity package as it had been in the last two-year budget.

He called grants “an easy way out” because “you don’t have to do any real digging” and criticized Mahoney’s initial plan for subjecting the equity programs to scrutiny he feels others in the state budget don’t get.

Champion also said EMERGE was not the only organization to have issues with DEED during Dayton’s tenure. He said some of the agency’s requirements — including some  data collection — have toed the line between helpful oversight and unnecessary burden. Champion views the direct appropriations as a way to ease the weight of bureaucracy on important work.

In a recent report, DEED acknowledged that they had “weaknesses” in their “grant-making processes,” and had to change typical practices to incorporate feedback, improve money management and make it easier for new and smaller organizations getting money to comply.

The turbulence meant nonprofits needed “more technical assistance than usual” and delays “led to slower-than-usual service delivery and program outcomes.” DEED also announced in April it was making a slate of changes to its competitive grant process to make it faster, more transparent and improve communication with nonprofits.

The Senate Republican budget would have rolled back much of the equity money. The GOP proposed less spending on most aspects of state government compared to DFLers. But Sen. Eric Pratt, a Prior Lake Republican who chairs the Senate’s Jobs and Economic Growth Finance and Policy Committee, said in April he agreed with Mahoney’s push for increased oversight and competitive grants in some circumstances. Pratt could not be reached this week for comment.

The final result

The final two year budget signed into law by Walz kept the direct appropriations and the competitive grants. Nearly every organization who got a direct appropriation in the last budget got at least some money this time around. That includes the EMERGE coalition, which was approved for $500,000.

Another nonprofit set to get direct money was the St. Paul-based Comunidades Latinas Unidas En Servicio, known as CLUES. The organization was awarded $1.25 million by the Legislature this session. CLUES had received $2.25 million since the equity grants began.

Austin Wiebe, a spokesman for CLUES, said the money has helped CLUES expand into Austin and Willmar, pay wages for youth internships in high-wage fields and start an annual “Latino Youth Conference” to help connect families with career and education help.

Wiebe declined to comment on DEED’s management or the legislative debate this year. But he said CLUES  has an annual budget of roughly $8 million, and so the state spending has been an integral part to achieving their mission to provide “culturally relevant programming” for the Latino community.

Champion said backing from Grove and Walz and Lt. Gov. Peggy Flanagan was key to keeping direct appropriations and spending comparable amounts on equity. Both pieces, he said, will help ease Minnesota’s dismal gaps in economic success between whites and people of color.

“They could have easily said, ‘The other side didn’t want to do it,’” Champion said of the Walz administration. “But they were firm to say, ‘This is what we need. We can’t leave here without it.’”