Virginia officials scramble to restore funding for charities

— Virginia officials are racing to restructure their relationships with more than a dozen charitable organizations that have had their state funding frozen in recent months as a result of guidance from Attorney Gen. Ken Cuccinelli II (R) that payments to charities violates Virginia’s constitution.

The officials say they are confident they will be able to write contracts in coming weeks with most, if not all, of the groups, which include AIDS clinics, community health groups and volunteer rescue squads.

The contracts, which would replace long-standing informal agreements, would allow the groups to resume receiving state funds. But the officials said they are still examining whether those contracts will allow the groups to recoup payments frozen by the state since Cuccinelli issued a legal opinion in January indicating that Virginia’s constitution bars funding for charities.

The suspended state payments came at a time when private giving to charities has dipped and demand for services have been rising.

“The prudent Virginian wants us to make sure we do things legally,” said Virginia Health Commissioner Karen Remley. “We’re working feverishly to do that.”

In response to a Freedom of Information Act request, the Virginia Department of Health late Thursday provided a list of 12 groups that were flagged by agency officials and lawyers for the attorney general’s office.

The groups had been slated to receive $12.5 million this year through the two-year state budget approved by the General Assembly in 2010.

The groups include include the Virginia Health Care Foundation, the Virginia Association of Free Clinics, the Alexandria Neighborhood Health Services Inc., the Bedford Hospice House and the Fan Free Clinic for AIDS in Richmond.

Grants for equipment purchases for eight volunteer rescue squads have also been put on hold.

Remley said she is “very optimistic” the constitutional concerns can be resolved for the groups, noting that lawmakers approved the funding and state officials agree the organizations are key to maintaining a basic health safety net for low-income residents.

She said state officials are working to convert informal memoranda of understanding into legal contracts outlining what services they will provide in exchange for their state funding.

“This caused a lot of angst — appropriately so — in the nonprofit community,” Remley said. But, she added, “This is changing one kind of paperwork into another kind of paperwork.”

A spokeswoman for the Department of Social Services said it is likewise looking for ways to release funding to two groups that have been determined to have an unconstitutional relationship with the state — Healthy Families of Virginia and the Child Advocacy Centers of Virginia.

Cuccinelli’s opinion, issued in response to a legal question from a state delegate, narrowly addressed funding for a handful of groups for which Gov. Robert F. McDonnell (R) had sought funding during this year’s legislative session.

Cuccinelli found that the proposed grants violated a provision of the state constitution that prohibits the General Assembly from appropriating funds “to any charitable institution which is not owned or controlled by the Commonwealth.”

The sweeping impact of Cuccinelli’s legal opinion has only become clear in recent days.

In response to the legal missive, McDonnell’s chief of staff quietly instructed state agency heads to compile lists of all charities that receive money through the state budget and consult with the attorney general’s office about whether those payments were constitutional.

In the Health Department alone, the initial list for review totaled 355 organizations. Allocations for some groups were quickly determined to be in compliance. Others were subject to lengthier reviews, which were completed late last week

While the review was underway, funding for some groups has been suspended.

The state has so far withheld $400,000, for instance, from the Virginia Community Healthcare Association, an umbrella group for federally qualified health clinics at 112 sites that served 270,000 underinsured patients in 2009, said chief executive R. Neil Graham.

“We have faith in them that this will be resolved — I don’t think all our funding is going to go away or this will be a death knell,” he said. But, he added, “Whenever someone questions funds you count on, it’s stressful.”

Lou Markwith, executive director of the Association of Free Clinics, said he’s been having three conservations a day with health officials this week, as they work to get the issue worked out.

“As I’ve told my clinic members — this relates back to the principle of unintended consequences,” he said.

In a statement, Cuccinelli spokesman Brian Gottstein rejected the “growing misperception” that the attorney general’s office was going “through lists of charities, stating which ones can receive money and which can’t.”

Gottstein confirmed that lawyers have been providing guidance to state agencies about the scope of the constitutional prohibition outlined in the January opinion. And he noted that A.E. Dick Howard, a law professor at the University of Virginia who served as executive director to the 1971 commission that wrote the state’s modern constitution, has said he believed Cuccinelli’s legal analysis on charities was on target.

But some state lawmakers and nonprofit representatives said they think the governor’s office has applied Cuccinelli’s opinion overly broadly. Attorney general opinions in Virginia are advisory.

“This appears to be an overreaction,” said Del. S. Chris Jones (R-Suffolk), one of the Republican-led House of Delegate’s top budget negotiators, noting that lawmakers had added language into the state budget this year in an effort to prevent any halt in state funding for the groups.

He said administration officials have been asked to attend the next meeting of the Appropriations Committee to explain the situation.

The uncertainty has been difficult for charitable groups that operate month to month, said E. Eduardo Romero, membership and communications director for the Nonprofit Roundtable of Greater Washington, which works with a number of the affected groups.

“Maybe there’s a way that everything will be resolved, but it hasn’t been clear,” Romero said. “The uncertainty has significant economic costs...The frozen payments, that’s where it gets to be outrageous.”

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