Politics and the Uses and Abuses of Nonprofits

Print Share on LinkedIn More



When Melanie Sloan announced that she was leaving Citizens for Responsibility and Ethics in Washington, the watchdog organization she founded and led for the last dozen years, the fear was that a critically important defender of American democracy was passing from the scene. Fortunately, Sloan is moving on to a role of advising nonprofits on crisis communications. In this interview with Nonprofit Quarterly, Sloan reminds us that much of what can and should be done to protect democracy is in the hands of the leadership of the nonprofit sector—and will be harmed by our silence and complacency.

Last month, such secular nonprofits as Public Citizen and the Center for American Progress joined with religious nonprofits like the Evangelical Council for Financial Accountability and the Alliance Defending Freedom to call on the Internal Revenue Services to issue guidelines giving greater clarity to what nonprofits and religious groups can do or not do in the realm of political activity. The Center for Public Integrity issued a report noting how many political committees organized as 501(c)(4)s or 527s, including those of Rev. Al Sharpton, Newt Gingrich, and Herman Cain as well as PACs such as Combat Veterans for Congress, Strength and Liberty, and others, owe the IRS substantial sums of money in penalties, back taxes, and other debts. However, the IRS seems unable get itself into gear to collect.

And in the wake of the never-ending saga of former IRS tax-exempt division director Lois Lerner, Senators Jeff Flake (R-AZ) and Pat Roberts (R-KS) introduced the Stop Targeting of Political Beliefs by the IRS Act of 2015, S. 283, with identical companion legislation introduced in the House of Representatives sponsored by Rep. Paul Ryan (R-WI) and Pete Roskam (R-IL). The bill erects a brick wall against the IRS’s efforts to clarify the definitions of political activity for 501(c)(4) social welfare organizations, essentially prohibiting the IRS from issuing any new rules and regulations during the remaining days of the Obama administration that would clarify or restrict the definition of “social welfare” for 501(c)(4)s. If passed, the legislation would be enforced through February 2017, when a new administration takes office—a none-too-subtle challenge to the purported bias of the current administration, even though, for whatever allegedly did or didn’t happen, there is no evidence that the Lerner “scandal” reached into the White House.

These issues are part of the backdrop to the departure of Melanie Sloan from Citizens for Responsibility and Ethics in Washington (CREW), a critically important watchdog organization focused on politicians playing fast and loose with ethical issues—and for news outlets, including NPQ itself, on politicians using, misusing, and abusing nonprofits. After the Sloan announcement, concerns were raised in several quarters about whether the shake-up at CREW, with Sloan’s departure as a consequence of the accession of David Brock, founder of Media Matters for America and the Super PAC American Bridge, would make the organization more susceptible to charges that it was not bipartisan in its watchdog functions concerning PACs, 501(c)(4)s, and even 501(c)(3) public charities that were somehow linked to or affiliated with politicians. For us at NPQ, the departure of Sloan meant that the insights and analysis of the individual we saw as “refreshingly nonpartisan [and] willing to call out Democrats as well as Republicans on issues of corruption” might be lost to the nonprofit sector.

Sloan isn’t totally gone from CREW, however; she retains a connection to the watchdog organization in an “of counsel” position while she embarks on a new stage in her career, creating a new public relations firm with ProgressNow’s Michael Huttner called Triumph Strategy, with offices in Washington, D.C., and Boulder, Colorado. Despite the changes at CREW announced last August, Sloan still gets cited frequently. For example, she recently spoke on behalf of CREW regarding the complaint that the Federal Election Commission filed last month, four years after a CREW complaint, alleging that former Republican Senatorial candidate Christine O’Donnell used campaign donations for her personal rent and utility costs. (O’Donnell called the complaint “intimidation and bullying,” Sloan called O’Donnell “an otherwise jobless scam artist who fleeced donors to support herself,” and Bloomberg wittily asked whether the complaint about the purported Wiccan was a “Witch Hunt or Real Violation?”)

