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Politics & Policy

‘Long overdue’ reform of city’s $2B in annual grants will go into effect next year

Amid an ongoing corruption probe into city dealings, the San Francisco Board of Supervisors passed an ordinance intended to tighten up oversight of the billions in city-funded grants administered each year. 

The ordinance will require departments to set up a competitive bidding process for most city grants, make evaluation criteria public, and require recipients to submit to periodic audits, among other changes. Currently, departments enjoy vast discretion in the way grants are awarded, and the city does not maintain a standardized policy for monitoring grant recipients.

“The ongoing local and federal investigation have made clear that we need more accountability in government and from our city departments. This ordinance will be a critical step forward in safeguarding taxpayer dollars,” said Supervisor Catherine Stefani, who introduced the ordinance. 

Stefani pointed to a 2020 Controller’s Office review of the Department of Public Works (DPW), which found that DPW exploited a longstanding loophole to administer $25 million in direct grants. In some cases, there was no solicitation process at all for the grants, nor any record or documentation of outreach by DPW or the recipient, suggesting a “risk of abuse,” according to the report.

That review was spurred by the indictment of Mohammed Nuru, former Director of DPW, who was accused by authorities last year of attempting to bribe an airport commissioner as part of a sweeping federal probe.

Nuru is one of numerous city officials or contractors who were accused of federal crimes ranging from bribery and money laundering to conspiracy. Along with Nuru, former head of the Department of Building Inspection (DBI) Tom Hui, former head of the Public Utilities Commission (SFPUC) Harlan Kelly, former head of the Mayor’s Office of Neighborhood Services Sandra Zuniga, and former City Administrator Naomi Kelly all resigned in connection with the probe. 

A subsequent Controller’s report found that DPW had maintained “subaccounts” at the Parks Alliance, a nonprofit that receives city funding, and that those accounts were used to funnel benefits to favored contractors. The City Attorney issued several subpoenas to companies and nonprofits as part of a local investigation.

The grant reform ordinance passed unanimously on Tuesday, with Stefani calling it “long overdue.” Several Supervisors requested to be added as co-sponsors. 

“It’s hard to believe this hasn’t been on the books,” said Supervisor Aaron Peskin. “It takes a Mohammed Nuru...before we realize that the process, which wasn’t broken, was exploitable and now—thank you, Supervisor Stefani—we have to fix it.” 

The ordinance will apply to the vast universe of grants awarded by city departments—with some limited exceptions—as well as to grants requested by policymakers as part of the annual budget process. 

City departments dole out millions in grants per year to “community-based organizations,” with some departments, such as the Department of Homelessness and Supportive Housing (HSH), administering most of their services through grants.  

According to a city database, some of the largest grantmaking departments in fiscal 2021 were the Human Services Agency (HSA), which paid out $232 million in grants; the Department of Children, Youth & Their Families (DCYF), which paid out $250 million; and HSH, which paid out $200 million. The Mayor’s Office and the City Administrator paid out $52 million and $30 million, respectively.

During the budget process, Supervisors can also request so-called “add-backs” that reallocate funds to projects in their districts. Those add-backs commonly take the form of grants to community organizations. 

Years ago, that process was scrutinized in a 2009 Civil Grand Jury report, which found that there were few guardrails against waste and abuse in nonprofit grants. Among other findings, the report concluded that add-backs were frequently the result of political lobbying and that there was insufficient monitoring of nonprofit grants overall. 

Since that time, nonprofit awards have multiplied dramatically: In fiscal 2009, nonprofit awards amounted to nearly $500 million. In fiscal 2021, which ended in June, the city paid out $2.2 billion to 853 nonprofits in San Francisco. In fiscal 2022, the city is due to pay out $2.3 billion to nonprofits, according to a city database. 

The new ordinance will go into effect in January 2022.