Dear JFA Readers:

The Senate Health, Education, Labor, and Pensions Committee
began an investigation several months ago of federal programs
that provided job opportunities for Americans with significant
disabilities. The article below from The Oregonian sums up the
findings in that investigation and the hearing that followed
in the fall 2005. This process of recommending changes to the
programs continues.

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     Charity Leaders Prosper As 'Disabled' Is Redefined

A federal program to help the severely disabled draws scrutiny
over executive pay as hiring shifts to a new class of
subsidized workers.

Sunday, March 05, 2006
The Oregonian   
Jeff Kosseff, Bryan Denson, and Les Zaitz

www.oregonlive.com/printer/printer.ssf?/base/news
1141371388106780.xml&coll=7

When Congress created the nation's most ambitious jobs program
for Americans with severe disabilities, the idea was
straightforward and rich with compassion.

Federal agencies would reserve contracts for small nonprofit
workshops that hired epileptics, paraplegics and the mentally
retarded to make simple products such as mousetraps,
blackboards and first-aid kits. The disabled would gain a
decent paycheck, some self-esteem and a chance to learn skills
that someday might land them a better job.

More than three decades later, the nonprofits increasingly are
hiring workers who are mildly disabled, if at all, with aching
backs, substance-abuse problems and other maladies common in
the American workplace. This new class of federally subsidized
worker is getting the highest-paid jobs, while many of the most
severely disabled toil for pennies an hour.

Their bosses are benefiting handsomely, with leaders at many of
the program's biggest charities pulling in private sector-style
compensation as the new money rolls in. At least a dozen earn
$350,000 or more a year, and average pay and benefits for top
executives at the program's largest nonprofits have grown more
than three times faster than their workers' pay.

The program's key requirement -- that three of every four hours
of work is performed by people with severe disabilities -- is
policed under what's essentially an honor system. Oversight is
so weak that the biggest contractor, a
Texas nonprofit, amassed
$834 million in government sales despite repeated findings that
it couldn't document many of its workers' disabilities.

This radical reordering of the government's priorities comes at
a cost. Many of the most severely disabled workers, who labor
at charities with shoestring budgets, have been left behind.

"Like a lot of federal contracting, the big money drives it,"
said David Wiegan, who believes workers at his small
McMinnville nonprofit are simply too disabled to win many of
the contracts now offered by the program. He said some bigger
charities are drifting away from their social welfare missions:
"I think they get sucked in, and I think they lose their sense
of what's right and wrong when they're tempted by a lot of big
dollars."

Called Javits-Wagner-O'Day after its founders in Congress, the
program requires federal agencies to buy certain goods or
services from nonprofits that employ blind or severely disabled
workers. Prices are set by regulators and the nonprofits, which
collaborate with federal agencies that set aside contracts for
the nonprofits.

The program is administered like no other in the government. A
presidentially appointed committee delegates much day-to-day
oversight to two trade associations representing nonprofits.
These groups collect up to a 4 percent commission on every
contract they monitor, creating a basic conflict of interest:
Booting a charity from the program cuts their own revenue
stream.

Sales in the $2.25 billion program have doubled during the Bush
administration, driven largely by the post-9/11 boom in
Pentagon contracts for complex tasks such as sewing chemical-
warfare suits or fixing battle-scarred Humvees. Delivering on
those contracts requires a more skilled -- and less disabled --
work force with salaries that are often comparable to the
private sector.

Across the country, about 300,000 blind or disabled workers
hold jobs at small charities similar to Wiegan's, with most
earning less than minimum wage under a federal law that allows
them to be compensated based on their limited productivity.
While many federal programs for the disabled have faced steep
budget cuts, Javits-Wagner-O'Day continues to grow year to year
and now employs more than 48,000 workers.

The Oregonian began investigating the program as part of a
continuing series of reports examining the evolution of
nonprofits that employ
America's disabled workers. The
findings, drawn from hundreds of interviews, thousands of pages
of documents and visits to more than a dozen charities in seven
states, reveal a program that drifted far from its founding
principles with little outside scrutiny or public debate about
who is benefiting.

