The Baltimore City government helps local nonprofits use a financial structure that keeps the public in the dark about some organizations’ finances, even when they receive government money.

This practice of “fiscal sponsorship” allows established nonprofits to provide various services to smaller nonprofits, which are often newly created and not registered with the IRS. These services include handling their finances, which allows the smaller nonprofits to avoid filing public tax disclosures.

“The IRS must investigate these kinds of arrangements for impropriety and bending of the rules,” said Scott Hodge, a senior policy adviser at the Tax Foundation. “These too-clever partnerships are a sign that federal tax-exempt rules are broken and should be reformed.”

Baltimore City has a lucrative network of fiscal sponsors that expanded since the COVID-19 pandemic. Prominent foundations, such as the Annie E. Casey Foundation and Open Society Institute steered this effort. The collaboration between wealthy foundations, established fiscal sponsors and local nonprofits was later boosted by Baltimore City taxpayer dollars through the Baltimore Children and Youth Fund (BCYF).

BCYF was created through a city charter amendment in 2016 and was touted by elected leaders as a plan to support youth-focused community projects after the death of Freddie Gray. The program is funded exclusively by Baltimore City taxpayers but is run through a separate nonprofit, meaning there is no regular performance auditing of the fund. There is also no sunset date on the money it receives.

A previous FOX45 investigation identified an extensive list of 2022 BCYF grant recipients who did not file tax forms in recent years or are not registered as nonprofits with the IRS.

Community leaders capitalized on the passage of BCYF to boost the fiscal sponsor network in Baltimore City. BCYF hosted an educational event titled “Understanding Baltimore’s Fiscal Sponsorship Landscape” in January 2021, which it posted on YouTube a month later. The event hosted three panelists: Danielle Torrain of the Open Society Institute; Changa Onyango of Fusion Partnerships, which is a fiscal sponsor; and Candace Chance of The VPI Firm, which provides consulting services.

The panelists advocated for government entities and local nonprofits to increase payments and coordination with fiscal sponsors in the community, which they said was essential to aid Black-led organizations and counter racism. Torrain said local leaders should focus on reforming what she described as a “nonprofit industrial complex” that is rooted in a “very exploitative form of capitalism.”

“I do view this as not only a racial justice issue but an economic justice issue,” Torrain said. “So when we think about the work of reimagining our local fiscal sponsorship ecosystem and what it can and should look like, it’s a part of the work of actually reimagining economic systems, and reimagining them in ways of being more regenerative and non-exploitative and more restorative and also rooted in our values as people.”

Onyango emphasized the need to take advantage of what he described as a flawed nonprofit ecosystem.

“We know that the nonprofit complex overall is a tax dodge,” he said. “The cat is out the bag. To my funding section, I would just ask you to relent on the pettiness, relent on the pettiness, do some research, let go of your fear, undo the racism, so that we can get on with the business of building what we need to build and coming back to the equilibrium of human beings.”

Fusion Partnerships secured a $1.5 million grant from BCYF in June 2021, according to documents obtained by FOX45 through a public information request. The grant came six months after Fusion pleaded for more support for fiscal sponsors as a panelist in the BCYF event. The grant document reveals how BCYF leveraged its youth-focused program to boost fiscal sponsors.

“BCYF’s multi-year funding investment will allow Fusion Partnerships (Fusion) to sustain and expand capacity by supporting the strengthening of its business model, to support its current portfolio of fiscally sponsored grantees, and to contribute to growing Fusion’s working capital,” the project summary reads. “This investment will bring to fruition BCYF’s plan to invest in Baltimore’s fiscal sponsorship landscape, thereby supporting the success of grassroots organizations who need fiscal sponsorship. This investment also allows BCYF to support an organization that has been a key partner for BCYF grantees. Fusion supports our partners through its fiscal sponsorship, community grants and capacity building programs. This infusion of cash will strengthen those small organizations, bolster the fiscal sponsorship ecosystem, and increase their grantees’ capacity to support the City’s youth and families.”

Fusion Partnerships received grants from a variety of other sources within the Baltimore City government as well, according to the Baltimore City Board of Estimates website. The six government grants to the organization over the past two years total $536,780. A number of the grants were earmarked for fiscally sponsored organizations, such as the Baltimore Doula Project and Challenge2Change.

A spokesman for Fusion Partnerships previously acknowledged to FOX45 that “some of our partner projects have received funding from BCYF,” but declined to specify those projects. The group did not respond to questions regarding why it needs funds from local organizations and taxpayers.

