The Nonprofit Industrial Complex and the Corruption of the American City

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:

The Housing Development Consortium, a lobbying group whose members include King County's major low-income housing de­velopers, financial institutions and governmental development agencies, doesn't want to compete with a new organization for funding.

The Housing Development Consortium argues that Seattle should focus its resources on the existing system . . . which in­volves a collaboration between the largely federally funded Seattle Housing Authority, local public development agencies and other nonprofit organizations [emphasis added].

In other words, a lobbying organization for affordable housing nonprofits advocated against a social housing initiative on the grounds that it would direct funds away from its members. Many of the people involved in these affordable housing nonprofits would describe them­selves as socialists, and yet they argued against a more socialist form of public housing development and in favor of the privatized, complex, and inefficient system that just so happens to financially benefit themselves.

In the event that America tried to dramatically increase the amount of public housing, a policy advocated by many progressives, it is likely that some of the fiercest opponents would be nonprofit landlords who would be outraged at the prospect of direct competition from government-owned housing. This is normal behavior for a private organization that relies on the government as its primary revenue source, but it is directly contrary to what the term “nonprofit” would seem to imply. Despite their trustworthy name, nonprofits are not now—nor have they ever been—the uncorrupted agents of the public good that their defend­ers would have us believe.

Crime Inc.

Exacerbating the profound conflicts of interest created by outsourcing government services to private nonprofits is the near total lack of oversight of these nonprofits, particularly with respect to how their money is spent and whom they hire to provide their services. It is a regular occurrence that money given to nonprofits is misdirected in a way ruinously contrary to the public interest. In especially egregious cases, money given to nonprofits finds its way into the pockets of people who never would have been hired by a government agency due to either a lack of competence or a disqualifying criminal history.

For instance, San Francisco gave tens of millions of dollars to a nonprofit called the United Council of Human Services over the course of two decades; their CEO proceeded to spend large sums of money in a totally illegal manner, buying at least five vehicles for herself and family members and driving around with a trunk full of expensive jewelry. She also allowed twenty of her friends, family, and employees to occupy government-subsidized apartments which were meant to be used as housing for low-income San Franciscans.

There is always going to be some level of malfeasance when large sums of money are involved, but what makes the United Council's criminality inexcusable is that Gwendolyn Westbrook, the CEO who stole taxpayer dollars and spent them on herself, pleaded guilty in 1997 to stealing thousands of dollars in parking lot collections while working for the Port of San Francisco. A nonprofit run by a woman with a proven history of stealing from government agencies was given tens of millions of dollars to provide affordable housing services, and San Francisco's political class was somehow surprised when, true to her previous track record, she stole that money, too.

Following Westbrook's fall from grace, a San Francisco Standard investigation discovered that the city had paid tens of millions of dollars to nonprofits that were ineligible for government funding: $25 million went to charities that were either delinquent or suspended and another $65 million went to nonprofits that were later declared ineligible. At the time of the Standard's investigation, San Francisco had another $300 million of future contractual obligations to NGOs it was not legally allowed to fund.

Although San Francisco is one of the worst cities when it comes to nonprofits behaving badly, these same problems exist in every city that makes excessive use of the nonprofit sector. Seattle, in particular, has a rather distressing tendency to give exorbitant sums of taxpayer money to convicted felons, up to and including violent criminals and registered sex offenders. In 2001, a man named Khalid Adams was convicted of first degree theft in an incident in which he allegedly groped his victim while shouting racial slurs; two years later Adams was convicted again, this time of first degree robbery and unlawful possession of a firearm. Adams's third—but not final—conviction came in 2021 when he pled guilty to unlawful possession of a firearm by a previously convicted felon.

Only a year after Adams's third conviction, however, he was hired to work as a “violence interrupter” by a government-funded Seattle-area nonprofit called Community Passageways. In November 2022, while receiving a salary from King County taxpayers to prevent gun violence, Adams broke into his ex-girlfriend's apartment, held her new boyfriend at gunpoint, and was subsequently shot by the ex's eighteen-year-old cousin. Adding a surreal element to this already incredible story, Savior Wheeler, the young cousin who shot Khalid Adams, was a client of Community Passageways, one of the same at-risk young people that Adams was supposed to keep away from gun violence. A Seattle nonprofit therefore hired a three-time convicted felon who was fresh out of prison to work as a mentor for at-risk youths, and he was subsequently shot by one of those very at-risk youths while threatening an ex-girlfriend at gunpoint.

This is a surprisingly common occurrence in Seattle. In 2022, the city gave $260,000 dollars to a registered sex offender who was operating under a fake name and credentials to mentor at-risk young people. In 2020, they gave a $3 million no-bid contract—one of the largest grants in city history—to a nonprofit called Freedom Project to run a “racial equity study.” Freedom Project's executive director at the time was David Heppard who was convicted as a teenager for taking part in the gang rape of a pregnant seventeen-year-old. Freedom Project's finance director, Quddafi Howell, once shot up a man's house as an intimidation tactic to prevent him from snitching on Howell's drug dealing.