Periodic attempts to change Javits-Wagner-O'Day have foundered
on opposition from nonprofits and their advocacy groups, which
are skilled at lobbying against reforms. But pressure for
change is mounting as some in Congress question whether
nonprofit executives are cashing in at the expense of the
disabled.

The program "is intended to benefit many persons with
disabilities, not a handful of nonprofit executives," said Sen.
Mike Enzi, a Wyoming Republican who chairs the Senate Health,
Education, Labor and Pensions Committee.

Enzi held a hearing on the program last fall and will be an
influential player this year as Congress considers updating
Javits-Wagner-O'Day. He said he's concerned that small
charities can't get contracts while "much larger nonprofits
grow rich." More should be done to get disabled workers into
mainstream jobs, he said.

That long-term goal -- to train disabled workers so they can
compete for jobs on the open market -- has taken a back seat.
Figures reviewed by The Oregonian show only 2,450 workers moved
from Javits-Wagner-O'Day jobs into the regular workplace last
year, a figure that has fallen despite the program's surge in
growth. The new disabled

Mike Davis is not the kind of worker lawmakers said they had in
mind when they drafted Javits-Wagner-O'Day, but he owes his job
to the program.

The 29-year-old mechanic, out of the Army on a medical
discharge, found work at Skookum Educational Programs, one of
the biggest charities in Javits-Wagner-O'Day. Weekdays, he
fixes Humvees and 19-ton military cargo trucks at
Fort Lewis,
Wash.
, tearing into engines battered by duty in Baghdad and
elsewhere.

Davis earns $24.56 an hour, including about $3 for medical
benefits and retirement. He has a hearing problem -- corrected
by hearing aids -- and backaches that he says made him
unemployable elsewhere.

Congress envisioned helping a different class of veterans 35
years ago. With troops streaming home from the Vietnam War,
lawmakers pondered expanding a small program that since the
1930s had set aside contracts for the blind. Their plan was to
open the program to veterans with missing limbs, paralysis or
brain damage, plus 12 million working-age adults left
unemployed by major disabilities.

President Nixon's chief disability-employment training official
told lawmakers who would get the jobs.

"We are talking about mentally retarded and the paraplegic . .
. and quadriplegic," Edward Newman told Congress. He included
"deaf people with severe psychomotor problems . . . and people
with other kinds of neurological involvement such as people
with severe cerebral palsy or epilepsy."

That definition is now archaic. With the acquiescence of
regulators, nonprofits gradually have expanded the notion of
severely disabled to include ailments never discussed when the
law was amended in 1971. The additions include conditions such
as alcoholism or chemical dependency, minor learning
disabilities, limited English, nasal polyps, carpal tunnel
syndrome, allergies, arthritis and speech impairments.

The broadened notion of who is disabled, in combination with
the surge in military spending since 9/11, has revolutionized
many of the biggest nonprofits in Javits-Wagner-O'Day. It also
has stretched the boundaries of the program's most fundamental
rule: 75 percent of the work hours logged by contractors must
be supplied by blind or severely disabled workers.

Skookum is a case study in the transformation.

For years, the bulk of Skookum's developmentally disabled
workers made jump-ropes or sorted recyclables in businesses
cultivated by founder Jim Westall. The jump-rope business still
occupies a room at the company's airy headquarters in Port
Townsend,
Wash., but the fact that it no longer turns a profit
is of little concern.

In 2001, Skookum landed a five-year, $64 million Javits-Wagner-
O'Day contract to diagnose and repair Army vehicles that
overnight promised to double the nonprofit's annual revenues.

When the Army later told Skookum that thousands of damaged
vehicles were heading back from
Iraq, Westall couldn't find
enough disabled employees in a hurry to handle the load. So the
government granted Skookum a three-month waiver of its
disability requirement, Westall said. The waiver has expired,
and the work goes on.

The contract now has 120 workers with pay averaging $20 an
hour. At least one has a missing leg, though most others suffer
learning, hearing and physical afflictions, such as back and
joint pain.

Westall, a former special education teacher and Skookum's chief
executive, acknowledges that workers at the
Fort Lewis garage
are higher functioning than many others in Javits-Wagner-O'Day.
The nature of the work demands it, he said: "They have to be
able to do the work, or the Army has no use for them. You have
to know an axle from a gas cap."

