How to Kill a Nonprofit

Investigators recommended that the Urban Economic Development Corp. return the $793,000 it received from the federal government. They also recommended barring Payne and Rogers from ever receiving federal money again.

The audit called the Urban Economic Development Corp. negligent in its oversight of the project, and it recommended that the government label the UEDC a "high-risk" recipient if it applies for federal funds in the future. (Marshall and Payne could not be reached for comment.)

The audit also vindicated Swinson's role with the nonprofit. "[Swinson's] efforts to regain management control of the [Minority Business Development Center] were not supported by the rest of the UEDC board, and he has been effectively excluded from board actions since that time," the audit said.

Meanwhile, as the federal government was quietly wrapping up its investigation in April 1999, Marshall was fighting another battle at the local level. The San Francisco Redevelopment Agency had just completed its own management audit of Marshall's agency and was equally unimpressed, declaring that the nonprofit was not a "healthy organization," possessing neither a "strong sense of direction [n]or drive."

But the audit also pointed to a larger failing -- a grant-giving bureaucracy that rubber-stamped funding to favored organizations year after year with little oversight. The audit noted that most nonprofits thrive in a highly competitive "funding marketplace," requiring organizations to constantly re-evaluate and improve their programs. But the Urban Economic Development Corp., the audit said, does not compete in such an environment. Aside from the large federal award, it had been receiving the same grants from the city for years, and this funding "seems to have been virtually guaranteed," the audit said, encouraging a culture of complacency.

This stagnation is not unique to the UEDC, according to others who work in the nonprofit world. Affirmative action organizations across the country have fallen into a similar malaise.

"These programs can do a good job," says Harold Yee, director of Asian Inc., another economic development nonprofit in the city. "But like so many other projects under the federal government, the system gets prostituted."

Yee has worked on minority equity issues since Lyndon Johnson's "Great Society" program. What began as a bold idea to give a boost to minority businesses, he says, has become ghettoized -- and untouchable. "It's become too political for anyone to kill," he says. "Now the government's attitude is, "We'll feed you, but we won't pay any attention to you.' Thus the programs have become very ineffective, and sometimes corrupt."

Marshall resigned from his post on the Human Rights Commission last year and quickly became an outspoken critic of the agency. "You can't pretend to be a marriage counselor and beat your wife behind closed doors," Marshall once said, describing the Human Rights Commission's management. He also told reporters that he had been interviewed by the FBI regarding possible wrongdoing within the department's minority contracting program.

Then, in an interesting choice of timing, this summer the city yanked all its funding from the Urban Economic Development Corp., forcing the nonprofit to close its doors. Marshall and his nonprofit's board members claim it is a political payback. He might be right. It was hardly a secret that the federal government was scrutinizing Marshall's agency, but the mayor didn't question the management of the nonprofit until Marshall announced he was talking with federal authorities.

The story of the Urban Economic Development Corp., however, transcends the banality of local politics. While the local newspapers have portrayed Marshall as a whistle-blower sticking up for the rights of minority contractors, he was also allowing his own program to go to seed.

"It all makes me a bit queasy," says Swinson, who has decided to stay out of politics and stick with his retirement plans of travel and relaxation. "These guys make these grand speeches at the government conventions, talking about equality. They demand funding to help the poor and downtrodden, but they know the money will be there. Maybe some of it will get stolen, but it's all right as long as nobody gets caught. Then when somebody like me comes along and doesn't go along with the program, everybody starts running for cover."