[nfbmi-talk] what has changed goodwill's peckham and new horizons

[joe harcz Comcast]

Old article still relevent today....

Joe
Charity Leaders' Pay Soars Under Federal Jobs Program

 

BY JEFFREY KOSSEFF, BRYAN DENSON And LES ZAITZ

c.2006 Newhouse News Service

 

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When Congress created the nation's most ambitious jobs program for Americans with severe disabilities, the idea was straightforward and rich with compassion.

 

Federal agencies would reserve contracts for small nonprofit workshops that hired epileptics, paraplegics and the mentally retarded to make simple products

such as mousetraps, blackboards and first-aid kits. The disabled would gain a decent paycheck, some self-esteem and a chance to learn skills that someday

might land them a better job.

 

More than three decades later, the nonprofits increasingly are hiring workers who are mildly disabled, if at all, with aching backs, substance-abuse problems

and other maladies common in the American workplace. This new class of federally subsidized worker is getting the highest-paid jobs, while many of the

most severely disabled toil for pennies an hour.

 

Their bosses are benefiting handsomely, with leaders at many of the program's biggest charities pulling in private sector-style compensation as the new

money rolls in. At least a dozen earn $350,000 or more a year, and average pay and benefits for top executives at the program's largest nonprofits have

grown more than three times faster than their workers' pay.

 

The program's key requirement -- that three of every four hours of work is performed by people with severe disabilities -- is policed under what's essentially

an honor system. Oversight is so weak that the biggest contractor, a Texas nonprofit, amassed $834 million in government sales despite repeated findings

that it couldn't document many of its workers' disabilities.

 

This radical reordering of the government's priorities comes at a cost. Many of the most severely disabled workers, who labor at charities with shoestring

budgets, have been left behind.

 

"Like a lot of federal contracting, the big money drives it," said David Wiegan, who believes workers at his small nonprofit in McMinnville, Ore., are simply

too disabled to win many of the contracts now offered by the program. He said some bigger charities are drifting away from their social welfare missions:

"I think they get sucked in, and I think they lose their sense of what's right and wrong when they're tempted by a lot of big dollars."

 

Called Javits-Wagner-O'Day after its founders in Congress, the program requires federal agencies to buy certain goods or services from nonprofits that employ

blind or severely disabled workers. Prices are set by regulators and the nonprofits, which collaborate with federal agencies that set aside contracts for

the nonprofits.

 

The program is administered like no other in the government. A presidentially appointed committee delegates much day-to-day oversight to two trade associations

representing nonprofits. These groups collect up to a 4 percent commission on every contract they monitor, creating a basic conflict of interest: Booting

a charity from the program cuts their own revenue stream.

 

Sales in the $2.25 billion program have doubled during the Bush administration, driven largely by the post-Sept. 11 boom in Pentagon contracts for complex

tasks such as sewing chemical-warfare suits or fixing battle-scarred Humvees. Delivering on those contracts requires a more skilled -- and less disabled

-- work force with salaries that are often comparable to the private sector.

 

Across the country, about 300,000 blind or disabled workers hold jobs at small charities similar to Wiegan's, with most earning less than minimum wage under

a federal law that allows them to be compensated based on their limited productivity. While many federal programs for the disabled have faced steep budget

cuts, Javits-Wagner-O'Day continues to grow year to year and now employs more than 48,000 workers.

 

The Oregonian of Portland, Ore., began investigating the program as part of a continuing series of reports examining the evolution of nonprofits that employ

America's disabled workers. The findings, drawn from hundreds of interviews, thousands of pages of documents and visits to more than a dozen charities

in seven states, reveal a program that drifted far from its founding principles with little outside scrutiny or public debate about who is benefiting.

 

Periodic attempts to change Javits-Wagner-O'Day have foundered on opposition from nonprofits and their advocacy groups, which are skilled at lobbying against

reforms. But pressure for change is mounting as some in Congress question whether nonprofit executives are cashing in at the expense of the disabled.