Westall thinks the program should be expanded to cover a wider
range of workers, including perhaps battered women. Until then,
he said, meeting the program's standard of 75 percent disabled
labor boils down to a balancing act.

"Move too far one way -- and hire too many people with too
severe disabilities who can't do the work -- and we lose our
contract," he said. "Move too far the other way -- to this
place where we have all of these high-functioning people that
can do the work but (have) questionable disabilities -- we lose
our soul."

Pay scales

Skookum is hardly alone. Many of the biggest charities in
Javits-Wagner-O'Day routinely use workers with modest
disabilities. What matters, they say, is not the type of
disability but whether it prevents them from holding a job
outside the program.

One of the most successful is Fedcap Rehabilitation Services, a
New York City charity that pays an average of $17.87 an hour to
Javits-Wagner-O'Day workers. Fedcap, which supplies custodial
crews for federal buildings, reports the program's third-
highest average wage, mostly because the nonprofit pays union
scale.

Like Skookum, the charity specialized in hiring workers with
profound physical disabilities when it was founded 70 years
ago. Now, Fedcap workers include many with learning
disabilities, mental illness, alcoholism and substance abuse
who are judged unemployable elsewhere, said Susan Fonfa, the
charity's executive director.

"Just because you can't see it doesn't mean it's not real,"
Fonfa said. "We will get people with every disability possible,
just about."

Critics of this hiring trend say it's less a balancing act than
a cop-out. Some charities are cashing in on the government's
largess, they say, while smaller nonprofits with workers who
are far needier can't get in.

At Wiegan's nonprofit in McMinnville, for instance, the
majority of the 150 workers are mentally retarded, autistic,
blind, or beset with other physical or developmental
disabilities. Their problems are too severe to perform much of
the work now being offered under Javits-Wagner-O'Day, Wiegan
said.

For years, Mid-Valley Rehabilitation has tried to land a
contract under the program, Wiegan said. The nonprofit turned
down one offer to make military footlockers, he said, because
the costs were too high. Any worker who can repair a Humvee has
no business taking money under Javits-Wagner-O'Day, he said.

"It's beyond absurd," Wiegan said. "If they can do that work,
they're competitively employable. It's crystal clear."

Wiegan's nonprofit is more typical of those that employ the
severely disabled. Because such workers are normally less
productive, the law allows charities like Mid-Valley to pay
less than the federal minimum wage of $5.15 an hour. About
300,000 workers fall into this category, according to U.S.
Labor Department estimates. Even so, about 70 percent of the
nation's disabled adults remain unemployed.

When people with truly severe disabilities are lucky enough to
land work under Javits-Wagner-O'Day, they're often paid a
subminimum wage. To get a picture of how little these employees
earn, The Oregonian analyzed earnings records for eight large
contractors. They show that 1,644 employees with severe
disabilities received a median wage of $1.93 an hour.

Megan Brixey is the type of worker lawmakers envisioned helping
when Congress expanded Javits-Wagner-O'Day.

The 27-year-old McMinnville resident has Down syndrome and a
job shagging lumber for $3.91 an hour at a wood-products
company run by Wiegan's nonprofit. Brixey said she dreams of
magic -- "Like Harry Potter," she says -- wishing that it
flowed into her hands to make her a faster worker.

Wiegan said the big contracts and high pay for workers with
mild disabilities sends a blunt message to his severely
disabled employees: "They're not as important as the money."

Private sector-type benefits

The money has been a boon to top executives at the biggest
nonprofits. As sales ballooned under Javits-Wagner-O'Day,
charity boards have adopted compensation packages and marketing
budgets that resemble those of the private sector.

Nineteen years ago, a disability counselor started a tiny
nonprofit jobsprogram deep in the heart of
Appalachia with a
small grant. Since then, Terri McRae has built Advocacy &
Resources Corp. of
Cookeville, Tenn., into a multimillion-
dollar producer of baking mix, fortified vegetable oil and
other food for the government. The charity drew $50 million in
federal contracts last year, making it one of the largest in
Javits-Wagner-O'Day.

