Saturday, May 25, 2024

"The Nonprofit Industrial Complex and the Corruption of the American City"

From American Affairs Journal, Summer 2024 / Volume VIII, Number 2: 

The act of naming is always a form of propaganda. When you name something, you are never perfectly describing what it is, but are instead influencing how it is perceived.

Marketers know this better than anyone. Prior to 1977, there was no such thing as the Chilean sea bass; the fish was called, instead, the Pata­gonian toothfish. The Chilean sea bass isn’t a type of bass at all, and most of them do not come from Chile. It was purely a marketing invention: an entrepreneur named Lee Lantz intuited that the American market might enjoy the taste of the Patagonian toothfish, but would never buy it under its given name. First, he chose to falsely call it a “bass” because Americans were comfortable with that type of fish. He then rejected the names “Pacific sea bass” and “South American sea bass,” on the grounds that they were too generic, and eventually settled on “Chilean sea bass” as a more exotic alternative.

The name of one of the most popular fish in the world therefore has nothing to do with what the fish really is. A type of cod that is primarily farmed near Antarctica became the Chilean sea bass as a Goldilocks branding compromise. The familiarity of the bass was married to the perceived exoticism of Chile so that an American entrepreneur could sell a fish nobody had ever heard of to high-end restaurants in the United States. This ploy worked so well that today nobody has ever heard of the Patagonian toothfish, while the Chilean sea bass has a secure and inalienable position on restaurant menus from sea to shining sea.

So its name is propaganda, but nobody cares. A lie that makes money will always be preferable to a truth that does not. Once you realize that every name is propaganda, it becomes readily apparent how much misconduct, greed, and corruption can be concealed behind an innocuously disingenuous name, especially a name that successfully evokes positive emotions in the general public.

Consider the word “nonprofit.” Whoever came up with the idea of calling these organizations “nonprofits” was a marketing genius on the level of Steve Jobs. When someone hears the word nonprofit, they assume that such an organization is working for the public good; that it serves the homeless, protects the weak, exists for the benefit and the betterment of society at large. Hearing that something is a “nonprofit” immediately gives a sense that the organization is trustworthy and the people running it are driven by a charitable agenda. It’s a word that shuts down the critical faculties and grants an instantaneous moral stature to any organization to which it is applied. Consequently, non­profits receive a benefit of the doubt that would not be granted to any other form of private corporation.

Yet nonprofit organizations are frequently the exact opposite of what they appear to be. As a consequence of the benefit of the doubt provided to nonprofits, there is rarely enough oversight to guarantee that they are doing what we pay them to do. In some cities, upwards of a billion dollars of public funds are paid to nonprofit organizations every year with glaringly insufficient safeguards to ensure that the money is used in a manner likely to serve the public interest.

This money is then spent in ways that would shock the taxpayers whose hard-earned dollars are being effectively stolen from them. Non­profits that self-righteously declare themselves providers of homeless services actively lobby to make homelessness worse in order to increase their own funding; nonprofit organizations hire convicted felons—including murderers, gang leaders, sex offenders, and rapists—who go on to commit more felonies while receiving hundreds of thousands of dollars in government contracts; and the executives of nonprofits, the very people in charge of institutions whose stated purpose is not to make money, earn millions of dollars while catastrophically failing to deliver the public services we are paying them to provide.

And as all of that is going on, the nonprofits in question receive tax breaks from the IRS, ensuring that the incompetent organizations wors­ening your city’s homelessness crisis exert their corrupting influence all the way to the halls of power in Washington, D.C.

Money for Nothing

There is a notorious nonprofit in San Francisco called the Tenants and Owners Development Corporation, or todco for short. The Tenants and Owners Development Corporation, despite containing the word “development” in its name, has not developed a single property in approximately twenty years. More and more, todco isn’t spending its money to help its current tenants, either. The San Francisco Standard found that todco’s spending on resident services declined from 62 percent of revenue in 2012 to only 45 percent eight years later. The Standard interviewed tenants in one of todco’s buildings and was deluged with complaints about decaying accommodations and rodent infestations. A woman told them bluntly that there were rats in the walls and complaints to management went nowhere; the tap water tasted foul and she sometimes found roaches in her food. One man felt a bite on his neck and assumed at first that he’d been bitten by one of the multitude of vermin that crawled through the building’s light fixtures; in fact, he’d been accidentally shot and the bullet hole was still visible in his wall when reporters interviewed him several months after the fact.