 

The program "is intended to benefit many persons with disabilities, not a handful of nonprofit executives," said Sen. Mike Enzi, a Wyoming Republican who

chairs the Senate Health, Education, Labor and Pensions Committee.

 

Enzi held a hearing on the program last fall and will be an influential player this year as Congress considers updating Javits-Wagner-O'Day. He said he's

concerned that small charities can't get contracts while "much larger nonprofits grow rich." More should be done to get disabled workers into mainstream

jobs, he said.

 

That long-term goal -- to train disabled workers so they can compete for jobs on the open market -- has taken a back seat. Figures reviewed by The Oregonian

show only 2,450 workers moved from Javits-Wagner-O'Day jobs into the regular workplace last year, a figure that has fallen despite the program's surge

in growth.

 

Mike Davis is not the kind of worker lawmakers said they had in mind when they drafted Javits-Wagner-O'Day, but he owes his job to the program.

 

The 29-year-old mechanic, out of the Army on a medical discharge, found work at Skookum Educational Programs, one of the biggest charities in Javits-Wagner-O'Day.

Weekdays, he fixes Humvees and 19-ton military cargo trucks at Fort Lewis, Wash., tearing into engines battered by duty in Iraq and elsewhere.

 

Davis earns $24.56 an hour, including about $3 for medical benefits and retirement. He has a hearing problem -- corrected by hearing aids -- and backaches

that he says made him unemployable elsewhere.

 

Congress envisioned helping a different class of veterans 35 years ago. With troops streaming home from the Vietnam War, lawmakers pondered expanding a

small program that since the 1930s had set aside contracts for the blind. Their plan was to open the program to veterans with missing limbs, paralysis

or brain damage, plus 12 million working-age adults left unemployed by major disabilities.

 

President Nixon's chief disability-employment training official told lawmakers who would get the jobs.

 

"We are talking about mentally retarded and the paraplegic ... and quadriplegic," Edward Newman told Congress. He included "deaf people with severe psychomotor

problems ... and people with other kinds of neurological involvement such as people with severe cerebral palsy or epilepsy."

 

That definition is now archaic. With the acquiescence of regulators, nonprofits gradually have expanded the notion of severely disabled to include ailments

never discussed when the law was amended in 1971. The additions include conditions such as alcoholism or chemical dependency, minor learning disabilities,

limited English, nasal polyps, carpal tunnel syndrome, allergies, arthritis and speech impairments.

 

The broadened notion of who is disabled, in combination with the surge in military spending since Sept. 11, has revolutionized many of the biggest nonprofits

in Javits-Wagner-O'Day. It also has stretched the boundaries of the program's most fundamental rule: 75 percent of the work hours logged by contractors

must be supplied by blind or severely disabled workers.

 

Skookum is a case study in the transformation.

 

For years, the bulk of Skookum's developmentally disabled workers made jump-ropes or sorted recyclables in businesses cultivated by founder Jim Westall.

The jump-rope business still occupies a room at the company's airy headquarters in Port Townsend, Wash., but the fact that it no longer turns a profit

is of little concern.

 

In 2001, Skookum landed a five-year, $64 million Javits-Wagner-O'Day contract to diagnose and repair Army vehicles that overnight promised to double the

nonprofit's annual revenues.

 

When the Army later told Skookum that thousands of damaged vehicles were heading back from Iraq, Westall couldn't find enough disabled employees in a hurry

to handle the load. So the government granted Skookum a three-month waiver of its disability requirement, Westall said. The waiver has expired, and the

work goes on.

 

The contract now has 120 workers with pay averaging $20 an hour. At least one has a missing leg, though most others suffer learning, hearing and physical

afflictions, such as back and joint pain.

 

Westall, a former special education teacher and Skookum's chief executive, acknowledges that workers at the Fort Lewis garage are higher functioning than

many others in Javits-Wagner-O'Day. The nature of the work demands it, he said: "They have to be able to do the work or the Army has no use for them. You

have to know an axle from a gas cap."

 

Westall thinks the program should be expanded to cover a wider range of workers, including perhaps battered women. Until then, he said, meeting the program's

standard of 75 percent disabled labor boils down to a balancing act.

