Friday, March 11, 2011

A Different Perspective on Compensating Directors of Massachusetts Nonprofit Health Insurers

All week the blog has followed the story – some might say drama – of the Massachusetts Attorney General’s scrutiny of the compensation of directors of nonprofit health insurers.  In Redirect the Outrage, Boston Globe columnist Steven Syre offers a different take on the matter.  The gist of his perspective, in his own words, is the following: “The problem with those boards has nothing to do with compensation. It’s all about composition.”  He continues:

Our biggest health insurers aren’t really public charities, no matter what the law or Martha Coakley say. They’re big insurance companies and should act that way. People love to hate insurance companies, but those businesses will be an important part of the puzzle if we ever mean to solve — or at least slow down — the real problem of soaring health care costs. …

When it comes to boards, insurance companies should be recruiting a smaller number of people with specialized skills and backgrounds to lead the managers in charge of big, complex businesses. That means throwing over many of the people who currently sit on those boards, but don’t come close to meeting such a standard.  It also means paying for the best available talent and expertise that creates real value. Why? Because that’s what it will take.

Syre does not advocate that Blue Cross continue with board business as usual.  While he thinks that the directors “are not wildly overpaid based on the size of the company they oversee,” he also considers the board “too big” and some members to have been “invited onto it for the wrong reasons.”  And what about the rising costs of health care?  Here is Syre's view of that issue in a nutshell, which comes full circle:

Insurance companies are in a position to make more when we pay more, but they aren’t a leading cause of the higher health costs. Hospitals and other providers that charge more — along with all of us who insist on access to expensive facilities and tend to use more services — are most responsible.  Managing those costs and expectations is the key to getting our hands around health care costs. Insurance companies can, and should be, part of the answer.  One way insurers can do better: Improve their boards by finding the best directors and paying them.

Syre has a point.  But its implications reach well beyond board compensation and composition.  His column observes that talented people “stand in line to give their money away to hospitals and sit on their boards for free,” but that “insurance companies that are legally considered public charities in Massachusetts fit a different profile.” The latter do not rely on charitable contributions.  The bigger issue is how the law should classify such a nonprofit entity for purposes of taxation and regulation.


March 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Congressman Blumenauer Addresses Foundations on Possible Tax Law Changes

An interesting article in The Chronicle of Philanthropy, Congressman Urges Foundation Officials to Push for Tax Changes, discusses several tax issues of relevance to charities, including the foundations represented by employees who congregated in D.C. this week for “the Council on Foundations and the Forum of Regional Associations of Grantmakers’ annual ‘Foundations on the Hill’ day.”  Addressing the group was Rep. Earl Blumenauer, Democrat of Oregon and a member of the House Ways and Means Committee, who reportedly reminded the foundations of the “enormous pressure on legislators to reduce the federal deficit” and said that “some people are eyeing ways to change the charitable deduction.”   According to the story, Blumenauer observed the decrease in large charitable gifts in 2010, a year in which no estate tax was imposed, and suggested that Congress might consider some simplification of private foundation excise tax rules and permanent codification of the IRA charitable rollover rules.

The “simplification” of the private foundation excise tax rules is, I assume, a reference to a proposal to end the dual rate structure of the excise tax on private foundations’ net investment income.   The issue is discussed on the website of the Council on Foundations.


March 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Thursday, March 10, 2011

More on Massachusetts Health Insurers’ Director Compensation

What a week it is shaping up to be for Massachusetts health insurers!  In yet another article in the Boston Globe, 2 more boards rethink own pay, we learn that Harvard Pilgrim Health Care and Tufts Health Plan have said that their boards will soon meet to deliberate upon Massachusetts Attorney General Martha Coakley’s pressure on them to stop receiving “five-figure annual payments.”   The story continues:

“These board fees for insurance companies are off the reservation,’’ said F. Warren McFarlan, professor emeritus at Harvard Business School and an authority on nonprofit boards, noting that the state’s nonprofit hospitals and universities do not pay their part-time directors.   “On for-profit boards, you expect to be paid. In the nonprofit world, it’s about time, talent, and treasure. It’s about serving the organization’s mission,’’ he said.

