One for the Money, Two for the Show: Nonprofits as Conduits for Political Influence

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So-called charitable fundraisers by lawmakers on both sides of the aisle are being used to peddle political power and interests. While on the surface, it appears that the flailing nonprofit sector is being given a boost by the proposed fundraising efforts of politicians like House Majority Leader Tom DeLay and Senator Blanche Lincoln, this generosity is only a byproduct of politicians using the 501(c)(3) backdoor to evade constantly changing and consistently tighter campaign finance laws.

It sounds like a twisted win-win situation—the nonprofits benefit from the fundraisers, and politicians, corporations, and lobbyists get their hobnobbing time on yachts, golf courses, and cruise ships. Not exactly. At stake is the integrity and accountability of the nonprofit sector if it continues to subject itself to such political puppetry. How enmeshed is the promise of political influence in charitable fundraisers and politicians’ foundations?

Former Senator Bob Dole, who established the Dole Foundation in the 1980s (devoted to employment opportunities for people with disabilities), described the process clearly: “We raised about $10 million . . . And it worked very well as long as I was in the Senate. But once I left the Senate, I wasn’t voting on anything, so many of the corporations said, ‘Well, that guy can’t do anything for us,’ and subsequently the Dole Foundation closed.”1 The former president of the Dole Foundation was equally straightforward, describing donations to the foundation as ‘“protection money’ for a donor’s interests.”2

Take for example the two most current fundraisers.

On the Republican side, the master is House Majority Leader Tom DeLay, whose 501(c) (3) DeLay Foundation sponsors lavish golf outings at 5-star resorts like Florida’s Fantasy Island, at which individuals, corporations, and lobbyists can hobnob with members of Congress and their families without having either party—politician or contributor—disclose what they’re giving or what they’re getting, all under the guise of helping foster children. More recently, DeLay announced the creation of Celebrations for Children, which would raise money for children’s charities, including the DeLay Foundation’s foster children’s home, at the Republican National Convention this summer in New York City.

On the Democratic side, Arkansas Senator Blanche Lincoln saw the attractiveness of the DeLay model and turned up as the titular host of “Rockin’ on the Dock of the Bay.” Donors would give contributions of $25,000, $50,000, or $100,000 to rub elbows with big-shot Democrats at a late-night concert function during the Democratic National Convention in Boston, with the National Childhood Cancer Foundation as the intended charitable beneficiary.

The generous $100,000 contributors to the Rockin’ on the Dock party would score 25 VIP lounge passes plus photo-ops with the Democratic bigs at the convention, while the top donors to DeLay’s Celebrations for Children get a yacht cruise with Republican suzerains, the obligatory fancy golf outing, and dinner with Tom and Christine DeLay themselves. In the Rockin’ case, the Democrats acquired the corporate sponsorship of Georgia’s American Family Life Assurance Company (AFLAC) and some other charitably minded behemoths.3

Following complaints by campaign finance and philanthropic watchdogs, Senator Lincoln pulled out of the Democratic event. Once Lincoln leapt off the Dock, AFLAC cancelled the whole event.4 Not long afterwards, Tom DeLay’s people announced the cancellation of the Celebrations event at the Republican National Convention, blaming the cancellation on their sudden recognition of the high costs of New York City rather than on the watchdogs’ criticisms.5

Notwithstanding the DeLay and Lincoln moves, other political fundraisers—ostensibly for charity—continue. Republican Senator Saxby Chambliss plans to host an event honoring Georgia Republicans to benefit Camp Sunshine, a children’s cancer charity associated with none other than AFLAC again,6 and Senate Majority Leader Bill Frist has an AIDS fundraiser scheduled for the Republican Convention.

Simple charitable fundraising operations to take advantage of the eleemosynary instincts of professional politicians? Circumventions of campaign finance and lobbying disclosures hiding behind the confidentiality that 501(c)(3) status affords donors and donees? It doesn’t take a political science PhD to figure out that these events, regardless of the money they raise for good causes, will serve large political donors and corporate lobbyists in buying access and influence with politicians beyond the light of public disclosure and accountability.

