From Serving the Public Good?
When Paul C. Cabot, Jr., threw a $200,000 wedding for his daughter in 2001, the money to pay for it came from the Paul and Virginia Cabot Charitable Trust, which was established to fund worthy causes. Cabot was a trustee of the foundation and earned millions in salary from it over the years, but apparently that was not quite enough. So when his daughter's nuptials arrived, he gave himself a $360,000 raise -- money, he later admitted, he intended to put toward the posh Boca Grande, Florida, wedding.And what about those worthy causes? According to a Boston Globe investigation, from 1998 through 2002, during which the foundation paid him more than $5 million, Cabot steered only about $2 million to charity. Ultimately he reached an agreement with the Massachusetts Attorney General's office to repay the foundation over $4 million.
The Cabot Charitable Trust is one of tens of thousands of nonprofits that have promised to serve the greater good in return for tax-free status. In other words, you and I subsidize the work of these organizations to the tune of billions of dollars in lost tax revenue; misspent resources don't serve the public good.
The high-profile scandals at companies like Enron and Tyco led Congress to pass laws that increased the transparency of corporate finances and made CEOs liable for company financial statements. While some salaries and perks are still out of control, shareholders are now demanding closer scrutiny of corporate bigwigs.
That leaves just one category of business that has managed to escape all effective oversight: the big-money world of nonprofit charities and foundations. While the vast majority of nonprofits (known as 501C3s, for the section of the tax code that covers them) aren't abusing the trust we've placed in them, an appalling number act more like not-for-profit profiteers -- with directors whose salaries consume huge chunks of their budgets, and executives siphoning off tax-free charity dollars for country-club memberships and fancy vacations.
According to The Chronicle of Philanthropy's 2005 annual survey of 226 nonprofit organizations, 61 reported more than $100,000 in "fringe benefits," and 20 staff members made over $1 million each.
People in the nonprofit world say you need to pay top dollar for top talent. Former Red Cross president and CEO Marsha J. Evans managed 36,000 employees and a $3 billion budget, for which she earned $450,000 in 2004. Fair enough.
But a lot of salaries are impossible to justify. For instance, the CEOs of six charities that are "low rated" by the watchdog group Charity Navigator -- meaning they devote less than 60 percent of their budgets to programs and services -- earn more than $350,000. That includes Wynton Marsalis, who earns about $800,000 as artistic director of New York's Jazz at Lincoln Center.
Fat Cats
At some charities, an executive's earnings can burn up nearly half the total budget. "There are a lot of people out there making $200,000 to $300,000, and that's pretty much all [those charities] are doing -- existing to pay their own CEOs," says Trent Stamp, president of Charity Navigator. For example, in 2004 the Conference of Presidents of Major American Jewish Organizations Fund paid its secretary, Malcolm Hoenlein, $819,000, nearly half the charity's total expenses that year. Was he really worth more than the Red Cross president? And should taxpayers be subsidizing that salary because the organization is tax-exempt? I don't think so.Too often, moneygrubbing crosses the line from unseemly to flat-out corrupt. Take the case of the Carl B. and Florence E. King Foundation, which receives tax-free status and makes grants to programs for children and the elderly, medical research and scholarships. In 2004 a jury ordered two of the charity's top officials to repay $7.5 million after they spent foundation money on everything from lavish vacations in Australia to health-club fees.
And, if officials actually do try to engage in oversight, it is not always welcome. In 2001 a United Way of the National Capital Area board member complained that the charity had paid for travel unrelated to the group's mission and had signed a lucrative contract with the group's former CEO. The board member was rebuffed and his term was not renewed. Later it turned out the CEO had defrauded the United Way out of almost $500,000, including personal trips to Las Vegas.
To be sure, some charity leaders are setting a noble example. William Baker, head of the New York-based Educational Broadcasting Corporation, has reportedly refused any raises above the $226,000 salary he first accepted a decade ago.
Yet how do we rein in those fat cats who would use our donations to pay for a deluxe wedding? A recent report to Congress suggests that nonprofits have at least three board members, that their tax reports be filed electronically and that large nonprofits have their financial statements reviewed by an outside auditor every year. "There's no reason not to extend many of the same requirements to nonprofits as we demand from corporations," says Jonathan Turley, a George Washington University law professor. He's right. Because we shouldn't open our wallets to line someone else's.