Shifting more state functions to non-profits raises transparency questions

By Mike Ward
Houston Chronicle
Originally published May 23, 2017

AUSTIN – In February, when Land Commissioner George P. Bush testified before a Texas House subcommittee about the details of a private nonprofit organization’s management of the treasured Alamo, he assured lawmakers and the public that their business would comply with transparency laws that allow the public to know what’s going on.

Weeks later, though, his own agency declined to make public meeting minutes and other operational details about the Alamo Endowment and the Alamo Complex Management Company.

The reason: “The Endowment and the ACM are GLO contractors, not governmental entities,” Hadassah Schloss, Bush’s open government director, wrote days later after a request for the information by the Houston Chronicle seeking a ruling from Attorney General Ken Paxton about whether the information should be kept secret.

As the Legislature moves to outsource new parts of state government to nonprofits, questions are mounting over whether the trend could create essentially a shadow government, opaque to outside scrutiny by taxpayers, for operations that once were public and transparent.

As for the Alamo, General Land Office officials say that all agency contracts and public funds being spent to restore the iconic site are being publicly accounted for. Only the operations of the nonprofits are not, though both contractors are subject to state reviews and audits.

Much the same could soon be true for other state services funded with public money, raising questions about whether the state’s latest push into privatization – with nonprofits instead of for-profits – could end up making state spending less transparent than it has been in the past. Disclosure got murkier after a Texas Supreme Court decision almost a year ago blocked disclosure of government contracting and expense details.

Attempts to overturn that decision with a new law failed last week in the Legislature.

“This is an enormous hole that has been opened in the public information and public records laws, not just a loophole you could drive a truck through, but one that you can drive a whole caravan of trucks through,” said state Sen. Kirk Watson, an Austin Democrat who tried unsuccessfully to plug the hole with legislation requiring nonprofits doing business with the state to disclose how they spend public money. It died a week ago in the House. “This leaves us with a situation where organizations can get taxpayers money and we will not be able to know how a lot of it is being spent.”

From creating a Texas State Music Museum to contracting for foster-care services, legislation is moving toward approval that would keep many or most details of those expenses secret. In addition, state Sen. Joan Huffman, R-Houston, on Monday attached an amendment to a bill reforming the state’s troubled child-protection program that will grant lawsuit immunity to so-called “single source continuum contractors” – nonprofits that provide community-based foster care.

“They are not just any other vendor,” she said during debate. “They are stepping into the role of what the state of Texas is doing.”

For their part, nonprofit organizations that receive state funds or could receive state funds argue that they are private organizations, just like other vendors who provide products and services to the state, and should not be required to open their books to public scrutiny like a state agency. Current law requires disclosure of amounts that are spent with nonprofits, they say.

The issue is more complicated than simply disclosing financial details, they say: In some cases, counties and cities themselves have formed nonprofits to address social and human-services needs.

Nationally, as the economic slump left both private business and governments stressed by falling revenues, nonprofit organizations and agencies have increasingly been looked to as a resource to provide services — marshalling their private fund-raising abilities to make up for government budget cuts, according to various studies and news reports.

Contracting with nonprofits also allows states and local governments to provide services, often at less expense, without adding employees to public payrolls.

The issues about openness and transparency are being explored in other states, as well as Texas.

“There can be benefits from the work of nonprofits … but open government is important,” said Adrian Shelley, director of Public Citizen of Texas, an advocacy group that champions ethics reform, consumer rights, the environment and transparency. “At the very least, we ought to know where and how taxpayer money is being spent.

As efforts to increase use of nonprofits to provide services to the state continue, bills to enable the public to know how tax money is being spent have stalled or failed.

“If an entity is getting government tax dollars, they should not be exempt,” said state Rep. Giovanni Capriglione, R-Southlake, who sponsored a bill that would require nonprofit organizations that receive public funds to disclose how those funds are spent.

“And if entities are performing public functions, they should be transparent. Taxpayers should have the ability to pierce the government veil to see how their money is being spent.”