Believe it or not, the $3 million Seattle handed over to a bunch of convicted felons was somehow mismanaged. A local political blog called Seattle City Council Insight looked into the paperwork behind this contract and discovered that hundreds of thousands of dollars were handed out to subcontractors for minimal work and the project's lead was paid $300 per hour while publicly claiming to be a volunteer.

In another case, a homelessness nonprofit called share (the Seattle Housing and Resource Effort) turned out to employ an unlicensed accountant at the same time they were handling millions of dollars in government funds. Share claimed that they were the victim in this case, as they were unknowingly defrauded by a man who held himself out as a legitimate accountant. Fair enough. Share, however, might have noticed that their accountant was unlicensed were it not for the fact that share's treasurer, the man presumably responsible for handling all their money, was Lantz Rowland, an unqualified homeless man who lived in a tent. This nonprofit had total annual revenue of approximately a million dollars in 2016, which included grants from King County and the City of Seattle, and the people responsible for handling that money were an illegal accountant and a sixty-year-old homeless tent dweller with no discernible qualifications.

Leaving the West Coast for a moment, one finds similar outcomes arising from the overuse of nonprofits in the Windy City. In Chicago, an anti-violence nonprofit called CeaseFire has had a shocking number of its “violence interrupters” arrested for serious crimes since its incep­tion. This ought to surprise nobody given that these “violence interrupters” are almost universally convicted felons. Ceasefire workers convicted of crimes while employed by the organization include a fifty-one-year-old arrested for illegal gun possession, whom authorities alleged was also moonlighting as a national gang leader; a convicted felon caught naked under his bed with $50,000, an illegal firearm, crack cocaine, and heroin; and a woman who was hired despite four prior felony convictions and subsequently stole $10,000 worth of diamonds.

Chicago also has a state-funded “Peacekeepers” program in which “community-based organizations” deploy former convicts to act as vio­lence interrupters during times when tensions are expected to be high. Last Memorial Day, a “Peacekeeper” named Oscar Montes assaulted a motorist while on duty, leaving the man with potentially permanent eye damage. Montes was hired by the Peacekeepers program only a year after serving a ten-year prison sentence for shooting a rival gang member.

What is instantly noticeable about the above examples is that none of these people could draw a government paycheck unless it was laundered through a nonprofit. A police department could never hire a convicted felon with long-term ties to street gangs, but a private nonprofit has looser standards regarding who is allowed access to public funds. This not only squanders money on people who are not capable of performing the roles they're assigned, but is an active threat to public safety in circumstances where the state uses convict-staffed nonprofits for duties that ought to be reserved for the police.

The Progressive Doom Loop

At the start of this piece, I said that “the act of naming is a form of propaganda,” an aphorism which applies to nonprofits because the name they've been given is a marketing device, rather than an objective representation of their conduct and behavior. It's important to recognize, though, that nonprofits aren't the only group relevant to this story that has been given an inaccurate name as a marketing ploy. The political ideology that supports the nonprofit industrial complex is generally referred to as “progressivism,” which calls to mind the socialist-leaning Progressive movement of the early twentieth century. In spite of sharing a common name, however, today's “progressivism” has nothing in common with the Progressive movements of the last century, is not socialist in any real sense, and is, if anything, an extremist libertarian movement that destroys the ability of the government to function, rather than using state power for the betterment of the poor.

Once you start digging into the evidence, you find that the places where “progressives” wield the most power are some of the least socialist governments in the country. In 2022, San Francisco spent $5.8 billion on private contracts, over 40 percent of all city government spending, while the entire budget of Houston, a city 2.5 times as large, was only $5.7 billion. It is a strange form of socialism that runs more than two-fifths of its government through private contractors, instead of using publicly owned developers and social housing.

Portland, Oregon, meanwhile, has been suffering from a serious trash crisis for the past several years, due both to the city's soaring homeless population and the government's refusal to enforce antidumping laws. Portland's response to the festering trash piles now blighting a once-beautiful city has not been to dramatically increase the government's capacity to pick up and process garbage; instead, Portland, in conjunction with the state of Oregon, has paid millions of dollars to nonprofits to deal with the trash problem.

As Portland outsourced trash collection to private nonprofit organi­zations, the ability of the government to collect trash has been gutted by budget cuts and a lack of resources. According to local activist Frank Moscow, Portland used to sweep every street as a matter of course, but currently only has one functioning street sweeper in the entire city. Not that it matters much, since Portland's Bureau of Transportation sus­pended all street sweeping activities last June after another series of budget cuts.

Adding to Portland's trash-addled misery is the city's inability to stop anyone from dumping their trash where it is not legally allowed to do so. In 2016, the city issued thirty-one citations for illegal dumping; in 2021, they issued a grand total of one citation, for a measly $154. An opinion column published in the Oregonian in 2022 asserted confidently that “you could dump 10 large bags of garbage in Pioneer Square tonight and drive off without fear of being caught or penalized,” before going on to complain that Portland picks up trash from residential units every two weeks, instead of offering weekly trash pickup like almost every other city of comparable size.

