Politics Threaten Private Foundation Assets

Imagine this: you’re in charge of a large private foundation with a mission to serve the health needs of the people of your state. Your staff and board have made careful and informed decisions about grants to nonprofit organizations and state programs that advance the health of the people of your state. And, because the foundation is large, political leaders are acutely aware of your efforts and of the value of the endowment you oversee.

Within this context, imagine that the Governor of your state, in a series of letters and press releases, attempts to undercut your authority and pressure you into directing fully 80 percent of your annual grantmaking budget to support underfunded state programs, implying he, rather than the private foundation’s leaders, is a better steward of the private foundation’s assets.

The Governor of Missouri, Matt Blunt, made such an attempt this spring. Calling the Missouri Foundation for Health’s endowment “taxpayer assets,” Blunt requested that the foundation fund, for 10 years, state programs that the Governor himself recommended. His reasoning? These are “taxpayer assets” because the foundation and the nonprofit organization, whose conversion resulted in the foundation’s creation, benefited from years of tax benefits in Missouri. Under the Governor’s logic, the assets of any Missouri nonprofit organization would be at risk.

Fortunately, the Foundation’s CEO, Dr. James Kimmey, and its board of directors refused to bend to the Governor’s pressure. But Governor Blunt’s misunderstanding, or perhaps intentional mischaracterization, of the Foundation’s endowment represents the latest example in an alarming trend at the intersection of charities and politics.

• In New York, a political deal between the Governor and a union leader unfairly redirected 95 percent of a nonprofit health insurer’s assets into a fund to support pay raises for members of the state’s largest labor union.
• In Kentucky’s 2003 gubernatorial race, the Republican Governors Association claimed in an advertisement, without any substantiating evidence, that the Democratic candidate, Attorney General Ben Chandler, had acted improperly by creating a private foundation with the assets preserved in the conversion of a large health insurance company. Although the ad’s claims were debunked, it ran frequently and may have been instrumental in Chandler’s defeat that year.

As spiraling health costs take their toll on state budgets, it is possible that the Blunt approach, seeing private foundation assets as “taxpayer assets,” may be attempted elsewhere, whether through legislation or executive fiat. Have you seen any such entanglement between politics and private foundations in your state? Heard about any problematic legislation, or other threatening state action, that could tie the hands of nonprofit or foundation leaders?

Scott Benbow is a philanthropy specialist in San Francisco. Since graduating from Columbia Law School, he has practiced law in the United States and in three other countries.

Read more stories by Scott Benbow.