Nonprofit picks up governor's travel bill

Los Angeles Times
Jul 05, 2007 - 01:00 AM
by Paul Pringle, Times Staff Writer

Nonprofit picks up governor's travel bill;

The group that funds Schwarzenegger's jets and luxury suites writes off the cost. Its donors can get tax breaks.

SACRAMENTO, CA -- California's larger-than-life governor is unabashed about living large, but keeping him in luxury sometimes depends on the same taxpayer subsidies granted to hand-to-mouth charities.

Arnold Schwarzenegger, a millionaire many times over, bills much of his overseas travel to an obscure nonprofit group that can qualify its secret donors for full tax deductions, just as if they were giving to skid row shelters or the United Way.

Whether journeying to China, Japan or last week's destinations -- Austria, England and France -- Schwarzenegger typically flies on top-of-the-line private jets like the plush Gulfstream models and has booked hotel suites that can run thousands of dollars a night.

Nonprofit watchdogs say using charitable write-offs to pay for sumptuous travel is an abuse of tax codes.

"Wow, that's a problem," said Daniel Borochoff, president of the American Institute of Philanthropy. "Why should our tax dollars subsidize his lavish lifestyle?"

Making matters worse, Borochoff and others say, is that the nonprofit that finances Schwarzenegger's globe-trotting, the California State Protocol Foundation, could be a vehicle for interests that hope to curry favor with the governor.

By giving to the foundation, donors avoid having their identities made public, because charities are not governed by the disclosure rules that apply to campaign contributions. And they can donate unlimited amounts to the nonprofit, which is not subject to contribution ceilings the way campaign accounts are.

Representatives for Schwarzenegger and the foundation say there is nothing inappropriate about his arrangement with the group, which is closely associated with the California Chamber of Commerce.

The foundation declined to release details of its expenditures, despite expectations in the nonprofit world that charities be as transparent as possible.

"Good nonprofits are open books," said Trent Stamp, president of Charity Navigator, an online rating service. "Good nonprofits relish the opportunity to be accountable."

Schwarzenegger has tapped at least one other charity for some of his travel. The Simon Wiesenthal Center, celebrated for its Museum of Tolerance in Los Angeles and far-flung Nazi-hunting efforts, paid more than $51,000 to help send the governor to Israel in 2004, a year when the charity ran a deficit, records show.

The trip carried a steep tab because of the private jet, said people familiar with Schwarzenegger's travel.

A Wiesenthal spokesman said that the center had invited the governor to Israel for a museum groundbreaking and that the $51,000 paid for part of the jet costs.

The governor could easily pick up outsized travel bills himself, and a spokesman said Schwarzenegger does pay for his private jet when he flies domestically on state business.

But trips abroad are something else.

"That jet for those international jaunts is extremely expensive," said one person with knowledge of the governor's itineraries, who requested anonymity so as not to alienate him. "China was probably well north of $100,000."

Schwarzenegger spokesman Aaron McLear said specific breakdowns for the governor's jet expenses were not immediately available. But costs for flying on a Gulfstream or similar aircraft often are many times greater than the price of a first-class ticket on a commercial airline.

On that basis alone, well-run charities generally bar or strictly limit private flying, the watchdogs say.

Allan Zaremberg, the Chamber of Commerce president and a foundation board member, said the protocol group pays whatever bills the governor's office submits. "How they allocate that money is up to them," he said.

He declined to release any financial information about the charity beyond the summary data on its tax returns, which it must disclose by law.

In an e-mail, a foundation spokesman said the returns are "sufficient to demonstrate how the foundation pursues its mission of relieving the taxpayers of the cost burden of certain government activities, especially those related to international trade and diplomacy."

McLear echoed that statement in part, saying the foundation saves tax dollars.

"I think that's a good thing," he said. "The governor looks to save the taxpayers' money every chance he gets."

But charity watchdogs and others say taxpayers should foot the bill for a governor's official travel. They also say Schwarzenegger would face a storm of rebuke if he tried to charge the state for private jets and posh hotel suites.

"Using nonprofits to pay for this type of travel is a way to avoid that," said Ned Wigglesworth, policy advocate for California Common Cause.

Schwarzenegger turns to other nonprofits to finance a range of his political activities, and to lease a Hyatt Regency hotel suite while he is in Sacramento. The suite costs about $65,000 a year.

The number of charities tied to elected officials has grown in recent years, even as they have figured in a spate of corruption scandals, including those centered on jailed lobbyist Jack Abramoff. What sets Schwarzenegger apart in the nonprofit arena are his vast personal fortune and his repeated pledge to shun special-interest dollars.

Schwarzenegger's aides say the governor needs to fly privately for safety reasons -- that commercial airlines cannot provide sufficient security for a celebrity with his drawing power. They also note that the protocol organization and its predecessors, such as the Golden State Host Committees, paid some travel costs for previous governors.

During the Gray Davis administration, the group's spending peaked at $427,000 in 2000. Darius Anderson, its executive director that year, said Davis "flew commercially 90% of the time" but did charter a private jet while touring the Middle East.

The protocol foundation's expenditures have exploded since Schwarzenegger began relying on it -- from $55,000 in 2003 to $1.8 million in 2005 and $1.3 million last year, its tax returns show.

Nonprofit monitors say it is almost impossible to justify routine spending of charitable dollars on aircraft that can cost $6,000 to $10,000 an hour to lease.

"The boards of most charities would not accept such exorbitant travel expenses for their board members or executives," said Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy.

The protocol organization is a 501(c)(3) nonprofit, occupying the highest rung of tax-exempt groups as a public charity. The Governor's Residence Foundation, the nonprofit that pays for Schwarzenegger's home away from home at the Hyatt, is also a 501(c)(3).

The category includes basic-needs charities like soup kitchens and the Red Cross as well as nonprofit hospitals, schools and museums. All must provide a public benefit, are barred from engaging in elective politics and cannot take part in legislative or lobbying activity to a substantial degree.

Contributions to many other types of nonprofits, including chambers of commerce, are not tax deductible unless they can be claimed as legitimate business expenses or are directed to a charitable purpose. (Campaign contributions are not deductible.)

Most of Schwarzenegger's foreign sojourns have been trade missions, though his critics say the trips really are little more than junkets designed to boost his international profile.

Corporate executives who have accompanied the governor overseas prize the opportunity to make contacts in distant markets, Schwarzenegger confidants say.

Foundation backers have said that because the group doesn't disclose the names of donors, Schwarzenegger would not know if his corporate travel-mates helped pay for a trip and thus could not be influenced by their donations.

McLear said the missions have attracted investment and produced jobs on these shores: "The economic benefit to California is substantial."

State disclosure forms that Schwarzenegger filed for 2004 showed that the foundation spent about $27,000 and $18,000 for his trips to Austria and Japan, respectively. McLear said most of the money paid for the governor's hotel suites.

Schwarzenegger declines to take his state salary, and he does give to charities. From 2002 through 2004, for example, he reported $2.5 million in charitable donations and about $55 million in total income.

