Months After Settling Legal Battle with Dayton Administration, Nonprofit Could Get Millions in State Grants
A nonprofit collaborative working to lessen Minnesota’s racial disparities through job training and education may be in line for $2 million from the Legislature despite past concerns from state officials about its performance and fiscal responsibility.
The administration of Gov. Tim Walz and his fellow DFLers in the House recommended EMERGE Community Development and several partners get money in the two-year spending plan being debated at the Capitol following a bitter saga in which the state froze payments to the coalition for more than a year.
EMERGE and its partners, which include Urban League Twin Cities, Stairstep Foundation, Minneapolis Public Schools and Sabathani Community Center, have vigorously denied that there are any major issues with their work. EMERGE even sued in 2018 to keep money flowing, accusing officials from Gov. Mark Dayton’s administration of bad communication and punitive oversight.
In an email, EMERGE President Mike Wynne said the nonprofits had resolved their issues by settling the legal challenge with Dayton in January. Wynne also pledged to “reset” their relationship with the state under Walz.
But officials at the Department of Employment and Economic Development declined to say why the lawsuit was settled or to detail why they hope EMERGE receives more money after the last administration wrote scathing reports about the coalition, including a 28-point list of alleged problems in late 2017. DEED is responsible for overseeing workforce development programs in the state.
The settlement and budget request comes as the Legislature is locked in debates over whether there should be stricter DEED oversight of state money spent on racial equity in Minnesota’s workforce, and whether DEED’s sometimes fractured relationship with nonprofits focused on helping communities of color can be repaired.
In a prepared statement responding to a list of questions from MinnPost, DEED spokesman Shane Delaney said EMERGE “has been a workforce development partner with the state for a number of years and has successfully managed a number of grants administered by DEED.”
A laundry list of alleged problems
Since 2016, Minnesota has spent $59.3 million on a series of grants and payments to nonprofits and local governments to shrink gaps in economic success between people of color and whites. The equity spending represents a significant chunk of state dollars for workforce development outside of the traditional education systems.
In that time, the EMERGE collaborative was awarded $5.25 million directly from the Legislature, the most of any one group in the equity packages. EMERGE, which is based in Minneapolis, has a wide range of programs to help people get jobs, from financial literacy classes and training for commercial drivers licenses and welding to internships and support for teenagers.
The state money has helped many projects, including the much-lauded Cedar Riverside Opportunity Center, which is focused on employment in the Minneapolis neighborhood. A report says state funding has helped EMERGE serve more than 1,000 people.
But when a state grant monitor scrutinized EMERGE and its partners in the fall of 2017, it reported a list of 28 “financial, operational, and programmatic issues” to DEED. State officials had withheld the specifics of that list, citing the ongoing lawsuit, but they released a summary of them to MinnPost last week, saying the legal dispute had been settled.
The allegations against EMERGE included several small issues, like not giving DEED an updated organizational chart, or entering data slowly into a state tracking system.
But there are also major questions about how money was spent and documented. For example, the report says EMERGE was not giving the state proof it was monitoring the finances of its partners properly. That issue had not been resolved as of March 28, 2018, according to the monitoring report.
The report also says EMERGE was giving state money to the Minnesota Alliance of Connected Communities (MACC) even though DEED had not approved that group to use state money. The monitor said this raised conflict of interest questions, since Wynne is on the board at MACC. (A written response to the state from EMERGE says they routinely use MACC to help with “back-office operations” like accounting services and that they are a respected organization used by more than 50 nonprofits that are too small to have expertise and capacity in those areas.)
The state grant monitor concluded broadly that there were “concerns about EMERGE’s financial accountability and reliability of data,” especially after the organization changed how they reported expenses after the monitor asked questions or for more information.
The state money has helped many projects, including the much-lauded Cedar Riverside Opportunity Center, which is focused on employment in the Minneapolis neighborhood. (Photo by: Ibrahim Hirsl/MinnPost)
The issues were not just financial, however. The DEED report says EMERGE had only achieved a “small portion” of its performance goals. And what they reported on those goals may have been faulty “given the inconsistent and inaccurate record keeping” in a state database, the report says.
After the report, DEED froze cash for EMERGE and its partners. The state said it wouldn’t restart payments until each issue was resolved.
