Please. Stop saying government contractors are “getting rich” off the southern border crisis. Stop saying President Donald Trump’s policy is just a way to enrich his friends. Just stop all of it.
The New York Times published a story on June 22 under the headline “The Billion-Dollar Business of Operating Shelters for Migrant Children.” The story focuses on Southwest Key Programs, a non-profit headquartered in Austin, Tex. According to the story, Southwest has received “at least $955 million in federal contracts since 2015 to run shelters and provide other services to immigrant children in federal custody.”
A friend of mine who heads a prominent nonprofit in Washington D.C. shared this story, lamenting the “greed” she sees in the Trump Administration.
I’m staying away from the deeper questions of policy. But as a long-time government contractor, let me add a little perspective. Even spread across four years, $955 million is a healthy amount of revenue for a company that employed, as of the end of 2015, more than 4,500 people. Ordinary citizens look at the value of these contracts and think, “My goodness, those fat cats are getting filthy rich off the government!”
The thing is, they’re not.
What goes into a services contract?
Most of Southwest’s contracts were awarded on a “Cost Plus Award Fee” basis, meaning that the government pays the contractor for the cost of delivering the service, plus a set amount of profit, usually less than 15%. This arrangement dates to the Second World War, when FDR and his team devised it as a way to make it worth industry’s time to switch from building cars to building tanks.
The bulk of the money goes to paying the employees who do the work, the food to feed the children, the supplies to keep the facility running, and the back-office staff workers who make sure all of that stuff gets done on time and to standard. The Times story pointed out some places where Southwest has fallen short, and it’s incumbent on the government to ensure this deficiencies are corrected. but that isn’t the same as fleecing the government.
What is and what is not an allowable cost is described in the Federal Acquisition Regulations, and people go to jail for sneaking non-allowable costs into invoices. My first contracting job was with a company whose previous owners had been guests of the Federal Bureau of Prisons for that very reason.
So in Southwest Key Programs’ case, their $955 in contracts likely yielded them no more than $143 million in “profit,” likely less when you factor-in unallowable costs. But wait… they’re a non-profit so we know a lot more.
Their 2015 Form 990 posted on Guidestar, a website that catalogs non-profit financial information, shows that their “Revenue less Expenses” was $16.5 million, on total revenue of $242.6 million. That’s a “profit” of 6.8 percent. And since they’re a non-profit, that money goes back into providing services.
Their executive salaries are high – in 2015 the organization’s president, Juan Sanchez, made $770,000 – but not outrageous for an organization of their size and scale (more than 4,500 employees). For comparison, in 2016, my friend’s predecessor earned about 75% as much as the CEO of Southwest Key earned in 2015, for running an organization that had only 3% of the employees and a little more than 3% of the revenue.
Follow the money, they say.
People repeat this shopworn phrase from the Watergate scandal endlessly. They think it makes them sound erudite. It doesn’t. Because following the money in the internet age is pretty easy. If you haven’t read about it by now, you probably won’t.
Access to nonprofit organizations’ tax returns is free at Guidestar, as I mentioned above. You can see for yourself how much the government has paid to Southwest Key Programs, and for what, by visiting the Federal Procurement Data System. The searching takes a little getting used to, but the data is there.
But people especially think of campaign contributions and lobbying expenses when they tell you to “follow the money.” Luckily for us, all that information is public record and freely available online, too.
The Federal Elections Commission requires campaigns and political action committees to report the name, address, occupation, and employer of anyone who contributes an aggregate of $200 or more in an election cycle. Often, out of an abundance of caution, campaigns report this information when they have it, even if the dollar amounts don’t exceed $200.
If you think that Southwest Key Programs is getting more government contracts because its leadership are big Trump supporters, I’m sorry to disappoint you. No one listed as an officer of the company on its most recent IRS Form 990 is in the FEC’s database of individual contributors, except for Sanchez, who gave $120 to Rep. Solomon Ortiz, a Texas Democratic Congressman, in July of 2010. That’s the year Ortiz lost his bid for reelection to Republican Raul Torres.
Of the other employees in the database, only one gave to Trump; the bulk of the money went to Hillary Clinton and Actblue, a Democrat/progressive fundraising site.
Lastly, the organization’s tax returns do not declare any lobbying expenses, nor does the government’s lobbying disclosure database contain any information for Southwest Key Programs.
It’s just a fact of life that the government has requirements for which it does not have the federal employees to meet. In those cases, it contracts for those goods or services. That doesn’t make the contracting company evil, or greedy, or complicit in some nefarious insider scheme. It makes the company a good business.