Sloan’s history at CREW includes paying close attention to how politicians mucked around with nonprofits—and why donors were willing to play along. For example, Sloan was active in the early 2000s in a critique of the DeLay Foundation for Kids, the charity established by then-Majority Leader Tom DeLay (R-TX) that was scarfing up donations from corporate and other interests, including grants from the Bill & Melinda Gates Foundation (after then–foundation COO, now-HHS Secretary Sylvia Mathews, met with DeLay), Exxon Mobil, the Michael & Susan Dell Foundation, AT&T, and Corrections Corporation of America—just to name a few. At that time, Sloan told the New York Times, “Having a good relationship with DeLay depends not just on funding his campaign committees and his political action committees, but also his pet causes.” As she pointed out to NPQ this month, once DeLay was no longer majority leader, his foundation for foster children ceased to exist as well. “The foundation was just another way for people who wanted things from DeLay to curry favor,” Sloan said.

No surprise, but from the very beginning of DeLay’s involvement in the charitable sector, Sloan was on target with the political dynamics behind the DeLay Foundation, even if it seems to have been true that DeLay himself and his wife, Christine, really did care personally about foster children. The attractiveness of the foundation to donors was not foster children, but impressing the majority leader. On GuideStar, the page on the DeLay Foundation notes, “This organization has not appeared in the IRS Business Master File for a number of months and may no longer exist.” The DeLay Foundation’s last Form 990, covering the year ending June 2011, showed zero assets and its last contribution total of $25,000 from 2006—no surprise, as DeLay was out as majority leader in 2005 and left Congress in 2006. Whatever resources it may have had, including land donated by the George Foundation for a foster care community in Fort Bend County, Texas, had been turned over to Catholic Charities of the Archdiocese of Galveston-Houston to operate. Since the DeLay Foundation was running out of money, the foster care homes it had built were largely vacant and organizational partners that had linked up with the Foundation had “quit or were forced out.”

The various ethical scandals around Tom DeLay gave CREW the image that it was targeting Republicans, but in the arena of using 501(c)(3) charities as a venue for special interests to purchase face-time and favor with politicians, Sloan remembers congressional Republicans having much more of that activity than Democrats, particularly in terms of charges of potential violations of Congressional ethics standards. Off the top of her head, Sloan recounted such examples as lobbyist Jack Abramoff’s charities as well as charities connected to the likes of Orrin Hatch, Jim Bunning, and Bobby Jindal, all Republicans.

We reminded Sloan of a number of Democrats who had dubious track records with nonprofits they (or their family members or senior staff) controlled or benefited from, including former Congressman Frank Ballance of North Carolina, as well as others at state and municipal government levels, notably the “members items” grants to politician-controlled charities in New York. Sloan then added that Congressman Gregory Meeks (NY) and others across the aisle had their charity-related issues, but messy charitable involvements on the Democratic side didn’t seem to rise to the level of turning into ethics complaints like those that have dogged their GOP counterparts.

It doesn’t matter whether more Republicans or Democrats were involved, as the technique of using charities as venues for the buying and selling of access is a tool that is wrong for whoever might find it attractive, regardless of the politician’s party identity. “Some of these foundations are of questionable utility,” Sloan said. “They’re almost vanity foundations. The whole point of donating to get legislative favors, and that’s the problem.”

“It is hard to have a regulatory fix,” Sloan acknowledged. “Would you ban politicians from sitting on boards? Would you ban them from having their own foundations?” Without an obvious and easy regulatory solution, Sloan, like many of us in the nonprofit sector, lamented the shortcomings of self-regulation: “At some point you wish people would behave honorably. You shouldn’t need a rule.”