This is the state of affairs in almost every city where “progressives” have a large impact on local politics. Progressives claim to support government spending programs, but also have an anarchistic, anti-governmental attitude that can be seen in their support for policies like police abolition in 2020. Although progressives want the government to fund public programs, their opposition to centralized state power means they often don't want the government to run the programs being funded.

The cities progressives control therefore tend to underfund core government agencies in favor of “community-based organizations,” by which they mean NGOs and nonprofits. Once the government can no longer meet its responsibilities, progressive cities outsource those ser­vices to nonprofit organizations, effectively privatizing the government.

A serious problem then occurs. Using several nonprofits instead of one government agency is inherently inefficient due to weak oversight and an inability to take advantage of economies of scale. That's why cities on the West Coast spend so much on homelessness to no end whatsoever. San Francisco's spending on homeless services increased from $200 million in 2016 to an astronomical $1.1 billion in 2021. Despite this incredible investment, on an average night there were a thousand more homeless San Franciscans in 2022 than there were in 2015. In fairness, there was a decline in the city's homeless population between 2019 and 2022, leading the deputy director at the San Francisco Department of Homelessness and Supportive Housing to declare that “investment works.” Yet San Francisco's population fell by seventy thousand resi­dents between 2019 and 2022, meaning the minuscule re­duction in homelessness was likely a mere by-product of massive population loss.

Nor are the problems that cities like San Francisco, Portland, and Seattle have with falling population unrelated. By funding inefficient nonprofits instead of more centralized, accountable government initia­tives, progressive cities have high taxes but poor services; residents receive nothing in return for the taxes they pay. Portland has one of the highest municipal income tax burdens in the country, but is forty-eighth out of the fifty largest cities in police staffing, has piles of festering, uncollected garbage littering its streets, and only has two thousand shelter beds for a homeless population of 6,300, requiring four thousand homeless Portlanders to sleep outside even if every one of them wanted a bed.

Contrary to the conservative assumption that high taxes are an inherent evil, people are often fine with higher taxes provided that the taxes are utilized to improve local living standards. What is taking place in America's most performatively socialist urban areas is that taxes are constantly raised in order to fund public services, resulting in some of the most heavily taxed populations in the country. But this tax revenue is then squandered on private contracts to unaccountable nonprofit organizations whose activities do little to rectify the problems they are nominally being funded to address.

Taxes soar in concert with the collapse in local living standards and the decay in public services. Public parks where children used to play fill up with homeless drug addicts who leave used needles near jungle gyms; a six-year-old girl in California mistook a syringe for a thermometer and put it in her mouth, and an eleven-year-old stepped on a needle while swimming in Santa Cruz. The streets grow increasingly unsanitary due to spiraling homelessness, reintroducing diseases once considered eradi­cated by civilized living. Los Angeles had three deaths from flea-borne typhus in 2022, the first such deaths in three decades; a reverend who works on Skid Row lost both legs to an infection he contracted simply walking the neighborhood's streets; and Portland's Old Town recently experienced an outbreak of Shigella, a disease mostly seen in developing countries that spreads through fecal matter.

The inability of nonprofits to properly manage services results in European taxes for third-world state capacity. Residents don't know what the problem is: they don't know that their taxes go to “violence interrupters” who are convicted felons; they don't know affordable housing nonprofits use taxpayer money to lobby against affordable housing; and they don't know money is being misallocated due to insuf­ficient oversight of nonprofits.

All they know is they pay high taxes for no reason. And so they leave. Oregon's largest county lost 2.5 percent of its population between 2020 and 2022. As the population declines, the tax base shrinks. San Francisco's sales tax revenue fell 22 percent between 2019 and 2022, with the worst decline seen downtown, where office buildings now have record-high vacancy rates.

Many articles have been written recently about the threat such cities face of an “urban doom loop,” in which a falling population guts tax revenue, which forces cuts to city services, thus reducing livability and causing an accelerating population exodus in a vicious cycle. To my knowledge, however, nobody has ever argued that a major contributor to this death spiral is outsourcing government services to unaccountable nonprofit organizations, rather than increasing state capacity and im­proving the government's ability to solve problems itself. In this contrarian narrative, American cities are not failing because they're too socialist; they're failing because they aren't socialist enough.

And that, alas, is the state of the great American city in the early twenty-first century, where nothing is as it seems. Ours is a country where “progressivism” has nothing in common with the movement from which it takes its name; where “socialists” privatize government services at every opportunity; and where countless “nonprofits” exist solely for the misbegotten profit of the people who run them. Again and again, the names we use to explain the realities of modern urban politics are propagandistic marketing terms and not an accurate representation of what is taking place.

Just like with the invention of the Chilean Sea Bass, however—which is neither Chilean nor a bass—many people are making money off the scheme. Who cares if it's all a lie?