While DeLay and Lincoln have become the poster children for politicians’ foundations, they didn’t invent the practice. Ostensibly, charitable foundations have been run by members of Congress for many years. Recently, the White House residents have established foundations. Less visible to the public are the philanthropic vehicles of state-level politicians and bureaucrats. In philanthropic terms, some of the stories of these foundations are egregious and shameful.

Much has been written about the DeLay Foundation’s use of members of Congress to raise money for House Majority Leader Tom DeLay’s charitable commitment to foster children. Like the DeLay Foundation’s Fantasy Island golf fundraisers, its Celebrations for Children would offer major donors and corporate lobbyists the cloak of a 501(c)(3) charity to keep their donations confidential, if they chose to, as they bought face time and influence with key Republican lawmakers. It is difficult to clothe Celebrations for Children as a true charity when it is managed by DeLay’s politically focused daughter Dani and a couple of operatives from DeLay’s infamous political action committee, ARMPAC.7

Who would give to a political philanthropy? Take the example of AFLAC, announced publicly as the underwriter of the Lincoln and Chambliss fundraisers. Few would mistake AFLAC for one of the nation’s most charitable corporate philanthropic grantmakers. In 2001, AFLAC’s charitable contributions were 0.4 percent ($3.6 million) of net earnings before taxes, hardly the one percent average of major corporate grantmakers, and less than 15 percent of the $25.1 million in compensation paid to AFLAC’s CEO.

AFLAC may not be a paragon of charitable intent, but it knows politics. The AFLAC political action committee has been one of corporate America’s most active political influence purchasers for years, donating millions roughly equally between the two parties’ candidates and campaign committees. AFLAC’s PAC ranks fifth in the top corporate PACs contributing to all candidates in the current election cycle.8 Think AFLAC might have some political interest in these charitable fundraisers? There’s no question that there are many more equally ready to ante up for political access outside of regulated campaign and lobbying arenas.

Tom DeLay is not the only Capitol Hill solon with his own charitable foundation. Although some estimates put the number of Congressionally-linked foundations at over 50, a more reasonable count is maybe half that number with grantmaking functions, the remainder being operating nonprofits with functioning programs other than grantmaking. Most of them are tiny in terms of income and assets, some too small to even file 990s. Typical grantmaking emphases are college scholarships and grants to traditional human service charities, United Way chapters, and schools and universities.

For the most part, the donors to these foundations appear to be the lawmakers themselves, notably the John and Cindy McCain Family Foundation, whose 990PF lists each of John McCain’s contributions to the foundation constituting its entire income of $320,831. The foundation made $356,000 in grants including $210,000 to the U.S. Naval Academy Foundation, ending 2001 with a bit over $291,000.

A small number of Congressional foundations exist because of the wealth of the lawmakers themselves. Missouri’s Senator John Danforth is the prototypical scion of a wealthy family with a private foundation arm. Senate Majority Leader Frist’s foundation has a multimillion-dollar asset base. New Jersey Senator Jon Corzine comes with substantial Wall Street assets and one $2.6 million foundation under his name and another under his wife’s. His state peer, Frank Lautenberg, made his money heading a high tech data services firm supporting his eponymous foundation. Congressman Darryl Issa’s ability to bankroll a gubernatorial recall in California is based on wealth that also undergirds the Issa Family Foundation.

Most family foundations associated with members of Congress are modest charities, generally not soliciting outside contributions. But the charities and foundations of those politicians who actively solicit the public, corporations, and lobbyists for charitable contributions can become the venue for questions about the intent of the donors and the political intermediaries.

