Earmarks are Back

The capital projects section of the budget bill is often overlooked by the media. That has been especially the case this year, with all the major initiatives brought forth by the Democrats.

I am working on one or more submissions dealing with capital development, but, in the meantime, there is one item that deserves a post of its own. Deep in the back of budget bill (HB 30), in Item C-72, there lurks a proposal of dubious constitutionality involving a lot of money.

The Children’s Hospital of the King’s Daughters (CHKD) is a well-regarded, private nonprofit, free-standing children’s hospital in Norfolk. The budget bill directs that $33.4 million in tax-supported bond proceeds be provided for the construction of a 60-bed mental health hospital at CHKD.

Article IV, Section 16 of the Virginia Constitution prohibits an appropriation of public funds to “any charitable institution which is not owned or controlled by the Commonwealth.” CHKD is a private entity designated as a federal 501 (c ) (3) charitable institution. The proposal is not well drafted in that it is not clear to which agency the bond proceeds are appropriated, but it is clear that the intent is that CHKD receive $33.4 million toward the construction of a children’s mental health hospital. A 2011 opinion of the Attorney General makes it clear that any such appropriation, while “noble in purpose and salutary in effect,” would violate the Constitution.

The AG’s opinion goes on to say that state agencies, as part of carrying out one or more of their functions, can contract with nonprofit organizations for goods or services without being in violation of the Constitution. The budget provision does make the funding for CHKD contingent on the hospital entering into a contract with the state that ensures at least 40% of the new beds “are used to provide treatment services for … unserved or underserved populations with the goal of reducing the need for inpatient treatment at state facilities.” Presumably, the administration felt that this contract contingency would provide protection from the Constitutional prohibition.

That argument seems thin, however. Under the proposed arrangement, the Commonwealth would not be contracting for direct services. Rather, it is seeking to shift some of its anticipated caseload or patients onto the private sector. To encourage the shift, it is offering to pay for part of the costs of constructing a new hospital. The actual services, i.e. the treatment of children admitted to the hospital, would be paid for as they are now. According to its website, “Children’s Hospital of The King’s Daughters is committed to caring for all patients, birth to age 21, without regard to their financial situation.”

Artist’s rendering of new CHKD mental health hospital  Photo credit: Daily Press

The argument becomes even thinner when one learns that CHKD has announced plans, and had a groundbreaking ceremony in September, attended by the Governor, to build a new 14-story, 60-bed mental health hospital and outpatient treatment center. The projected cost of the new facility is $224 million and it is expected to open in 2022. On the hospital’s website there is no mention of any agreement with the state to share in the cost. Obviously, the hospital felt it could proceed without any commitment from the state. So, the natural question is: What would the Commonwealth be getting for its $33.4 million that it would not otherwise be getting?

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11 responses to “Earmarks are Back

  1. Good catch, Dick. State funding for CHKD should be a controversial proposition. Virginia does need to invest in new mental health facilities — the state is under-served. But it’s got to do so in a way that is consistent with the Constitution!

  2. Hmmm… Where did Northam practice?

  3. Yep. Good catch. But the state has had shortfalls in mental health care so I wonder if we’ve got the whole picture.

    re: ” Article IV, Section 16 of the Virginia Constitution prohibits an appropriation of public funds to “any charitable institution which is not owned or controlled by the Commonwealth.””

    That’s interesting. How would that work with school vouchers?

  4. For school vouchers, as long as they were limited to public schools, there probably would not be a problem. For private schools, it would depend on how they were structured.

    • There are no private school vouchers here, except the TAG grants for higher ed. And those technically are grants to the students, simply aggregated and remitted to the schools for convenience. A bit of sleight of hand, perhaps, but they are to the student’s benefit. This is not the first instance where that line has been crossed, Dick. It’s been fuzzy for a while.

      • It was crossed all the time in the past. There was a section in the budget bill providing funding to a whole list of private, nonprofit agencies. Sometimes the list went on for pages, including every little local preservation group you could imagine. That practice stopped when the AG’s opinion came out. Now, it is done by having agencies contract with the groups or make grants tied to certain conditions (usually to do what the group is set up to do). This issue with CHKD stands out, first of all, due to the amount of money involved, and, secondly, because of its brazenness.

  5. ………. am reminded of the adage: money is fungible

  6. Locally, every year at budget time , a parade of 501(c)(3) organizations show up to plead for funds pointing out that they serve the local community and perhaps save taxpayers from other entitlements.

    My main complaint is similar to others and that is I don’t like to see duplicative services and multiple qualification vetting processes.

    Folks say they don’t like top-down centralized govt but if you have multiple silo orgs – it breeds waste and duplication of services as well as administrative support functions.

    This is inherent in our current system which is a rabbit warren maze of Federal, State and NGOs. Everyone has their silo.

  7. CHKD made over $62 million in profits in 2018 (vhi.org) and of course is tax exempt. Not sure they meet anyone’s definition of a struggling charity in need of state funding. This represents but a very small example of the corruption of the 501c3 designation because of lack of federal or state oversight and the corruption of politicians who receive millions in campaign funding from them through the quite legal 501c4 “cutouts” such as the Virginia Hospital and Healthcare Association.

    • Well put. The Leona Helmsley’s of our General Assembly understand that laws are for the little people … not for the intellectual titans of our state legislature.

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