Homeless nonprofits want more money for the homeless through a sales tax increase.
(Editor’s note: This first appeared in the Westside Current on September 19 and is reprinted with permission.)
By TIM CAMPBELL
Scanning recent headlines about local nonprofit organizations would challenge even the most optimistic among us. The news stories include:
The State of California Is Suing Santa Monica-Based Step Up on Second Street for $114 Million for Misappropriating Project Homekey Funds
State Attorney General’s Office is accusing Step Up and its for-profit partner Shangri-La of fraud and breach of contract for projects funded by state grants. The suit alleges the two organizations colluded to steer funds to improve their leaders’ standard of living rather than developing motels into homeless and low-income housing.
RICO Lawsuit Filed Against Urban Alchemy For Violence and Drug Trafficking At Sausalito Encampment.
Urban Alchemy, a City of Los Angeles contractor for its CIRCLE team services, has been sued by numerous people and entities. One case stems from a shelter Urban Alchemy (UA) runs in Sausalito, where a former resident alleged he was beaten for speaking to local media about conditions in the shelter, including drug dealing and human trafficking by UA employees.
Locally, the City Controller is investigating UA because one of its employees was caught on video using a power washer to force an unhoused person to move off the sidewalk. Even though the investigation was announced in January 2024, the City Council continued to approve sole source contract amendments to Urban Alchemy through June 2024.
Orange County Supervisors: Tracking Taxpayer Money
An Orange County nonprofit received more than $13 million from the County to provide meals to senior citizens and other vulnerable people. In August, the County sued Viet America Society (VAS) to recover the funds after the nonprofit failed to produce evidence it provided any meals. When VAS received the contracts, its nominal head was the 23-year-old law student daughter of Andrew Do, one of the County Supervisors who approved the contracts; he failed to disclose his personal relationship when he voted for the funding.
AIDS Healthcare Foundation Settles with Tenants over Conditions in Skid Row Apartment Building
The Aids Healthcare Foundation, (AHF), one of the largest landlords in Skid Row and DTLA, recently settled a lawsuit with tenants of one of its apartment buildings, promising to correct serious issues like inoperable elevators and vermin infestations. This was not an isolated incident. An LA Times investigative article found squalid living conditions at several AHF-owned facilities. You could define AHF as one the most notorious slumlords.
An LA Nonprofit Helped House Hundreds Of Homeless People. Then Many Were Forced Out. What Went Wrong?
HOPICS, an LA nonprofit active in several aspects of homelessness services, received $140 million to help at-risk and formerly homeless people pay the rent for their apartments. HOPICS and its various subcontractors botched the job so badly, hundreds of people are at risk of being evited for non-payment. Despite reports of problems in late December 2023, like Urban Alchemy, the City continues to contract with HOPICS.
These are just some of the cases we know about. One of the first things a professional auditor learns about fraud is that it is one of the most under-reported crimes in America. For-profit organizations rarely report fraud because it undermines investors’ faith in their companies and hurts their bottom lines.
Public agencies try not to divulge fraud claims because they damage the public’s trust in government. There could be many more cases of questionable financial behavior we know nothing about.
These five stories share some interesting traits. One of the most obvious is that neither the City nor the County have taken any corrective action.
Unlike the State Attorney General, the County of Orange, or AHF’s tenants, local government has done virtually nothing to hold providers accountable for the millions they spend on homelessness programs. The City continues to contract with Urban Alchemy and HOPICS is one of LAHSA’s favorite contractors. Councilmember Yaroslavsky pushed L.A. Family Housing to run a controversial shelter in Venice, despite LAFH’s history of mismanaging a North Hollywood shelter. She also failed to disclose her deputy for homelessness had recently left a management position at LAFH.
One of the most important tools for preventing waste, fraud, or abuse is setting the proper tone at the top. A review of LA’s leaders’ statements and some of its policies show that local government not only leaves itself open to abuse but invites it.
Consider this statement by Lourdes Castro-Ramirez, Mayor Bass’ Chief of Homelessness. She said the only way to house people is through “relentless outreach.”
If you were a CEO of one of large corporate nonprofits performing outreach, that statement is an open invitation to charge as much as you possibly can for outreach services, regardless of actual results. After the Supreme Court’s Grants Pass decision, while other local leaders were planning new ways to encourage people to move into shelters, Mayor Bass was stridently denouncing the decision, declaring the city would continue the failed policy of No Barrier Housing First.
Again, the message to nonprofits is “we will continue paying you for services that are untethered to performance measures as long as you keep doing what you’re doing now”. Indeed, the status quo is official city policy. A recently revealed plan for ending homelessness in 10 years has no provision for adding new programs, changing existing ones, or eliminating failed ones. It merely calls for doubling the budget for programs that have yet to show any effect on homelessness.
The City is not exempt from its own version of waste. As superbly documented by Jamie Paige and Christopher LeGras, Los Angeles spent more than $800 million acquiring hotel properties for Project Homekey housing, only to leave 1,200 units vacant, representing at least $340 million in taxpayer money in unused assets.
Much to the frustration of federal Judge David Carter, neither the City, County, nor LAHSA can produce performance measures and financial documents required by the firm performing the independent audit he ordered a few months ago.
Indeed, it appears the only ones benefiting from this lax environment are large nonprofits and their well-paid executives.
As detailed by Angela McGregor in the Westside Current, some of these organizations have become major developers, as their budgets have exploded over the past few years as they consume more public funding. They have become so deeply enmeshed in the development sphere, they have formed their own lobby, just like many other building industry companies. Little wonder Sue Pascoe from Circling the News terms the era of government largesse, a “Gold Rush” for nonprofits.
Overlaying all of these problems and waste is the infamous April 2024 report from California’s State Auditor, stating the state has nothing to show for $24 billion in homelessness program expenditures over five years. Program mismanagement is systemic, tricking down from the state to counties and cities.
