Minnesota State Capitol. Photo courtesy of Minnesota Senate Media Services.
Some Minnesota lawmakers want to stop the practice of legislators giving money directly to nonprofits, concerned that it leads to uneven outcomes and lax oversight while favoring politically connected nonprofits.
The move comes as Republicans highlight the fraud schemes that have plagued Minnesota state government in recent years, often through sham nonprofits that have managed to collect millions as Medicaid providers. The nascent House Fraud Prevention and State Agency Oversight Policy Committee met for the first time Monday and discussed the many ways state agencies are failing to adequately oversee grants to nonprofits.
State government increasingly relies on nonprofits to complete its work, from preventing violence to providing food for needy families. State agencies typically award a grant after performing background checks and analyzing numerous proposals, ultimately giving it to the applicant that best meets their criteria. But lawmakers can also go around that competitive process and directly name a nonprofit, granting funds in a budget bill through what are known as legislatively named grants.
In 2023, the Democratic-Farmer-Labor-led Legislature approved over $1.1 billion in legislatively named grants to nonprofits, with some receiving more money from lawmakers than they normally get in other grants and donations in an entire year.
“We all get requests from our constituents, or we have a relationship with a certain group that we know does fabulous work. I know it’s hard for members, but I think we as a body have to police ourselves so that we put all grants through a competitive process,” said Rep. Kristin Robbins, R-Maple Grove, and chair of the House fraud committee.
Robbins said reducing the grants will require a “culture shift” at the Capitol. Lawmakers are able to propose whatever bills they like, so there’s little stopping them from continuing to name nonprofits in bills and granting them funds.
Ideally, Robbins said the Legislature should get rid of the practice of legislatively named grants, but she recognized that that would take time — and there’s no mechanism to make lawmakers do it.
According to a 2023 audit, Minnesota struggles to oversee money it sends out the door. The Office of the Legislative Auditor found “pervasive noncompliance” with grant management policies, “signaling issues with accountability and oversight” of the $500 million the state sends out in a typical year.
Both competitive and legislatively named grants are supposed to go through the same type of oversight by state agencies, but the Office of the Legislative Auditor has found that agencies have failed to provide the same oversight of legislatively named grants that they do for competitive grants.
The Department of Education, which was the pass-through agency for the stolen federal child nutrition funds in the massive so-called Feeding Our Future scheme, “consistently documented less fiscal and programmatic oversight of legislatively named grants compared to competitively awarded grants,” according to the audit.
Legislative Auditor Judy Randall on Monday told members of the House fraud committee that her office has recommended that the Legislature stop employing legislatively named grants since 2007, or the year the first iPhone was released.
Marie Ellis, public policy director for the Minnesota Council of Nonprofits, said the vast majority of funding from the state to nonprofits is through the competitive process. But Ellis also said it can be unnecessary for a nonprofit to go through an onerous competitive process if, for example, they are the only organization in an area of Minnesota that provides that specific service.
“Sometimes directly named grants are the most efficient way to enact the Legislature’s priorities,” Ellis said. “If there’s only one organization in the state that can do a certain thing that the Legislature wants done, a competitive process would be a sham and a waste of everyone’s time.”
In addition, smaller, less established nonprofits — especially those serving marginalized communities — can benefit from legislatively named grants, Ellis said.
Robbins said that the legislatively named grants is a bipartisan concern, and legislative leaders and committee chairs will need to take the first steps to discourage the practice.
“It would take the commitment of chairs to say ‘I’m not going to allow legislatively designated grants in my budget,’ so a lot of it will fall on the individual members,” Robbins said.