A cocktail for disaster: how mismanagement, slothful government and a tight state budget killed a pioneering AIDS fund for Illinois' black communities.

Lloyd Kelly made up his mind when he became an AIDS activist that in order to wipe out HIV, he would have to battle the bureaucrats. They forced HIV nonprofits to waste time meticulously documenting the outlay of HIV tax dollars. Eradicating HIV required urgent, bold action, he argued. Kelly, a bald, 48-year-old Chicago man with long, thick eyelashes and a diamond in his left ear, considered himself a maverick. As an HIV-negative, gay, black man, he belonged to the most at-risk group in the nation, and the disease had killed more than 247 of his friends.

In August 2007, Kelly got the chance to execute his vision. He was co-founder and executive director of an HIV nonprofit on the city's South Side, the Let's Talk, Let's Test Foundation, and had helped create the Illinois African-American HIV/AIDS Response Fund, a $3 million earmark for black-run HIV nonprofits. In 2006, the fund was among the first in the nation to dedicate money to black communities for HIV and AIDS prevention and services. Advocates believed black-run nonprofits in black neighborhoods best prevented and treated HIV among black people, who comprise 15 percent of the state's population but more than half of its HIV cases.

The Response Fund supplied grants to 70 organizations across the state--the largest going to Kelly's, which was charged with giving technical assistance, assisting in grant writing and making those organizations less reliant on government funding. When a $1.05 million check arrived in August, Kelly began spending it the way he wanted.

The check was about eight months overdue, so he felt justified in adjusting his budget without state approval and neglecting his expense reports. When the foundation's contract ended Jan. 1, 2008, it had organized an AIDS walk and arranged testing for about 120 people, but hadn't documented the results or fulfilled key grant requirements, according to Kelly and documents from the Illinois Department of Public Health. There was no written plan for reducing HIV in the black community. None of the 17 one-stop shopping centers had been completed, Kelly said. Several nonprofits who were supposed to receive training stopped participating. And no progress had been reported to the department in months, according to Kelly and health department documents.

None of this made Kelly's nonprofit a poster-boy grantee. But when the department announced it was giving away another $3 million, Kelly held out his hand. The state sent him a contract offering another $1.2 million. By May 2008, the department was questioning where the foundation's money went and backing off plans to give it more. State legislators were deciding to shelve the fund. A few months later, the foundation was being audited. Illinois' pioneering program for black organizations was in jeopardy. And in August 2008, the U.S. Centers for Disease Control and Prevention announced that nationwide, annual HIV infection rates among black people were worse than what they had reported.

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A cross the United States, many programs designed to help black leaders beat back the progress of HIV and AIDS in their communities share two hallmarks: They are vital and beleaguered.

Despite the millions spent on black-run HIV campaigns, the disease threatens large swaths of black communities. According to the 2008 CDC data update, infection rates have declined nationwide by more than 9 percent among Latinos and Asians and remained steady for Native Americans and white people between 2000 and 2006, the most recent years for which data are available. The only increase was among black people, 9 percent. By 2006, African Americans comprised 12 percent of the U.S. population but 46 percent of its HIV and AIDS cases.

To reduce new infections, $4.8 billion more must be spent in the course of five years, according to the CDC. Advocates agree that to reach African Americans, new culturally relevant interventions must be devised. But it's difficult when the United States has no comprehensive national AIDS strategy.

From New York to California, news headlines of bureaucratic mismanagement, investigations, indictments and corruption abound.

In Illinois, the foundation is being audited. In Philadelphia, home of one of the country's oldest black AIDS nonprofits, Blacks Educating Blacks About Sexual Health Issues, or BEBASHI, went bankrupt in 1993 after being fiscally mismanaged, according to The Philadelphia Inquirer. Ten years later, the Philadelphia Daily News reported that a black AIDS activist there plead guilty to mail fraud in connection with charges he and two co-defendants stole $130,000 in city grant money.

