Goodwill Omaha’s “Bad Business” Model May Affect Property Tax Exemptions of Other Local Nonprofits

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Goodwill Store / Mike Mozart

October 25, 2016; Omaha World-Herald

NPQ is fond of repeating that when one nonprofit disgraces itself, the consequences are often visited on others. That is certainly the case with two nonprofits around Goodwill Omaha, which has been subject to a searing investigation of its pay and business practices over the last week.

Henry Cordes reported the story in the Omaha World-Herald. As we covered yesterday in our nonprofit newswire, he exposed the fact that CEO Frank McGree made a cool $933,444 in 2014, which is not only out of scale with other local agencies but also with other Goodwill operations. This was while more than 100 workers with disabilities were being paid a sub-minimum wage under Section 14(c) of the Fair Labor Standards Act, a provision which has fallen out of favor with the nation’s disabilities advocates.

To be fair, about $519,000 of that $933,000 was in a retention bonus, but even so, McGree’s compensation is higher than many imagined, and that includes the members of the Douglas County Board of County Commissioners who took McGree’s testimony in May when the issues of tax exemptions for thrift stores run by nonprofits came up. Also present to testify were the heads of the Salvation Army and the local Habitat for Humanity, both of which also run thrift stores.

McGree argued that the stores are necessary elements in Goodwill’s efforts to help needy job seekers. The Douglas County Commission board members, who eventually extended the tax exemption, reacted with some dismay to the articles from the Omaha World-Herald. Cordes records their reactions:

  • “I am just flabbergasted, and disappointed.”—Mike Boyle
  • “That’s outrageous and wrong.”—James Cavanaugh
  • “You know, you just ruined my day.”—Marc Kraft

All three said they voted for the tax exemptions in the belief that the money saved would be devoted to providing jobs and training to disabled workers, but hearing that McGree’s 2014 compensation was more than double the average paid to the leaders of Omaha’s most prominent local social service nonprofits and that Goodwill Omaha was far and away the highest in the percentage of budget it devoted to CEO pay and the rate at which it paid six-figure salaries to employees made them look at the property tax exemptions through new eyes.

The Assessor’s Office estimates that the annual tax bill on Goodwill’s five stores it owns in Omaha would total $280,000 were the exemptions to be cut. Douglas County Assessor/Register of Deeds Diane Battiato has already appealed to the state to overturn the County Board decision on thrift store exemptions for Goodwill—and the two other groups as well—because, in her judgment, Nebraska state law calls for taxing such establishments. The World-Herald’s disclosures, she added, may raise additional grounds for rejecting at least Goodwill’s exemption in particular because it may be arguable that profits derived from the property are being distributed to officers, members, or others, and thus the organization may be in violation of the regulations against private inurement for nonprofits.

The improbably named Mike Goodwillie, who is the compliance officer in Battiato’s office, says the situation clearly calls that into question. As NPQ readers may recall, the question of salary also figured in the Morristown Medical Center property exemption case in New Jersey, with the judge citing CEO salary in his decision.

“This definitely deserves some sunshine,” James Cavanaugh agrees. “The purpose of a charity property tax exemption is not to enrich individuals working for those charities. If that’s what’s going on, that’s wrong.”

Nebraska state tax regulations provide that it is the use of the property that renders it exempt or nonexempt, and thrift stores are retail establishments.

“If you generate money for a good cause, that’s terrific,” Goodwillie says. “But that doesn’t change the basic use of what’s going on within the four walls of that property.”

Arguments have been made that the Salvation Army and Goodwill stores were central to job training programs, but the assessor has found that the properties were more stores than job-training sites; in Goodwill’s case, only 28 of the 145 employees were trainees.

The ammunition that Goodwill has handed to the tax assessors may or may not affect the other two groups whose pay scales are significantly lower, with Habitat’s chief executive’s compensation at $145,000 in 2014 and the Salvation Army leader receiving $89,000.

In retrospect, some Douglas County Board members said they’re not sure how they would have voted had the pay information been available but it certainly would have changed the balance of their discussion of the issues. “It’s something I would have raised,” Boyle said. “No one expects people who work there to take a vow of poverty, but [consideration of] pay needs to be included, for God’s sake.”

Cordes writes that, in the end:

No one spoke better to the charity’s obligations to the public during the County Board hearing than Frank McGree himself. He was asked by Boyle to address a rumor he’s sometimes heard that Goodwill is a private company.

“We are a community-based organization owned by you and you and you,” McGree said. “That’s who owns Goodwill.”

Well said, but not well demonstrated.—Ruth McCambridge

  • Kathleen Minder

    I’m curious what Omaha’s most famous business man, Warren Buffett, would say about this. It upsets me, as a donor, a supporter of Goodwill enterprises in New York, and as a NFP professional. How does their Board of Directors, who determines executive compensation, justify this?

    • Sam Shyken

      This is what Susie Buffett told the Omaha World Herald as noted in the 10/28/16 edition.

      .”I think the board should be embarrassed.
      I think (McGree) should have been fired Monday or earlier. I don’t know
      why he’s still there.

      “They will never get another penny from the Sherwood Foundation. There is my statement.”

      Susie Buffett runs the Sherwood Foundation. Her father, Warren Buffett runs Bershire Hathaway, which owns the Omaha World Herald.

  • Sam Shyken

    The Chairman
    of the Board of Goodwill Industries, Omaha is Joe Lempka. Joe is the
    President of the Kiewit Building Group. As far as I know, all of the
    Goodwill retail centers and the Headquarters on North 72nd Street were
    constructed by Kiewit. This may all be above board, but it does appear
    to be odd. If there was a competitive bidding process and Kiewit was
    deemed to be the low bidder, which is required on public financed
    projects, then there is no issue. Not sure if Goodwill fits this
    mold, but it does make for a comfortable arrangement for Kiewit and
    Goodwill to have Joe on the Board.

    • Kelly

      hi, Sam – That’s really interesting – do you happen to know the timing of the various construction projects vs. Mr. Lempka’s tenure on the Board?

      There’s a such a difference between a legitimately-contracted construction company doing work for an organization and then having an executive later join the non-profit’s Board, and the concerns about potential self-dealing that would arise if the process happened in the other order…