Even though Wynne, the EMERGE president, said his organization “immediately responded” to the 28 concerns, the state was not satisfied. DEED launched a third-party financial review that found “issues emblematic of poor internal controls, undisciplined record keeping, poor understanding of adequate expense documentation” and more.
However, they also found no “concrete evidence of malfeasance” by EMERGE or its partners.
EMERGE fights back
EMERGE has acknowledged that some problems DEED identified were true. In written responses to the agency after the financial audit, nonprofit leaders apologized for circumventing their own internal limits on the amount of money that can be spent by check without authorization from EMERGE management.
But the nonprofit has characterized many of those mistakes as minor screw ups made in good faith that could be corrected. They also denied many allegations and attributed some of the report to simple disagreements about bookkeeping practices.
When DEED did not reinstate cash for EMERGE, the nonprofit sued.
That lawsuit paints DEED as needlessly adversarial, unresponsive and unwilling to work collaboratively with EMERGE to fix issues that did arise. EMERGE also accused the state of mischaracterizing its actions.
Wynne sent MinnPost a presentation given to the Legislature this year that showed EMERGE and its partners meeting or surpassing several of its goals. One benchmark was for 150 people to earn industry-recognized work credentials through their programs. EMERGE says said 341 people completed that task.
Shawntera Hardy, the former DEED commissioner, and Jeremy Hanson Willis, a former deputy commissioner for workforce development involved the EMERGE proceedings, did not respond to requests for comment.
EMERGE’s lawsuit says the organization had to lay off workers and disrupt projects when their money dried up. The freeze also damaged their reputation.
“Commissioner Hardy’s action caused immediate and ongoing irreparable harm to current and future program participants — who desperately need the support of these programs to stabilize their lives and be prepared to enter the workforce,” the lawsuit says.
While a final determination on the case was never reached, a district court judge in May of 2018 ordered DEED to give some money to the EMERGE collaborative while it continued to monitor the organization’s finances. The judge said it wasn’t clear whether DEED was regulating in good faith, but notably cast doubt on EMERGE’s ability to win the lawsuit. DEED later appealed the judge’s decision and it was reversed, Delaney said.
A settlement and beyond
The decision to settle with EMERGE may have been made by the Dayton administration. Records show it was finalized almost exactly as Walz was sworn into office the morning of Jan. 7. Yet it still raises questions for DEED’s new leaders. Delaney did not say whether EMERGE had made enough improvements to warrant another influx of money, or whether DEED was wrong, or too strict in its past assessments.
Delaney said the agency shares common goals with EMERGE to shrink racial disparities, but he added DEED “takes seriously its responsibility to ensure accountability of public dollars on behalf of Minnesota taxpayers.”
“The department has an obligation to ensure that any grantee organization is in full compliance with state law and grant management policy set by the Minnesota Department of Administration’s Office of Grants Management,” he said.
The settlement does not make any judgments about whether DEED or EMERGE and its partners were at fault in the dispute, and directs the state to relinquish frozen money.
The DFL-led House initially did not earmark $2 million for EMERGE, but instead placed the collaboration under a competitive grant program overseen by DEED along with several other nonprofits that had received direct payments for equity work in the past.
But Democrats reversed course after pressure from the EMERGE coalition and other nonprofits and changed their plan to mirror Walz’s. Steven Belton, CEO of the Urban League, which is part of the EMERGE partnership, noted at a House hearing his organization’s relationship with DEED has been “fraught” and said the agency had interfered with good work. (The third-party financial audit commissioned by DEED found no problems at the Urban League.)
Republicans, who have a majority in the state Senate, nixed many of the direct appropriations for the equity package in their budget plan, including money for EMERGE. Sen. Eric Pratt, R-Prior Lake, did not respond to a request for comment.
Lawmakers now plan to hammer out a compromise in the next few weeks as they write a budget. Wynne, the EMERGE President, said he hopes his organization makes the cut, despite their dust up with DEED. “We are looking forward to partnering with DEED to resume our work under the equity appropriations and are affirmed to be included in the Governor’s budget and House jobs bill for the coming biennium to support the resumption of this important work to alleviate economic disparities in our community,” he said.