It turned out that instead of spending money on housing development and tenant support, todco boosted executive pay and funneled millions into lobbying. As todco’s spending on its tenants declined by 17 percentage points, executive pay quadrupled. Meanwhile, todco’s president, John Elberling, launched the Yerba Buena Neighborhood Consortium, a political lobbying organization. Between 2012 and 2020, todco’s direct lobbying of legislative bodies increased 95 times, from $5,000 to $470,000. The Yerba Buena Neighborhood Consortium spent another $1.35 million on ballot referenda between 2016 and 2021, and within the small pond of municipal politics, that much money, if strategically deployed, can buy a shocking amount of influence.

Here’s where the story gets strange. Although todco’s nonprofit status is predicated on helping poor people afford housing, todco lobbies incessantly to prevent the construction of affordable units in some of San Francisco’s most expensive neighborhoods. In 2018, todco sued to prevent the construction of a mixed-use building on the grounds that it would cast “new shadows” on a community garden; todco then agreed to drop this lawsuit after the building’s developer paid them $98,000, raising questions as to whether todco was merely using San Francisco’s byzantine permitting process to extract a bribe from another developer. In another case, todco lobbied to block a 495-unit housing development that would have included over a hundred affordable units. In other words, an affordable housing nonprofit has repeatedly sued other developers to prevent the construction of the same affordable units that it is supposed to be working to provide.

And then, in July of 2020, the strangest of todco’s fiascos took place. That year, todco prevented the construction of over one thousand new apartments, including 350 affordable units, so it could run a “racial equity study,” which it then never bothered to conduct. San Francisco Supervisor Dean Preston—a todco political ally—convinced the land use committee to put off the development for six months, during which time todco would supposedly analyze the development’s impact on minority residents in the neighborhood.

By August 2022, todco had not even begun the study that was supposed to have been completed eighteen months earlier. When asked by reporters from the San Francisco Chronicle why the study had never been done, todco’s president told the Chronicle that Covid interfered with their plans and a consulting group they’d been relying on had dropped out. Both of these excuses are highly dubious. When todco lobbied to delay the housing development so it could run its mythic study, Covid had already been rampaging through the United States for six months, meaning that todco was not blindsided by Covid and cannot use it as an excuse for failure. Furthermore, one consulting group dropping out should not indefinitely delay a study when the organization running it has millions of dollars in annual revenue, tens of millions of dollars in total assets, and a bevy of political connections. If todco wanted to run the study they could have done so, but they have exhibited no sense of urgency despite the fact that their failure to conduct the promised study has indefinitely prevented the existence of 350 units of affordable housing.

Todco is a nonprofit whose mandate is to provide affordable housing. Over the last twenty years, however, todco has produced no additional units of affordable housing, has allowed the units it already owns to decay, and has spent millions of dollars preventing other developers from building thousands of apartments and hundreds of affordable units. Paradoxically, a nonprofit meant to provide affordable housing is spending taxpayer money to prevent affordable housing from being built; an organization that exists with the explicit mandate to help alleviate San Francisco’s housing crisis is instead working tirelessly to make that crisis worse. How can this be explained?

To understand todco’s behavior, you need to know something about the business model of affordable housing nonprofits. An afford­able housing NGO makes more money as rents rise in the area where its buildings are located. Government subsidies make up the difference between what the NGO’s tenants are paying and what they could be paying if the building charged them the market rate. This means that a nonprofit, despite its name, has the same profit incentive as any other landlord, in that a lack of housing construction increases its profit margins by driving up rents. The only difference is that a nonprofit benefits from high rents through government subsidies instead of from directly charging its tenants.

And that is an obvious conflict of interest. Nonprofit housing providers benefit financially if less housing gets built because high rents increase their subsidies. Affordable housing nonprofits are therefore incentivized to work against housing affordability if they want to increase the amount their executives get paid. Everything todco is doing is a natural consequence of the nonprofit industrial complex. Todco’s subsidies rise in concert with rents; it then funnels the money it receives from the government back into lobbying the same politicians responsible for funding it; those politicians prevent the construction of housing on todco’s behalf, thereby ensuring that rents remain high and todco rakes in millions of additional dollars in government subsidies; and todco’s executives receive enormous boosts to personal compensation and buy million-dollar houses in the suburbs. It is a kickback scheme so ingenious it would make Al Capone green with envy.

This propensity for nonprofits to privilege their own finances over the needs of the poor is not unique to San Francisco. Last year, an initiative to establish a public social housing developer in Seattle was opposed by the Housing Development Consortium, a lobbying organ­ization for affordable housing nonprofits. The Seattle Times’ reporting on this initiative is revealing:....