Minnesota seeks staff to oversee nearly 1 billion in potential funding for nonprofits

INTERVIEWER: Minnesota lawmakers approved nearly $8 billion in funding for nonprofit organizations around the state over the next two years, including some that have been waiting years for funding. Dana Ferguson has the story.

DANA FERGUSON: Vanessa Young and teachers encourage a room full of second and third graders to line up to go outside, and that means singing a song as they file out of the building that used to house a bank.

[KIDS SINGING]

TEACHER: 3, 4.

[KIDS SING]

DANA FERGUSON: Young is director of programs and Policy at a Saint Paul based nonprofit called 30,000 Feet. And after years of going to the Capitol with a request to fund the design and construction of a Black arts and tech center in Saint Paul, the legislature this year approved the $3.5 million ask. The nonprofit offers after school support and arts programs centered in culture and African-American empowerment. Young says it's been tough to find donors who understand their mission.

VANESSA YOUNG: It's been very challenging to find people who really get it, what we're trying to accomplish in terms of funders. And I think that for the state legislature to get it, I think, is going to really help others kind of understand the significance and the importance of our work.

DANA FERGUSON: 30,000 Feet is one of dozens of nonprofit organizations set to receive funding as part of Minnesota's next two year state budget. An MPR analysis found that lawmakers approved more than $900 million for nonprofit organizations in the bills, both in direct appropriations and competitive requests yet to be filled. The funds span education, health, public safety, economic development, and capital investment. And DFL leaders say they're largely geared at improving equity.

FUE LEE: The grants to nonprofits really address making sure that we get dollars out to those communities that have been traditionally underinvested in.

DANA FERGUSON: That's House Capital Investment Committee Chair Fue Lee of Minneapolis. The state's capital investment bills included more than $200 million in direct funds for nonprofits, the most the state has approved in that area. And those dollars primarily target metro area organizations. Some Republicans take issue with that. Here's Senate Minority Leader Mark Johnson of East Grand Forks.

MARK JOHNSON: Tend to be more of a equity focus for if you were from the cities or if you were from the metro area, then you had a leg up.

DANA FERGUSON: DFL Representative Cedrick Frazier co-chairs the People of Color and Indigenous Caucus. And he says the nonprofits picked for state funding have been passed over in prior budgets. He also noted that more people live in the Twin Cities than in greater Minnesota.

CEDRICK FRAZIER: And what we saw here was an opportunity to not only increase the funding, but also bring some of those other organizations into the space and provide some resources that they may not have had in the past.

DANA FERGUSON: Nonprofits for years have asked lawmakers to improve access to state grant dollars for small organizations, especially those in rural areas and those that serve certain community groups. And this year, they took a step in the right direction, says Marie Ellis with Minnesota Council on Nonprofits.

MARIE ELLIS: Because of the large budget surplus, there's certainly more funding going to different projects. And a lot of nonprofits are doing the work of those projects and programs. Nonprofits understand their communities deeply and can move a lot more nimbly than government.

DANA FERGUSON: A little more than a year after the nonprofit Feeding Our Future was accused of misusing hundreds of millions of grant funds for kids, Ellis says nonprofit groups also understood the need for lawmakers to increase accountability and transparency measures. And she says lawmakers did that.

MARIE ELLIS: One of the ways that we hope we can increase the trust of those communities is by continuing to be a very transparent sector. And so we supported this increased financial oversight that the state proposed because it's a way for us to show the great work that we're doing.

DANA FERGUSON: Ellis says she's also encouraged to see the state take steps that could make it easier for smaller nonprofits to apply for and receive grants in the future. The state is set to add six new employees to track nonprofit grants across state agencies. Previously, one person bore that responsibility. I'm Dana Ferguson.

INTERVIEWER: And as Dana mentioned, more than $900 million will soon be moving from the state of Minnesota to those nonprofit groups. The idea is that this pile of money will reach Minnesotans in areas like health, education, economic development, with a focus on helping communities that have historically received fewer resources. But as you heard lawmakers also push to increase oversight of these grants and make it easier to cut off money when problems arise, here's Brian Bakst with that part of the story.

BRIAN BAKST: The extent of alleged fraud in a youth nutrition grant program was jaw dropping. Prosecutors said scammers embezzled more than $250 million. US Attorney Andrew Luger called the feeding our future scandal brazen when he announced dozens of criminal charges last year.

ANDREW LUGER: They used this money that was supposed to be used for feeding children to buy houses in Minnesota, resort property and real estate in Kenya and Turkey, luxury cars, commercial property, jewelry, and much more.

BRIAN BAKST: Although it was federal grant money, the state had a hand in distributing it amid the COVID-19. Pandemic and while state officials detected early trouble, they struggled to halt payments because of how Minnesota's laws were written. That's changing.

STACIE CHRISTENSEN: Admin will have the ability to cancel a grant if there's some sort of issue happening.

BRIAN BAKST: Admin is the Department of Administration, where the Office of Grant's Management is housed. Stacie Christensen is the agency's temporary commissioner. The legislature put more than $5 million into the department's grants management unit. The oversight division will add staff.

Applications are due today for the top management role. The office will devise a roadmap for a new government wide grants management system. State employees who award grants will get more training. Groups will face more scrutiny before they get money, and payments can be held back if the rules aren't followed.

STACIE CHRISTENSEN: Agencies really have to keep a closer eye on those grantees and kind of the financial information they're reporting. And then, if they do see issues, they're now given ability in statute to kind of flag those issues.

BRIAN BAKST: A slice of the grant pool can be held back for oversight costs, which means that task won't compete for resources within departments as it had before. Republican Representative Jim Nash says the changes should bring more accountability to grants, even if it's still short of tracking every nickel.

JIM NASH: I would love to there have been more teeth put into the bill. But I think that, based on what we had, this is a huge step forward.

BRIAN BAKST: The law changes were designed to keep better tabs on grants while not making it so cumbersome that smaller entities would have trouble applying. Marie Ellis is Public Policy Director for the Minnesota Council of Nonprofits, which worked with lawmakers to balance that tension.

MARIE ELLIS: We think that the legislature, with bipartisan support, I should add, found ways to meet the state's goals of increasing financial review of potential grantees, while also making that review efficient for state agencies to administer and for potential grantees to manage.

BRIAN BAKST: Christensen says it should help calm public fears of abuse around the more than half billion dollars per year in state grants. It's five times that amount when federal passthrough dollars are factored in.

STACIE CHRISTENSEN: There are so many grant dollars going out there that are going to great grantees and folks that are using the money in such wonderful ways that we don't want to focus in on those couple bad actors that are really in the minority. But we're hopeful that these changes will catch those on the front end.

JUDY RANDALL: The big question is going to be, are those quote unquote "bad actors" identified, and does that list get built? I think let's start with that. And then let's see if we need to go further.

BRIAN BAKST: Judy Randall is Minnesota's legislative auditor. Her office has issued multiple reports critical of grants management policies in recent years. She says those audits and the Feeding Our Future scandal prove the need for tighter controls.

JUDY RANDALL: Not just an interest to remedy the black eye, but just to make sure that doesn't happen again. I think, just like everybody else, legislators want to make sure that the money they appropriate is used for the purposes intended.

BRIAN BAKST: Randall says lawmakers made concrete movement toward closing oversight gaps. As for the Feeding Our Future case, most criminal charges are still in progress. And a special auditor review of the Minnesota Department of Education's grant oversight is expected out this fall. Brian Bakst, MPR News at the Capitol.

INTERVIEWER: And if you missed any part of this story, you can find Brian Bakst and Dana Ferguson's reporting at mprnews.org.