McRae's paychecks mirrored the charity's success.

In 2004, as her nonprofit landed large contracts with the
military and U.S. Department of Agriculture, her wages,
deferred compensation and benefits had grown to $518,835, up
from $66,500 a few years earlier.

McRae readily defends her compensation. Her nonprofit pays
market wages to all employees, including the executives, she
said. Running a multimillion dollar government contractor
requires deep knowledge of many regulatory requirements,
something that has taken years to develop, McRae said.

"I'm telling you what -- my job's a hard damn job," McRae said
in an interview last summer. "And when I'm gone, I'm going to
be really hard to replace."

The Oregonian analyzed tax forms for Javits-Wagner-O'Day's 50
largest contractors, which together account for about two-
thirds of the program's sales. More than a dozen reported
executives with pay and benefits exceeding $350,000 in 2004,
the most recent year for which complete tax records are
available.

The list includes Bill Hudson, president of LC Industries Inc.
in Durham, N.C., who made $537,787; John Miller, chief
executive of Goodwill Industries of Southeastern Wisconsin, who
made $444,405; and Terry Allen Perl, chief executive of The
Chimes Inc. in Baltimore, who drew $704,175. The charities said
salaries for all three were set by their board members based on
pay at similar-sized operations.

The largest Javits-Wagner-O'Day contractor, an
El Paso, Texas,
company with $276 million in sales to the military and other
agencies last year, reports no salary for its president, Robert
E. Jones. Instead, the
National Center for the Employment of
the Disabled said it paid $4 million in 2004 to a management
firm controlled by Jones' family trust.

Average pay and benefits for the top contractors' CEOs climbed
57 percent between 2000 and 2004, a period in which average
hourly pay for their severely disabled workers increased 16
percent.

The CEOs averaged $248,287 in pay and benefits in 2004, up from
$241,164 a year earlier and $158,400 in 2000. By comparison,
only a quarter of human-services nonprofits with budgets
greater than $5 million gave their CEOs pay and benefits
exceeding $155,520 in 2003, according to Guidestar, a national
clearinghouse for charity data.

The Oregonian's averages exclude two nonprofits: Mississippi
Industries for the Blind, because it is run by the state, and
the
El Paso charity, because it reports only a management fee
and not Jones' salary.

Few observers expect charity officials to take vows of poverty.
But in recent years, controversy about perks, insider deals and
big executive salaries has prompted Congress to threaten a
crackdown.

IRS rules require nonprofit boards to base executive salaries
on a review of what's paid to comparable business leaders. Some
of those familiar with Javits-Wagner-O'Day, including Fredric
Schroeder, a former member of the committee that oversees the
program, find the rising paychecks unseemly.

"There is the clear appearance that people with severe
disabilities are being paid low wages with no oversight of
those wages and that executives are being paid astronomical
wages," said Schroeder, who sat on the program's oversight
committee during the
Clinton administration.

The boom in contracts has fattened both salaries and the
balance sheet at many Javits-Wagner-O'Day nonprofits. Net
assets of the top 50 charities grew 60 percent between 2000 and
2004, with the biggest exploding by five times or more.

Charities now fret over things like "brand identity." The trade
association representing most of the program's nonprofits spent
$500,000 on lobbying and $3 million on marketing and
communications in 2004, according to tax forms and
congressional records.

Charity officials say the spending aims to boost awareness
about the program's goals and to attract more federal business.
But it also adds overhead. Supplies, marketing, management
salaries and other costs take up the bulk of the program's
money. Only about 18 percent of the $2.25 billion spent in 2005
went to wages for the disabled.

The 15-member committee that oversees Javits-Wagner-O'Day does
not police salaries, deferring instead to the IRS. Recently,
the program's growth prompted the committee to consider setting
new governance and conflict-of-interest standards for
nonprofits, which overwhelmingly have criticized the move as an
intrusion.

Stronger oversight would be a departure. When it comes to
policing its key mandate - that contractors use severely
disabled workers for three-fourths of their labor - even top
officials concede they haven't aggressively monitored the
nonprofits. Who's keeping watch?

