At yesterday’s hearing of the Senate Budget & Appropriations Committee with Lt. Governor Sheila Oliver, Senator Sam Thompson (R-12) sought to address the abuse of federal CARES Act relief funds entrusted to the Department of Community Affairs (DCA).
Sen. Sam Thompson sought to address the abuse of federal CARES Act relief funds entrusted to the Department of Community Affairs during a budget hearing this week. (©iStock)
Due to the constraints of the committee, he was unable to complete his questioning of the Lt. Governor.
Included below are Sen. Thompson’s full comments and questions as prepared for the hearing:
Some of the $2.4 billion CARES Act block grant received by Treasury was made available to support small businesses and nonprofits reeling from COVID 19 shut-downs and restrictions. The bulk of this support was channeled through the Economic Development Authority. Though grossly underfunded by the Governor, EDA’s programs treated all small businesses and nonprofits throughout the State with the same set of rules and didn’t play favorites.
However, some of the money was channeled through the Department of Community Affairs. I have serious concerns that DCA’s funding for small businesses and nonprofits – unlike at EDA – was politically manipulated and mismanaged. I want to ask you some questions about these programs.
But first, I do want to take a few minutes and put this issue into perspective for my colleagues and the public.
My colleagues and I – from both sides of the aisle – have repeatedly called for substantial CARES funds to be made available by this Governor to small businesses and nonprofits. We have sponsored bills that were vetoed by the Governor. We currently have a bill sponsored by the Senate President, Minority Leader, all of my colleague on this side of the aisle, and others that appropriates an additional $300 million for this purpose – but the Governor won’t support it and the bill isn’t moving.
I do have to say that although EDA’s programs were grossly underfunded by the Governor and failed to stop record business bankruptcies and closures, our staff’s review of those programs found that EDA was even-handed and did a fair job managing the programs under difficult circumstances. They were open to everyone equally. Administrative costs were not unreasonable. And EDA took reasonable steps to prevent fraud and abuse.
But that’s in stark contrast to what our staff found in their review of three business support programs that were run through DCA.
The three programs run by DCA sounded great. Each had a similar mission of primarily providing support to organizations that promoted area Main Street businesses. Staff reviewed the three programs in depth. They reviewed program rules, applications, award amounts, and actual contracts. Unlike their review of EDA programs, what they found was disturbing on two levels.
First, it appears DCA inappropriately manipulated the programs on the front end by using application criteria that effectively “prepicked” a couple of dozen winners while excluded more than 500 municipalities’ Main Street areas from even applying for help.
Second, an unusual amount of grant funding seems to have been the subject of fraud and abuse. It was squandered – potentially in violation of the CARES Act itself.
One of DCA’s three programs was “Main Street New Jersey COVID-19 Relief Grants.” It was initially funded with $1.6 million of CARES funds and it was put off limits to any organizations except those narrowly defined as “District Management Organizations” previously approved by DCA. This meant only a couple dozen favored local governments or nonprofits supported by special taxing districts could even apply for the grants. Not one dollar of these grants went to any organization in the four districts represented by the Republicans on this committee
The second of the three programs was the “Neighborhood Preservation Program COVID-19 Relief Grants.” By design, the program excluded more than 500 municipalities that didn’t have a “Neighborhood Preservation Program Implementation Plan” already approved by DCA. I’ll note that several recipients of this funding were in pretty well-off communities – like Red Bank’s waterfront area and Westfield’s Main Street (one of only two grants that went to a Republican district, though it went to a Democrat-run town.) So, the notion this funding was targeted to poor areas is nonsense. Sounds to me like someone was playing politics with who could get help.
The third program was “Neighborhood Revitalization Tax Credit COVID-19 Relief Grants. By design, only predetermined nonprofits supporting businesses in 15 favored Main Street areas were even allowed to apply. Applicants were required to be nonprofits with approved DCA plans for an unrelated tax credit program. No one else could even apply. Nonprofits serving subsets of Atlantic City, Asbury Park, Bridgeton, Camden, Elizabeth, Jersey City, Millville, Newark, New Brunswick, Orange, Patterson, Perth Amboy, Phillipsburg, Salem, and Trenton were the lucky few. Of the 12 organizations, that received grants, I find it hard to believe that it was an accident that only one fell in a Republican district – and they received only $98,000 of the more than $3.1 million for this program. That’s 3% of funding when my colleagues and I on this side of the aisle when we represent almost 40% of the State – or 4 million people.