Take the new Ted Stevens Foundation, established by supporters of the senior senator from Alaska. A March fundraiser by the foundation charged the 400 participants $5,000 a ticket for the privilege of attending a dinner honoring the Republican senator, and invitations reportedly included Vice President Cheney and some Cabinet officers. The donors included “dozens of lobbyists with business before his panel” (the powerhouse Senate Appropriations Committee that Stevens chaired) including representatives of MCI Corporation, Boeing, General Dynamics, United Airlines, and Disney.9 Not much difference between the Stevens Foundation and the plans of the DeLay, Lincoln, and Chambliss fundraisers.

Recently, members of Congress have taken to donating their excess campaign contributions to their own foundations rather than to other charities, along the lines of the $650,000 transferred to How Firm Our Foundation, controlled by former Republican Congressman Larry Combest and his family. Expect more rather than fewer political foundations to be established through this FEC-approved method for disposing of unused campaign funds. But don’t expect voluntary disclosure, as evidenced by Combest’s response to inquiries: “I’m really not interested in discussing that foundation with the press.”10

Other than extolling the virtues of faith-based nonprofits to secular grantmakers, the Bush Administration has had little to say about philanthropy, in stark contrast to the Clinton Administration, which hosted the first-ever White House Conference on Philanthropy in October 1999, chaired by then First Lady Hillary Clinton whose experience included board service on the New World Foundation. The current campaign has focused on the prospect of Teresa Heinz, a philanthropist in her own right through the Heinz Endowments, joining her husband in the White House in 2005, but like Senator Danforth, her philanthropic endeavors and wealth predated her current political aspirations.

But Laura Bush is another story. The First Lady established the Laura Bush Foundation for America’s Libraries as a fund at the Community Foundation for the National Capital Region dedicated “to enhance the book collections of school libraries across the country.” Aiming at raising and maintaining a capital base of $25 million and granting out $1 million annually, it has already made $640,000 in grants to 132 school libraries in 2003 and $660,000 to 136 school libraries in 2004.11

Who contributes to the Laura Bush Foundation among the thousands of donors listed as contributors to the Community Foundation of the National Capital Region? Don’t know. But the membership of the Foundation’s “Leadership Council” gives you a sense of the political prowess involved: J.W. Marriott, chairman and CEO of Marriott International; H. Lee Scott, President and CEO of Wal-Mart Stores, known for its less than admirable salary, benefit, and union policies;12 Gary L. Cowger, President of General Motors North America; Lowry Mays, Chairman and CEO of Clear Channel Communications, the epicenter of the right-wing effort to make it easier for companies to establish media monopolies; Frederic Malek, chairman of Thayer Capital Partners, a heavy contributor to Republican candidates; and Delphine Daft, wife of the chairman of Coca Cola.

The executive director of the Laura Bush Foundation is Beth Ann Bryan, who also serves as senior education advisor with the lobbying firm, Akin Gump, the same firm hired by major foundations to lobby Congress on last year’s Charitable Giving Act (H.R.7). Formerly, Ms. Bryan was senior advisor to Education Secretary Rod Paige; she had also served as education policy director for then Texas Governor George W. Bush, and was program director for the Barbara Bush Family Literacy Initiative for Texas, a component of the Barbara Bush Foundation for Family Literacy. Yes, Laura’s predecessor as a Bush First Lady had foundations making $2 million in grants to 80 literacy organizations in Texas over seven years and $1.7 million in Maine over nine years.13

Barbara Bush is committed to literacy, Laura Bush truly believes in school libraries, and even the corporate executives involved in these foundations are not purely mercenaries for political influence; but it’s hard to believe that political considerations don’t factor in to the presence of Wal-Mart, Clear Channel, and General Motors sovereigns as advisors and contributors. Inside or outside the Washington Beltway, most people intuitively discern the political calculation behind the charitable donations to charities associated with political movers and shakers in Congress and in the White House.

