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New York Post


A Nonprofit Threat

April 23, 2008

By Steven Malanga

The budget scandal now engulfing the City Council is just the latest in a long line of controversies involving city funding of nonprofits.

Today, the outrage is staffers having allocated money to fictitious groups: Two workers have been charged with bilking taxpayers out of some $145,000. But these scandals emerge periodically because elected officials use money designated for nonprofits to buy and keep political influence - and so do everything they can to keep the funds free from oversight.

Nearly 15 years ago, the city's Financial Control Board identified the problem in a blistering report on the city's contracting of services from nonprofits. This pointed out that New York was failing to keep accurate records of its dealings with these groups and doing little to ensure that nonprofits getting city dollars fulfilled their contractual obligations.

That prompted city agencies to reform some contracting practices. But the council kept a big pot of money safe from the stricter requirements - reserved for so-called "member items" and for council "initiatives" (discretionary spending that the speaker doles out).

The key problem is the central role that nonprofits now play in politics - which has been shaped by the huge pots of money that government steers their way.

In the mid 1960s, the War on Poverty began turning charities into government agents. The feds allocated billions to nonprofits, paying them (directly or indirectly) to run everything from homeless shelters to preschool programs. In just a few years, the money turned many charities into government contractors - reliant on public funding and serving a government agenda.

It also prompted enterprising individuals to get into the game. In 1975, about 52,000 jobs in New York City were devoted to private social services. Today, with the city population only slightly larger, social-services jobs number more than 160,000, making them one of the fastest-growing sectors. Indeed, private (but largely government-funded) social services now rival Wall Street as one of Gotham's biggest employers.

Many have become political power bases. Executives and founders of nonprofits have used their agencies as launching pads for political careers - a nonprofit job is now as likely a route to the City Council or the Legislature as being a lawyer and member of a local political machine once was.

Channeling money into nonprofits is also a sure way to win friends and influence people. But to do that, legislators must be free to direct funds to groups they favor - which means ensuring that taxpayers' money is not subject to rigorous bidding procedures.

Three years ago, for instance, Councilwoman Margarita Lopez sparked controversy by giving hundreds of thousands of member-item dollars to a Scientologist-run detoxification program for 9/11 workers that experts claimed had no basis in legitimate science. Eventually, members of the church made more than $100,000 in donations to her campaign for Manhattan borough president.

In the latest scandals, two council staffers face indictments for allegedly embezzling money channeled into a nonprofit that one of them created and controlled.

Because of nonprofits' political value, council members have opposed Mayor Bloomberg's call to move all but the very smallest council grants ($10,000 or less) into the city's competitive-bidding process. They claim that ceding that control to the mayor threatens their "independence."

Experience tells us, however, that allowing the City Council broad discretionary use of public money threatens something else - the fiscal integrity of New York's budget process.

Taxpayers deserve better.

Adapted from City JournalOnline, where Steven Malanga is senior editor.

Original Source:



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