For-Profit Privatization Trump

Texas: How to Get Rich from Other People’s Misery

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The New York Times published this story about Juan Sanchez, who grew up in poverty but got education degrees and eventually became the owner of a private business that makes millions by incarcerating migrant children, not so different from himself. He has built an empire. His salary last year was $1.5 million. His wife was paid $500,000.

Juan Sanchez grew up along the Mexican border in a two-bedroom house so crowded with children that he didn’t have a bed. But he fought his way to another life. He earned three degrees, including a doctorate in education from Harvard, before starting a nonprofit in his Texas hometown.

Mr. Sanchez has built an empire on the back of a crisis. His organization, Southwest Key Programs, now houses more migrant children than any other in the nation. Casting himself as a social-justice warrior, he calls himself El Presidente, a title inscribed outside his office and on the government contracts that helped make him rich.

Southwest Key has collected $1.7 billion in federal grants in the past decade, including $626 million in the past year alone. But as it has grown, tripling its revenue in three years, the organization has left a record of sloppy management and possible financial improprieties, according to dozens of interviews and an examination of documents. It has stockpiled tens of millions of taxpayer dollars with little government oversight and possibly engaged in self-dealing with top executives.

Showing the ambition that brought him from the barrio to the Ivy League, Mr. Sanchez seized the chance to expand his nonprofit when thousands more unaccompanied children began crossing the border during the Obama era. When the Trump administration needed to house migrant children it had separated from their parents, Mr. Sanchez took them in.

As immigration intensifies as a flash point of the Trump presidency, with tear gas being fired at a migrant caravan and the price tag for separating families continuing to rise, Mr. Sanchez is central to the administration’s plans. Southwest Key can now house up to 5,000 children in its 24 shelters, including a converted Walmart Supercenter that has drawn criticism as a warehouse for youths. The system is nearing a breaking point, with a record 14,000 minors at about 100 sites — a human crisis, but also a moneymaking opportunity.

Though Southwest Key is, on paper, a charity, no one has benefited more than Mr. Sanchez, now 71. Serving as chief executive, he was paid $1.5 million last year — more than twice what his counterpart at the far larger

Southwest Key has created a web of for-profit companies — construction, maintenance, food services and even a florist — that has funneled money back to the charity through high management fees and helps it circumvent government limits on executive pay.

The organization, sitting on $61 million in cash as of last fall, has lent millions of dollars to real estate developers, acting more like a bank than a traditional charity. It has opted to rent shelters rather than buy them, an unusual practice that has proved lucrative for shelter owners — who include Mr. Sanchez and the charity’s chief financial officer.

Marcus Owens, the former head of tax-exempt organizations for the Internal Revenue Service under both Republican and Democratic administrations, reviewed Southwest Key’s tax returns for The New York Times. Regulators, he said, seemed to be “asleep at the switch.” Describing the financial dealings of Mr. Sanchez and his colleagues, he said, “I think the word is ‘profiteering.’”

Mr. Sanchez defended his charity. It had to move fast at times, he said in an interview. But every act, he added, has been to help children.

“There are all these kids, they’re at the border, they’re in detention,” Mr. Sanchez said. “How do we get this thing done as quickly as we can so we can start serving those kids?”

Jeff Eller, a spokesman for Southwest Key, said on Tuesday that the charity was closely examining its management practices after questioning from The Times, and that there was “general acceptance” that the charity had made mistakes.

“Could we have done things better? Yeah. And should have? Yeah,” Mr. Eller said. “But there wasn’t a desire to game the system.”

Because of the substantial growth of migrant shelters, the federal government hired an accounting firm this year to review shelter grant recipients, said Mark Weber, a spokesman for the Department of Health and Human Services. He added that the department’s Office of Refugee Resettlement, which oversees migrant shelters, had also created a new division to monitor shelters’ spending.

Separately, the Federal Bureau of Investigation is looking into another shelter provider, International Educational Services, for possible misuse of federal money, according to two people informed of the inquiry. The nonprofit’s founder, Ruben Gallegos, said he had no comment on the investigation.

Mr. Gallegos’s charity — which Mr. Sanchez helped create but cut ties with years ago — lost its federal contracts in February for renting shelters owned by charity officials and paying those officials well above the government salary cap from migrant-shelter grants.

Last year, Southwest Key paid eight people more than the federal salary cap of $187,000. In addition to Mr. Sanchez, they included his wife, Jennifer Sanchez, who earned $500,000 as a vice president, and Melody Chung, the chief financial officer, who was paid $1 million.

Robert Carey, a director of the Office of Refugee Resettlement under the Obama administration, said he found the salaries “appalling.” He acknowledged that his office was focused on providing adequate care for the children and had not examined Southwest Key’s finances. “When you think of how those funds could be used and should be used,” he said, “it doesn’t sit well.”

Mr. Eller said the charity had not done anything improper, adding that the federal government had prohibited the organization from discussing executive pay.

In recent months, Southwest Key has come under scrutiny after a series of abuse allegations.

In July, a worker at a Phoenix shelter was accused of molesting a teenage girl. In September, an H.I.V.-positive worker was convicted of sexually abusing seven teenage boys at another Arizona shelter. Southwest Key, which has relied on temporary workers to staff facilities as it has ratcheted up operations, then blew a deadline to submit proof of employees’ background checks in Arizona. (Mr. Sanchez called the missed deadline a “very small, minor thing.”)

Shortly after, the federal government temporarily shuttered a third Arizona shelter, in Youngtown, after Southwest Key staff members were accused of physically abusing three children. In a recent agreement with Arizona officials, Southwest Key was fined $73,000 and agreed to close that facility and another troubled shelter in Phoenix. Mr. Weber, the government spokesman, said there were “numerous red flags and licensure problems” with the two shelters.

“He likes to take chances,” Paula Gomez, a friend of Mr. Sanchez’s since childhood, said of him. “Juan’s that way — you can have a couple T’s that aren’t crossed and I’s that aren’t dotted.”
Mr. Sanchez wore a serape rather than a cap and gown when he graduated from Harvard with a doctorate in education. “It was just to make a statement that Latinos were here,” he said.

Mr. Sanchez wore a serape rather than a cap and gown when he graduated from Harvard with a doctorate in education. “It was just to make a statement that Latinos were here,” he said.

For much of his life, Mr. Sanchez has seen himself as an advocate for the vulnerable, but he also is an ambitious networker who sought to fit in with the powerful.

He met his first wife, Ellen, planning a protest against nonunion produce pickers; at the same time, he took up golf. His office features a portrait of Che Guevara, and his Harvard diploma. At his graduation ceremony, he wore a serape instead of a cap and gown.

“It was just to make a statement that Latinos were here,” he said.

Mr. Sanchez was ultimately accepted into influential circles: He joined the board of the nation’s largest Hispanic advocacy group, now known as UnidosUS. The Mexican government gave him its highest humanitarian award. He rounded up politicians to speak at Southwest Key celebrations and cultivated ties to government agencies.

This is not the complete story. It is an excerpt.

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