Documents filed with the state Division of Insurance last week showed that Harvard Pilgrim, Tufts, and Fallon Community Health Plan, like Blue Cross, paid most of their directors large sums for part-time board service in 2010. While less generous than those given to Blue Cross board members, payments ranged from $21,900 to $68,100 at Harvard Pilgrim, $19,500 to $82,500 at Tufts (except for two board members who received nominal fees), and $13,900 to $24,350 at Fallon.

AG Coakley’s office is reportedly completing a 16-month probe of nonprofit board member compensation, and is expected to recommend that nonprofit insurers end director compensation. 


March 10, 2011 | Permalink | Comments (0) | TrackBack (0)

The Texas Version of UPMIFA and A Peculiar Rule Governing Pooled Endowment Funds

I am writing an article on the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) and have decided to discuss a peculiar provision in the Texas version of the model act. The Texas Uniform Prudent Management of Institutional Funds Act (“TUPMIFA”), enacted in 2007, largely reflects the text of UPMIFA.  However, TUPMIFA contains a strange provision applicable to pooled endowment funds.  The Texas statute, see TEX. PROP. CODE § 163.005(g) (2010), states as follows:

If an institution pools the assets of individual endowment funds for collective investment, this section [i.e., the section governing the decision to spend or accumulate] applies to the pooled fund and does not apply to individual endowment funds, including individual endowment funds for which the nature of the underlying asset or donor restrictions preclude inclusion in a pool but which are managed by the institution in accordance with a collective investment policy.

The Texas rule plainly deviates from UPMIFA.  Although UPMIFA permits the pooling of endowment funds, such pooling is authorized only “for purposes of management and investment.” UNIF. PRUDENT MGMT. OF INSTITUTIONAL FUNDS ACT § 3(d).  Further, the official comments to UPMIFA state that the pooled funds will be considered individually for purposes of the rules relating to spending and modification of restrictions under the uniform act.  See id. § 3(d) cmt.
The TUPMIFA directive to apply its spending/accumulation section to “the pooled fund” and not to “the individual endowment funds” strikes me, and some others with whom I have spoken, as quite problematic.  As under UPMIFA, relevant factors under TUPMIFA that bear upon the decision to appropriate for expenditure, or instead accumulate, endowment funds include the “the duration and preservation of the endowment fund,” TEX. PROP. CODE § 163.005(a)(1), and “the purposes of the … endowment fund.”  Id. § 163.005(a)(2).  These particular factors are fund-specific.   It seems quite impossible to apply these factors to “the pooled fund” in any sensible manner.
I believe that a statutory amendment is necessary to conform the Texas rule to the approach of the model act.  As I have mentioned in a recent presentation (with MariBen Ramsey, the Interim President/CEO and General Counsel of the Austin Community Foundation) at the 28th Annual Nonprofit Organizations Institute, until the Texas provision is amended to remedy this defect, a plausible solution is to draft endowment fund investment policies so as to circumvent the statutory malady, and make certain that such policies are incorporated by reference in the terms of gift instruments.  Consistent with UPMIFA, the spending/accumulation rules of TUPMIFA are explicitly made “[s]ubject to the intent of a donor expressed in the gift instrument.”  Id.   Thus, the problem can be avoided if the gift instrument states that the pooling of funds will not render irrelevant “the purposes of the … endowment fund” and “the duration and preservation of the endowment fund” in considering whether to expend or accumulate.

I welcome any insight that others may have to offer on this deviation from UPMIFA enacted in Texas.


