Opinion: Daily Journal

Not a Profitable Arrangement

RALEIGH – Here is a really good idea: the Joint Ethics Committee of the North Carolina General Assembly has just enacted a rule requiring candidates for NC House or Senate to disclose their relationships with nonprofit organizations, including any compensation or board service. Why is this seemingly innocuous change in the rules so important? I’ve got two words for you: Frank Ballance.

As voters now know, and Carolina Journal readers knew first, Ballance spent many years in the NC Senate, before his election to Congress in 2002, steering taxpayers’ money to a nonprofit under his direct control. The John Hyman Foundation received millions of dollars over the course of a decade or so, with much of the money flowing to Sen. Ballance’s political allies, his church, his family members, and himself.

There is credible evidence that some of the money, originally parceled out to church ministers in his districts, ended up returning to Ballance in the form of campaign contributions. But just on less-egregious charges, he was indicted, pled guilty to felonies, and was forced to resign from the U.S. House. He’ll soon begin his prison sentence.

I don’t think that his colleagues in the state legislature did their due diligence in ensuring that the nonprofit Ballance so frequently lobbied to fund, the Hyman Foundation, was not financial tied to him. In fairness, however, he was never required to disclose that fact, and should have been. Perhaps now, with candidates subject to the disclosure requirement, the legislative process will be sufficient to deter the kinds of abuses found in the Ballance case.

Or perhaps not. Obviously, I have nothing against nonprofit foundations, being the head of one. And I don’t in principle have anything against state funds flowing to nonprofits if the arrangement will carry out a legitimate state function – such as counseling prisoners, which religious institutions appear to do well – at a lower cost, a higher level of quality, or both.

I do think it is worth questioning, however, why state legislators get asked to serve on the boards of nonprofits seeking state grants. Is it their managerial expertise? I guess it is possible. More likely, however, lawmakers are asked to serve because nonprofit executives think it will help them secure government largesse. There is no public-policy justification for this outcome. State funds should flow to nonprofits through one of two mechanisms: 1) a competitive bidding or grants process based on formal applications and demonstrable merit; or 2) a voucher or consumer-choice model in which funds follow the feet of satisfied clients, such as Medicaid dollars spent at a nonprofit hospital or tuition grants spent at a private university.

In neither case should legislators be involved. Typically, the way they engineer funding of nonprofits is through earmarks in the state budget. That’s bad news on multiple levels: it prevents competitive bidding to yield the most efficient solution, it ignores the expressed preferences of beneficiaries, and it gets the state involved in functions far afield from its constitutional role.

So, in addition to disclosure, I think state policymakers should seriously consider taking the next step – prohibit nonprofits with financial or directorial relationships to legislators from applying for or receiving state funds. If that means some lawmakers need to step down from the boards of worthy grant recipients, so be it. I hear there is other important work for them to do.

Hood is president of the John Locke Foundation.