Headquartered on the 10th floor of a bland high-rise near the
Pentagon, the Committee for Purchase From People Who Are Blind
or Severely Disabled is one of smallest and most unusual
agencies in the government.

By law, the panel of 15 presidential appointees -- four
representatives of blind and disabled workers, and 11 federal
government managers -- decides which federal contracts are set
aside under Javits-Wagner-O'Day. Their choices, which are
seldom reviewed by Congress, can steer hundreds of millions of
dollars to obscure nonprofits.

In an arrangement with few parallels in government, the law
allows the presidential committee to assign most contract
management duties to two trade associations, the National
Industries for the Blind, or NIB, and
NISH, formerly known as
the National Industries for the Severely Handicapped.

For years, government regulators visited charities to determine
whether they employed enough severely disabled workers.
Employees of the trade groups also visited the charities to
help them comply with the labor rules. But in 2001, with fewer
than 30 staffers tracking more than $1 billion in contracts,
the agency delegated regular site inspections to the trade
associations.

The decision was made without significant public debate or even
a committee vote. "With my staff of 29 people, NIB and
NISH can
put more resources against that," said Leon Wilson, executive
director of the presidential panel. "I still believe that was a
better path for us to take."

On paper, the panel still has broad authority to cut off
contracts from nonprofits that fail to meet the program's
requirement that 75 percent of all labor be performed by
workers with severe disabilities.

In reality, it's an honor system with little enforcement.
Nonprofits file annual reports, but
NISH officials visit only
once every three years. They randomly sample employee files to
check the ratio of severely disabled labor hours. If paperwork
is complete, the nonprofit passes.

Robert Chamberlin,
NISH's chief executive, said his staffers do
not interview workers to verify their disabilities because of
restrictions set by federal health privacy laws. More
importantly, Chamberlin said,
NISH does not have the legal
authority to conduct audits or investigations of the program's
contractors.

"They have specifically told us, 'You're not auditors,' " he
said. " 'You're not investigators. Your mission is to go in an
assist mode.' "

The tiny federal committee does visit new nonprofits or those
known to have problems. But officials acknowledge that no one
regularly audits longtime participants in the program.

The trade groups have an incentive to resolve issues amicably.
The charities pay them up to 4 percent on each contract. The
commissions helped boost
NISH's revenue 86 percent over four
years, to $58 million in 2004.

The trade associations "live on the commissions that come from
the contracts that go to these nonprofits," said Schroeder, the
former committee member. "So are they genuinely interested in
pulling the plug on a contract that appears to be unreasonably
operated? . . . I'm not suggesting evil, but there's no truly
independent oversight."

Rules of the Javits-Wagner-O'Day program leave room for some
interpretation of who qualifies as "severely disabled." They
say a worker must suffer from a "severe physical or mental
impairment" that so limits their ability to walk, talk or work
that the person is unable to "engage in normal competitive
employment."

The law specifies a measurable standard for blindness -- 20/200
vision in the best corrected eye. As such, there are few
questions about workers at the 74 nonprofits represented by
NIB, the trade group for the blind.

But the range of other disabilities is much less clearly
defined.
NISH, which represents 553 contractors, only demands
its charities document that workers have disabilities
preventing them from finding other jobs.

The program's lax oversight can be seen in the committee's
dealings with
El Paso's National Center for the Employment of
the Disabled, the program's biggest contractor.

Officials with the committee and
NISH began examining in 1999
whether the nonprofit used enough labor from severely disabled
workers. By May 2000, officials on three separate occasions had
found inadequate documentation to back up disability claims.
The problems did not stop the nonprofit from building its
business year after year.

Last spring, an anonymous complaint triggered a visit from
committee investigators, who found payroll reports indicating
only 39 percent of the nonprofit's labor was from severely
disabled workers. Still, it wasn't until January that the
committee ordered
NISH to send a compliance team to El Paso to
review all the nonprofit's records.

Since then, the charity's largest customer -- the
Defense
Supply Center
in Philadelphia -- said NISH alerted commanders
of "some concerns" about whether the nonprofit was using enough
severely disabled labor. A spokeswoman said Friday that the
center last week "ceased placing orders with NCED" until the
concerns are resolved. Separately, charity officials are
scheduled to appear before the committee Thursday to address
the work-force issue.