March 10, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 9, 2011

Charities, Spring Cleaning and Tax Law

What do charities, spring cleaning and tax law have in common?  More than you may think.   A recent article in The Buffalo News, Springtime Giveaway, explains:

Spring will eventually arrive in Western New York and ignite the annual fervor in many people to reorganize and spruce up their living spaces.  And as they declutter and decide to part ways with household items they no longer use, local charities enjoy a steep climb in donations. “We’d like for people to think about us all year long, but spring is our busiest time of our year –our peak season,” said Florence Conti, president/ CEO of Goodwill Industries of Western New York…Local charities are the grateful recipients of the pounds of used items discarded each year during the spring cleaning ritual. The contributions greatly boost their supplies, and in turn, their bottom lines.  “We rely heavily on those donations to support our inventory in our stores,” Conti said. “Donations account for 70 percent of our annual revenue.”

Along with the satisfaction of helping such worthy causes, your contributions could also reduce your tax liability. … “The donation of property is a little bit complex,” said Dianne Besunder, an IRS spokeswoman in New York City. “It depends an awful lot on keeping the appropriate records, having a qualifying charity and knowing the value of your donations.”

The article provides a good occasion to highlight a few charitable contribution deduction rules that seem especially important to spring-cleaning itemizers who plan to donate clothes and other household belongings to charity.  Section 170(f)(8) of the Internal Revenue Code sets forth substantiation requirements for donations of $250 or more:

(8) Substantiation requirement for certain contributions.
      (A) General rule. No deduction shall be allowed under subsection (a) for any contribution of $ 250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).
      (B) Content of acknowledgement. An acknowledgement meets the requirements of this subparagraph if it includes the following information:
         (i) The amount of cash and a description (but not value) of any property other than cash contributed.
         (ii) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i).
         (iii) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect.
      For purposes of this subparagraph, the term "intangible religious benefit" means any intangible religious benefit which is provided by an organization organized exclusively for religious purposes and which generally is not sold in a commercial transaction outside the donative context.
      (C) Contemporaneous. For purposes of subparagraph (A), an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of--
         (i) the date on which the taxpayer files a return for the taxable year in which the contribution was made, or
         (ii) the due date (including extensions) for filing such return.
      (D) Substantiation not required for contributions reported by the donee organization. Subparagraph (A) shall not apply to a contribution if the donee organization files a return, on such form and in accordance with such regulations as the Secretary may prescribe, which includes the information described in subparagraph (B) with respect to the contribution.
      (E) Regulations. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations that may provide that some or all of the requirements of this paragraph do not apply in appropriate cases.

Secondly, Code section 170(f)(16) sets forth special rules for donations of clothing, furniture, household appliances, linens and the like:

(16) Contributions of clothing and household items.
      (A) In general. In the case of an individual, partnership, or corporation, no deduction shall be allowed under subsection (a) for any contribution of clothing or a household item unless such clothing or household item is in good used condition or better.
      (B) Items of minimal value. Notwithstanding subparagraph (A), the Secretary may by regulation deny a deduction under subsection (a) for any contribution of clothing or a household item which has minimal monetary value.
      (C) Exception for certain property. Subparagraphs (A) and (B) shall not apply to any contribution of a single item of clothing or a household item for which a deduction of more than $ 500 is claimed if the taxpayer includes with the taxpayer's return a qualified appraisal with respect to the property.
      (D) Household items. For purposes of this paragraph--
         (i) In general. The term "household items" includes furniture, furnishings, electronics, appliances, linens, and other similar items.
         (ii) Excluded items. Such term does not include--
            (I) food,
            (II) paintings, antiques, and other objects of art,
            (III) jewelry and gems, and
            (IV) collections.
      (E) Special rule for pass-thru entities. In the case of a partnership or S corporation, this paragraph shall be applied at the entity level, except that the deduction shall be denied at the partner or shareholder level.

Additionally, Code section 170(f)(11) sets forth rules concerning required appraisals for donations of big-ticket items. (Interested readers can follow the link; I will spare you the details of this one.)