State Government Political Foundations

The potential for fronting for political favors extends to state legislators, with standout embarrassments on both coasts. In Philadelphia, Pennsylvania State Senator Vince Fumo has capitalized nonprofit organizations through an unusual mechanism, negotiating deals with utility corporations facing state regulation. For example, Fumo let Verizon off the regulatory hook when the company committed to fund the Citizens Alliance for Better Neighborhoods. The energy utility, PECO, paid $17 million to the Citizens Alliance per two secret deals cut with Fumo that allowed the firm to recover $5 billion in losses from its nuclear power plants (PECO also put in $11 million to another Fumo nonprofit in another deal).14

State Senator John Perzel, a Republican, initially criticized Democrat Fumo’s schemes: “Something is wrong here, and I don’t know what it is.” Later he figured it out and created the Speaker’s Foundation Fund to raise money for schools, jobs, and community improvement, with plans for a March 2004 fundraiser15 that raised more than $600,000 with the help of guest performers, the Beach Boys.16

Sometimes, the charitable proceeds are penny ante. In February, Oklahoma Insurance Commissioner Carroll Fisher was indicted on a variety of felony charges, including his management of the Fisher Foundation. Fisher and his administrative assistant, Opal Ellis, failed to keep records of contributions to the Fisher Foundation, even failing to register his foundation. The foundation apparently failed to make any philanthropic disbursements. Fisher claimed he was waiting until he had raised $100,000 before doing something charitable.17 The purpose of the foundation? To buy shoes for children—we kid you not.

The all-time star performer with state-government-level political foundations is clearly California’s Chuck Quackenbush.

“Moving to Hawaii was a wonderful way of decompressing and preparing for the future,” Chuck Quackenbush says on his personal Web site, under a picture of Chuck with a Pepsodent smile and bulging biceps fronting the Pacific Ocean.18 Hawaii certainly is a pleasant refuge for the former Commissioner of Insurance of the State of California, as many of Quackenbush’s political lieutenants file into prison for their misuse of foundations established and administered by the state under Quackenbush’s direction.

In the wake of the Northridge earthquake, Quackenbush’s department had investigated a half dozen or so of California’s largest insurance companies, including Allstate and State Farm, for violations of the Fair Claims Practices Act regarding payments to affected homeowners. Although threatening to collect massive fines from four of the largest insurers, the Department of Insurance negotiated either no fine or very small fines, “with a somewhat larger amount to be contributed to ‘foundations’ created at the direction of the DOI for the stated purpose of outreach, primarily to Northridge earthquake victims.”19

Quackenbush’s Web site claims that the charges were nothing more than Democrats trying “to weaken one of only two statewide Republican office holders,”20 but a bipartisan report of the California Assembly Insurance Committee slammed the former insurance commissioner for a litany of professional and political scandals including three foundations established with proceeds from insurance companies that had flubbed their responsibilities in the 1994 Northridge earthquake. Within a month or two after the Assembly report, Quackenbush decamped for life as a six-man outrigger canoe aficionado in Oahu.
Although it was more than abuse of foundations that drove Quackenbush to his permanent Hawaiian vacation, the philanthropic dimensions of “InsuranceGate” or “QuackQuake” were documented in reports and investigations of California Attorney General Bill Lockyer:

• Quackenbush dropped recommended fines of more than $3 billion in return for insurance company contributions to three foundations, including $8.55 million from State Farm and 20th Century Industries to the California Research and Assistance Fund (CRAF) and $2 million from Allstate for the Safety and Education Fund, both grantmaking institutions controlled by Quackenbush and his lieutenants.21

• Ostensibly created to address “seismic research, improvements to claims procedures, and limited financial assistance to earthquake victims,” CRAF’s unusual philanthropic expenditures included $3 million for TV spots featuring Quackenbush; another $1 million for a children’s Web site and TV spots featuring the Los Angeles Lakers’ Shaquille O’Neal and Quackenbush; $500,000 to the Sacramento Urban League22 for construction of a worker training facility (the grant made after Quackenbush joined the SUL board); $263,000 for the Skillz Athletics Foundation (a football camp attended by Quackenbush’s children); and $70,000 for Athletes and Entertainers for Kids (which listed Quackenbush as a board member and Quackenbush’s deputy insurance commissioner and former campaign manager George Grays as “corporate council chairperson”).