Not since the early 1990s has the committee or
NISH released an
accounting of the types of disabilities in the Javits-Wagner-
O'Day work force. The Oregonian sent surveys to the 50 largest
contractors in an attempt to categorize disabilities, but only
six responded, too few for a reliable sample.
NISH has worked
for months to compile such a report, but results were not ready
as of last week.

Linda Merrill, chief executive at Envision, a Kansas nonprofit
that primarily employs blind workers, said it's time for
"severely disabled" to be defined more strictly.

"We're kind of joking among ourselves," said Merrill, "that
instead of National Industries for the Severely Handicapped,
it's National Industries for the Severe Hangnail and
Hemorrhoids."

NISH's Chamberlin acknowledged that nonprofits have an
incentive to employ people who have higher productivity, but he
does not blame that on the federal program. Customers
increasingly are demanding high quality at low prices, he said.

"The government is tough," Chamberlin said. To address the
problem, he said,
NISH is attempting to find more business in
areas such as document destruction and laundry, which are
better suited to people with more severe disabilities. Momentum
for change

Powerful forces on Capitol Hill are beginning to recognize
problems with Javits-Wagner-O'Day, foreshadowing a showdown
between lawmakers and charities in the program.

Two
U.S. senators have introduced a bill that would reserve
some federal contracts for private businesses employing
disabled workers. And a Senate committee held a hearing in
October, taking testimony about soaring executive salaries and
misdirected resources.

Enzi, the
Wyoming senator, said the program should do more to
move workers into mainstream jobs. As it stands, only 5 percent
of the severely disabled workers in the program move to
private-sector jobs, down from 7 percent in 2000.
Wilson said
workers are reluctant to leave nonprofits because they are
friendly places with wages and benefits that are often superior
to comparable private companies.

Newman, the former Nixon administration official, said
policymakers expanded the program in 1971 hoping to train
workers and move them out of low-paying "sheltered workshop"
nonprofits and into the regular work force. Now, he sees a
reversal.

"They are rebuilding a sheltered workshop mentality, when the
efforts of the '60s and '70s was to help people with
disabilities be able to join the mainstream of the work world,"
said Newman, now a professor at
Temple University.

If history is any guide, changes to the Javits-Wagner-O'Day
program are likely to be met with great resistance by many of
the biggest charities.

The chairman of the presidential oversight committee, Steve
Schwalb, said alarm about rising executive pay led members to
propose a $207,000 compensation cap in late 2004. The figure
seemed reasonable because $207,000 was the top compensation for
federal managers, most of whom run agencies larger than the
program's nonprofits.

What followed was a roar of protest from nonprofit executives,
board members who set their salaries and some of their lawyers.

Schwalb's committee withdrew the proposal. But after The
Oregonian last fall reported on rising executive salaries and
Enzi's committee held hearings, the presidential panel proposed
more stringent governance standards for nonprofits along with a
possible compensation limit, though it has not specified a
number.

Chamberlin, who as head of
NISH earned salary and benefits
totaling $299,565 in 2004, has been among the opponents of a
salary cap. The trade group had argued against the $207,000 pay
limit, calling it discriminatory and unnecessary.

One supporter of a compensation limit is John Murphy, who
earned $130,310 in pay and benefits as the head of
Portland
Habilitation Center
in 2004. The nonprofit provides janitorial
services for federal buildings and is
Oregon's biggest Javits-
Wagner-O'Day contractor.

Murphy, who sits on the
NISH board of directors, said it will
be difficult for the program to determine a maximum salary. But
it's needed, he said.

"The committee should make some judgments and come down on
organizations where it just stinks," Murphy said. "The
reputation of the program is at stake."

News researchers Margie Gultry and Kathleen Blythe contributed
to this report. Jeff Kosseff: 503-294-7605;
jeff.kosseff@newhouse.com
Bryan Denson: 503-294-7614;
bryandenson@news.oregonian.com Les Zaitz: 503-221-8181;
leszaitz@news.oregonian.com

2006 The Oregonian
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