The governor's other charitable activities include his sponsorship of nonprofits that provide recreation programs for children.
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Contact the author at: paul.pringle@latimes.com

Add Tax Brackets for the Super-Rich

Add Tax Brackets for the Super-Rich: Budget Expert Published: Monday, 23 Aug 2010 http://www.cnbc.com/id/38819213/Add_Tax_Brackets_for_the_Super_Rich_Budget_Expert woodleywonderworks Treasury Seal The U.S. should add income tax brackets for those making $1 million, $5 million and $10 million, a tax and federal budget expert from the think tank the Center for American Progress told CNBC Monday. “It doesn’t really make sense that somebody making $500,000 pays the exact same marginal tax rate on their last dollar of earnings as somebody making $10 million or $50 million,” said Michael Linden from the center, which is headed by John Podesta, White House chief of staff under Bill Clinton. "The richest 400 Americans in 2007 made an average of $138 million, and they paid an effective tax rate that was lower than most people making $150,000 to $200,000."Michael LindenCenter for American Progress “In fact, the richest 400 Americans in 2007 made an average of $138 million in one year and they paid an effective tax rate that was lower than most people who were making $150,000 to $200,000.” As the Bush tax cuts are set to expire at year's end, experts of different political views are weighing in on taxes. Nobel laureate and economist Paul Krugman argued in the New York Times on Monday in favor of letting the Bush tax cuts expire and for taxing the rich at a higher rate. New Yorker business columnist James Surowiecki, who in an August 16 piece called “Soak the Very, Very Rich,” called for more tax brackets that would tax the extremely wealthy so they pay more taxes.

All night parties. Hotel rooms rented for years to store her gym gear. What REALLY happened to the millions Madonna pledged to Malawi's children

All night parties. Hotel rooms rented for years to store her gym gear. What REALLY happened to the millions Madonna pledged to Malawi's children By Andrew MaloneLast updated at 1:51 AM on 2nd April 2011 Comments (1) Add to My Stories Ray of light? Madonna with adopted son David Banda in 2007 Cycling home through the African night, his feet bare and wearing only ragged shorts and a grubby shirt, a crop farmer stops under the stars to give his views about the latest scandal involving Madonna, a woman whose lifestyle could hardly be further removed from his. And yet his views are worth listening to, for this is Yohane Banda, the biological father of the Malawian boy adopted by the Material Girl when she decided to add ‘poverty-chic’ to the long list of fads she has followed in her 30-year career. And in the darkness, Yohane, a pleasant, mild-mannered individual, gave me some news for Madonna: his son David, five — who now lives with the singer — is about to have a new half-brother or sister. For Yohane had just returned from taking his new wife to a rural clinic to give birth. Yet he does not expect David or Madonna ever to see the child. ‘She took my son away for ever,’ says Yohane. ‘Madonna is only interested in herself.’ Yohane is not alone in feeling cheated. Once dubbed Saint Madonna of Malawi, the American singer is now at the centre of an astonishing feud in the land to which David Livingstone, the British missionary, first brought Christianity almost 150 years ago. It involves allegations of sexual shenanigans, millions of dollars squandered on parties and high-living and claims that Madonna was allowed to adopt her Malawian children — she also took on a girl called Mercy James, now five — on the basis of promises that are, so far, unfulfilled. And at the centre of the scandal is the fact that the school Madonna promised to build here has been abandoned. Where it should have been standing, this week there was nothing but a dusty field. To understand the background to this story — and the depth of anger of the local people — we must go back five years to when Madonna first came to Malawi. While Dr Livingstone arrived on the shores of Lake Malawi at the end of a five-year African odyssey, Madonna did things rather differently — and more extravagantly. Travelling by private jet and accompanied by her personal trainer, public relations men and high-powered lawyers, her appearance was described by local politicians as a ‘gift from heaven’. Determined to adopt an African child, despite having her own two children from separate relationships, she toured orphanages in search of the perfect addition to her brood.Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMyn4jGo Announcing plans to set up schools, orphanages and medical centres, the singer pledged millions to the country. And though all non-Malawians have to be resident for 18 months before adopting a child, Madonna duly left on her private jet with little David Banda, who had been temporarily placed in an orphanage after his mother died and his father was unable to provide milk for the baby (there is no bottle-feeding in the African bush). At the same time, Madonna announced that she was setting up a charity called Raising Malawi, run through her Kabbalah religious centre in Los Angeles, which would build a school for orphaned girls. What she was less keen to advertise was the fact that all local Malawians she employed would have to be instructed in Kabbalah. Having offered such largesse, the law was waived a second time in 2009 when she adopted Mercy — a Malawian girl whose Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMyxGXFB Today, however, local feelings towards Madonna are much changed. It was announced this week that her school for girls was being scrapped, more than three years after work began and staff were hired to oversee the project. In a statement issued by her office, the singer said: ‘There’s a real education crisis in Malawi. Our team is going to work hard to address this in every way. I’m frustrated that our education work has not moved forward in a faster way.’ At the same time, Madonna dismissed the entire board of directors of Raising Malawi, claiming that $3.8million (£2.4million) had been squandered without a brick being laid at the school outside Lilongwe, the country’s capital. (The singer reportedly donated $11 million of her own money to the charity.) So what’s going on? Why are these orphaned children now being denied care after so much fanfare? To find out, I travelled to Malawi — and discovered the truth is far more complex and disturbing than Madonna’s explanation. My findings also unearthed allegations that her fascination with Africa has run into the sand — a fad to be cast aside when she lost interest. Certainly, that’s the view of staff summarily fired by the pop star this week. All have been forced to sign gagging orders by her lawyers, promising that they will take to the grave any secrets they have about the singer and her operations.Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMz4exgz But sources close to the staff refer to Madonna’s own wastefulness and extravagance, pointing out that they were forced to hire two rooms at the country’s most upmarket hotel for three years — simply to store the singer’s gym equipment in case she ever returned. Branding Madonna ‘racist’ for implying that African corruption was to blame, they also point to the role of one of Madonna’s closest advisers, who oversaw Raising Malawi from his offices in Los Angeles. He is Philippe van den Bossche, who was the executive director of Raising Malawi until he resigned from his post last autumn. He got the job with Madonna around the same time he was having an affair with Tracy Anderson, the singer’s personal trainer, who accompanied her on her six trips to Malawi. According to sacked staff members, he spent money in a manner that would not have embarrassed an African dictator. Flying out first class to Malawi regularly, he took up residence in the same exclusive hotel where Madonna used to stay. Not a single brick was laid at the school His parties became the stuff of legend. Thrown at least once a month, they involved more than 100 guests at a time being plied with vintage wines, rare malt whiskies and fine cognacs. The parties often lasted until dawn, with all bedrooms block-booked to prevent other guests prying. At the same time, Madonna’s aide opened offices in the most prestigious office block in Lilongwe, furnishing the charity’s luxurious premises with African artefacts and offering his staff astonishing perks. Each member of his eight-man executive team was supplied with annual membership at the capital’s exclusive golf club and leisure resort, costing thousands of pounds a year. They were also provided with luxury cars; indeed, two vehicles were assigned to staff that didn’t even exist. Meanwhile, the charity’s local director, also something of a party-lover — who is the sister of Malawi’s vice-president — was a prime beneficiary of these perks. Anjimile Oponyo, who worked at the United Nations Development Programme in Africa before being appointed to run Madonna’s Malawi school project, was allowed virtually free rein financially — and wasted hundreds of thousands of pounds.Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMzCbtUt As well as paying a local journalist £1,000 a day to count how many times Madonna and Malawi were mentioned on the internet, Oponyo paid more than £100 a day for three years to hire luxury vehicles. In a country where the average wage is less than ten pounds a week, she ignored pleas by other staff to take the cheaper option of buying a car, saying she wanted to be able to change her vehicle regularly, which paying by the day enabled her to do. Like her boss, she was also an enthusiastic party organiser, staging events at restaurants, the golf club, as well as countless bars and restaurants, for elite politicians and businessmen in the country. Details of some of the allegations of lavish spending also emerged in a Global Philanthropy Group audit commissioned by Madonna. Now consulting her lawyers, along with the rest of the fired staff, Oponyo was this weekend in New York plotting her next move. She, too, is banned from speaking publicly about her time with Madonna. But friends insist she had spent less than one million dollars in funds, using it for offices, vehicles and staff over the past three years. They say all her expenditure was passed by Madonna’s aides in Los Angeles. Her staff spent money like an African dictator And the sources close to Oponyo suggest that Madonna’s decision to scrap her plans for a girls’ academy in Malawi are not solely related to educational issues, but rather money. ‘After the initial fuss she created about Malawi, lots of money was raised,’ one source told me, speaking on condition of anonymity during a clandestine meeting in a Lilongwe restaurant. ‘Public donors and celebrities passed on money. That was enough for us to get started, get a staff and draw up plans for the building. But only £5 million was raised through Madonna’s charity for a project that was going to cost £11 million.’ A local journalist, who first broke the news in 2006 that Madonna was planning to adopt a local child, points out that all the perks for African staff were written into their contracts — but that large amounts were wasted flying in ‘experts’ from the U.S. to advise on the project. And now the lawsuits are piling up. With her Malawian staff suing for unfair dismissal and local politicians in uproar about what they see as Madonna’s broken promises, the singer is threatening her own legal action to recover some of the money wasted so far. At the same time, the pop star’s beloved Kabbalah Centre headquarters in Los Angeles, which she helps fund — and uses to distribute her fortune to charity projects such as Raising Malawi — is being sued for £15 million by a wealthy heiress, who claims she was duped into donating money to its coffers. Courtenay Geddes, who inherited billions from her industrialist father, claims in a lawsuit that ‘while looking for spiritual enlightenment, personal growth and improvement, she was manipulated by the Kabbalah Centre, which took advantage of her sincere, trusting nature to deprive her of her monies’.Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMzM6L5g The legal document adds: ‘The Kabbalah Centre has a historical pattern and practice of defrauding people by soliciting monies for various projects that never come to fruition. Geddes is but one of numerous people who have been taken advantage of.’ This week the singer issued a statement which said: ‘I remain deeply committed to helping the children of Malawi ... and I realise that the plans we had in place for the Raising Malawi Academy for Girls simply would not serve enough children. ‘My original vision is now on a much bigger scale. I want to reach thousands not hundreds of girls. I want to do more and I want to do it better. ‘While I am grateful to all the people who have given me guidance and support up until now, we are in the process of implementing several changes and additions to the management of Raising Malawi in the U.S. and Malawi.’ ‘I’d just like my son back to live with the new baby coming. I’m the only one not to get any cash. But money isn’t everything.' She continued: ‘This is a larger challenge than I thought, but I welcome it. We are currently determining the size, location, staffing and curriculum of the schools. I will continue to monitor the process of reaching these goals here and through my ongoing visits to Malawi.’ Certainly, she’s raised awareness of poverty in Malawi, with many aid projects set up to help children as a result. While the millionaire singer continues to insist she is involved in Malawi — she still funds other projects for children there — perhaps the last word in this tawdry dispute should go to Yohane Banda, standing beside his rusty bike on a dirt track in the African bush. ‘I hoped my boy would be given an education and then given back to me,’ he said. ‘He may be better off for money with Madonna, but he should be with his family. ‘I’d just like my son back to live with the new baby coming. I’m the only one not to get any cash. But money isn’t everything. ‘Perhaps this rich lady should learn that.’ Read more: http://www.dailymail.co.uk/news/article-1372552/What-really-happened-millions-Madonna-pledged-Malawis-children.html#ixzz1IMzRvEhj