Many black leaders are inexperienced, said Michael Hinson founder and interim executive director of The COLOURS Organization, a Philadelphia-based nonprofit established in 1991 and Rashidah Abdul-Khabeer, who founded BEBASHI. Black organizations also have a hard time affording highly qualified staff, said Ludmilla Wikkeling-Scott, a Washington D.C.-based public health expert and policy associate for the National Minority AIDS Council.

But the failure of most black AIDS campaigns begins with poor stewardship from public health departments, said Hinson and Abdul-Khabeer. Grantees are promised money and training but are routinely paid several months late and aren't taught accounting, budgeting and prevention strategies, Hinson and Abdul-Khabeer agreed. When problems arise, health officials impose draconian punishments, said Hinson and Abdul-Khabeer.

Part of the problem is that black nonprofits entered the HIV services arena decades after their white counterparts, Hinson said. When HIV emerged among gay white men in the 1980s, their nonprofits used grants for a variety of expenses, including leasing and buying buildings. Today, there are more restrictions. Typical contracts allow 10 percent of a grant to pay for administrative salaries, Hinson said.

The Illinois Response Fund fit the pattern Hinson and Abdul-Khabeer described, Kelly said. State agencies didn't implement key components of a companion law designed to make them do more to combat HIV, and the health department ran the 24-month long program without rules for almost five months and without money for almost eight months. Grantees expected to get their checks by Jan. 1, 2007, but they didn't arrive until August 2007. Advocates had to compress one year of work into five months.

By January 2008, the foundation ran out of money, jeopardizing its objectives and that of the 79 organizations that were relying on it for training. By June 30, the end of the second year of the fund, the foundation's 18 percent of the $6 million had not been satisfactorily accounted for and nearly one quarter had not been spent.

A high-ranking health department official could not be reached for comment to explain how the fund fell apart. But four Chicago HIV activists said that the official, Tom Hughes, acknowledged that he wanted the fund to be compliant and more efficient when he met with them to discuss the fund in the fall of 2007. Hughes is deputy director of the Office of Health Protection, the branch containing the office that managed the fund.

In the late 1980s, the number of black people contracting HIV annually surpassed the number for white people. The news touched off a scramble in the HIV services sector. The country's 15 to 20 black-run nonprofits clamored for a more equitable funding share, creating the "AIDS War."

Abdul-Khabeer and other advocates organized black organizations nationwide to advocate for themselves. She led a workshop in Chicago where black nonprofits were receiving little HIV funding.

Activists like her netted some gains. Alameda County, Calif.--in the San Francisco Bay Area--declared AIDS an emergency in the black community in 1998 and dedicated money to fight it. The following year, the federal government provided minority nonprofits with an earmark.

In 1998, Kelly was volunteering as a legislative aide to state Rep. Constance "Connie" Howard, and Kelly suggested AIDS be a focal point of her legislative agenda. It was fast becoming an issue for all black people, not just men who had sex with men. She heard the same thing at an event in 1999 in Washington, D.C. When Howard returned, she and Kelly conducted enough research to establish the Let's Talk, Let's Test Foundation. Howard served on the board.

Kelly prompted Howard to propose a law to create a grant program. Howard's first bill, the African-American HIV/AIDS Response Act, appropriated no money but required several state agencies to do more to combat HIV. It became law in August 2005. Within one year, the legislature appropriated $3 million to create the Response Fund.

The first in the health department's series of gaffes came after the Illinois General Assembly adopted the precursor to the Response Fund. Only one of four state agencies--the Illinois Department of Corrections--implemented any part of the act. The department offered inmates testing upon their arrival and after their release. But the health department, the governor's office and the Illinois Department of Human Services didn't implement several key components of the 2005 Response Act.

Some of the components never materialized because the Legislature didn't pay for them. But the law required implementation of some of the components even without additional funding. For instance, each of the four agencies was supposed to appoint an African-American HIV/AIDS Officer to advise each agency on HIV policy and oversee the allocation of grant money earmarked for black nonprofits. That never happened, said Chicago AIDS advocate Marc Loveless.

