Michigan LEO outlines nonprofit grant process; lawmakers press for transparency and data

The House Oversight Subcommittee on Corporate Subsidies and State Investments heard a presentation on the Michigan Department of Labor and Economic Opportunity(LEO) grants process and its relationships with nonprofit recipients, followed by a line of questions from committee members about transparency, timelines and targeted grant language.

LEO Senior Chief Deputy Director Jonathan Smith and Jayshanna Hicks, director of legislative affairs for LEO, told the subcommittee the department oversees a mix of formula, competitive and legislative-directed grants and monitors recipients for compliance. "Our mission at LEO is to expand economic opportunity and prosperity for for everyone in Michigan," Smith said during his opening remarks.

Why it matters: LEO administers hundreds of millions of dollars statewide and uses different award methods that carry different oversight and reporting requirements. Committee members pressed LEO on how grants are targeted, how recipients are vetted and how the department enforces spending rules when grants are advanced instead of reimbursed.

Smith summarized LEO's grant portfolio and process. He said LEO's accounting shows 22% of grant dollars going to other governments, 15% to schools and universities, 40% to nonprofits and 24% to for-profits, while noting that accounting conventions can blur where funds ultimately land (for example, some business-directed Going Pro Talent Fund awards pass through local Michigan Works agencies and are recorded as nonprofit recipients). Smith said 26% of LEO grants are distributed by formula (largely federally directed), about 46.5% are distributed through competitive requests for proposals, and roughly 27.5% are issued without a competitive process, mostly legislative enhancement grants.

Smith provided examples and quantities: the nonprofit relief grants were a legislatively directed $35,000,000 awarded to nearly 1,500 nonprofits; the MiOSHA MiWISH program distributed about $400,000 to 99 awardees; and legislative enhancement grants were cited at approximately $309,000,000 awarded to about 323 awardees (some grant agreements still were being finalized at the time of the presentation).

On how competitive awards are evaluated, Smith said LEO forms a joint evaluation committee, uses a scoring matrix to judge proposals on program fit, need, budget reasonableness, past compliance and staffing, and then tabulates independent evaluator scores. Grants are typically paid by reimbursement; LEO only provides upfront payments when legislative language requires it or the State Budget Office approves an exception. Smith said payment systems currently include Sigma and a Grama process and the department is working to consolidate systems.

Smith described the department's risk-based monitoring and compliance steps: a prereview of audits and policies, an entrance conference with the grantee, documentation collection and interviews, draft findings shared at an exit conference, and a final report issued within 45 days. He said findings may result in disallowed costs; recommendations advise future practice. He gave one example of a clawback: about $99,000 to $100,000 was recovered this year after expenses were submitted for reimbursable grants that predated the grant agreement.

Committee members pressed for additional data and clarity. Vice Chair Representative Green and Minority Vice Chair Representative Wigela asked for dollar-value breakdowns by recipient type and for the total number and dollar totals for the most recent fiscal year; LEO offered to follow up with FY25 and 2019'1 data. Representatives asked how long applications and grant agreements typically are; Smith said application length varies by program and applicable federal or state requirements, while standard state grant agreements are usually short and, when unchanged, can be finalized in days or weeks.

Members asked about eligibility (501(c)(3) versus 501(c)(4) organizations) and whether LEO evaluates organizational affiliations (for example, whether a 501(c)(3) applicant has a related 501(c)(4)). Smith said LEO generally evaluates the applicant organization itself and would need to review statutory program rules to bar or allow certain entity types; he did not confirm a routine check for affiliated organizations and offered to follow up. On salary scrutiny, Smith said LEO reviews salary or staff-time costs only insofar as state dollars are used to reimburse those expenses and whether those amounts are reasonable against hours claimed.

Members also raised specific program questions. Vice Chair Green asked about the nonprofit relief grants funded with American Rescue Plan dollars; Smith said the Michigan Nonprofit Association helped develop distribution criteria and evaluate applicants, and the program prioritized organizations that demonstrated pandemic-related declines in operating revenue. Representative Bierlein asked how many people received training from Michigan Works-funded programs; Smith said the state is required to track WIOA outcomes and LEO would provide the numbers.

The committee discussed the Michigan Impact Grant Program award list visible on michigan.gov and asked about recipients described in program summaries as serving "families of color" or "young women of color." A representative asked specifically whether it is appropriate to use race as an eligibility criterion. Smith responded that organizations receiving state funds must spend those state dollars in accordance with state and federal law, including nondiscrimination requirements; he said program design and targeting may reflect efforts to reach populations that have lacked access to services, but expenditures of state funds must comply with law.

On transparency, Smith said LEO does not routinely publish every individual grant agreement but that documents are subject to Freedom of Information Act requests and the department can provide standard grant templates and other materials proactively to lawmakers.

What the committee asked LEO to provide: a dollar-value breakdown of grants (including FY25 totals), counts of individuals served by Michigan Works training programs, examples of grant agreements and standard templates, and follow-up on whether the department screens for affiliated entities such as separate 501(c)(4) organizations.

There were no formal committee actions or votes recorded during the presentation. The subcommittee adjourned after the Q&A and LEO's offer of follow-up information.

LEO presenters quoted in this report: Jonathan Smith, Senior Chief Deputy Director, Michigan Department of Labor and Economic Opportunity; Jayshanna Hicks, Director of Legislative Affairs, Michigan Department of Labor and Economic Opportunity. Committee members quoted by role are identified where direct quotes appear in the transcript.

The subcommittee requested several written follow-ups from LEO, and LEO agreed to provide standard grant templates, fiscal-year breakdowns by recipient type and counts tied to workforce programs; the department said it would need to research some items and return them to the committee in subsequent correspondence.