The push to expand the fiscal sponsorship network in Baltimore City continued when the Casey Foundation and Open Society Institute initiated a study in August 2021 titled “Mapping Baltimore’s Fiscal Sponsorship Landscape.” Researchers interviewed local nonprofit and fiscal sponsor leaders. The report recommends that grant distributors pay fiscal sponsors in addition to the grants awarded to community nonprofits.

“These cash reserves could be done as one-time direct investments into specific fiscal sponsors, such as BCYF did with Fusion Partnership,” the report recommended with a likely reference to Fusion Partnership’s $1.5 million contract with BCYF.

More grants to fiscal sponsors soon followed.

BCYF awarded a $2 million grant in December 2021 to the Fund for Educational Excellence (FFEE), a fiscal sponsor, for its “Baltimore’s Promise Summer Funding Collaborative” program, according to documents obtained by FOX45 in a public information request. FFEE continued to receive grants from BCYF for this summer program, according to additional documents, including $2 million in 2022 and $1.85 million in 2024.

A review of FFEE’s nonprofit tax forms revealed the group appeared to use its BCYF summer funding award to distribute an extensive list of grants of its own to other nonprofits. This trail of payments accounts for a significant majority of FFEE’s dispersed grants.

FFEE listed 80 of its 104 grant distributions in its fiscal year 2023 tax form as being for a “summer funding” program. Its fiscal year 2022 tax form listed 66 of its 82 grants under this qualification and fiscal year 2021 listed 52 of its 65 grants.

The majority of these “summer funding” grants from FFEE appeared to go to smaller, local nonprofits. However, some went to additional fiscal sponsors.

FFEE gave Fusion Partnerships $374,022 between fiscal years 2022 and 2023 listed for “summer funding collaborative.” It gave Fusion Partnerships another $575,000 in fiscal year 2021 for “B’more Invested & Summer Grant.”

B’more Invested is a nonprofit focused on grantmaking that is “anchored” by the Open Society Institute, according to the group’s website.

FFEE gave a series of recent grants to Bmore Empowered, a fiscal sponsor whose operations director, Hana Pugh, is married to Baltimore City Mayor Brandon Scott. Some of these grants appear to be tied to BCYF taxpayer dollars through the summer funding program.

A $55,230 grant from FFEE in fiscal year 2023 to Bmore Empowered was listed for “Summer Funding / B’more Invested.” A $13,051 grant in fiscal year 2022 to the group was listed for “Summer Funding Collaborative.” A $150,000 grant in fiscal year 2021 was listed for “B’more Invested.”

Another fiscal sponsor, the Maryland Philanthropy Network, received $377,000 from FFEE between fiscal years 2021 and 2023 for B’more Invested, “Summer Grant” and the “healing cities” program.

Fusion Partnerships, FFEE and Bmore Empowered did not respond to questions about its fiscal sponsorship operations.

BCYF mentioned the Summer Funding Collaborative program in its 2023 grant awardees announcement, stating its goal to “fund different types of summer programs to keep students engaged and reduce summer learning loss so that more youth can reach their full potential.” However, BCYF did not mention FFEE in its description of the program.

BCYF listed $8.4 million in grant funding to 60 organizations in its 2023 announcement. It listed $5.25 million in grants to 35 organizations in its 2022 announcement.

The Summer Funding Collaborative program has its own website that describes its operations as a “partnership between public, private and nonprofit organizations that supports high-quality summer programs serving children and youth from low-income backgrounds in Baltimore City.”

David Williams, the president of the non-partisan Taxpayer Protection Alliance, warned this trail of funds from BCYF to fiscal sponsors and then to smaller nonprofits exposes a series of transparency concerns.

“Every time you go from one nonprofit to another, you’re getting less transparency and less accountability of the money,” Williams said. “When you create multiple nonprofits, you’re creating a mini army that is marching in lockstep with you. And they look independent, but they aren’t.”

Baltimore City did not respond to questions about its funding of fiscal sponsors.

The reshaped fiscal sponsorship network in Baltimore City followed years of troubled finances.

Strong City, a fiscal sponsor, abandoned its clients in May 2021 after it mismanaged $14 million in assets, as previously reported by The Baltimore Sun. At one point, the organization sponsored more than 150 programs.

A 2019 city audit found BCYF had “opportunities for improvement” on its grant distributions. BCYF was restructured as its own nonprofit shortly thereafter. The 2019 audit was ordered amid the Healthy Holly scandal that led to a three-year prison sentence for Former Baltimore City Mayor Catherine Pugh.

This story is part of an ongoing investigation into taxpayer money going to nonprofits and how that money is spent. Got a story tip or comment? Reach Patrick Hauf via email at pjhauf@sbgtv.com.