According to a recent Oregonian story (Watering Can for Startups – September 16, 2012) the state of Oregon, and the cities of Portland and Hillsboro “granted outright” over $1.5 million in taxpayer dollars to the Portland Seed Fund. That means the money was given to a private entity with no expectation of any money being paid back.
However, there are a few problems with the Portland Seed Fund. First, they plan to keep 23 percent of their funding “to pay the managers, an associate they’ve hired and various legal and administrative fees.” Compare the Portland Seed Fund overhead costs to the program costs of either the United Way (10 percent) or the American Red Cross (8 percent).
Several sources note that 501(c) (3) non-profits should have a goal of expending no more than 15-20 percent of their funds for overhead and
administration. A study done of charitable overhead costs showed that most non-profit contracts with governments don’t allow “indirect allowances over 15 percent.” It also noted that a survey conducted by the Better Business Bureau’s “Wise Giving Alliance” found that over half of adult Americans felt that nonprofit organizations should have overhead rates of 20 percent or less.
Second, a non-profit must provide public annual reports of it expenditures. The Portland Seed Fund does not. The Oregonian reports that “It’s more difficult, however, to assess how the fund is using public money. Because of its unusual structure – a mix of private investment and public money granted outright to the fund – the fund isn’t subject to state public records laws.”
The Oregonian reports that the “Portland Development Commission is ‘thrilled’ with the seed fund’s performance,” but then goes on to note that “the commission has not asked for information about the number of applicants” or if the “fee structure appears appropriate." Since when do government agencies in Oregon put $1.5 million in taxpayer dollars into a black box venture with no accountability?
Third, the basic premise of job creation is faulty, if not flat out fallacious. The overall response from the private sector is that this isn’t about jobs. Eric Rosenfeld, a local fund manager, said that “The return on investment, just from a marketing and PR perspective, I think is worth it.” Amber Case reinforced this point. She said her company didn’t really need the Portland Seed Fund money. But she was “emphatic that the city’s support for the seed fund is crucial, as much for the message it sends as for the dollars involved.”
This begs several questions. Why would government agencies give away over $1.5 million in taxpayer dollars?
(1) To a private institution that is unaccountable about how taxpayer dollars are spent?(2) To an institution that has high overhead costs?(3) During a time when government agencies are laying off teachers, fire fighters and police?
A troubling fourth question is why these questions don’t seem to trouble government officials?
The Portland Seed Fund is characterized by The Oregonian as “an experiment to see whether public dollars can spur follow-on private investment.” I would characterize it as just another government fiscal boondoggle. It is an inefficient us of taxpayer dollars in a time when we need to keep essential government jobs for teachers, firefighters and police. We need them more than we need another feel-good economic development marketing program that may or may not produce any job in the private sector.
Richard Carson is a former economic development policy analyst for Governors Victor Atiyeh and Neil Goldschmidt. He is currently a doctorate student in organizational development in the public sector at Washington State University.
 Nonprofit Overhead Costs, The Bridgespan Group, April 2008 (http://www.bridgespan.org/nonprofit-overhead-costs-2008.aspx ).