The lack of performance measurement, oversight, and accountability has resulted in an environment ripe for abuse and fraud, what I call institutional corruption. It should come as no surprise, then, that we see almost weekly news about some new scandal engulfing a nonprofit.
Into this freewheeling environment, inject Measure A, a proposal to double the current quarter-cent sales tax imposed by Measure H.
Proponents say the increased funding is necessary to fund services to eliminate homelessness. If that sounds familiar, it’s because similar language was used to pass Measure H, Measure HHH, and Measure ULA. Each proposition promised to make “game changing” improvements to homelessness programs. The real result has been unfettered enrichment of a few select nonprofit organizations with the political connections and power to pass policies that benefit their bottom lines.
The current use of Measure H funding, especially by the county, does not support the need for more revenue. A 2023 report from the L.A. Alliance for Human Rights shows the county has not used available funding to its full extent.
To quote the Alliance report: “Overall, the County spent 89 percent of its Measure H-D7 (rent subsidies and social support services), funding. However, there is significant variation among each departments’ use of funds. Department of Health Services funding accounts for 88 percent of the D7 budget and 95 percent of the actual D7 expenses. DHS uses most of its funding to provide housing, rather than support services or treatment.
Per its strategy statement, the Department of Public Health provides rent subsidies and tenant services. Most of the funding for the Measure H strategy intended to serve the most vulnerable is predominantly dedicated to providing housing, not treatment and services.
Therefore, the burden of providing supportive services and treatment falls to the Department of Mental Health, which was budgeted 10 percent of D7 funding and accounted for only four percent of actual expenditures. [my emphasis added] The department with the smallest allocated budget is responsible for critical health and behavioral treatments. However, because of the County’s priority of addressing homelessness department appears to prioritize the provision of housing as a major strategy to accomplish public health objectives, and all of its requisite needs with housing, treatment and health services are shortchanged.” The Alliance report also shows that the County has historically underspent its entire Measure H allocation, usually by about 22 percent in any given year between FY 2018-19 and 2022-23. Unspent funds averaged $109.8 million per year.
Providing mental health services is one of the “core homelessness services” that would be funded by Measure A. Also included in core homelessness services is affordable housing. Given the County’s emphasis on housing over other programs, past practice suggests those priorities will not change, and mental health services may again be subordinated to housing.
Sales tax increases are also regressive, disproportionally affecting those on limited or low incomes more than higher income levels. Los Angeles already has one of the highest sales tax rates in the state. Adding a quarter-cent may not seem like much, but given the aggregate effect, it is more likely local residents will make major purchases in neighboring counties. Just like the overly-optimistic estimates for Measure ULA, Measure A’s revenue projections are probably unrealistic.
One element of Measure A often mentioned by supporters is the emphasis on program performance and oversight. Addressing oversight first, the proposed measure assigns responsibility to the County, in the form of an existing Executive Committee and a new organization called the Los Angeles County Affordable Housing Solutions Agency called the (LACAHSA), a rather nebulous agency within County government, whose Board primarily consists of leaders who have overseen the disastrous response to homelessness we are currently enduring. These two entities would issue periodic public reports on how various programs are meeting stated goals. Those programs not meeting their goals could face reduced funding, with the money being reallocated to other more effective programs.
Unfortunately, the County and LAHSA have a history of problematic performance reporting. LAHSA is being sued by the publication Calmatters because it refuses to release statistics on deaths and injuries in shelters. Fundamental structural change is needed to track program activity and measure performance.
Although Measure A provides goals such as reducing the number of homeless people with substance abuse or mental illness problems, that goal would have to be achieved within the framework of No Barrier Housing First, which does not require treatment or behavioral modification for program participation.
A key provision in the measure is that underperforming programs will face reduced funding in favor of more effective programs. That brings up the question of why such a policy is not in place now, and why a new measure is required to implement it. Measure A’s language also makes no reference to assessing the need for the tax to continue indefinitely. What happens if no program meets expectations? How would the County justify continuing imposition of the tax if it did not have the desired effects?
Reviewing the organizations sponsoring Measure A is helpful in understanding the effort to increase revenues. Although there are some reputable agencies like the United Way involved, others are more questionable. Although funding first goes to the County and City, most of it will be passed to a network of nonprofit organizations. Almost all of LAHSA’s $800 million budget goes to NPO providers. Often, there are multiple layers of these organizations being used to provide a single service. For example, one of the measure’s sponsors is HOPICS. HOPICS subcontracts with a number of providers to manage the rental subsidy program mentioned earlier. Because of its emphasis on housing, Measure A represents a significant source of new income for HOPICS.
Other sponsors include construction companies, labor unions, and housing developers who would benefit from a perpetual source of revenue. Many of these organizations are deeply entrenched in the current system, where they exert tremendous influence over government decision-makers.
In fact, Measure A is little more than a desperate effort to indefinitely continue and expand the revenues from Measure H. Measure H is set to sunset in 2027, and unless something replaces it, agencies will lose hundreds of millions of dollars in funding. Rather than showing how they have used Measure H to reduce homelessness, special interests are trying to make a preemptive strike by replacing it with Measure A, a perpetual increase in the sales tax, a fact it conveniently omits from its public relations materials. There would be nothing better for large nonprofits and developers to enact a tax that will never expire, and that will require them to make no changes to their lucrative business model.
Before approving more money to a failed system, voters should demand to see the results of current expenditures. 2024’s highly improbable and insignificant decrease in homelessness cannot be justified by the huge increases in funding needed to achieve it. Pumping more money into the current system won’t get any more people off the street or save any more lives; it will merely provide a more efficient way for some organizations to fleece Los Angeles’ taxpayers.