Tax the Super Rich now or face a revolution

I am not sure whether this author talks simply about top 1% or one-tenth of the 1%. It makes a huge difference since in that top 1%, there is huge disparity. The botom 1% of that group without inheritance still has to work every day like everyone else plus performance pressure and 24/7 committment the high paying job normally requires. As to the one-tenth of the 1%, I highly doubt that they have to really "work." So here is the article I completely agree excluding those who stilll have to work to pay the bill and save for their retirement. By Paul B. Farrell, MarketWatch SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, tax the Super Rich. Tax them now. Before the other 99% rise up, trigger a new American Revolution, a meltdown and the Great Depression 2. Revolutions build over long periods — to critical mass, a flash point. Then they ignite suddenly, unpredictably. Like Egypt, started on a young Google executive’s Facebook page. Then it goes viral, raging uncontrollably. Can’t be stopped. Here in America the set-up is our nation’s pervasive “Super-Rich Delusion.” U.K. workers protest turns violent A splinter group is blamed for smashing windows and attacking police vans as tens of thousands march against government cuts. We know the Super Rich don’t care. Not about you. Nor the American public. They can’t see. Can’t hear. Stay trapped in their Forbes-400 bubble. An echo chamber that isolates them. They see the public as faceless workers, customers, taxpayers. See GOP power on the ascent. Reaganomics is back. Unions on the run. Clueless masses are easily manipulated. Even Obama is secretly working with the GOP, will never touch his Super Rich donors. Yes, the Super-Rich Delusion is that powerful, infecting all America. Here’s how one savvy insider who knows described this Super-Rich Delusion: “The top 1% live privileged lives, aren’t worried about much. Families vacation at the best resorts. Their big concerns are finding the best Pilates teacher, best masseuse, best surgeons, best private schools. They aren’t concerned with the underlying deterioration of America or the world, except in the abstract, because they aren’t directly affected by it. That’s not to say they aren’t sympathetic, aware, or don’t talk about the issues you bring up. They are largely concerned with protecting and enhancing their socio-economic positions, ensuring their families live well. And nothing you write about will change things.” Warning, in 2011 that attitude is delusional, deadly, yet pervasive in America. Super Rich replaying “Great Gatsby” age, won’t learn till it’s too late Our top 1% honestly believe they’re immune, protected from the unintended consequences of beating down average Americans for three decades with the free-market, trickle-down Reaganomics doctrines that made them Super Rich. They honestly believe those same doctrines will protect them in the next depression. Why? Because they have megabucks stashed away. Provisions for the long haul. Live in gated compounds with mercenaries guarding them. They believe they’ll continue living just fine in a depression. But you won’t. Nor will your retirement. Neither will the rest of America. And still the Super Rich don’t care, “except in the abstract, because they aren’t directly affected.” Warning: The Super-Rich Delusion has pushed us to the edge of a great precipice: Remember the Roaring Twenties? The Crash of 1929? Great Depression? Just days before the crash one leading economist, Irving Fisher, predicted that stocks had “reached what looks like a permanently high plateau.” Yes, he was trapped in the “Great Gatsby Syndrome,” an earlier version of today’s Super-Rich Delusion. It was so blinding in 1929 that the president, Wall Street, all America were sucked in … until the critical mass hit a mysterious flash point, triggering the crash. Yes, we’re reliving that past — never learn, can’t hear. And oddly it’s not just the GOP’s overreach, the endlessly compromising Obama, too-greedy-to-fail Wall Street banksters, U.S. Chamber of Commerce billionaires and arrogant Forbes 400. America’s entire political, financial and economic psyche is infected, as if our DNA has been rewired. The Collective American Brain is trapped in this Super-Rich Delusion, replaying the run-up to the ’29 Crash. Nobody predicted 2011 revolutions in the oil-rich Arab world either Warning: Mubarak, Gaddafi, Ali, Assad, even the Saudis also lived in the Super-Rich Delusion. Have for a long time. Were vulnerable. Ripe for a revolution. They, too, honestly believed they were divinely protected, chosen for great earthly wealth, enjoyed great armies. Then, suddenly, out of the blue, a new “educated, unemployed and frustrated” generation turned on them, is now rebelling, demanding their share of economic benefits, opportunities, triggering revolutions, seeking retribution. Still, you don’t believe there’s a depression ahead here in America? The third great market crash of the 21st century? A new economic revolution about to blow up in our faces? No, you don’t believe, can’t believe … you, me, we are all infected by the Super-Rich Delusion, just as Americans were in the Roaring Twenties. Check the stats folks: The last time America’s wealth gap between the Super Rich and the other 99% was this big was just before the 1929 Crash and the Great Depression. You can’t remember? Or you won’t? America is trapped in “terminal denial,” a setup for failure. Too many still live in the false hope of this Super-Rich Delusion. Do you believe government stats hyping a recovery? Believe Wall Street’s nonsense about a new bull market ahead? Believe Exxon-Mobile’s misleading ads about energy stocks. Believe Bill Gross’ when he says dump Treasurys, and buy his emerging country bonds? Dream on. Start preparing for the third meltdown of the 21st Century, and depression Denial and lies. Remember, 93% of what you hear about markets, finance and the economy are guesses, wishful thinking and lies intended to manipulate you into making decisions that suck money from your pockets into Wall Street. They get rich telling lies about securities. They hate any SEC fiduciary rules forcing them to tell the truth. But the fact is, on an inflation-adjusted basis, Wall Street lost 20% of your retirement money in the decade from 2000 to 2010, over $10 trillion. And “Irrational Exuberance’s” Robert Shiller warns of a third meltdown coming. You better start preparing now. Before you start betting any more at Wall Street’s rigged casinos, think long and hard about these six megatoxins lurking in America’s Super-Rich Delusion, a mind-altering pandemic infecting our nation’s leadership in Washington, Corporate America and Wall Street … but also “trickling down,” infecting many Americans. Listen: 1. Warning: Super Rich want tax cuts, creating youth unemployment Bloomberg warns: “The Kids Are Not Alright.” Worldwide, youth unemployment is fueling the revolution. In a New York Times column, Matthew Klein, a 24-year-old Council on Foreign Relations researcher, draws a parallel between the 25% unemployment among Egypt’s young revolutionaries and the 21% for young American workers: “The young will bear the brunt of the pain” as governments rebalance budgets. Taxes on workers will be raised and spending on education will be cut while mortgage subsidies and entitlements for the elderly are untouchable,” as will tax cuts for the rich. Opportunities lost. “How much longer until the rest of the rich world” explodes like Egypt? 2. Warning: rich get richer on commodity prices, poor get angrier USA Today’s John Waggoner warns: “Soaring food prices send millions into poverty, hunger: Corn up 52% in 12 months. Sugar 60%. Soybeans 41%. Wheat 24%. For 44 million the “rise in food prices means a descent into extreme poverty and hunger, warns the World Bank.” Many causes: Speculators. Soaring oil prices. Trade policies. Population explosion. But altogether they expose “the underlying inequalities and issues related to the standard of living that boil beneath the surface,” says a Pimco manager. 