 

"Move too far one way -- and hire too many people with too severe disabilities who can't do the work -- and we lose our contract," he said. "Move too far

the other way -- to this place where we have all of these high-functioning people that can do the work but (have) questionable disabilities -- we lose

our soul."

 

Skookum is hardly alone.

 

Many of the biggest charities in Javits-Wagner-O'Day routinely use workers with modest disabilities. What matters, they say, is not the type of disability

but whether it prevents them from holding a job outside the program.

 

One of the most successful is Fedcap Rehabilitation Services, a New York City charity that pays an average of $17.87 an hour to Javits-Wagner-O'Day workers.

Fedcap, which supplies custodial crews for federal buildings, reports the program's third-highest average wage, mostly because the nonprofit pays union

scale.

 

Like Skookum, the charity specialized in hiring workers with profound physical disabilities when it was founded 70 years ago. Now, Fedcap workers include

many with learning disabilities, mental illness, alcoholism and substance abuse who are judged unemployable elsewhere, said Susan Fonfa, the charity's

executive director.

 

"Just because you can't see it doesn't mean it's not real," Fonfa said. "We will get people with every disability possible, just about."

 

Critics of this hiring trend say it's less a balancing act than a cop-out. Some charities are cashing in on the government's largess, they say, while smaller

nonprofits with workers who are far needier can't get in.

 

At Wiegan's nonprofit in Oregon, for instance, the majority of the 150 workers are mentally retarded, autistic, blind, or beset with other physical or developmental

disabilities. Their problems are too severe to perform much of the work now being offered under Javits-Wagner-O'Day, Wiegan said.

 

For years, Mid-Valley Rehabilitation has tried to land a contract under the program, Wiegan said. The nonprofit turned down one offer to make military footlockers,

he said, because the costs were too high. Any worker who can repair a Humvee has no business taking money under Javits-Wagner-O'Day, he said.

 

"It's beyond absurd," Wiegan said. "If they can do that work, they're competitively employable. It's crystal clear."

 

Wiegan's nonprofit is more typical of those that employ the severely disabled. Because such workers are normally less productive, the law allows charities

like Mid-Valley to pay less than the federal minimum wage of $5.15 an hour. About 300,000 workers fall into this category, according to U.S. Labor Department

estimates. Even so, about 70 percent of the nation's disabled adults remain unemployed.

 

When people with truly severe disabilities are lucky enough to land work under Javits-Wagner-O'Day, they're often paid a subminimum wage. To get a picture

of how little these employees earn, The Oregonian analyzed earnings records for eight large contractors. They show that 1,644 employees with severe disabilities

received a median wage of $1.93 an hour.

 

Megan Brixey is the type of worker lawmakers envisioned helping when Congress expanded Javits-Wagner-O'Day.

 

The 27-year-old McMinnville resident has Down syndrome and a job loading lumber for $3.91 an hour at a wood-products company run by Wiegan's nonprofit.

Brixey said she dreams of magic -- "Like Harry Potter," she says -- wishing that it flowed into her hands to make her a faster worker.

 

Wiegan said the big contracts and high pay for workers with mild disabilities send a blunt message to his severely disabled employees: "They're not as important

as the money."

 

The money has been a boon to top executives at the biggest nonprofits. As sales ballooned under Javits-Wagner-O'Day, charity boards have adopted compensation

packages and marketing budgets that resemble those of the private sector.

 

Nineteen years ago, a disability counselor started a tiny nonprofit jobs program deep in the heart of Appalachia with a small grant. Since then, Terri McRae

has built Advocacy & Resources Corp. of Cookeville, Tenn., into a multimillion-dollar producer of baking mix, fortified vegetable oil and other food for

the government. The charity drew $50 million in federal contracts last year, making it one of the largest in Javits-Wagner-O'Day.

 

McRae's paychecks mirrored the charity's success.

 

In 2004, as her nonprofit landed large contracts with the military and U.S. Department of Agriculture, her wages, deferred compensation and benefits had

grown to $518,835, up from $66,500 a few years earlier.