March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Massachusetts Blue Cross Suspends Directors’ Pay in View of Mounting Scrutiny

In Insurer’s board suspends own pay, the Boston Globe reports that Blue Cross Blue Shield of Massachusetts board members voted to suspend their collective five-figure annual directors’ payments and to begin discussions with the office of Massachusetts Attorney General Martha Coakley and community leaders about the nonprofit’s status as a public charity.  Blue Cross chief executive Andrew Dreyfus is quoted as acknowledging the board compensation issue as a "great distraction," and as opining that "it was important that [the board] make a statement" following public outcry over the board fees and an $11 million payout of former CEO Cleve L. Killingsworth upon his departure.  Attorney General Coakely is reportedly calling on the state’s three other nonprofit health insurers — Harvard Pilgrim Health Care, Tufts Health Plan, and Fallon Community Health Plan — likewise to end the practice of compensating directors.
The story further reports that the Massachusetts Attorney General’s office has recently begun to investigate the Blue’s practices in 2005, when its board approved the  Killingsworth employment contract giving rise to his severance package.  Attorney General Coakley reportedly said that, while her office would participate in the nonprofit’s internal review of its legal status, "any decisions about changes would be left up to the insurer’s board:"

"They have two choices right now," she said. "They can stay organized as a not-for-profit, but I would hope that their directors would stay non-compensated indefinitely. Or if they decide they want to be organized as a for-profit, they’re going to have to get a statutory change" because the insurer was set up by state law.

CEO Dreyfus is reported to have dismissed the option of abandoning the nonprofit organization form for Blue Cross:

He suggested two other possible outcomes: It could remain a nonprofit, but drop its designation as a public charity, which now puts it in the same category as organizations that accept donations, such as museums. Blue Cross also could become a member-owned mutual insurance company. In either case, he said, the board would have to determine whether to resume paying directors under a new legal structure.


March 9, 2011 | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 8, 2011

Exemption Revoked for Conservation Easement Shams

In Private Letter Ruling 201109030 (Dec. 8, 2010), released on March 4 and recently reported in Tax Notes Today, the Internal Revenue Service (“IRS”) revoked the federal income tax exemption of an organization claiming to qualify under section 501(c)(3) of the Internal Revenue Code (“Code”).  The organization received donations of five conservation easements, three of which are most notable.  The first was a tract of non-environmentally-sensitive land located on the grounds of a private, gated condominium/tennis resort and used as a storm water retention area and a miniature golf course.  The second, a 30-acre tract on a small bayou, was originally part of a larger real estate development.  A state EPA department required the developer to set aside wetlands before he could obtain necessary permits.  An IRS agent who examined the tract observed that it had been used as a dumping ground and four-wheeling playground.  A third easement consisted of interior easement lots in a residential subdivision containing large water front residential lots and wooded interior lots.  The easement lots added wooded space between houses.  Moreover, two ponds, and a boat/RV storage facility, had been constructed on the easement property.

The IRS determined that the transfers of the easements failed the test of “qualified conservation contribution” under Code section 170(h)(1).

Contributions … that are not for the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystems, that restrict the entrance of the general public from their benefit and education, that benefit only a private residential community of home owners, that restrict entrance to only the easement contributors, that are not donated in perpetuity, that are not monitored by the exempt organization on are regular basis do not qualify as charitable conservation easement contributions.

Further, the organization that received the transfers failed the test of Code section 501(c)(3) on grounds of advancing a non-exempt purpose:

ORG is not operating exclusively for an exempt conservation easement purpose as defined in IRC Section 501(c)(3) and IRC Section 170(h), because more than an insubstantial part of ORG activities are in furtherance of a non-exempt purpose. The non-exempt purpose of accepting non-qualifying conservation easement contributions by ORG serves the private interest of donors rather than an IRC 501(c)(3) purpose.

