January 20, 2018; Signal (Santa Clarita Valley, CA)
As Jeff Gottlieb reports in the Santa Clarita Signal, all five of the students who received a scholarship from the Spirit Educational Foundation come from local high-profile families or business associates of founders Larry and Peggy Rasmussen. Now, did these students stand out as the natural choices because of high merit or great need? Apparently not; in fact, the fund has few restricting guidelines. College scholarships can be given to any young person anywhere so long as they maintain a 2.0 GPA—a “C” average.
Experts cited in the article suggest it would have been wiser, perhaps, to keep that $100,000 in a more informal fund rather than planting it in a tax-exempt foundation, because in a foundation you must follow the rules, minimal as they may be. Those rules disallow private benefit, along with self-dealing and private inurement, so any use of such funds for business relationship building to ease one’s own way in the world is disallowed.
The fund’s own description of its pipeline for scholarship recommendations is also fairly vague: “Friends, business associates, church folks, [and] relatives” refer candidates, while “community leaders have provided names of students who require help.”
So, is it a problem that all the scholarships ended up in the hands of the children of friends, political allies, and business associates, with some going to multiple children in the same family? It certainly looks bad. “You can’t set up a public scholarship fund just for people who are friends or are children of people you do business with,” said Trent Stamp, executive director of the Eisner Foundation and founding president of Charity Navigator.
The Rasmussens are themselves active in a combination of business and politics in Santa Clarita County, but they apparently did not understand that giving scholarships only to other high-profile families in the name of charity would be an issue.
“This is a private foundation,” Peggy said, apparently misunderstanding the requirements for public benefit exchanged for a tax exemption. “There is no public money involved.”
But Stamp disagrees, and we suspect that the IRS would too if they had any attention to devote to the matter.
“The government says if you’re willing to make a gift to a true charity, we’re willing to give you a tax break,” Stamp said. “The belief is that the organization will then make true public gifts and not just give to people who are friends of the family.”—Ruth McCambridge