 

McRae readily defends her compensation. Her nonprofit pays market wages to all employees, including the executives, she said. Running a multimillion-dollar

government contractor requires deep knowledge of many regulatory requirements, something that has taken years to develop, McRae said.

 

"I'm telling you what -- my job's a hard damn job," McRae said in an interview last summer. "And when I'm gone, I'm going to be really hard to replace."

 

The Oregonian analyzed tax forms for Javits-Wagner-O'Day's 50 largest contractors, which together account for about two-thirds of the program's sales. More

than a dozen reported executives with pay and benefits exceeding $350,000 in 2004, the most recent year for which complete tax records are available.

 

The list includes Bill Hudson, president of LC Industries Inc. in Durham, N.C., who made $537,787; John Miller, chief executive of Goodwill Industries of

Southeastern Wisconsin, who made $444,405; and Terry Allen Perl, chief executive of The Chimes Inc. in Baltimore, who drew $704,175. The charities said

salaries for all three were set by their board members based on pay at similar-sized operations.

 

The largest Javits-Wagner-O'Day contractor, an El Paso, Texas, company with $276 million in sales to the military and other agencies last year, reports

no salary for its president, Robert E. Jones. Instead, the National Center for the Employment of the Disabled said it paid $4 million in 2004 to a management

firm controlled by Jones' family trust.

 

Average pay and benefits for the top contractors' CEOs climbed 57 percent between 2000 and 2004, a period in which average hourly pay for their severely

disabled workers increased 16 percent.

 

The CEOs averaged $248,287 in pay and benefits in 2004, up from $241,164 a year earlier and $158,400 in 2000. By comparison, only a quarter of human-services

nonprofits with budgets greater than $5 million gave their CEOs pay and benefits exceeding $155,520 in 2003, according to Guidestar, a national clearinghouse

for charity data.

 

The Oregonian's averages exclude two nonprofits: Mississippi Industries for the Blind, because it is run by the state, and the El Paso charity, because

it reports only a management fee and not Jones' salary.

 

Few observers expect charity officials to take vows of poverty. But in recent years, controversy about perks, insider deals and big executive salaries has

prompted Congress to threaten a crackdown.

 

Internal Revenue Service rules require nonprofit boards to base executive salaries on a review of what's paid to comparable business leaders. Some of those

familiar with Javits-Wagner-O'Day, including Fredric Schroeder, a former member of the committee that oversees the program, find the rising paychecks unseemly.

 

"There is the clear appearance that people with severe disabilities are being paid low wages with no oversight of those wages and that executives are being

paid astronomical wages," said Schroeder, who sat on the program's oversight committee during the Clinton administration.

 

The boom in contracts has fattened both salaries and the balance sheet at many Javits-Wagner-O'Day nonprofits. Net assets of the top 50 charities grew 60

percent between 2000 and 2004, with the biggest exploding by five times or more.

 

Charities now fret over things like "brand identity." The trade association representing most of the program's nonprofits spent $500,000 on lobbying and

$3 million on marketing and communications in 2004, according to tax forms and congressional records.

 

Charity officials say the spending aims to boost awareness about the program's goals and to attract more federal business. But it also adds overhead. Supplies,

marketing, management salaries and other costs take up the bulk of the program's money. Only about 18 percent of the $2.25 billion spent in 2005 went to

wages for the disabled.

 

The 15-member committee that oversees Javits-Wagner-O'Day does not police salaries, deferring instead to the IRS. Recently, the program's growth prompted

the committee to consider setting new governance and conflict-of-interest standards for nonprofits, which overwhelmingly have criticized the move as an

intrusion.

 

Stronger oversight would be a departure. When it comes to policing its key mandate -- that contractors use severely disabled workers for three-fourths of

their labor -- even top officials concede they haven't aggressively monitored the nonprofits.

 

Headquartered on the 10th floor of a bland high-rise near the Pentagon, the Committee for Purchase From People Who Are Blind or Severely Disabled is one

of smallest and most unusual agencies in the government.