A word to the wise charitable conservation organizations: If a real estate developer approaches you as a potential donee of a conservation easement, make certain the transaction is not merely a device for seeking a tax benefit for a private community’s exclusive, collective recreational benefit.  Do not let a habitat for woodsy wildlife become a habitat for Hyatt humanity.


March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Indianapolis Nonprofits Indicative of the Times?: Nonprofit Grant Receipts and Dwindling Municipal Revenues

In Crime-prevention grants cut, putting some programs at risk, The Indianapolis Star reports that nonprofits in Indianapolis are feeling the pinch of declining city revenue: 

With a $74,000 city grant last year, the Church of Acts started a program that has taken hundreds of teenagers off the street each Friday night.  The children play basketball and video games, shoot pool and play foosball at three locations across the city.  Now, those activities and dozens of others are in jeopardy of elimination because of cuts in the city's 2-year-old Community Crime Prevention Grant Program.  The total money for the grants will be reduced by 50 percent, to $2 million, in 2011. That means Cheri Gable and organizers of other programs will have to convince city grantors that their programs are worth saving.

                                                                    * * *

Last year, 68 groups shared $4 million in grants ranging from $19,000 to $249,000. The largest chunk of grants -- $1.5 million -- went to programs for youths. The second-largest, $1 million, targeted offender re-entry programs. Education, health and neighborhood services rounded out recipients.  The organizations ranged in size from the Salvation Army to Bethlehem House on the Northside, a small nonprofit with a $400,000 annual budget that helps people battle substance abuse and cope with HIV.

"The cuts make me nervous," said Nate Rush, Bethlehem House executive director. Last year's $56,000 grant allowed him to hire a full-time counselor who served 75 people, he said.
"We are a small community-based organization that doesn't receive any other grants," Rush said. "We provide long-term services for free. The people we see don't have any money and couldn't get this help anywhere else over the long haul."

The decrease in funding from municipal sources hardly seems a problem unique to Indianapolis nonprofits.  In The New York Times’ Broke Town, U.S.A., author Roger Lowenstein offers a sobering assessment of the financial condition of cities across the nation:

Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.

These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself.

The problems of cities are everywhere. The city council of Harrisburg, the capital of Pennsylvania, has enlisted a big New York law firm to explore bankruptcy as a means of restructuring a crushing debt. Central Falls, R.I., is in receivership. Hamtramck, Mich., a small city within Detroit’s borders, says it could run out of money next month. Hamtramck has only 90 employees, yet it is saddled with the pensions and health care obligations of 252 retirees. Detroit itself is at risk. Large deficits will mean closing about half of the city’s schools and will push high-school class sizes to 60 students.

These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40 cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.

Of course, some nonprofits are much more dependent on local governments than are others.  Health and human services appear to rely heavily on governmental sources of funding.  The following brief discussion, appearing on the website of the National Center for Charitable Statistics, offers some perspective on the issue:

What percentage of an average public charity's total revenue comes from government?

Government support for charities is difficult to measure because it comes in different forms and is reported on the IRS Form 990 in several places. A grant to provide a service for the public, for example, is reported under "Government contributions (grants)" on Form 990, line 1c, while a contract to provide a service or good to the government itself is reported under "Program service revenue" on Form 990, line 2. Program service revenue is further divided into revenue from Medicare/Medicaid and from government fees and contracts, as well as other contracts.

In 2004, government grants only made up about 9 percent of revenue for all reporting charities (about $100 billion), but represented a higher proportion for human service, international, and public benefit organizations. This amount does not include  government funding from Medicare and Medicaid, and the revenue from contracts for providing services directly to the government, all of which are reported under program service revenues on the Form 990. (Medicare and Medicaid revenues are drastically underreported on the Form 990.  See the latest Nonprofit Almanac 2008 for more information and new estimates for these sources.)