The Response Fund was also mishandled. Andre Rawls, section manager for the HIV/AIDS Program, selected grantees first without using a review board or panel. Dr. Eric Whitaker, then-director of the health department, told her to base her selection on the recommendations of an AIDS activist who helped write the law--Kelly. The department selected 55 grantees and drafted contracts to begin Jan. 1, 2007. By the end of July 2006, the contracts were ready to be mailed until a department employee discovered no one had written the rules, Kelly said.

State law says that every legislative act where an agency has discretion over how funds are distributed, and rules are not set out in the statute, must have a set of rules. A version of the rules are put out for public comment from the agency administering the law and can't be adopted without 45 days of public scrutiny and an additional 45 to 90 days of review by the Joint Committee on Administrative Rules, a bipartisan legislative body with members from the House and Senate.

Kelly was notified that rules needed to be written and it would be months before the contracts went out. Though he was angry, he knew the rules were necessary and went back and forth with the department to draft them. The rules landed on a desk in the health department and sat there for six months until someone realized they never made it back to the committee for approval, Kelly said. On May 25, 2007, the committee gave final approval, five months after advocates were supposed to have started working.

The department disputes Kelly's entire account. The department said Kelly was "not a state employee" and "did not have a role in the [d]epartment's grant writing or implementation process," the department said in an e-mail to the Reporter. The department said their lack of rule-making did not force the delay in sending out the grants, according to the e-mail. The department said it followed the normal process for creating rules, the e-mail said.

Whether or not Kelly was involved behind the scenes, grantees were confused. They had been notified they'd get the money but didn't know when it was coming and if they were obligated to start work before it arrived.

Rawls declined to comment for this story. But Kelly said Rawls told him the department couldn't hold grantees accountable for one year of work, with what would be nearly five months in which to do it. She and Kelly didn't have time to lighten the load without spending more time rewriting all 55 grantee contracts. They made a pact, Kelly said: Rawls would ask each grantee to sign its contract anyhow, though it committed the group to ix months worth of work that it couldn't possibly finish. Then, when the grant period ended Jan. 1, 2008, Rawls and Kelly could sit down and adjust the state's expectations.

Kelly has no proof the conversation occurred, and Hughes said it didn't. Responsible grantees contacted the department to renegotiate their budgets or fulfilled the requirements, Hughes said.

Whether Rawls offered grantees such an arrangement, Kelly operated as if she did. He hired 14 new employees, a contractor and several Chicago State University interns, each at $500 a month.

But as soon as Kelly started holding training sessions, some grantees polarized for or against him. Some were concerned that Kelly was demanding that they give up their organizational autonomy by buying supplies and services in bulk from vendors he chose. Morale among grantees waned, and participation at trainings dwindled.

It's too early to assess grantees' work, said Talmadge Betts, senior program officer for the Chicago-based Black United Fund of Illinois, the organization responsible for the evaluations.

Kelly's relationship with the health department began to unravel when AIDS advocate Loveless and others embarked on a campaign to pressure Rawls into action. Loveless and the members of Black Health Alert felt they could stir up enough controversy to force her hand. They sent emails to HIV service providers, Chicago reporters and called state health officials.

Then the current director of the health department, Dr. Damon Arnold, who succeeded Whitaker, started to change things. On Oct. 2, Arnold attended a meeting with fund recipients and clarified the extent of the foundation's authority. Grantees weren't required to buy in bulk, he said, and were prohibited from paying the foundation any portion of their grant.

It wasn't much later that a letter arrived at the department from a whistle-blower at the foundation, denouncing Kelly. The letter triggered an audit of the foundation by the Illinois Auditor General, Kelly said. Kelly didn't know he was being audited until a fax dated May 14, 2008 arrived from Hughes, criticizing the foundation for failing to submit two year-end reports, due March 30. The reports would have shown what the foundation achieved with its $1.05 million grant, and an additional $150,000, the letter said. "IDPH will seek refunds of grant monies awarded to LTLTF for any objectives not completed under the provisions of the grant agreement," the letter indicated.

Kelly said he hustled to get the reports back to the department by May 16, 2008, as the letter indicated.