• Lockyer seized the assets of CRAF, calling it a “sham” controlled by one of Quackenbush’s top aides and used for personal purposes.23 Grays subsequently pleaded guilty to mail fraud and money laundering and Brian Thompson, the football camp coach, was hit with federal fraud and conspiracy charges. Lockyer’s court papers described the foundation as “seriously flawed,” “wasteful,” and below “generally accepted standards and protocols for organized philanthropy or for disaster assistance.”24 Lockyer later charged Quackenbush buddy Ronald Leo Weekly, onetime CRAF president, with grand theft, perjury, receiving stolen property, and theft of foundation funds.

PR firms, consultants, and politicians benefited from the Quackenbush foundations, not the residents who were hornswoggled by the insurance companies, not the taxpayers of California. As a San Francisco Chronicle op-ed on InsuranceGate concluded, “public money and resources reserved for government should not be diverted to private foundations because the public is too easily shortchanged, and industries meant to be penalized too often benefit from the deal . . . [H]istory has shown that such special foundations, essentially quasi-governmental structures, are completely unaccountable and can abuse their public trust.”25

For Chuck Quackenbush, InsuranceGate is history. Believe it or not, Quackenbush says that he’s now a consultant and after 9/11 advised “military intelligence” in Hawaii.26 Quackenbush was aiming at the California Governor’s seat as a Republican. Oklahoma’s Fisher was actively aiming at Senator Don Nickles’ seat as a Democrat, a dubious prospect now. But others in various state governments prosper with these clearly political charities.

Pros, Cons, and Qualms

Chuck Quackenbush went to Hawaii but not prison. DeLay and Lincoln have put their convention charities into hiatus, but not because of an IRS investigation or a Congressional ethics investigation. Politicians’ foundations aren’t illegal. There are arguments for and against them.

What nonprofit wouldn’t want to have some star quality attached to their fundraisers? It’s a matchless opportunity to recruit a House or Senate Majority leader to raise some cash for your charity while engaging donors in some politicking. If they don’t have politicians raising money for them, the children’s and health charities that would benefit will lose a unique income source. But will charity overall suffer? Out of more than $240 billion given to charities annually, the portion generated by politicians is minuscule.

Perhaps the ability of nonprofits to rub elbows with the pols is more important than the fundraising done through these charities and foundations. Haven’t the nonprofit and foundation leadership of the nation consistently called for more rather than less political involvement of the charitable sector? But there is little or no advocacy for the nonprofits engaged in these politicians’ foundations. To the contrary, the real advocacy is being carried out by the corporate lobbyists purchasing influence with the political muckamucks at the table.

The amount that DeLay, Lincoln, Fumo, and Perzel might raise for charities—although seemingly harmless and beneficial—has a destructive effect on the nonprofit sector’s accountability and probity. The sector doesn’t need the public to think that some portion of its charitable dollars is simply camouflage for politicians to circumvent statutes on campaign finance limitations and for lobbyists to bypass registration and disclosure requirements.

University of Miami law professor Fran Hill summed up the impact of politicians’ foundations: “The nonprofit form is being abused to engage in transactions for influence that the parties would not want the public to know about…. It breeds cynicism that undermines democracy.”27

How can the abuse be stopped? The pols won’t say it, but it looks like the complaints of campaign finance and philanthropy watchdogs nudged DeLay and Lincoln out of their charitable fundraisers and convinced Frist to commit to disclosing the names of contributors to his event. Since politicians find escape valves for nearly every campaign finance constraint, the practice of political foundations might be best solved by the nonprofit sector itself, standing up for probity and accountability—and refusing to budge.