A third source of government support for charities is more indirect, as individuals may receive grants or subsidies and then use them to pay fees for services and goods provided by nonprofits. This would include, for example, primary and secondary school vouchers or college scholarships. Further research is necessary to measure this source of government support for charities.

                                                                    * * *


March 8, 2011 | Permalink | Comments (0) | TrackBack (0)

Monday, March 7, 2011

Do we need a "related party" statute for 501(c)(3) transactions?

The Tax Code is replete with provisions designed to prevent the use of "straw persons" to accomplish what a direct participant in a transaction cannot.  IRC 267 is a prime example, and even the definition of "disqualified persons" in IRC 4958 has spawned regulations designed to preventing the use of related parties to accomplish what a principal cannot otherwise do.  Do we need a provisions relating to what related-party charities can or cannot do in order to prevent other charities from violating established prohibitions?  There are already various attribution rules sprinkled throughout the tax (and no doubt the federal election statute and regs) provisions and I am not unsympathetic to the overregulation of transactions in the market-place.  But the question arose when I read a recent NY Times article detailing the contributions made to charities supervised by the relatives of politicians.  Here is a short blurb:

Louisiana’s biggest corporate players, many with long agendas before the state government, are restricted in making campaign contributions to Gov. Bobby Jindal. But they can give whatever they like to the foundation set up by his wife months after he took office.  AT&T, which needed Mr. Jindal, a Republican, to sign off on legislation allowing the company to sell cable television services without having to negotiate with individual parishes, has pledged at least $250,000 to the Supriya Jindal Foundation for Louisiana's Children.  Marathon Oil, which last year won approval from the Jindal administration to increase the amount of oil it can refine at its Louisiana plant, also committed to a $250,000 donation. And the military contractor Northrop Grumman, which got state officials to help set up an airplane maintenance facility at a former Air Force base, promised $10,000 to the charity. The foundation has collected nearly $1 million in previously unreported pledges from major oil companies, insurers and other corporations in Louisiana with high-stakes regulatory issues, according to a review by The New York Times.  It is among the newest of charities set up by elected officials, including members of Congress, or their families that are mutually beneficial: companies seeking to influence politicians or curry favor can donate unrestricted amounts of money, while the officials benefit from the good will associated with charitable work financed by businesses.

An earlier NY Time article discussed the unusual success that charities run by family members of politicians have in gathering donations while the related party is in office as well as the ethical questions attendant to those donations:

But some current and former lawmakers, as well as ethics officials on Capitol Hill, find the charitable donations troubling, calling them one of the last major unregulated fronts in the “pay to play” culture in Washington. The donations typically far exceed what companies are permitted to give to candidates in campaign contributions.  The Office of Congressional Ethics, a House oversight group, twice last year investigated lawmakers’ charities, but took no action, in part because the House granted waivers exempting the congressmen from prohibitions against soliciting donations from companies with business before their committees.  The donations by corporations and lobbyists to politicians’ favorite causes can create expectations that the lawmakers will return the favor, said Mickey Edwards, an Oklahoma Republican who served 16 years in the House.  “Almost all of these foundations, they were set up for a good purpose,” Mr. Edwards said. “But as soon as you take a donation, it creates more than just an appearance problem for the member of Congress. It is a real conflict.”




March 7, 2011 in In the News | Permalink | Comments (0) | TrackBack (0)

Compensation by Nonprofit Blues Draws Scrutiny

A recent editorial in the Boston Globe, No wonder health costs are so high, is critical of the compensation paid by Blue Cross Blue Shield Nonprofits around the country.  Notable excerpts of the piece include the following:

IF MASSACHUSETTS is the model, then national health care reform is ultimately doomed. That can be the only conclusion after this week’s news that Blue Cross Blue Shield of Massachusetts is in the homestretch of paying out nearly $28 million in retirement and severance pay in the last five years to its last two CEOs. Adding more insult to consumers, the curtain was pulled back on the incestuous way Massachusetts’ top health care providers pay board members tens of thousands of dollars.

