The Scandal of the Public Non-Profit

This is the time of year when we think charitable thoughts about those less fortunate than ourselves and, if we can afford it, give to charities to help such people. But there are some charities that are hardly charitable.

Excerpt from IRS form 990 submitted by Mercy Housing showing amounts paid to its top staff members. Click image for a larger view.

In order to qualify for tax-deductible donations, non-profits must persuade the Internal Revenue Service that they are a charitable organization. Such organizations, says the IRS, are “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational, or other specified purposes.”

But there are two kinds of non-profits. First are private non-profits that get most of their funding from private donors. These are charitable organizations because the donors expect no compensation, dividends, or other rewards other than a tax deduction and the good feelings they get from helping to promote causes they consider to be worthwhile.

Second are public non-profits that get most or all of their funding from government grants. These are anything but charitable because hardly anyone puts up their own money to fund these non-profits, the staff members are often paid far more than the average American white collar worker, and while the work they do may seem altruistic it is often at a much greater cost than the same work could be done by private enterprise.

Public non-profits are so different from private non-profits that they hardly deserve to use the same name. But certain groups have a habit of taking the name of a good idea and applying it to a bad idea to give that idea extra credibility.

When highway agencies wrote contracts that required private companies to build roads and pay for those roads with tolls, they called them public-private partnerships. When transit agencies wrote contracts that paid private companies to build transit lines and pay for those lines out of annual payments by the transit agencies, they also called them public-private partnerships. Yet one puts all of the cost and risk on the private party while the other puts all of the cost and risk on taxpayers, so they are hardly the same thing.

Similarly, when traffic experts conceived of the idea of variable tolls for specific roads to make sure those roads never become congested, and used those tolls for road maintenance and improvements, they called such tolls congestion pricing. When transit agencies conceived of the idea of drawing a line around a city center and charging motor vehicles that crossed that line, and used those fees to subsidize transit, they called that system congestion pricing. Yet one relieves congestion and pays for itself while the other is just a fund-raising tool for an obsolete system of transportation that can’t pay for itself.

The public vs. private non-profits are the same kind of thing. The private non-profits are clearly charitable, often not only relying on private donations but also on volunteer labor or employees who work for far less than their true market value but do so for charitable motives. The public non-profits rely on dollars coerced from taxpayers and may pay many of their employees more than $200,000 a year, but by calling themselves non-profits, they gain the aura of altruism.

I’ve previously written about non-profit groups that build affordable housing. In 1993 Congress created the Section 4 housing program that earmarks grants for just three such non-profits: Enterprise Community Partners, Local Initiatives Support Corporation, and Habitat for Humanity. These three groups collectively have close to 100 employees who earn more than $100,000 per year, compared with the U.S. median income per worker of $60,000 per year. Section 4 does not build any affordable housing and instead focuses on educating other non-profits about how to scam the public out of housing funds.

One group that does build affordable housing is called Mercy Housing. It operates in several states, typically collects several million dollars in “developer fees” for each project it builds, plus the rents charged for housing in those projects. The rents may be regulated to be below market value, but since Mercy Housing puts up little of its own money to build such housing, those rents are pure profits. According to form 990s downloadable from Guidestar, in 2021, Mercy Housing paid its CEO $475,000 (plus $38,000 in “other compensation”) and paid at least 20 other employees between $180,000 and $340,000, plus one poor sap who was only paid $156,000.

One of the worst things about these programs is that the non-profits getting the money are soon regarded as “experts” in housing, homelessness, and similar topics. Legislators consult them and naturally the groups advise that more spending on affordable housing is needed. As I’ve noted before, spending on affordable housing doubled between 2004 and 2019 yet the number of affordable units built declined resulting in a 130 percent increase in cost per unit. These groups are responsible for much of that increase.

The non-profit sector of the affordable-housing industrial complex is insignificant compared with a new set of non-profits created to take advantage of Environmental Protection Agency funding for climate action programs. One group, called Power Forward Communities, which was created in 2023, received $2 billion. Guess who’s running it: the same three groups earmarked for grants under the Section 4 housing program. Another group, called the Justice Climate Fund, received nearly $1 billion.

These grants were paltry compared to the one received by a group called the Climate United Fund, which expects to collect nearly $7 billion from the EPA. Prominent Democrats such as Anthony Foxx, Obama’s second Secretary of Transportation, and Phil Angelides, a former California state treasurer, are on the group’s board of directors.

In the late 1990s, both the EPA and the Department of Transportation had programs giving millions of dollars to existing non-profits that spent the money lobbying state and local governments in support of an anti-auto, anti-suburbs agenda. The EPA programs were called Transportation Partners and the Smart Growth Network, while DOT program was called Transportation, Community and System Preservation Preservation. Congress eventually killed these programs.

The differences between those programs and the energy grants recently funded by the Biden administration are stark. First, the non-profits that received the anti-auto grants already existed and many of them had previously relied heavily on private donations, thus suggesting there was at least some local support for their political positions. Second, the sheer amount of money given for the energy programs dwarfs the amount given in the 1990s. DOT funds totaled less than $100 million; EPA smart-growth and transportation-partners funds were probably less than that. By comparison, EPA’s newest Greenhouse grants to non-profits could total $27 billion.

The non-profits created solely to get this money are not charitable in any way and their funding discredits the whole idea of charitable non-profits. Ending these programs should be a major priority of the incoming Trump administration.