3. Warning: Global poor ticking time bomb targeting Super Rich A Time special report, “Poor vs. Rich: A New Global Conflict” warned that a “conflict between two worlds — one rich, one poor — is developing, and the battlefield is the globe itself.” Just 25 developed nations of 750 million citizens consume most of the world’s resources, produce most of its manufactured goods and enjoy history’s highest standard of living.” But they’re now facing 100 underdeveloped poor nations with 2 billion people with hundreds of millions living in poverty all demanding “an ever larger share of that wealth.” Think Egypt. British leader calls this a “time bomb for the human race.” 4. Warning: Next revolution coming across ‘Third World America’ We are ripe for one: In “Third World America” Arianna Huffington warns: “Washington rushed to the rescue of Wall Street but forgot about Main Street … One in five Americans unemployed or underemployed. One in nine families unable to make the minimum payment on their credit cards. One in eight mortgages in default or foreclosure. One in eight Americans on food stamps. Upward mobility has always been at the center of the American Dream … that promise has been broken… The American Dream is becoming a nightmare.” Soon it will implode. a meltdown, revolution, depression. 5. Warning: Super Rich must be detoxed of their greed addiction In “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (And Stick You With the Bill),” David Cay Johnston, warns that the rich are like addicts, and to “the addicted, money is like cocaine, too much is never enough.” A few years ago an elite 300,000 Americans in “the top tenth of 1% of income had nearly as much income as all 150 million Americans who make up the economic lower half of our population.” The Super Rich Delusion is an addiction that requires a painful detox. 6. Warning: Politicians infected by Super-Rich Delusion, revolution In “Washington’s Suicide Pact,” Newsweek’s Ezra Klein warns: “Congress is careening toward the worst of all worlds: massive job losses and an exploding deficit.” How bad? As many as 700,000 more jobs lost, says Moody’s chief economist, Mark Zandi. What a twist: Remember vice president Dick Cheney said “deficits don’t matter.” Today the GOP is so blinded by its obsession to destroy Obama’s presidency, deficits are now the only thing they say matters. Wake up folks. The Super-Rich Delusion is destroying the American Dream for the rest of us. The Super Rich don’t care about you. They’re already stockpiling for the economic time bomb dead ahead. Don’t say you weren’t warned. Time for you to plan ahead for the coming revolution, for another depression

mrs senator part2

The “specifically named individual” is Michelle Obama, who was appointed to the Board of TreeHouse Foods, a WAL-MART vendor, on June 25, 2005, even though she did not have experience in the private sector previous to the appointment. Here are the benefits the Obama family received as a result of Michelle Obama’s stint with the WAL-MART vendor:
According to the couple’s tax returns, Mrs Obama earned $51,200 (£25,700) for her work as a non-executive director on Treehouse’s board last year, on top of the $271,618 salary she was paid as a vice-president of the University of Chicago Hospitals.
She also received 7,500 Treehouse stock options, worth a further $72,375, as she did the previous year, when she banked a $45,000 salary from the company.
Michelle Obama is the “specifically named individual” who was able to sit on corporate boards, although she lacks the experience of Blagojevich’s wife. And notice how Michelle Obama’s position with the WAL-MART vendor helped alleviate the “financial stress” of the Obama family at a time when they were purchasing a mansion from Rezko they could not afford.
Why is this relevant?
Blagojevich, according to the FBI complaint, thought Barack Obama could appoint his wife to corporate boards if he were to appoint Valerie Jarrett to the open Senate seat vacated by Obama. I quote pages 54-55 of the criminal complaint filed by Special Agent of the FBI David Cain:
By law, after the President-elect’s resignation of his position as a U.S. Senator, which was effective on November 16, 2008, ROD BLAGOJEVICH has sole authority to appoint his replacement for the two years remaining of the President-elect’s Senate term. See 10 ILCS 5/25-8. During the course of this investigation, agents have intercepted a series of communications regarding the efforts of ROD BLAGOJEVICH, JOHN HARRIS, and others to misuse this power to obtain personal gain, including financial gain, for ROD BLAGOJEVICH and his family. In particular, ROD BLAGOJEVICH has been intercepted conspiring to trade the senate seat for particular positions that the President-elect has the power to appoint (e.g. the Secretary of Health and Human Services). ROD BLAGOJEVICH has also been intercepted conspiring to sell the Senate seat in exchange for his wife’s placement on paid corporate boards or ROD BLAGOJEVICH’s placement at a private foundation in a significant position with a substantial salary. ROD BLAGOJEVICH has also been intercepted conspiring to sell the Senate seat in exchange for millions of dollars in funding for a non-profit organization that he would start and that would employ him at a substantial salary after he left the governorship.
Blagojevich, in other words, assumed Obama would appoint his wife to a Board for the political favor of selecting Valerie Jarrett for the Senate seat. Blagojevich is not a stupid man. Indeed, he only assumed Obama would participate in this “pay to play” scheme, for he knows Obama is acutely aware how the game is played in Illinois and in Chicago. This explains why Blagojevich mentions Michelle Obama and her lack of qualifications to serve on the Board of TreeHouse Foods when he discusses how Obama could appoint Mrs. Blagojevich to a Board for the political favor of appointing Jarrett to the US Senate seat. Michelle, after all, was appointed to sit on the Board of TreeHouse foods AFTER Obama was elected to the US Senate. Moreover, Michelle Obama’s salary at The University of Chicago nearly TRIPLED after her husband gained the power to submit earmark requests on her employer’s behalf. Just appoint the spouse to a Board and increase his or her salary if you need a political favor from an Illinois politician. That is how the “play to pay” game is played.
Blagojevich understands this, and he knows Obama understands this. Why else does FBI Agent Cain report the following discussion that occurred on Nov 8, 2008?
On November 8, 2008, ROD BLAGOJEVICH talked with JOHN HARRIS about the Senate seat. During the conversation, ROD BLAGOJEVICH and HARRIS discussed whether it would be possible to obtain a financial benefit for ROD BLAGOJEVICH’s wife in relation to the Senate seat. Specifically, ROD BLAGOJEVICH referred to his wife’s Series 7 license and asked “is there a play here, with these guys, with her” to work for a firm in Washington or New York at a significantly better salary than she is making now. Also, ROD BLAGOJEVICH wanted to know whether SEIU could do something to get his wife a position at Change to Win until ROD BLAGOJEVICH could take a position at Change to Win.
Michelle Obama, Blagojevich implies, received an appointment to a Board for which she was not qualified as a result of a “pay to play” scheme. What about his wife? After all, Obama ally Valerie Jarrett wants the Senate seat. What about Blagojevich’s wife? What about Blagojevich’s “financial stress?”
Blagojevich and his advisers only thought of this as a possibility, for they know Obama has already played the game. Again, these are smart men who know the rules of the game. Why else would they think Obama would participate in a “pay to play” scheme? Michelle was paid for someone to play, they thought. What about Mrs. Blagojevich? Besides, Mrs. Blagojevich has a Series 7 license. All Michelle has is a license to practice law that was revoked as a result of a court order in 1993.
Blagojevich thought Obama would “pay to play,” as the Obamas have been engaged in “pay to play” schemes in the past. That is what Blagojevich thought, and that is why the Obamas are yet again mentioned in a complaint filed in a Court of law.