                                                                * * *

But Massachusetts is not alone. Blue Cross Blue Shield of Michigan doled out $1.54 million to 34 board members, even as the company was losing $145 million, the Detroit Free Press reported in 2008. In 2009, Blue Cross Blue Shield of North Dakota, nationally touted as a well-run alternative to the vilified “public option,’’ was exposed for paying out millions in bonuses, charter flights, Caribbean junkets, and severance for a CEO who had been busted for drunk driving.

                                                                * * *

But nowhere in the nation does it seem that Blue Cross is willing to moderate itself. WellPoint, which runs Blue Cross plans in 14 states, including California, raised compensation 51 percent in 2009 for CEO Angela Braly, to $13.1 million. Other top WellPoint executives received similar percentage hikes, taking home between $4.5 million and $7.2 million, according to the Los Angeles Times. Horizon Blue Cross Blue Shield of New Jersey gave recently retired CEO William Marino a 59 percent pay boost in 2009, to $8.7 million, and its top 10 executives received an average 61 percent raise, totaling $24.3 million.


March 7, 2011 | Permalink | Comments (1) | TrackBack (0)

A Nonprofit Bail-Out of Government?

Tax-exempt organization law specialists are well aware that “charitable” purposes, as defined in the Treasury regulations interpreting Section 501(c)(3) of the Internal Revenue Code, include “lessening the burdens of government.”   See Treas. Reg. § 1.501(c)(3)-1(d)(2).  With all of the talk of “government bail-outs” of troubled firms in the financial sector through the great recession, attention is now focusing on the question of how cash-strapped, debt-ridden governments will fulfill their traditional public functions.   A couple of recent stories feature the role of the nonprofit sector in “bailing out” governments, in a manner of speaking.  

From the Washington Post, To bust the deficit, Britain tries a revolution in volunteerism:

The new Conservative-led government here is embracing an extreme experiment in deficit-busting as it prepares to cut public spending by $131 billion over the next four years. At the same time, it envisions the creation of an army of volunteers and charities to pitch in for queen and country, a notion Prime Minister David Cameron calls part of his vision for a "Big Society."

One of Europe's most indebted nations, Britain is becoming a testing ground for fiscal cures just as the United States is poised to embark on its own effort to tackle the deficit. On this side of the Atlantic, Cameron's Big Society movement is hoping to enlist a new class of citizen activists to take on roles as varied as postal clerk and librarian, park ranger and police officer to help fill the gap.

As the nation begins to absorb just how deep and fast the cuts will come, the Big Society has come under intense fire here. The government, critics say, is being a Pollyanna if it thinks the goodwill of the citizenry can make up for draconian state cuts.

But the government is calling a revolution in volunteerism at least part of the answer. In some cases, job hopefuls will have little choice. Cash-strapped Scotland Yard, for instance, has instituted a policy mandating that most recruits spend a minimum of one year on the job for free, as it increasingly relies on unpaid special constables … to help keep London's streets safe. 
                                                        * * *
Cameron's Big Society also aims to transfer power to local governments and cut bureaucratic red tape. Wherever possible, the government is seeking to find alternatives to the state. In recent months, it has moved to grant parents and teachers the right to set up their own schools, and to establish a Big Society Bank to help "social entrepreneurs" fund civil projects on their own.

Great Britain is not alone in relying on the assistance of volunteers and charitable organizations.  From The Cincinnati Enquirer, Religious groups increase work to help those in need:

Since the recession began in December 2007, congregations and other faith-based groups started to move into the community to help people hard-pressed by the economy.

In Florence, 7 Hills Church rehabbed four donated cars and gave them to poor church members. Other 7 Hills members fix cars for others in a ministry called Wrenches.

In Hyde Park, a Muslim congregation from Milford joined with Episcopal Church of the Redeemer to shelter, feed and clothe homeless families.

