Reform goes back to start on nonprofit boondoggle

Jay Hancock

July 20, 2005

FAITHFUL READERS know about a $2 billion federal boondoggle called the Javits-Wagner- O'Day program, which pays peanuts to disabled people working on no-bid government contracts, enriches nonprofit executives and operates with little oversight or control.

Last year, the government showed signs of seeing the problem and reacting.

Responding to articles in The Sun and nationwide efforts to improve corporate governance, the little agency that runs Javits-Wagner proposed strict executive salary limits for nonprofit organizations getting the contracts as well as requirements for the groups to name audit committees, disclose business relationships with trustees, change trustees regularly and publish board minutes.

What was predictable was the protest from the nonprofits, some of which pay executives $600,000 and $700,000 a year to run a government program in which the disabled workers received only 18 cents of every dollar spent, according to the government. The reforms would effectively cut CEO nonprofit pay to about $207,000.

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What was harder to envisage was a broad retreat by the government.

This month, the Committee for Purchase, the federal agency that supervises Javits-Wagner, withdrew all the proposed reforms and returned to the drawing board. New proposals will appear in two to four months, committee spokeswoman Annmarie Hart-Bookbinder said via e-mail.

Such a move isn't unprecedented. But the normal course is for agencies to modify proposed rules after taking public comments, not trash them and start from scratch. It's a victory for the vested interests and a setback for reformers.

"The extent of the comments we received convinced us it was better to withdraw the proposed rule and thoroughly rework it," Hart-Bookbinder said.

And what an extent! Scores of nonprofit executives, hired lawyers and trained congressmen weighed in. Of 167 comments, six favored all the proposals, eight favored some and the rest were mainly opposed, the committee reported.

"My impression was that nobody wants to give up any of the money," said Jerry Egger, an Oregon businessman who runs the Fair Competition Alliance, a state coalition of for-profit companies competing against nonprofits getting set-aside jobs for the disabled.

"The government standards would have been a step in the right direction," added Egger, who was one of the few who formally urged the committee to adopt the proposals. "God forbid anybody should ask a question."

Maryland, with its large federal presence, is one of the top Javits-Wagner states, with 15 nonprofits employing 2,919 people last year in contracts worth $113 million.

Two of the state's biggest Javits-Wagner contractors provide janitorial services in federal buildings: Baltimore-based Chimes and Upper Marlboro-based Melwood Horticultural Training Center.

To operate an organization with a budget of about $125 million, Chimes Chief Executive Officer Terry Allen Perl was paid $715,000 in 2003, according to Internal Revenue Service filings. Melwood CEO Earl Copus Jr. earned $289,000 to run a nonprofit with a $72 million budget, according to documents Melwood filed with the IRS.

Disabled employees on Javits-Wagner jobs made an average of $8.98 an hour last year, says the committee, and in many cases they earned less than what nondisabled workers would have made on the same job.

Neither Chimes nor Melwood Chairman Thomas J. Lantz Sr. responded to my detailed phone messages. But in written comments to the committee, Chimes' Perl echoed other nonprofits in claiming that the agency doesn't have the authority to regulate nonprofit executive salaries and that salaries that have not been contested by the Internal Revenue Service should not be questioned by the committee.

The agency's proposed rules are "arbitrary and capricious," he wrote. "At a minimum, there should be no fixed benchmark maximum amount of executive compensation that can be paid by the nonprofit agencies."

In his comments, Lantz praised the committee's desire to promote transparency and draw clear governance standards. But he argued that the agency should wait until the Senate Finance Committee finishes its proposed nonprofit reforms to avoid duplication. And he took issue with the committee's proposal to limit nonprofit executive pay to the $207,000 or so made by senior federal executives, saying the comparison was tenuous and didn't account for retirement and health benefits beyond that amount.

Beautiful. Organizations whose existence and revenue would be unimaginable without heavy regulation by a government trying to improve the lives of the disabled are telling government regulators to get off their backs.

A little more pay for the disabled workers, a little less pay for the executives and a little more competition in bidding for the work would be nice when the committee reissues its proposals. But don't hold your breath.