'They seem like no-bid contracts': DFLers expose policy rift over state job-training funds

The Legislature handed out about $16 million in grants this year to nonprofit groups aimed at curbing the wide disparity between the incomes of white Minnesotans and people of color, while foregoing the competitive process used for most other state contractors.

The direct spending, which spiked under the administration of former DFL Gov. Mark Dayton, has sparked a debate over accountability and oversight in the state's nonprofit sector, which has been at the forefront of efforts to combat income inequality.

"Oftentimes they seem like no-bid contracts," said Rep. Tim Mahoney, DFL-St. Paul, who chairs a committee overseeing the money and has sought changes to the annual allotment of "equity funding."

But other lawmakers and some of the nonprofit groups say the Legislature's direct infusion of money into nonprofits is a response to bureaucratic failure at the state's employment agency, the Department of Employment and Economic Development, or DEED. These advocates say that for decades DEED failed communities of color and other Minnesotans who have been left behind by the economic expansion, while ignoring the potential of this vast pool of workers.

Some metro lawmakers have backed direct support for nonprofit groups with strong ties to their districts.

"DEED has been doing competitive grants, and it hasn't helped," said Sen. Bobby Joe Champion, DFL-Minneapolis. "If you always do what you've always done, you'll always get what you've always got," he said, citing a common proverb.

The policy rift over job training has major ramifications for the supply of workers for Minnesota companies and the state's overall economy, which business leaders say is not running at full throttle due to a lack of available talent.

The debate also exposes the sometimes raw emotions of racial politics in the DFL, which is increasingly relying on a diversifying electorate to continue winning both in the metro region and statewide. Champion calls Mahoney, a fellow Democrat, a "nice guy" who nevertheless is viewing the issue through the lens of a "white male" and thus not focused enough on disparities between the black community and the rest of Minnesota, which he described as "two different countries."

As chairman of the Jobs and Economic Development Committee, Mahoney eventually included more than $24 million for the nonprofit groups in the budget he drafted, which also comprised millions more in competitive grants. Mahoney likes St. Paul-based Ujamaa Place, which serves young black men — but he said "the Legislature is making decisions without expertise."

With millions at stake in the fiercely competitive arena of legislative earmarks, a few well-connected lobbyists have offered their own expertise, both to nonprofits and to lawmakers on the nonprofits' behalf — earning tens of thousands of dollars in the process.

Minnesota House Speaker Melissa Hortman, DFL-Brooklyn Park, expressed support for Mahoney's accountability proposals. "When the state provides grants, the best practice is that they're competitive, that there's a certain objective we're trying to accomplish and that we ensure the dollars that are allocated accomplish the purpose."

By the legislative session's end in May, however, the DFL-led House passed the $16 million in direct grants that was signed by DFL Gov. Tim Walz.

While lawmakers debate what to do about it, Minnesota employers are clamoring for workers, and they'll need to tap communities of color to find them. By next year, more than one-third of Minnesotans in the metro area in the prime working years of age 20-64 will be people of color, according to the state demographer. Data provided to the Star Tribune by DEED illustrates the challenge of getting the most disadvantaged Minnesotans off the sideline: For most of the nonprofit groups doing workforce development, rarely do more than one-fourth of participants still have a full-time job two years after they finish the program.

The populations served by the nonprofit groups often face massive obstacles. Among clients at Ujamaa Place, 92% are chronically homeless; 22% lived in foster care; 23% have a disability, and 40% were convicted of a crime as a child.

Even that data doesn't capture the extent of the personal impediments many clients face: "It's like an iceberg; 80% is what you don't see," said Otis Zanders, CEO of Ujamaa.

Ujamaa, which received $1 million from the Legislature for the next two years, takes a comprehensive view of workforce development. Rather than just job readiness and placement, it is working toward something more ambitious: Zanders calls it "transformation." The first goal is keeping its charges out of the penal system. Just 4 to 6% of Ujamaa participants reoffend or violate their probation, whereas the national recidivism rate is 68%, according to the National Institute of Justice.

Zanders said Ujamaa has had success competing for DEED grants but likes the certainty that comes with a direct legislative appropriation.

The Legislature got seriously into picking its own favored nonprofits in 2016. Groups targeting underserved communities received $35 million at the urging of then-Gov. Dayton, who was alarmed at census data showing black Minnesotans' incomes dropping 14% in a single year.

Now, Steve Grove, DEED commissioner since January, said there's a place for both competitive grants and money directly from the Legislature, with tough standards for both.

"Whether or not the money goes through a competitive grant program or a direct appropriation, we monitor taxpayer dollars the same regardless," he said.

Indeed, DEED was sued by Emerge Community Development after the agency held up grant money the Legislature appropriated in 2016. The suit was eventually settled.

"The idea that there's less accountability doesn't square with any experience we have had," said Mike Wynne, CEO of Emerge, whose partners include the Urban League and Minneapolis Public Schools.

Tom Streitz, CEO of Twin Cities Rise, said the state's current system for moving Minnesotans into the workforce "isn't coherent."

Twin Cities Rise receives money directly from the Legislature, but under a different model: It gets paid $11,000 for each program participant, but only if they come from poverty-level income and stick to a job that earns at least $20,000 with benefits. Streitz favors a pilot project that would expand the model.

Tawana Black of the Center for Economic Inclusion, a partner of Twin Cities Rise, said the pay-for-performance model is a good one, with the caveat that some people have such challenging and chronic needs that they are far from a job. Rather, she said, they are "getting on the on-ramp to the on-ramp to the on-ramp to a job."

Cynthia Child hopes she's on that journey after a decade away from full-time work.

At a recent graduation ceremony at a Minneapolis nonprofit called Avivo, which received just shy of $500,000 from the Legislature for the next two years, the 50-year-old Hilltop resident shared a story that she hopes will end in a job as a computer help-desk technician next year.

Child is a college graduate who worked in nonprofits until the Great Recession sent her career into a tailspin from which she struggled to emerge. She said the Legislature's investment in programs like hers is money well spent, employing people who might otherwise tax the social safety net.

"If you're assisting them to get off public assistance, that seems like one of the best investments you can make," she said. "You can't just delete people like that from society."

Data visuals editor C.J. Sinner and staff writer Eric Roper contributed to this report. J. Patrick Coolican • 651-925-5042