Sloan asked us about self-regulatory standards that nonprofit leadership organizations such as the Council on Foundations or Independent Sector have adopted for themselves. “Do they have a code of conduct for politicians on board?” she asked. “[Their codes of behavior] could mention politicians.” She also suggested that if there were a code of conduct that addresses the misuse of charities by politicians, nonprofit associations or simply other nonprofits “could also call out organizations that violate the standards.” Sloan observed that just about every industry has some sort of model rules, with peers “best able to recognize conduct outside the norm,” and noted that even lawyers “are required to report other lawyers who behave badly.” She probably has a higher estimation of the ability of nonprofits to self-police than the reality.

But Sloan’s overriding point was clear: When nonprofits turn a blind eye to the kind of misuse of charities and foundations represented by the pay-to-play charities established by politicians, their families, or their key staff, the behavior “tarnishes” the entire sector.

That was her point in examining the behavior and the rules of 501(c)(4) social welfare organizations. She said that the fault of this continuing problem “lies at the feet of the IRS and the administration” for not dealing with the definitional problem of what (c)(4)s can do. Much of the problem, Sloan said, is that the Internal Revenue Code says that (c)(4)s should exclusively address social welfare, but the IRS made a regulatory decision to define “exclusively” as “primarily” so that political activities couldn’t be more than half of a (c)(4)’s activities. But even there, Sloan pointed out, some (c)(4)s devote much more than 49 percent of their resources and time to political activities and they get away with it because the IRS really has no effective regulatory handle.

Would Sloan simply eliminate 501(c)(4)s as a creation of the Internal Revenue Code, a form that has been so misused in recent years to have been made meaningless? “I don’t think (c)(4)s shouldn’t exist any more,” Sloan answered. “A lot of educational institutions and hospitals are (c)(4)s…Those are legitimate social welfare purposes, [and] there’s not really an argument that they’re just political.” But the newer range of (c)(4)s is a different order of groups. “Now, [the political (c)(4)s] are just covers to run vituperative political ads. It’s hard to find any social welfare from lying political ads.”

For all the efforts of the IRS and outside organizations to come up with more robust “bright line” definitions, Sloan comes back to the language of the Code, suggesting that the best definition is that (c)(4)s should exclusively, not primarily, serve the social welfare. That’s her essential point on nonprofits engaging in political activity, whether as (c)(4)s or as (c)(3)s. She predicts that one of the next battles could be around the argument by conservatives that 501(c)(3)s should be able to be involved in political speech. She is clearly not swayed by the argument. “You can do whatever you want,” Sloan said, “but you don’t have to get the tax break. You have a right to engage in political speech, but taxpayers don’t have to support you.”

The fundamental problem comes back to the nexus of the IRS and Congress concerning the definition of political speech and the potential return to the legislative language of “exclusively.”

“We went and talked to many members of Congress after the IRS scandal,” Sloan noted, but there was “no political will to take it on. I thought the (IRS) scandal would be an opportunity get attention paid [to the issue of 501(c)(4)s and political speech], that people would look at the situation and say, ‘Let’s do something different,’ but the situation is getting messier and messier.”

“The IRS has done such a poor job for years, their enforcement [of political speech standards] has been lousy,” Sloan said, “[but since the scandal] they’ve pretty much said they’re not enforcing the law.”

With the limited political interest and will on the part of Congress, it is going to take the nonprofit sector to ratchet these issues—including the energy and capacity of the IRS—higher in the public’s consciousness and on the congressional agenda. “If the large majority of (c)(4)s were to say that these other (c)(4)s don’t belong in our category,” Sloan pointed out, that would count for something, but that isn’t happening. “Ultimately, silence undermines confidence in the entire sector,” Sloan warned. “Nonprofits rely heavily on the confidence of the American public. If (c)(4)s are seen as a sham, legitimate (c)(4)s are hurt.”

We would certainly add that the blowback from questions about the accountability and appropriateness of (c)(4)s affects (c)(3) public charities as well because, as Sloan observed, “people don’t understand the distinction” between them.