mrs senator

By Obama’s definition, first lady Michelle Obama is a model capitalist. Remember: After serving with real-estate mogul Valerie Jarrett in Chicago mayor Richard M. Daley’s administration, Mrs. Obama took a post at the University of Chicago Medical Center, where Jarrett was serving as vice-chair of the medical center’s board of trustees. Mrs. Obama was promoted in 2005 after her husband won his U.S. Senate race with Jarrett’s invaluable aid. As “vice president for community and external affairs” and head of the “business diversity program,” her annual compensation nearly tripled from $122,000 in 2004 to $317,000 in 2005. Even after she went on leave in 2007 to help her husband on the presidential campaign trail, the hospital paid Mrs. Obama $62,709 in 2008, prompting one skeptic to ask: “We know this is Chicago, but isn’t $63,000 quite a lot for a no-show job?”

Add Tax Brackets for the Super-Rich: Budget Expert

Add Tax Brackets for the Super-Rich: Budget Expert
Published: Monday, 23 Aug 2010 3:16 PM ET
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By: Michelle LodgeCNBC.com Writer

The U.S. should add income tax brackets for those making $1 million, $5 million and $10 million, a tax and federal budget expert from the think tank the Center for American Progress told CNBC Monday.
“It doesn’t really make sense that somebody making $500,000 pays the exact same marginal tax rate on their last dollar of earnings as somebody making $10 million or $50 million,” said Michael Linden from the center, which is headed by John Podesta, White House chief of staff under Bill Clinton.
"The richest 400 Americans in 2007 made an average of $138 million, and they paid an effective tax rate that was lower than most people making $150,000 to $200,000."Michael LindenCenter for American Progress
“In fact, the richest 400 Americans in 2007 made an average of $138 million in one year and they paid an effective tax rate that was lower than most people who were making $150,000 to $200,000.”
As the Bush tax cuts are set to expire at year's end, experts of different political views are weighing in on taxes.
Nobel laureate and economist Paul Krugman argued in the New York Times on Monday in favor of letting the Bush tax cuts expire and for taxing the rich at a higher rate. New Yorker business columnist James Surowiecki, who in an August 16 piece called “Soak the Very, Very Rich,” called for more tax brackets that would tax the extremely wealthy so they pay more taxes.
However, Dan Mitchell, a senior fellow at the conservative think tank the Cato Institute, told CNBC Monday that the problem was not taxes, it was the initiatives of both George W. Bush and Barack Obama, under whom government spending has “skyrocketed.”
He called for a 15 percent flat tax for all Americans and a reduction in government spending. Mitchell also said raising taxes for the rich would punish investors and entrepreneurs.
Mitchell was with the George H.W. Bush/Quayle transition team in 1988.

How Rahm got rich

How Rahm got rich
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By EAMON JAVERS 11/19/08 4:41 AM EDT
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Incoming White House chief of staff Rahm Emanuel’s career as an investment banker was short but sweet.
Incoming White House chief of staff Rahm Emanuel’s career as an investment banker was short but, oh, so sweet. Emanuel left the Clinton White House in 1998 as a senior adviser on a government salary. By the time he won election to the House in 2002, he had earned an astonishing $16 million.
How did he do it?
Partly, it was simple luck: Emanuel dipped quickly into the world of investment banking in time to catch the tail end of the 1990s boom economy as a Chicago-based managing director at Wasserstein Perella & Co., where he worked from 1999 to 2002. While he was there, the firm was sold to the German Dresdner Bank for $1.37 billion in stock, netting Emanuel much of his Wall Street windfall.
Returning to Chicago in 1998 after his White House stint, Emanuel soon ran Wasserstein’s small Midwestern office, developing a reputation as a deal guy who focused on mergers and acquisitions among companies that were subject to heavy government regulation. There, he deployed his skills as a born negotiator who knew the inner workings of government bureaucracies.
Frequently, Emanuel turned big Democratic donors and others he’d met during his White House years into clients for Wasserstein Perella, a firm that was led by Bruce Wasserstein, a hefty financial supporter of Clinton.
Emanuel is “tireless,” said John Canning, a managing director of Chicago-based Madison Dearborn Partners, a multibillion-dollar private equity firm.
Canning became friendly with Emanuel while he was setting himself up in Chicago business circles and has remained close to him through his congressional career. “He’s got a nose for a transaction, a sense for what each party’s looking for and where each party can concede,” Canning said.
Emanuel was unavailable for comment. But in 2003, he described his investment banking career to the Chicago Tribune.
“Fundamentally, I brought in business and worked on business that was very successful,” Emanuel said then. “I didn’t work on one deal. I didn’t work on two deals. I think it was close to six or seven, of which a couple of them were over $1 billion.”

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The Democratic congressman from Illinois will be starting out as White House chief of staff for President Barack Obama during a severe global economic crisis. And as a former investment banker himself, Emanuel may be well-positioned to understand the problems and priorities of the nation’s struggling financial system.
While Emanuel lucked into the timing of the Wasserstein sale, the deals he worked on contributed in a significant way to the firm’s bottom line, generating hefty bonuses for him along the way.

One signature transaction was the $16 billion merger of Unicom Corp. and PECO Energy Co. into Exelon Corp., now one of the nation’s largest electric utilities, with nearly $19 billion in annual revenue. The company owns 17 nuclear reactors, which produce about 20 percent of the nation’s nuclear power.
When the transaction began in 1999, it was not at all clear that such an energy behemoth could be created. Utilities are subject to intense government regulation, and nuclear power plants face a host of government approvals before they can be sold to a new owner.
At the time, the energy industry was not known as a place for fast-moving negotiations. “Every deal starts with a list of reasons why it can’t get done,” said Canning, who recently joined the board of directors of Exelon. “And I can’t think of a deal that had more unsolvable obstacles than that one.”