 

By law, the panel of 15 presidential appointees -- four representatives of blind and disabled workers, and 11 federal government managers -- decides which

federal contracts are set aside under Javits-Wagner-O'Day. Their choices, which are seldom reviewed by Congress, can steer hundreds of millions of dollars

to obscure nonprofits.

 

In an arrangement with few parallels in government, the law allows the presidential committee to assign most contract management duties to two trade associations,

the National Industries for the Blind, or NIB, and NISH, formerly known as the National Industries for the Severely Handicapped.

 

For years, government regulators visited charities to determine whether they employed enough severely disabled workers. Employees of the trade groups also

visited the charities to help them comply with the labor rules. But in 2001, with fewer than 30 staffers tracking more than $1 billion in contracts, the

agency delegated regular site inspections to the trade associations.

 

The decision was made without significant public debate or even a committee vote. "With my staff of 29 people, NIB and NISH can put more resources against

that," said Leon Wilson, executive director of the presidential panel. "I still believe that was a better path for us to take."

 

On paper, the panel still has broad authority to cut off contracts from nonprofits that fail to meet the program's requirement that 75 percent of all labor

be performed by workers with severe disabilities.

 

In reality, it's an honor system with little enforcement. Nonprofits file annual reports, but NISH officials visit only once every three years. They randomly

sample employee files to check the ratio of severely disabled labor hours. If paperwork is complete, the nonprofit passes.

 

Robert Chamberlin, NISH's chief executive, said his staffers do not interview workers to verify their disabilities because of restrictions set by federal

health privacy laws. More importantly, Chamberlin said, NISH does not have the legal authority to conduct audits or investigations of the program's contractors.

 

"They have specifically told us, `You're not auditors,"' he said. "`You're not investigators. Your mission is to go in an assist mode."'

 

The tiny federal committee does visit new nonprofits or those known to have problems. But officials acknowledge that no one regularly audits longtime participants

in the program.

 

The trade groups have an incentive to resolve issues amicably. The charities pay them up to 4 percent on each contract. The commissions helped boost NISH's

revenue 86 percent over four years, to $58 million in 2004.

 

The trade associations "live on the commissions that come from the contracts that go to these nonprofits," said Schroeder, the former committee member.

"So are they genuinely interested in pulling the plug on a contract that appears to be unreasonably operated? ... I'm not suggesting evil, but there's

no truly independent oversight."

 

Rules of the Javits-Wagner-O'Day program leave room for some interpretation of who qualifies as "severely disabled." They say a worker must suffer from

a "severe physical or mental impairment" that so limits his or her ability to walk, talk or work that the person is unable to "engage in normal competitive

employment."

 

The law specifies a measurable standard for blindness -- 20/200 vision in the best corrected eye. As such, there are few questions about workers at the

74 nonprofits represented by NIB, the trade group for the blind.

 

But the range of other disabilities is much less clearly defined. NISH, which represents 553 contractors, demands only that its charities document that

workers have disabilities preventing them from finding other jobs.

 

The program's lax oversight can be seen in the committee's dealings with El Paso's National Center for the Employment of the Disabled, the program's biggest

contractor.

 

Officials with the committee and NISH began examining in 1999 whether the nonprofit used enough labor from severely disabled workers. By May 2000, officials

on three separate occasions had found inadequate documentation to back up disability claims. The problems did not stop the nonprofit from building its

business year after year.

 

Last spring, an anonymous complaint triggered a visit from committee investigators, who found payroll reports indicating only 39 percent of the nonprofit's

labor was from severely disabled workers. Still, it wasn't until January that the committee ordered NISH to send a compliance team to El Paso to review

all the nonprofit's records.

 

Since then, the charity's largest customer -- the Defense Supply Center in Philadelphia -- said NISH alerted commanders of "some concerns" about whether

the nonprofit was using enough severely disabled labor. A spokeswoman said Friday that the center last week "ceased placing orders with NCED" until the

concerns are resolved. Separately, charity officials are scheduled to appear before the committee Thursday to address the work-force issue.