An indefatigable ethics watchdog with a track record of high-profile accomplishments ranging from publishing an annual bipartisan list of the most corrupt members of Congress to representing former CIA operative Valerie Plame in a suit against Vice President Dick Cheney and Republican campaign guru Karl Rove for leaking her identity to the columnist Robert Novak, Sloan now enters the world of public relations, focusing on “crisis communications and disruption strategies.

“Much of what I’ve done at CREW is crisis-related,” Sloan said, referring obliquely to the kinds of CREW investigations that led to crises for nonprofits like Tom DeLay’s and many more. “I created the crises, so I know how crises work.” It’s a distinctive PR focus, which Sloan describes as emanating from her CREW experience in “shaping an argument and developing a narrative that can be compelling to reporters.”

Over the years, Sloan herself fended off charges that CREW was politically biased in favor of Democrats, which we never saw, given its willingness to honor Democrats as well as Republicans on its “most corrupt members of Congress” lists (including, in 2013, Senator Bob Menendez and Representative Rob Andrews of New Jersey, Rep. Tim Bishop and Rep. Gregory Meeks of New York, plus Rep. Laura Richardson of California in the 2012 list, and Rep. Maxine Waters of California and Rep. Nick Rahall of West Virginia in 2011), none of whom were comforted by the notion that CREW was somehow biased in their favor. These politicians, plus the others who warranted “dishonorable mention” status in the CREW reports, might have benefited from crisis-management help through their sometimes-repeated ethical shortcomings.

But the big problem in the nonprofit sector, beyond the willingness of some nonprofits and some donors to allow themselves to be used for political interests, is that nonprofits don’t create enough crises. They don’t challenge politicians enough, particularly those who are willing to play fast and loose with 501(c) tax-exempt entities. Hopefully, in her new firm, Sloan will be helping nonprofits foment crises for the powerful and the complacent, not just helping them fend them off the crises in which they find themselves.

The particularly pernicious dimension of the challenge is the influx of money into politics through the mechanism of 501(c) tax-exempt entities. Sloan is concerned about how this will not only affect Congress, where “so little can get done because they’re always fighting,” but also spread to state legislatures. “The [political] money is usually about seeking a tougher line on the issues, not to get compromise,” Sloan added. “There’s a lot that goes with taking the more extreme position, the more extreme, the more donations.” As a result, she said, nonprofits face a political situation which is “less and less about going to Congress and getting help…[but recognizing] that the way you get something done in Congress is through overwhelming public support, and even then you might not get anything.”

If they are committed to small-“d” democracy, all nonprofits should be crying foul when politicians use and abuse nonprofits for partisan ends. Nonprofits should be challenging the flood of money into politics that makes their voices and those of their constituents increasingly difficult for politicians in Congress to hear. With closely divided legislatures being targeted with political donations from the extremes, this is a problem that’s burgeoning at the state level as well.

Under Sloan, CREW’s success was in letting politicians and donors know that in one corner of Washington, there was a watchdog willing to call them out for ethical transgressions. Sloan challenged the “pay-to-play” culture of government and demonstrated what a watchdog really does when it refuses to sell out to the interests it is supposed to monitor. The nonprofit sector needs to generate more watchdogs, find more courage to call out political misbehavior, especially when it occurs with 501(c) institutions, stand up against the pernicious effect of money in politics, and commit to creating turbulence in the complacent lives of powerful interests. That is the nonprofit role in resuscitating the teetering democratic traditions of American society.

  • Roger A. Lohmann

    Thanks for this very interesting profile on Melanie Sloan and her profoundly important message. You would think that every nonprofit in the country ought to be shouting her message from the rooftops, but instead it too often appears that hers is the proverbial voice crying in the wilderness. Without the vigorous and vocal support of nonprofits and the community leaders who speak for them, the IRS has been basically powerless to stand up against those who are systematically gutting the traditional nonpartisan role of 501(c)4’s and redefining them as strictly partisan institutions. I, for one, hope that Melanie continues her forthright advocacy of democracy against the moneyed interests for as long as it takes.