But the deal benefited from a wave of electricity deregulation, and backers of the merger argued that the new company would be well-positioned to sell power in markets across the country as states opened their electricity markets up to competition.
The merger created a job for John Rowe, the CEO of Unicom who went on to become CEO of the merged company, Exelon. And Emanuel and Rowe have remained personally friendly.
After the Nov. 4 election, Emanuel was shopping in a bookstore when he called Rowe on his cell phone, asking for guidance on whether he should take the top White House staff job, according to The Washington Post.
Emanuel’s elevation to the White House comes at a pivotal time for the company he helped create. Exelon is now involved in a hostile takeover bid for the assets of NRG Energy, which would create the nation’s largest power company. NRG rejected Exelon’s initial bid of more than $6 billion, calling the offer too low.
The deal potentially faces a host of regulatory and government approvals, and industry insiders will be watching to see that Exelon is treated fairly by the Obama administration.
Donors affiliated with Exelon gave Obama’s presidential campaign more than $197,000, according to the Center for Responsive Politics.
“The Obama administration seems to be trying to set a high ethical standard,” said Sue Kelly, vice president of policy analysis and general counsel at the American Public Power Association. “We’d want to make sure that this merger received the close scrutiny that it deserves.”
Executives at Exelon declined comment.
An Emanuel representative said that Exelon won’t get any special favors from the White House. “Serving the American people and President Obama is Congressman Emanuel’s only priority,” the representative said.
Another key deal that Emanuel worked on at Wasserstein also had Chicago roots: the sale of SecurityLink, the home security unit of SBC Communications, to the Chicago-based venture capital fund GTCR Golder Rauner.
Emanuel’s old boss, billionaire Wasserstein, who is now chairman and chief executive of Lazard Ltd., praised the politician’s business skills in a statement.
“Rahm did a great job for our firm,” Wasserstein said. “Energetic and extremely popular in the Midwest, he had a keen understanding of the interplay of regulatory aspects and corporate activity in financial advisory work, particularly in the utility and banking industries.”
In 2000, Emanuel added to his private sector résumé, accepting an appointment by President Bill Clinton to the board of directors of Freddie Mac, a position he held until he began his campaign for Congress.
He served at Freddie Mac at a time when the mortgage giant was later found to have misstated its annual revenue. Freddie Mac and its corporate sibling, Fannie Mae, have been widely blamed for playing key roles in the mortgage market meltdown that triggered the current financial crisis.
A spokeswoman in Emanuel’s congressional office said his business career is something that Emanuel has already been drawing upon.
“When Congress considered the financial crisis in September, Rep. Emanuel used his knowledge of the financial industry to help protect taxpayers and significantly strengthen the economic rescue package,” said Emanuel’s spokeswoman, Kathleen Connery. “His experience in government and business will be a tremendous asset as he works with President-elect Obama to help get our economy back on track."

The Investment-Banking Genius of Rahm Emanuel

The Investment-Banking Genius of Rahm Emanuel
In September 2006, we had a post about Rep. Rahm Emanuel (D-Chicago), President-elect Barack Obama's newly appointed Chief of Staff.In it, we noted the unusually high degree of success that Mr. Emanuel -- someone with no investment banking experience, and very little actual private-sector experience -- had in making about $18 million in less than three years during his stint at the firm Wasserstein Perella.As Real Clear Politics' Tom Bevan pointed out, Emanuel's earnings during that period placed him in the top 3%-5% of all investment bankers in the country.As we noted back in 2006:
Nina Easton has written a piece in Fortune titled, "Rahm Emanuel, Pitbull Politician," which has this interesting tidbit: (emphasis added)
... Emanuel had political aspirations of his own, which necessitated some financial security. So in late 1998 he traded in Clinton as his boss for Bruce Wasserstein, a major Democratic donor and Wall Street financier. "Money is not the be-all and end-all for him," says brother Zeke. "But he knew he needed money so that wouldn't be a problem while he was doing public service." Over a 2 1/2-year period he helped broker deals-often using political connections-for Wasserstein Perella.According to congressional financial disclosures, he earned more than $18 million during that period. His deals included Unicom's merger with Peco Energy and venture fund GTCR Golder Rauner's purchase of SBC subsidiary SecurityLink. But friends say his compensation also benefited from two sales of the Wasserstein firm itself, first to Dresdner Bank and then to Allianz AG.So, Emanuel was hired by Bruce Wasserstein, a man who has contributed over $200,000 to the Democratic Party since 1990 (see campaign disclosure information here, and subsequently made about $18 million in less than three years while working for Wasserstein's firm.They took care of their boy. It is so Chicago. "Punch 10."* Rep. Emanuel's personal financial disclosures for 2002, 2003, 2004, and 2005.Da Ciddee Dat Wirx.
Posted by Tom Elia in Politics at 12:42 Comments (5) Trackbacks (0)

Hazards of Borrowing Private Jets

Hazards of Borrowing Private Jets
Wednesday, February 20, 2008 By John Gibson
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You may have noticed the biggest and best perk for any aspiring movie star, rock mogul or corporate big shot is moving from flying commercial to flying private.
As Barack Obama said in one of his books private jet travel is great. It's so convenient. It's so, well, private — nobody but you and your friends on the plane. It goes when you're ready to go.
But it takes a lot of money to have a private jet, even a small one, and even part time. Way, way more than a first-class ticket flying commercial.
Even a guy like Bill Clinton — who has made millions giving speeches since he left office — still can't afford his own private jet.
So Bubba has been flying OPJ — Other People's Jets.
In fact, Bill Clinton has gotten himself hooked up with a Canadian mining mogul named Frank Giustra evidently because Giustra has a big private jet. And he seems to let Bubba use it about anytime he wants for anything he wants.
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The former president flies to paid speeches on it, he flies to fund-raise for Hillary and he flies to raise millions for the Clinton Foundation.
Giustra is such a generous guy with his private jet. It costs thousands and thousands per hour to operate. But Giustra evidently says, hey, who's counting?
Giustra was trying to move along a half-billion dollar deal with Kazakhstan to mine uranium fields in that country.
His new best friend, Bill Clinton, the same one who uses his jet all the time, just happened to know the president of Kazakhstan so they flew off to Almaty, Kazakhstan’s largest city, and they had dinner with president Nazarbayev, who is reputed to be one of the most corrupt leaders of a country in the world.
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Giustra's half-billion dollar deal came though and Clinton got a half-million dollar check from Nazarbayev for his Clinton Foundation. God only knows what the president of Kazakhstan got.
It's nice to know people with private jets, isn't it? Nicer still to know a former president of the United States who likes private jets.
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Charity money funding perks

