At the crowded Columbia Heights food shelf, visitors dodged employees pushing carts of supplies down a hallway that doubled as a waiting room.

"Watch your toes!" warned Elaine Walker, co-director of the food shelf.

The workers at Southern Anoka Community Assistance (SACA) share desks and must store food at two off-site locations because their workplace is so cramped. That's why the food shelf is hoping for $2.5 million from the state of Minnesota to open a new facility that triples its size.

"We just outgrew it, and we want to do more for the community," said Dave Rudolph, SACA's co-director. "[The state does] have a lot of money. This is a one-time thing."

SACA is one of many Minnesota nonprofits seeking state funding this year at the Capitol to support new facilities or expanded programs. Given the state's historic $17.6 billion budget surplus, they're vying with cities, counties and other entities for funding through the surplus or bonding.

"We are seeing significantly more requests coming in from local nonprofits from across the state asking for capital investment dollars," said Rep. Fue Lee, DFL-Minneapolis, who chairs the House Capital Investment Committee.

Those requests come amid increased scrutiny of state grants to nonprofits. Spurred by some legislators' concerns, the Office of the Legislative Auditor will release a report Thursday evaluating state agencies' grantmaking policies for nonprofits. Rep. Kristin Robbins, R-Maple Grove, one of the legislators who requested the report, said she has worried for years about granting funds to nonprofits that don't offer adequate data or financial management.

"We have to figure out how to best steward taxpayers' money," said Robbins, who is drafting a bill to create a state office to track nonprofit grants and set standards that she said would be more robust than what's now in place.

The FBI's massive investigation into the Twin Cities nonprofit Feeding Our Future has also raised concerns over government funding of nonprofits. The $250 million fraud scheme involved federal reimbursements to nonprofits that were supposed to provide meals to children during the COVID-19 pandemic, under the administration of the state Department of Education. Prosecutors say it's the largest pandemic-related fraud in the nation.

The legislative auditor is working on a separate review of the Education Department's oversight of Feeding Our Future, which is slated to be released this summer.

Fragmented system

The Legislature plays a central role in approving state funding for nonprofits, either by signing off on specific grants to nonprofits or appropriating money for a specific purpose to a state agency, which then accepts applications from nonprofits for funds.

More than $1 billion is disbursed annually through state grants to nonprofits. But according to the Minnesota Council of Nonprofits, most of the state's more than 9,000nonprofits don't receive any government funding.

The council recently released a report on how to develop a more efficient and equitable grants system. Each agency's selection process is different, making the system fragmented and inconsistent, said Marie Ellis, the council's public policy director. The council supports streamlining state grant applications to increase accountability but doesn't want legislators to "overcorrect" with restrictions that could create barriers for small nonprofits.

Last year, the Feeding Our Future scandal prompted state Senate Republicans to propose additional financial audits of some nonprofits and barring newly formed nonprofits from receiving state money. The proposals didn't pass.

Legislators didn't pass a bonding bill in 2022, so nonprofits are back again this year seeking that funding. Lee said the surplus makes it likely that more nonprofits will get state money this year, which he said would support the kinds of underinvested communities that nonprofits often serve.

"A lot of these nonprofits are carrying out the mission that may not be covered under our public sector, and they are carrying the work of serving our Black, brown and Indigenous and communities of color," he said. "We really need to make sure ... nonprofits get [their] due diligence and consideration for funding."

Gov. Tim Walz last week released his $3.3 billion infrastructure plan, which includes $200 million in general fund money for capital projects for nonprofits and community-based organizations that are led by, and serve, communities of color. That's double the amount the governor has sought for nonprofits in recent years, according to the Council of Nonprofits.

"Often a lot of these projects are relieving the burden on government by providing services," Ellis said. "And they really are a public benefit."

Seeking state support

SACA, which has six staff members, serves more people yearly than before the pandemic — many of whom are seeking help for the first time. More Minnesotans visited food shelves in 2022 than in any other year in history.

"So many times, we can be the difference between paying rent ... and getting enough to eat," Rudolph said.

SACA's proposed new building would double its warehouse and freezer space, and add a technology center. The food shelf, which serves residents in the north metro and northeast Minneapolis, has received $1 million in federal aid and collected about $500,000 in donations toward its proposed $4.2 million renovation of a former machine shop.

If it doesn't get state funding, Rudolph said, SACA would continue fundraising or secure a loan in order to open the facility by 2024.

Other nonprofits across the state are making pitches for funding. In Minneapolis, V3 Sports is seeking $15 million to build an aquatic sports center, while Simpson Housing Services is asking for $10 million for a new homeless shelter. Hope 4 Youth in Anoka County is requesting $8 million for a new homeless youth drop-in center, while Camp Courage in Wright County, which supports kids and adults with disabilities, is seeking $10 million for a new recreation facility.

Metro Meals on Wheels, which relies on federal and state aid for about half its budget, is looking for $540,000 to deliver meals to veterans. Executive Director Patrick Rowan made the funding request once before and hopes this time the money comes through this time.

"Nonprofits just play a critical role in the network of services out there," he said. "There's broad recognition, regardless of location or party, of the need for hunger relief."