A Maryland-based nonprofit got more than $305 million in five years that it was supposed to channel to urban anti-poverty groups, but instead pocketed most of the money, including large sums to pay its top executives lavish salaries and benefits.
Enterprise Community Partners – which once spent millions of tax dollars in a failed effort to revitalize Freddie Gray’s Baltimore neighborhood – is one of only three groups made eligible by Congress for the Department of Housing and Urban Development’s little-known Section 4 grants “to develop the capacity and ability of community development corporations” to combat poverty.
Enterprise – based in Columbia, Md. and founded by that planned community’s well-known developer, James Rouse – was awarded more than $91 million from those awards from 2010 to 2014. Federal regulations require that recipients match every one tax dollar received via the grants with at least three dollars from private sources.
But most of the money never left Enterprise, the nonprofit’s 990 tax forms show, a fact that raised some eyebrows in the philanthropy community.
“It’s not exactly the Mother Teresa model,” said conservative think tank Capital Research Center Executive Vice President Scott Walter. “It sounds like one of the more extreme cases of poverty pimpery, where almost all the money goes to government-funded middlemen.”
Enterprise received more than $25 million in Section 4 funds in 2010 and was supposed to match that amount with $75 million from private sources, for a combined total by 2014 of $101 million. The nearly $66 million Enterprise received in Section 4 funds in the following four years also had to be matched by the same ratio and couldn’t be counted towards the 2010 total.
Tax documents show, however, that Enterprise only distributed $78 million from 2010 to 2014 – just one quarter of the nonprofit’s $305 million in revenue for those five years. The 990s, however, don’t segregate funds Enterprise awarded for Section 4 purposes from those related to other activities.
“Total revenues include Section 4, as well as other funding sources,” Enterprise spokesman Jon Searles said. “Because of the format of the Form 990, Enterprise does not separately report just Section 4 awards.”
The 990s do detail Enterprise’s administrative expenses. Almost $124 million, or around 41 percent of the group’s five-year revenue, paid for Enterprise’s salaries. The group increased its assets by more than $86 million during the same period.
“The general rule of thumb among charities is no more than 20 to 30 percent in overhead,” though there are exceptions, Walter said.
“If Enterprise were to report only on Section 4 during the time period 2010-2014, 60.4 percent was spent on charitable grants and 21.8 percent was spent on salaries, including direct technical assistance and expertise,” Searles said.
“Enterprise ensures that the government dollars are leveraged to ensure maximum impact in the community. We take our oversight and fiduciary responsibilities very seriously and have a long track record of being good stewards of government funds.”
“How effective and worthwhile is this giant system that seems to exist to fund itself and to provide well-paid jobs to people who are not poor themselves?” Walter said.
Enterprise paid its numerous executives salaries that averaged $267,000 in 2014. Searles disputed suggestions that his organization paid its executives excessively.
“Compensation for our executive team is reasonable and competitive and within industry standards,” Searles said. An outside “consultant has provided his opinion that our executive compensation program and practices are reasonable.”
But Walter saw the lavish salaries as illustrating doing well by doing good.
“Give me a really lush upper-middle class lifestyle so I can do something nice for the poor,” he said.
The HUD inspector general has never audited Enterprise’s spending of Section 4 grants.
Local Initiatives Support Corporation – a similarly sized antipoverty nonprofit and the second of the three groups eligible for Section 4 grants – had a much smaller disparity between its grants and salaries, though it received almost as much funding as Enterprise with nearly $86 million, according to HUD.
LISC’s salaries cost just over a quarter of its nearly $511 million total revenue from 2010 to 2013. Almost one-third, or $156 million, went to grants.
The 990s show “numerous revenue and expense streams captured there that are completely unrelated to Section 4” including “loans and equity investment activity that are also supported by the salaried staff,” which are “used for everything from creating affordable housing to helping businesses create and preserve jobs,” said LISC spokeswoman Geraldine Baum.
“Also, not in the 990 is how all those dollars we put into communities across the country are leveraged, meaning that they attract additional resources for development,” Baum said. “In that four-year period, the loans, grants and equity investments altogether leveraged $10.1 billion of investment into the communities.” She did not explain how the $10.1 billion figure was calculated.
Baum also said LISC contributed $22 to every Section 4 dollar granted.
“The primary purpose of the program is to build the capacity of local community and economic development organizations,” she said. “Sometimes through direct grant-making, and sometimes through the provision of technical assistance by skilled professionals.”
Habitat for Humanity International – the third group eligible for Section 4 funds – is less comparable since its total revenue is significantly larger than the two other groups – more than double LISC’s – and receives only a few million Section 4 dollars. Habitat’s mission is much less aligned to Section 4’s requirements.
Regardless, Habitat still spent nearly 60 percent, or over $677 million, of its more than $1.1 million revenue from 2010 to 2013 on grant distributions. Only one-quarter of its revenue, or $279 million, was spent on its salaries.
Unlike LISC and Enterprise, Habitat’s revenue and assets decreased from 2010 to 2013. It’s revenue dropped by nearly $11 million, while its assets were drained by more than $52 million.
LISC and Habitat’s 2014 990s haven’t been released yet. Enterprise and LISC are both rated four-stars on Charity Navigator, and Habitat is rated two-stars.
Habitat and HUD did not respond to requests for comment.
UPDATE: Habitat provides response
Habitat spokesman Kimberly Parsley provided the following comment:
“Within the 2010 to 2014 fiscal year, Habitat for Humanity International’s overall revenue and expenses, including staff member salaries, fall into program service expenses, management and general expenses, and fundraising expenses. Habitat for Humanity International’s total percentage average from 2010 to 2014 were 83.27 percent for programs service expenses, 12.23 percent for fundraising expenses and 4.51 percent for management and general expenses.”
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