Charity money funding perks
November 9, 2003
This story was reported by Globe Spotlight Team reporters Beth Healy, Francie Latour, Sacha Pfeiffer, and Michael Rezendes, and editor Walter V. Robinson. It was written by Healy. Second in a series of occasional articles. It looked like a high-end corporate jet, the luxurious, long-range Bombardier that landed at the Lynchburg, Va., airport on a sunny Thursday afternoon in September. But no corporate executive disembarked.
Instead, out stepped Nancy
Leigh DeMoss. She is a trustee of the Arthur S. DeMoss Foundation, a private charitable foundation whose mission is to support Christian organizations. The Globe Spotlight Team determined the foundation spent $36 million in 2001 to buy the 12-seat, transoceanic jet -- and millions more over the last two decades to own and operate two prior jets. It is the kind of extravagance that has infuriated shareholders of public companies during the corporate scandals of the past two years. Yet private planes and other big-ticket expenses go virtually unnoticed in the world of philanthropy, even though foundations are publicly subsidized through huge tax breaks for the wealthy donors who set them up. A Globe review of foundation tax returns revealed numerous instances of money earmarked for charity being used to fund travel and lavish perks for foundation trustees -- the people charged with protecting foundation assets.
In Dallas, two officers of the Carl B. and Florence E. King Foundation, established by a Texas oil man to fund educational programs, used foundation credit cards to pay for family vacations to Australia and at least six European countries.
In New York, 14 part-time paid trustees of the Herman Goldman Foundation stand to collect a total of $1.8 million in retirement benefits, thanks to a 1993 vote by the board. And at the largest foundation in Oklahoma, a $5.7 million jet has been used to ferry trustees to meetings and to shuttle a part-time consultant 43 times in the last two years from Athens, Ga., to foundation headquarters.
Larry A. Pulliam, executive vice president of the $900 million Samuel Roberts Noble Foundation in Ardmore, Okla., mused during an interview, ``Maybe the homeless people in Dallas need their soup more than our trustees need their plane.'' But, he added, ``I don't think it's valid.''
Beyond the enormous paychecks some foundation trustees take, excesses documented in a Spotlight report last month, the Globe has uncovered evidence of charitable assets being used to pay rent for plush office space and health club dues and to buy luxury cars, Persian rugs, and fine art.
Some examples:
At the King Foundation, president Carl L. Yeckel arranged for himself and his top aide to receive pensions totaling more than $1 million a year, creating an unfunded future liability that experts say could drive the $41 million foundation into insolvency, according to lawyers involved in a lawsuit against the foundation.
Oklahoma City's Kerr Foundation, established to fund local social and cultural causes, bought a $44,000 Jaguar for the personal use of foundation officials. The $28 million foundation, which also spent $616,000 to buy a headquarters building, spends twice as much money on salaries and expenses as it donates to charities.
The John & Mary R. Markle Foundation paid $837,291 in rent last year for offices at Rockefeller Plaza in midtown Manhattan, where it funds research on health care and national security. And the $53 million Pollock-Krasner Foundation, started by the widow of artist Jackson Pollock to support artists, bought a $2.3 million co-op apartment on Park Avenue in New York's exclusive upper East Side for its office.
In an interview, Pollock Foundation chairman Charles C. Bergman said the co-op purchase was a bargain compared to the $156,000 in annual rent the foundation had been paying. The foundation also spent $187,000 to renovate the new office, according to its tax returns.
At the Markle Foundation, spokesman Todd Glass said the board is looking to reduce the rent by subletting some space to other nonprofits. ``We expect to cut our rent by 50 percent in the next six months,'' he said.
Extravagant spending
Although extravagant spending is not uncommon, the vast majority of private foundations do not drain their assets this way, the Globe review found. Similarly, most foundations do not overpay trustees and foundation managers.
The exceptions, however, are many and striking. Last month, the Globe disclosed cases in which foundation executives who claimed to be working full time were taking annual salaries approaching or exceeding $1 million, while many part-time trustees were being paid tens of thousands of dollars, and sometimes hundreds of thousands, for attending a handful of meetings each year.
After the report, attorneys general in California, New York, and Massachusetts opened inquiries into the apparent abuses. In the most egregious case reported by the Globe, Paul D. Cabot Jr. of Needham paid himself $1.4 million in 2001 and $1.3 million in 2002 for overseeing a family foundation whose assets have dwindled from $14 million in the mid-1990's to $4.9 million early this year. Cabot told the Globe he gave himself a $400,000 raise in 2001 to help defray the cost of a daughter's wedding.
In exchange for the tax breaks given to people who establish private philanthropies, the law requires foundations to donate at least five percent of their assets to charity each year. ``Reasonable'' expenses are allowed, and may be deducted from the mandated 5 percent.
Such expenses can put a considerable dent in what foundations give to charity. For example, at the Kerr Foundation, endowed by a former Oklahoma senator who made his fortune in oil, nearly half the 5 percent distribution in 2001 was eaten up by administrative expenses, travel, and salaries.
Alan L. Feld, A Boston University law professor and an expert in nonprofit law, said that the pattern of spending reported by the Globe goes ``way beyond what any reasonable person would think was appropriate.''
Said Feld: ``For foundation officials to behave as if a private foundation is another pocket of their own is wrong, and it deprives the intended beneficiaries of charities what they are entitled to.... This is part of a pattern where people are treating foundation assets as a pot of money they can dip into as they wish.''
Feld, in a view echoed by other experts, said that foundation spending now goes almost unregulated, with the Internal Revenue Service and state attorneys general providing little oversight. Each year the IRS audits only about 100 of the nation's 60,000 private foundations. State regulators complain that they don't have the budget or staff to audit foundation filings.
In the rare cases when they are discovered, abuses of foundation spending rules can result in stiff penalties. If the IRS finds that foundation executives are ``self dealing,'' or taking perks that ought to be counted as part of their personal compensation, those executives can be forced to repay the funds, plus a penalty that can range from 5 to 200 percent. Foundation managers or trustees who know of abuses can also be penalized. And, in egregious cases, foundations can lose their tax-exempt status.
Public perception
If Cabot represents the extreme in compensation, then the DeMoss Foundation's jet is its match in the perks category.
Bruce Hopkins, a lawyer at the Kansas City law firm Polsinelli Shalton & Welte and an expert on foundations, said he would advise his clients not to buy a jet because it is nearly impossible to justify the cost as reasonable under IRS rules.
``It just doesn't wash,'' Hopkins said of the DeMoss jet. ``I'm confident if the IRS or a court looked at this, it simply would not hold up.''
Often, however, the IRS has no way of knowing about such purchases. Foundation assets are supposed to be listed on a depreciation schedule included with each tax return, but the Globe found that many foundations do not file the schedules.
The $444 million DeMoss foundation did file its depreciation schedule, which shows that the Bombardier - nicknamed the ``Gold Star II'' - was purchased in 2001 to replace a more modest jet. The foundation spends more than $1.5 million a year to pay the salaries of two pilots and to operate and maintain the aircraft, which the manufacturer calls an ``ultra long-range, high-speed business jet.''
According to a former foundation pilot, who asked that he not be identified, the aircraft was purchased at the request of chairman Nancy S. DeMoss, the widow of Arthur S. DeMoss, who founded a Pennsylvania mail-order life insurance company. Mrs. DeMoss wanted to make flights to remote destinations in Asia and Africa, where the foundation supports missionary work, with fewer fuel stops, the pilot said.
Larry R. Nelson, the foundation's chief financial officer, sidestepped most of the Globe's questions about the jet. But in an e-mail, he said the foundation supports many causes and projects, ``most of which are overseas, many in the third world.'' The foundation's latest available tax filing, covering 2001, shows that two-thirds of its $36 million in grants went to domestic Christian ministries and churches.
Two former foundation executives said the foundation uses the jet mainly ``for charitable purposes.'' But not always: Since July, flight records tracked by the Globe show the DeMoss jet being flown routinely in and out of Palm Beach International Airport, near the foundation's headquarters, often to places where the foundation doesn't make grants. The jet has also flown to Washington, D.C., New York, Atlanta, and Scottsdale, Ariz., among other cities, and to Little Rock, where daughter Nancy Leigh DeMoss tapes a religious radio program.
