A late-filed bill by legislative Republicans would put new scrutiny on nonprofit organizations that receive more than half their funding from the state.
The bill (SF 4359 and its House companion HF4682) would add third-party financial auditing demands and require that nonprofits seeking funds to deliver services such as feeding, child care and violence intervention be in existence for at least two years in order to be eligible.
In addition, the top salary of chief officers of state-funded nonprofits could not be paid more than the governor’s salary of $132,096 and could have no state employees or elected officials on their boards of directors.
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.
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 $1 million 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.
“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.”
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