 

Not since the early 1990s has the committee or NISH released an accounting of the types of disabilities in the Javits-Wagner-O'Day work force. The Oregonian

sent surveys to the 50 largest contractors in an attempt to categorize disabilities, but only six responded, too few for a reliable sample. NISH has worked

for months to compile such a report, but results were not ready as of last week.

 

Linda Merrill, chief executive at Envision, a Kansas nonprofit that primarily employs blind workers, said it's time for "severely disabled" to be defined

more strictly.

 

"We're kind of joking among ourselves," said Merrill, "that instead of National Industries for the Severely Handicapped, it's National Industries for the

Severe Hangnail and Hemorrhoids."

 

NISH's Chamberlin acknowledged that nonprofits have an incentive to employ people who have higher productivity, but he does not blame that on the federal

program. Customers increasingly are demanding high quality at low prices, he said.

 

"The government is tough," Chamberlin said. To address the problem, he said, NISH is attempting to find more business in areas such as document destruction

and laundry, which are better suited to people with more severe disabilities.

 

Powerful forces on Capitol Hill are beginning to recognize problems with Javits-Wagner-O'Day, foreshadowing a showdown between lawmakers and charities in

the program.

 

Two U.S. senators have introduced a bill that would reserve some federal contracts for private businesses employing disabled workers. And a Senate committee

held a hearing in October, taking testimony about soaring executive salaries and misdirected resources.

 

Enzi, the Wyoming senator, said the program should do more to move workers into mainstream jobs. As it stands, only 5 percent of the severely disabled workers

in the program move to private-sector jobs, down from 7 percent in 2000. Wilson, director of the presidential panel, said workers are reluctant to leave

nonprofits because they are friendly places with wages and benefits that are often superior to comparable private companies.

 

Newman, the former Nixon administration official, said policymakers expanded the program in 1971 hoping to train workers and move them out of low-paying

"sheltered workshop" nonprofits and into the regular work force. Now, he sees a reversal.

 

"They are rebuilding a sheltered workshop mentality, when the efforts of the '60s and '70s was to help people with disabilities be able to join the mainstream

of the work world," said Newman, now a professor at Temple University.

 

If history is any guide, changes to the Javits-Wagner-O'Day program are likely to be met with great resistance by many of the biggest charities.

 

The chairman of the presidential oversight committee, Steve Schwalb, said alarm about rising executive pay led members to propose a $207,000 compensation

cap in late 2004. The figure seemed reasonable because $207,000 was the top compensation for federal managers, most of whom run agencies larger than the

program's nonprofits.

 

What followed was a roar of protest from nonprofit executives, board members who set their salaries and some of their lawyers.

 

Schwalb's committee withdrew the proposal. But after The Oregonian last fall reported on rising executive salaries and Enzi's committee held hearings, the

presidential panel proposed more stringent governance standards for nonprofits along with a possible compensation limit, though it has not specified a

number.

 

Chamberlin, who as head of NISH earned salary and benefits totaling $299,565 in 2004, has been among the opponents of a salary cap. The trade group had

argued against the $207,000 pay limit, calling it discriminatory and unnecessary.

 

One supporter of a compensation limit is John Murphy, who earned $130,310 in pay and benefits as the head of Portland Habilitation Center in 2004. The nonprofit

provides janitorial services for federal buildings and is Oregon's biggest Javits-Wagner-O'Day contractor.

 

Murphy, who sits on the NISH board of directors, said it will be difficult for the program to determine a maximum salary. But it's needed, he said.

 

"The committee should make some judgments and come down on organizations where it just stinks," Murphy said. "The reputation of the program is at stake."

 

March 7, 2006

 

(Jeff Kosseff, Bryan Denson and Les Zaitz are staff writers for The Oregonian of Portland, Ore. They can be contacted at jeff.kosseff at newhouse.com, bryandenson at news.oregonian.com.

and leszaitz at news.oregonian.com. News researchers Margie Gultry and Kathleen Blythe contributed to this report.

 

table end