In the Land Office case that was sent to Paxton, lawyers for Alamo Complex Management argued it is not a governmental body and is not expending public funds or dependent on them. They said their operations are funded from revenue generated at the Alamo, “including amounts collected in donation boxes, amounts generated from audio tours, and amounts generated from (General Land Office) contracts with various private vendors for operations at the Alamo Complex.”

“Therefore, the ACM is reimbursed by the GLO from funds derived from private sources which are deposited into a designated account,” the letter from ACM attorney Rodrigo Figueroa states.

On May 17, Paxton ruled that the minutes of the meetings should be made public — because the Land Office had them in their files. The records still have not been released, while the Land Office or Alamo organization decide whether or not to challenge the decision.

The process involving those accounts started two years ago, when the Legislature allocated $32 million to the General Land Office for the state-owned AlamoThe earlier operations were not transparent, either, other than the federal tax returns nonprofits file that are public, officials noted.

Last week, state budget writers agreed to give the Alamo preservation project $75 million from the Rainy Day Fund, the state’s savings account. State officials said that money will be awarded through Land Office contracts and will be fully transparent like other state contracts.

Brittany Eck, the Land Office press secretary, said details of all state money at the Alamo are subject to Public Information Act requests, as provided by state law.

The details of the Alamo operations, which are contracted to ACM and receive no state funding — are not subject to that same transparency, as was the case when a previous nonprofit, the Daughters of the Republic of Texas, operated the Texas shrine, according to officials. Like the Endowment and Alamo Complex Management, it, too, was a private foundation.

Alamo officials referred questions the Land Office.

As Alamo operations highlight the complexity of the state’s nonprofit partners, they also highlight political ties, Bush chairs the Alamo Endowment board.

The Alamo Endowment board reads like a “Who’s Who of Texas” list of heavy hitters: Former Texas Secretary of State and San Antonio civic leader Hope Andrade; Fort Worth philanthropist Ramona Bass; former University of Texas Chancellor Francisco Cigarroa; Houston engineering firm chairman and former UT regent James Dannenbaum; San Antonio auto and radio magnate Red McCombs, the onetime owner of the San Antonio Spurs, Denver Nuggets and Minnesota Vikings sports teams; tech entrepreneur Lew Moorman; real estate developer and former UT System regents chairman Gene Powell; Dallas civic leader Nancy Perot; former U.S. Ambassador and top fundraising leader Jeanne Phillips, and Welcome Wilson Jr., a commercial real estate developer and vice chairman of the University of Houston board of regents.

Legislation to create a new Texas State Music Museum in Austin would have Gov. Greg Abbott appoint the 13-member board of a new private foundation created to run it. The bill creating the new foundation specifically exempts it from state open records and open meetings laws, a decision that sponsors said was made because the museum by law will receive no public funding.

The legislation is expected to pass and become law, supporters said Tuesday.

Watson, who authored the Senate version of the museum bill, said the plan is for the nonprofit foundation to operate as a private entity to give it more flexibility in fund-raising and operations. The goal is to make the new museum a success so taxpayers won’t be on the hook for costs.

“If there was taxpayer money going into this, I wouldn’t be for it. But it’s all private money,” said Watson, a longtime advocate of open-government laws.

The museum is to be located in a proposed state office building across from the state-run Bullock State History Museum in Austin, a few blocks north of the state Capitol.

Watson and Preservation Board officials said the new law will require the museum foundation to submit annual financial reports to the state detailing how it spends its money.

Aides to Abbott — who legislative sponsors said crafted the legislation that includes the secrecy provision — did not respond to questions.

“One of our biggest worries is what is yet to come,” said Kelley Shannon, executive director of the Freedom of Information Foundation of Texas, a leading open-government group. “We feel there is an increasing incentive for governments to put money into nonprofits where there is less or no transparency – and accountability. If we’re talking about government services and taxpayer money, the public has a right to know how its money is being spent.”

Watson agrees that the issues surrounding transparency with nonprofits doing business with the state need to be addressed.

“One of our highest duties in government is to make sure the taxpayers can know how their money is being spent,” he added, “and it’s a shame during this legislative session that we didn’t fix the problem we now face.”

Brian M. Rosenthal contributed to this report.