A late-filed bill by legislative Republicans would put new scrutiny on nonprofit organizations that receive state grants, especially for those that get more than half their funding from the state.
The bill (SF 4359 and its House companion HF4682) would require all non profits receiving state grants for services, including but not limited to feeding, child care and violence intervention, to be in existence for at least two years and produce federal tax reports for those years, cap the salary of chief officers at the governor’s pay level – currently $132,096 – and not have state employees or state and local elected officials on their boards.
Those receiving at least half their money from the state would also have to submit to third-party financial auditing for two years before receiving money and not have board members who have been convicted of theft, fraud and embezzlement. In addition, the state Department of Administration would have to do background checks on officers and board members before money is received.d
The legislation’s prime sponsor, Sen. Michelle Benson, R-Ham Lake, said that she considers many nonprofits as “de facto agents of the state” who solicit grants to deliver services.
“While they want to do good charitable work, they become funnels for taxpayer dollars,” Benson told the Senate State Government Committee Wednesday. “They spring up in one year and then the next year come in and ask for funds.”
Legislators need to do a better job of asking for their federal tax filings, known as the IRS Form 990, and looking into their history, Benson said. “If you are coming to the state for a majority of your funding, then we should absolutely have increased transparency and accountability.”
Benson said there needs to be a better way for the Legislature to hold grant recipients accountable for spending money the way it was intended. She cited the recent history of the organization Feeding our Future, which is being investigated by the federal government for misusing money intended to help feed children during the pandemic.
When the Minnesota Department of Education tried to stop the funding after officials became suspicious, a state judge ordered them to continue the flow of funds because they didn’t have the legal authority to stop it. Benson said her bill would have given them clear authority because their Form 990s were not up to date.
Committee Chair Mary Kiffmeyer also is chair of the committee that oversees the Office of Legislative Auditor. Earlier this week, the committee approved the five topics the auditor will pursue this week, which includes a look into how the state administers grants.
The Minnesota Council of Nonprofits opposed Benson’s bill, saying the way to keep out bad actors is to better fund the Charities Division of the state attorney general. “At a time when needs are rising, future funding is uncertain, and we face severe volunteer and worker shortages, this is certainly not the time to add additional barriers for nonprofits,” wrote Marie Ellis, the public policy director for the council. “Our sector has partnered with state government to provide vital services and support communities in every corner of this state, and notably with fewer resources and more uncertainty during the extreme challenges of the past two years.”
Attorney General Keith Ellison asked for and received $550,000 for a new registration data base for the charities division that regulates nonprofits. He has not requested additional funds for the division this session.
The state Department of Administration, which would be given new oversight duties under the bill, also spoke against the measure, saying the state allows each state agency to administer their own grants. There is no central collection of data and the background checks required in the bill would require additional staffing.
Current law also requires agencies to inform the Office of Legislative Auditor of any signs of theft or embezzlement.
“We recommend working with existing statutory language and to ensure that state agencies are effectively resourced with audit staff for this purpose,” said Stacy Christensen, an assistant commissioner in charge of grant management at the department.
Gov. Tim Walz said he was in favor of increased accountability but said using nonprofit agencies to provide services is often faster.
“These nonprofits did incredible work to keep people out of poverty, to keep them housed, to keep people fed, Walz said. “We had bad actors in this and they should pay a price for that. We saw during this thing that needs arose and we’re not nimble enough sometimes in state government, whereas the nonprofits move relatively quickly to fill the need.
“I think it is smart to get those safeguards in there, to do all we can,” Walz said. “But I think we need to be very careful about painting with a broad brush. Yes on the increased scrutiny but I think we need to be careful that it’s not a chilling effect on those that are doing a good job.”
(Correction: This story was corrected to show that several provisions of the bill, including the salary cap on executives, would apply to all recipients of state grants, not just those that receive more than half of their budgets.)