In the wake of six-figure bonuses given to staffers at the 2016 Democratic National Convention, Gov. Wolf announced Monday that the state Department of Community and Economic Development will implement new restrictions on grants for such events, including a ban on employee bonuses.
Any organization that receives a "special event" state grant will not be able to award bonuses and can only use the state money as a last resort to pay bills, under the new rules. Any surplus of funds must be returned to the state.
The restrictions follow revelations by the Inquirer and Daily News that the 2016 Democratic National Convention Host Committee used its surplus to pay $1 million in bonuses to its staff and some volunteers. The committee raised $86 million, of which the single biggest check came from taxpayers in the form of a $10 million DCED grant. The bonuses led to an outcry from state Republicans and Wolf — all of whom called for an investigation.
Last month, Auditor General Eugene DePasquale issued an audit chiding the state for having a "too loosely drafted" grant agreement. If the committee had not received the state grant, it would not have had a surplus with which to award bonuses, he said.
The auditor general determined that the host committee complied with the $10 million state grant agreement but asked that the state strengthen its regulations so organizations cannot spend the state money if they raise enough private money.
Depasquale also referred the case to the IRS, saying it should look at whether bonuses to Kevin Washo and Eliza Rose, who were both board members and paid staff, might have violated regulations that bar any "private shareholder or individual" of a nonprofit from benefiting from its earnings. On Monday, DePasquale said he was "encouraged" by the governor's response to his audit.
"Hopefully today's announcement paves the way for better grant contracts and oversight in all state agencies to ensure taxpayer funds are spent appropriately and that 'claw-back' procedures are included in grant agreements to ensure any leftover funds are returned to state coffers," DePasquale said in a statement.
The host committee was created to raise funds to organize the events surrounding the Democratic National Convention, which ran July 25-28 in Philadelphia. Up until the week before the convention, officials, including host committee chairman Ed Rendell, the onetime mayor and governor, were still raising money and saying they were short on their fundraising goals. It wasn't until September, when the committee filed its financial reports with the Federal Election Commission, that it reported exceeding its fund-raising goal by more than $2 million.
The committee used its surplus to pay the city more than $500,000 for municipal services incurred during the convention, make $1.2 million in grants to local nonprofits, and provide the $1 million in bonuses. The bonuses were paid in November 2016 and recorded in January in the committee's required year-end FEC financial reports.
The bonuses ranged from $500 for interns and volunteers to $310,000 for its executive director, Washo.
Rendell has consistently defended the bonuses, calling them "deferred compensation" for the time some of the staffers worked without getting paid and for receiving what he called low salaries.
Following the news of the bonuses, Wolf said he was "disappointed" in the use of the surplus and asked for the Auditor General's review. Under his order, DCED will include language in grant awards for special events prohibiting the payment of bonuses.
"Repayment of any bonus will trigger repayment of the grant," Wolf's news release said.
The new rules are effective immediately. However, special-event grants are few and far in between. DCED spokesman David Smith said that such grants are approved by the state legislature for large events such as Pope Francis' visit to Philadelphia in 2015 and national political conventions.
Under the new rules, any unspent grant money comes back to the state. If, as happened in the case of the DNC Host Committee, the state grant is spent, but privately raised money is left, the private funds must be used to reimburse the state, up to the full amount of the grant.
The state also added new requirements for competitive bidding of contracts on special-events projects that receive state money. To ensure all organizations comply with these guidelines, DCED will "enhance scrutiny" of its audits once a grant is expended by an organization, the governor's office announced.