Rick Cohen is the executive director of the National Committee for Responsive Philanthropy.

1. Liz Ruskin, “Lobbyists Flock to Nonprofit; Fundraiser: Does a Check to the Stevens Foundation Buy Influence?”, Anchorage Daily News (March 6, 2004).

2. Miriam Hill, “Politicians’ Nonprofits Proliferate,” Philadelphia Inquirer (January 23, 2004).

3. Charles Babington, “Charity-Hosted Revelry Not Just for Republicans,” Washington Post (April 27, 2004).

4. Charles Babington, “Ditching by the Dock of the Bay,” Washington Post (May 7, 2004). According to AFLAC, the company withdrew after Lincoln jumped ship because “the Democratic event . . . was still in the planning stages,” Moni Basu, Atlanta Journal-Constitution (May 14, 2004).

5. Edward Lee Pitts, “Protests Will Not Stop 2 Senators’ Charity Fund-Raisers,” Chattanooga Times Free Press (May 26, 2004).

6. John Bresnahan, Roll Call (April 27, 2004).

7. There is no information available at this date as to IRS’s decision on the tax-exempt application status of Celebrations for Children.

8. Source: PoliticalMoneyLine’s FECInfo database.

9. Paul Kane, “Lobbyists Help Stevens Charity,” Roll Call (March 11, 2004).

10. Amy Keller, “Charity Sparks Questions,” Roll Call (March 3, 2004).

11. Laura Bush Foundation Web site.

12. The Wal-Mart Stores Inc. PAC for Responsible Government is ranked as the largest corporate PAC contributing to all candidates.

13. The third geographic focus area for Barbara Bush’s literacy grantmaking is, not surprisingly, Florida, where son Jeb Bush is governor.

14. Other Fumo-related contributions included $9.6 million to the Citizens Alliance, led and staffed by Fumo aides, from the Delaware River Port Authority,

15. Miriam Hill, “Politicians’ Nonprofits Proliferate,” Philadelphia Inquirer (January 23, 2004).

16. Thomas Fitzgerald, “Donors Flock to Perzel’s Charity,” Philadelphia Inquirer (March 24, 2004).

17. Nolan Clay and Randy Ellis, “Indictments Unsealed: Embezzlement Alleged,” The Daily Oklahoman (February 18, 2004).

18. http://www.chuckquackenbush.org/hawaii.html

19. Robert W. Hogeboom, “Quackenbush Scandal Raises Legal Questions,” FORC Quarterly Journal of Insurance Law and Regulation (Fall 2000, www.forc.org/journal/fall00/2.pdf).

20. http://www.chuckquackenbush.org/commissioneryears.html

21. “InsuranceGate:” Consumer Group Requests Criminal Investigation of Insurance Commissioner Quackenbush (The Foundation for Taxpayer and Consumer Rights, April 3, 2000).

22. The Urban League prior to the CRAF grant had no history of working on earthquake issues, according to an April 14, 2000 press release from the Foundation for Taxpayer & Consumer Rights watchdog group, and earthquakes have not had much impact in Sacramento to date. The Skillz football camp also appeared to have no earthquake-related programming and seemed relevant only in that it provided recreation for Quackenbush’s offspring.

23. Insurance Foundation’s Assets Seized; LA Times Says Quackenbush Should Resign,” Insurance Journal (May 8, 2000).

24. Amy Chance and Patrick Hoge, “Lockyer: Quake-aid Plan Badly Flawed—Court Filing Alleges Foundation Problems,” Sacramento Bee (June 16, 2000).

25. Jamie Court, “Special Foundations Shortchange the Public,” San Francisco Chronicle (May 17, 2000).

26. Dan Nakaso, “Politician Looks for New Life, New Career in Hawaii,” Honolulu Advertiser (April 15, 2003).

27. Hill, “Politicians’ Nonprofits Proliferate,” Philadelphia Inquirer (January 23, 2004).