In Anderson Township, Immaculate Heart of Mary Catholic Church started a job-search ministry to respond to unprecedented requests for help from the newly unemployed.

In South Fairmount, a support group for ex-convicts, organized by a retired Baptist minister, grew into a church.

Roselawn Lutheran Church runs free dental and eye clinics.

Congregations across Greater Cincinnati and Northern Kentucky stretch just a bit further every month to help others whose needs aren't being met by shrinking government programs.

"I got to a point where I was weak and low, and they helped me build myself up again," said Rachel Wheeler, 19, of Hebron, a 7 Hills Church member who received the keys and title to a used Oldsmobile Silhouette minivan last month.

Wheeler, a single mother of a 2-year-old daughter, was a homeless hitchhiker as her old retail job back and start community college in medical technology, neither of which would be possible without transportation.

"They didn't judge me," she said. "They just helped me. I really want to do well to be able to give back."

No one would have helped Wheeler if the church hadn't.

"The safety net is frayed, but (faith-based groups) help us fill the gap," said Moira Weir, executive director of Hamilton County Jobs and Family Services, a government agency that has lost half of its employees and budget since the start of the recession.

Weir's agency had 1,638 employees in 2007, but has 780 today. The operating budget has shrunk from $106 million to $57 million in the same time period.

Religious-based organizations can't replace the breadth and depth of state and federal aid programs for the unemployed and working poor, but they can try.

In reviewing the activities that these religious organizations are conducting in and around Cincinnati, it occurred to me that they probably do not see themselves as lessening the burdens of government, but as fulfilling other purposes plainly recognized as charitable under the same Treasury regulations: “Relief of the poor and distressed or of the underprivileged” and “advancement of religion.”  I was also reminded of one of several reasons that many of them probably think this way: “Religion that God our Father accepts as pure and faultless is this: to look after orphans and widows in their distress and to keep oneself from being polluted by the world.” (James 1:27).  According to The Cincinnati Enquirer, a similar view was expressed by Lewis Kamrass, senior rabbi of Isaac M. Wise Temple in Amberley Village, which has enhanced its support of local food and homeless programs. "The world was not made perfect, and it is our sacred obligation to mend and repair it.”  Sometimes the purposes of charity, and the interests of government and private charity, merge in a way that persons of nearly every ideological stripe can celebrate.


March 7, 2011 | Permalink | Comments (1) | TrackBack (0)

Another Scientology Lawsuit

The Church of Scientology, at the center of much litigation of interest to tax-exempt organization lawyers and scholars, is being sued for violating child labor laws.   In Lawsuit claims Church of Scientology violated child labor and wage laws, the St. Petersburg Times reports that lawsuits filed in California state court allege that the plaintiff –

• Was permitted to attend school about one day a week because working for Sea Org [a religious order of Scientology] took priority.
• Spent his childhood working at least 40 hours a week, and often more than 100 hours a week for pay that ranged from $35 to $50 a week.
• Had no work permits required of minors.
• Was made to work back-to-back 12-hour days in the fall of 2007, when the church was pushing its staff to produce and sell a new book release.
• From 2008 to 2010, was punished along with other workers for lack of production. He was made to run laps wearing a jacket and tie, clean grease traps and do push ups.
• Worked past midnight for two months in 2009 after rising at 6 a.m. each day, and was made to do push ups and dig ditches for lack of production.
• Suffered an accident at age 16 while cleaning a "notching" machine at the church's printing unit, Bridge Publications.  Half of his right index finger was cut off and no ambulance was called, the lawsuit asserts.  It says Montalvo was taken to the hospital but told by the Sea Org to tell doctors he was a volunteer.  He was not to mention Scientology.

A Scientology spokesman reportedly said that he could not comment on the lawsuits and observed that the plaintiff had taken Scientology property (computer hard drives) valued at tens of thousands of dollars when he fled the organization.


March 7, 2011 | Permalink | Comments (0) | TrackBack (0)