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Though it initially took the state eight months to send the grant money, the department responded to Kelly in four days in a letter dated May 20, 2008. His submission was insufficient. The letter indicated that Kelly had not submitted reports for January through June 2007, the time frame when Kelly was waiting for the money to arrive. The letter said that Kelly had sent the same report for three months, didn't explain the specifics of what he had achieved, and that the foundation would have to disaggregate line-by-line the $593,733 it spent on its AIDS Walk, according to the letter.

Again, Kelly scrambled to respond only to find out that the foundation was going to be audited.

The foundation is still being audited, and several black-run HIV prevention and treatment centers across the state remain financially insecure, operating on here-today-gone-tomorrow budgets.

The Reporter sampled 37 grantees and found that 43 percent of them were operating on less than $500,000 in annual revenues.

When Rawls and Hughes met with a team of Chicago AIDS activists last fall to discuss the fund, Hughes blamed his department's troubles on his inability to implement the 2005 law, the activists said. Without it, Hughes said the fund lacked adequate oversight, said Loveless, an architect of the 2005 law attending the meeting. The 2006 law allowed Kelly and Howard to control and direct the fund without repercussion, Loveless said.

The foundation is still waiting for its state funding and has had to scale back on its staff to continue to operate. Kelly said the fund tanked because the health department has a vendetta against him. It instigated an audit, not because he's done something wrong, but because he often challenged Hughes, Kelly said.

It's too early to determine the impact of the response fund, according to the department. The program would have to operate many more years before its impact could be assessed, the department added. However, after just two years, the legislature suspended operation of the Response Fund in an effort to make up for their $1.2 billion deficit from the state's projected 2009 budget. State Sen. Donne E. Trotter said the controversy surrounding the fund didn't influence their decision.

This fall, from his cramped office at Chicago State University, Kelly removed the files detailing the financial records of the foundation and drove them over to Howard's district office and piled them onto an eight-foot square table in the center.

The auditors arrived Sept. 30 and stayed for four days. But by mid-October, Kelly was still ridding their calls. One afternoon that month, he leapt from a rolling chair in Howard's office to grab the phone. He was wearing a black baseball cap with the foundation's black and red logo and a loose, boxy, mustard colored t-shirt bearing the same logo. It was the auditor, again.

"Hey, Amy. What's going on?" Kelly asked. "Uh-huh. Uh-huh. Uh-huh. Uh-huh."

The conversation lasted about 15 minutes.

"We certainly can. Thanks, sweetie. Okay. Bye. Bye."

The auditor wanted copies of the $5,000 in ads he'd run in the Chicago Defender. Kelly said the request was absurd. "She said, 'Well how do I know you didn't put 'Happy Birthday, Lloyd' in the paper?'" he said.

Researchers: Rolando Ithier, Stephanie Behne, Joe O'Donnell, Lourdes Vasquez, Kara Madden.

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Power Points

A pioneering Illinois program to help black nonprofits reduce the number HIV infections is in jeopardy. After just two years, the grantee getting the most money is being audited and the Legislature won't fund the program in the upcoming fiscal year.

* Advocates believed black-run nonprofits in black neighborhoods best prevented and treated HIV among black people, who comprise 15 percent of the state's population but more than half of its HIV cases.

* In 2006, the state created the Illinois African-American HIV/AIDS Response Fund, a $3 million earmark for black-run HIV nonprofits. The fund was among the first in the nation to dedicate money to black communities for HIV and AIDS prevention and services.

* By the end of the second year of the fund, nearly 40 percent of the money had not been spent or accounted for.

HIV trends over time

HIV infection rates have declined nationwide by more than 9 percent among Latinos and Asians and have remained steady for white people between 2000 and 2006. The only increase was among African Americans, jumping 9 percent. For the first time in 1988, HIV infections among black people surpassed all other racial groups.

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Note: Graphic does not include the infection rates for Asians and Native Americans because the number of cases was low. Data were reported by the U.S. Centers for Disease Control and Prevention, which does not report annual numbers but in multi-year intervals,

Source: U.S. Centers for Disease Control and Prevention