No other applications were permitted from these three programs, even if they would have supported Main Streets and employers in poorer areas or businesses owned by minorities or women. More than 500 municipalities and hundreds of nonprofits that could have supported poorer neighborhoods or minority and women-owned businesses were prohibited from even applying. I wonder if it’s a coincidence that no other applications were permitted, even if they would support hundreds (if not thousands) of neighborhoods in poorer areas of the State or businesses owned by minorities or women. The small businesses and nonprofits we represent are disproportionately women and minority businesses too. They were excluded from help because of politics.
I will have a few more comments and questions, but I want to pause here and ask you about why, and how, the programs were designed to exclude more than 500 communities from being eligible to even apply for help.
Who made the decision to establish the program so narrowly such that Main Streets in more than 500 municipalities all across the State were excluded – even poorer Main Street areas while better off places like Red Bank were supported?
Why didn’t you open the program to municipal governments or other nonprofit organizations to apply for funds to help their Main Street areas?
What would you say to the minority and women businesses in the Main Street areas of my district and throughout the State who were excluded by your department?
What would you say to small businesses and nonprofits throughout the State who were left with grossly underfunded EDA assistance while they watched competing businesses receive special help though your department?
In stark contrast to EDA’s fair and even-handed approach to small businesses and employers throughout the State, DCA’s programs were poorly designed, inefficient, and badly mismanaged. Some recipients of funding clearly put great thought and effort into reasonable applications.
They sought and received modest funding for things including purchasing personal protective equipment and cleaning supplies to protect against spread of COVID 19; redesigning common outdoor spaces for shared sales space and top support; and direct support for area businesses. Agencies serving Red Bank, Metuchen, and Woodbury stand out for their creative and reasonable uses of funds.
Though it wasn’t all waste, consider these abuses.
- Generally, grant recipients used some of their funds to make grants to small businesses and nonprofits, but amounts provided were random and unfair. In some Main Street areas, individual grants reached as high as $100,000 and for larger businesses with up to 100 employees. By contrast, Paterson’s grant recipient told the Senate Budget Committee their grants were limited to $5,000. Or, as in the case of more than 500 municipalities, there was no additional grants to any businesses beyond EDA’s grossly underfunded programs.
- Here some of the abuses unique to the Main Street Program:
- The governing Board of the Mount Holly recipient authorized an application for funds to support local businesses. Instead, funds were applied for (and received) to secure a new office and equip it with furniture.
- Westfield’s agency was given money to waste on frivolous expenditures. Their funded requests included: purchasing 3,000 canvas tote bags emblazoned with the agency’s logo; buying new “canvas covers for parkettes”; hiring a New York City-based consultant at a proposed cost of more than $200 per hour; and renting a storefront for a holiday greeting office.
- Other organizations, including Montclair’s, used funds to simply reimburse themselves for programs that had long before been budgeted and funded – a clear violation of the CARES Act.
- And here are some abuses in the Neighborhood Preservation Program and Tax Credit Program:
- Many organizations retained significant funding for staff salaries and consulting costs, and as little as 60% of grants were provided to businesses as grants. That inefficiency pales in comparison to EDA’s lean administrative costs.
- Despite a CARES Grant agreement with Treasury to limit grants to $125,000, DCA awarded grants as large as $700,000.
- Despite DCA announced at least 60% of all grants would be used to support small businesses, but several organizations applied for, and received, funding to support programs that had nothing to do with local business support.
- One organization in Newark indicated in its application that it would fund grants to businesses whose accounting practices made it impossible for them to qualify for EDA business grants. Apparently, it’s OK to have one set of rules for some folks… only for the rules to be tossed aside for others.
Are you aware that your grants violated the terms of your CARES Act agreement with Treasury and potentially with the CARES Act itself?
Are you aware that even though these programs were promised to primarily support local businesses, some of the recipients used all of their money for other purposes instead?
Did you authorize waivers for how money was to be spent?
Why was one organization given money for a new office and furniture instead of helping local businesses as their board instructed them?
Do you think the wildly differing support levels for small businesses that existed in your program were fair or reasonable?
Did you coordinate with EDA to make sure applicants for business support were legitimate businesses with clearly documentable losses from COVID 19?
In light of these abuses, will you support an audit by the State auditor of these programs?