By Frank Holland
Published in the San Francisco Examiner
February 18, 2024
Another day, another nonprofit scandal. This time, the district attorney’s office is investigating SF SAFE, a crime-prevention nonprofit that received more than $5 million from the San Francisco Police Department from July 2018 through March 2023.
Who knew that crime prevention required limo service, trips to Tahoe and luxury gift boxes brimming with Silver Needle Tea?
To be fair, funds were also misspent on items such as pest-control products and rust-stain remover. But with the nonprofit’s board openly accusing its executive director of forging checks and misappropriation of funds that can of Bug-B-Gone barely raises an eyebrow.
Nevertheless, the Board of Supervisors held a hearing this week to express its collective shock and outrage at the latest nonprofit meltdown.
Outrage? Sure. Shock? Not so much.
We have designed a system that not only allows this behavior, it facilitates it.
Two months ago, the city controller issued a report detailing the financial and operational health of 197 nonprofits that “either receive City funding above a certain threshold, contract with multiple departments or were selected for fiscal monitoring based on a risk assessment.”
Of the 197 monitored organizations, four were placed on “elevated concern” status. The remaining 596 are ostensibly humming along like plucky, well-oiled machines.
The report was undoubtedly meant to allay concerns raised by a January 2023 San Francisco Standard investigation that uncovered $25 million in payments to revoked, suspended and delinquent nonprofit organizations over the prior fiscal year.
A follow-up investigation revealed a fragmented and haphazard monitoring process that varied by department, leaving many nonprofit recipients of city contracts on the honor system.
These revelations came months after a separate report from the Office of the Controller noted, “It is difficult to measure the overall impact of the programs and services provided because performance measurement and program monitoring vary among city departments and most data is not shared.”
There have been efforts to tighten oversight and compliance across the city’s vast constellation of nonprofit service providers, including legislation introduced by District 2 Supervisor Catherine Stefani in September to step up reporting requirements and performance standards.
After passing unanimously out of the rules committee in November, the proposed ordinance headed to the full board on Dec. 5, where — despite receiving an avalanche of community support — it was re-referred to committee after an 11th-hour flurry of concern from “a few nonprofits.”
Although these stories are the exception and not the rule, nonprofits are hardly immune to corruption and graft. The sheer scale of taxpayer funds at stake should elicit deeper, more fundamental questions about the system structure we have created and to which we are increasingly beholden.
Nonprofit employment has outpaced private-sector job growth by 24 percent since the financial crisis, making it the second-largest provider of jobs in the country. (The previous No. 2, coincidentally, was local government.)
San Francisco, where one in six employed residents works for a nonprofit organization, offers a case in point. Nonprofit employment is hardly a path to material wealth. Still, it comes with undeniable psychic and social benefits rooted in the assumed altruism of nonprofit status — to say nothing of the virtuous work most organizations do.
The same halo effect works for the entire nonprofit sector, enhancing its political clout.
What has developed locally is a dynamic akin to the military-industrial complex first outlined by President Dwight Eisenhower 63 years ago, in which the Cold War’s national security imperative opened a gusher of public funding for weapons and military infrastructure.
As the budgets grew, so did the influence of defense contractors who stood to benefit from lucrative federal contracts. Even boondoggle projects unwanted by the military are fiercely protected and advanced by defense contractors and public officials eager to protect jobs in their districts while appearing strong on national security.
In San Francisco, the parallels are strong.
Both sectors — the defense industry in DC and the nonprofit sector in San Francisco — heavily rely on government contracts and funding. Both exert significant influence on policymakers, focusing on solutions that benefit their operational models.
Despite wildly different core missions, both sectors have been thoroughly bureaucratized, often leading to inefficiencies and detachment from practical needs. Most disturbing, both complexes create perverse incentive structures.
In both cases, public-interest objectives — say, eliminating homelessness or maintaining American military supremacy — can become eclipsed by the care and feeding of the system itself, which has its own high-stakes economic imperatives.
But unlike the open-ended and constantly evolving task of maintaining a strong national defense in a dangerous world, the goal with an issue like homelessness is the problem’s eradication. Ultimate success would therefore eliminate the entire superstructure’s raison d’etre. The incentives are horribly misaligned.
Then there’s the sheer management of it all. The Mayor’s Office of Housing and Community Development has 92 organizations on the controller’s list of 197 that require enhanced monitoring.
Last year, the Department of Homelessness and Supportive Housing passed out nonprofit contracts worth $340 million, more than any other city department. Hundreds more are involved in the enterprise at lower levels with lighter oversight.
The City’s most serious problems — homelessness, street crime and drug use — require forceful policies and laser focus. Instead, a significant piece of the City’s mandate is being fulfilled by a kaleidoscope of independent organizations.
This scenario, in which responsibility is so widely dispersed and audits only expose poor performance after the fact, emphasizes oversight and administration more than execution and direct accountability. It’s hard enough to maintain coordination among this array of players, let alone command and control.
What we need more than anything is a nimble, energetic government willing to shake up the status quo, take accountability and drive real solutions with a sense of urgency. Saddling nonprofits with additional reporting burdens and weighing city agencies down with more oversight and administrative tasks only doubles down on a backward system that allows problems to fester.
The structure of a system dictates the behavior of the actors within that system. It’s time for city officials to get serious about reform.