What happens when charities accept charity–or rather handouts from the federal government, which are really quite different from charity?

Steven Malanga has a fascinating piece over at City Journal on the Federation Employment and Guidance Service–FEGS–a  once small and successful Jewish charity that grew into an enormous social services nonprofit before collapsing heavily in debt earlier this year.

At the time of its sudden demise, FEGS owed $2.3 million to the New York State Office of Mental Health and additional $12 million for loans for construction. Malanga writes that the fall of FEGS "illustrates how government money has transformed religious and mutual-aid philanthropic organizations and the risks that such groups take when they chase public funding."

FEGS, founded in the 1930s, originally provided vocational help for Jewish immigrants. Their work became urgent as more and more Jews fled Europe. It continued to put immigrants in jobs after World War II. Reading Malanga's article, I am unable to tell if FEGs is one of those organizations that, having accomplished the available mission, could have folded nobly some time before it ignominiously collapsed.

That at any rate is not what happened:

Like many charities, FEGS’s mission began to change more dramatically with the rise of government-funded social services, starting with President Lyndon Johnson’s War on Poverty. By the late 1960s, FEGS was operating federally funded Youth Corps summer-employment programs. In the 1970s, it took on government-financed programs to serve meals to the elderly and counsel troubled youths. By then, FEGS was part of a broader network of some 130 New York Jewish philanthropies with a collective budget of $200 million, over half of which government supplied.

Today, FEGS is essentially a government contractor—in some ways, virtually indistinguishable from government agencies. The organization’s 2013 IRS filing, for instance, lists $227 million in total revenues—including $93 million in government grants and $119 million in program revenues, much of it from providing services funded by public-sector programs like Medicaid. By contrast, fund-raising events and nongovernment grants and contributions brought in just $1 million and $4.3 million, respectively.

If you have encountered or volunteer with a charity group, you know that federal money is all-pervasive. As Malanga writes, charities have been changed by their reliance on this money:

Jewish groups aren’t alone in their reliance on government funding. During the late 1990s, Catholic Charities USA opposed congressional efforts to slow federal welfare spending by instituting work requirements for recipients. At the time, the Catholic philanthropy was receiving almost two-thirds of its revenues from government to run social-services programs, prompting Senator Rick Santorum to observe that the organization “can do little that is uniquely Catholic. They have to do what the government dictates.” (See “How Catholic Charities Lost Its Soul,” Winter 2000.)

Groups such as FEGS and Catholic Charities wind up chasing public contracts for programs designed by government bureaucrats, rather than responding to charitable directives generated by their community. FEGS appears to have bid so aggressively for contracts that it lost money on nearly three-quarters of the programs it ran.

The manufactuers and other community interests that supported FEGS lost interest. Why not? They were no longer needed. This meant that, with a stream of federal money to replace nosey contributors who might keep an eye on things to ensure that their money was put to good use, oversight suffered. Rather than being points of light, FEGS employees became union members. This contributed to FEGS's downfall. So, I would hazard a guess, did the $638,000 paid in 2013 to the president who was in office during the decline and to whom FEGS is still in hock for $1.2 million in deferred compensation.

If you've even had dealings with a community medical service, you probably know that it is not staffed by volunteer doctors and that it is kept primarily afloat by Medicaid payments. I am going to refrain from being critical because I don't know what the alternative is and because the homeless often have severe medical problems that are addressed in these clinics. But this is not charity: it is by and large a government service.

Socialism has long sought to replace charities with government, and in so many instances it has managed to achieve this goal.