In September, the daughter's trip to Lynchburg was for a speaking engagement. The jet picked her up that morning in South Bend, Ind., 20 miles from her home. In July, her mother took the jet to Orlando, Fla., a three-hour drive from her $10 million home in Palm Beach, to attend a friend's funeral. And the DeMoss grandchildren have occasionally flown on the jet, the former pilot said.
DeMoss family members - the mother and four others are trustees - refused to be interviewed for this story.
As for the Noble Foundation, Pulliam said it received an OK from its attorneys before buying its seven-seat Cessna Bravo jet. ``We talked about the public perception of this before we went ahead, that some people would say, `You're a charitable organization and you've got a plane,''' he said. ``It is a public relations issue.''
Pulliam said the foundation uses the plane to help Noble's scientists travel more efficiently from rural Ardmore to remote sites in Texas, Missouri, Kansas, and Colorado, where it funds agricultural and biotechnology programs.
After the Globe raised questions about the more than 40 flights back and forth to Athens, Ga., Pulliam said that a foundation consultant, Joe Bouton, a professor of crop and soil sciences at the University of Georgia, has been shuttling back and forth to Oklahoma on the jet twice a month over the last two years. Bouton, he said, plans to move to Oklahoma next spring.
``Using commercial airlines, it takes Dr. Bouton about 8 hours to get to Ardmore from Athens,'' including two hours driving time on each end of the trip, plus waiting time in airports, Pulliam wrote in an e-mail to the Globe. ``Using our aircraft, it takes less than three hours.''
Pulliam said buying the jet, with its annual operating costs of about $600,000, was the brainchild of the foundation's trustees. Nine of the 15 trustees are descendants of Oklahoma oil man Lloyd Noble, who started the foundation in 1945. Pulliam said the trustees, especially those who live in Atlanta, use the jet to travel to Oklahoma for trustee meetings and to monitor the foundation's farflung projects.
The use of the aircraft, both for Bouton's commuting and the trustees' flights, is ``quite appropriate,'' Pulliam said. He said the plane has never been used for nonfoundation business.
Nonetheless, in the post-Enron era, corporate executives have found it increasingly difficult to justify the purchase of aircraft, much less long-range jets like the DeMoss Bombardier, according to people who sell and lease business jets
``A big piece of owning a jet is ego,'' said Mark Stone, chief executive of Sentient Jet Inc., a Norwell company that leases jets to customers on short notice. ``A lot of corporations have sold their aircraft, because they just didn't feel that it was giving the right image to their shareholders.'' At many other foundations, executives are given luxury cars for their use. When the president of the M. B. and Edna Zale Foundation in Dallas was ready to retire in 2001, the foundation let him keep his company vehicle - a 1999 Lexus.
The sedan was part of a $325,000 retirement package given to Michael Romaine, who worked for the Zale family's jewelry company before heading their foundation, according to the foundation's current president, Leonard Krasnow. With Romaine driving off in the Lexus, the foundation bought Krasnow a 2001 Infiniti.
Reached at his retirement home in North Carolina, Romaine, 64, at first said he bought the Lexus from the foundation for $24,000. But when told what Krasnow had said, Romaine asked, ``Did they give it to me? I'd have to look it up. ... I can't remember if I bought it or not.''
The foundation's original purchase of the Lexus for him was justified, Romaine said, calling it ``a very basic car.''
A lawsuit in Texas
At the King Foundation in Dallas, Yeckel, 67, and his deputy, Thomas W. Vett, used foundation credit cards to take at least one foreign vacation a year. But it took years for anyone to discover the excessive spending. In early 2002, Yeckel's sister, Dorothy Yeckel, became suspicious of her brother's lifestyle, including his $1.5 million home and the exotic vacations he took.
Todd Amacher, the sister's lawyer, looked over the foundation's tax returns and alerted the Texas attorney general to the $1 million in compensation Yeckel was taking. Assistant Attorney General John Vinson filed suit, and ultimately a new board took control of the foundation. The suit became public last year, but the details of Yeckel and Vett's free-spending ways had not been disclosed.
During an October 24 deposition, Vett testified that he and Yeckel each used King Foundation credit cards to travel with their wives and other family members to England, Scotland, Australia, Russia, the Czech Republic, Germany, and Italy. There were also numerous trips to San Francisco and New York, according to a lawyer familiar with Vett's testimony.
The globetrotting cost the foundation an estimated $200,000 over five years, according to one person who is involved in the case. That money came straight out of the pockets of charities the foundation might otherwise have funded, because the executives counted the travel on foundation tax returns as a charitable expense.
And their foundation-subsidized lifestyle went well beyond vacations. The foundation maintained three memberships at a private downtown Dallas dining club, at a cost of more than $5,000 a year. In 2001, according to the attorney's general's lawsuit, the foundation credit cards were billed for $6,442 for restaurant bills; $23,000 for purchases in retail stores and $6,531 for health-club memberships.
Yeckel, in a brief telephone interview, declined to answer questions. An attorney for Vett said he could not discuss his client's testimony.
In other cases, relatives of those who established foundations spend the assets as if they were their own personal funds. At the $43 million Roy F. & Joann Cole Mitte Foundation in Austin, Texas, Scott Mitte began to run up personal expenses almost as soon as he took the helm of the foundation his parents founded.
Since 1999, the foundation has purchased Tony Bennett concert tickets worth $4,003, a $4,037 custom tuxedo, and six doors totaling $6,090 that were delivered to Mitte's home, according to an audit of foundation expenses. During Mitte's tenure, the foundation's spending on travel and meetings rocketed from about $50 a year in the late 1990s to $183,000 in 2001, while his compensation also leapt from $31,000 in 1999 to $220,000 in 2001.
And it paid $368,000 in legal fees last year, up from $6,689 the year before, in part to cover a legal battle between the foundation and Roy Mitte's company. Also last year, the foundation footed the bill for an out-of-court settlement with a woman who sued Mitte for alleged sexual harrassment. The foundation disclosed a $139,000 ``legal settlement'' on its 2002 tax return.
The foundation's lawyer, Jeffrey T. Knebel, declined to discuss the settlement or answer questions about other foundation spending. Mitte resigned as executive director in August, 2002, when the harassment charge became public, but remains on the foundation's board of directors and serves as its senior vice president. He did not return calls from the Globe.
In a statement, the foundation said it believed its expenses were ``reasonable, appropriate, and have been greatly justified.''
Some large foundation expenses are tucked into a category on tax filings called, ``travel, conferences, and meetings.'' The IRS does not require detailed accounting for such costs. At several foundations, officials refused to provide the Globe with documentation to justify the costs, or declined to answer questions.
The $13.5 million Chiles Foundation of Portland, Ore., for example, reported spending $591,415 on travel, conferences, and meetings from 1998 through 2002, according to its tax returns. Another $128,115 was reported for ``autos and parking'' during that period, while the foundation paid $300,000 in rent for its offices. The largest beneficiary of the foundation is Boston University, where foundation chief Earle M. Chiles, 83, is a trustee.
Foundation officials turned aside Globe efforts to interview Chiles, the son of the founder. In a written note, the foundation attributed its spending to ``grant-related work'' and to periodic meetings with its investment advisers. One foundation official, Sharron D. Mathews, said in a brief telephone interview: ``If our spending is out of line, it is only the Internal Revenue Service we need to account to.''
Matt Carroll of the Globe Staff contributed to this report.

Foundations' tax returns left unchecked

Foundations' tax returns left unchecked
December 29, 2003
This story was reported by the Globe Spotlight Team: Reporters Beth Healy, Francie Latour, Sacha Pfeiffer, and Michael Rezendes, and editor Walter V. Robinson. It was written by Pfeiffer and Healy. Last in a series of occasional articles.
In a 14th-floor storage room in a state office building on Beacon Hill, floor-to-ceiling rows of metal shelves hold tens of thousands of paper files bulging with nonprofit tax returns, many tattered and dog-eared. New filings arrive at a pace so relentless that paperwork once sat unprocessed for three years.
This sea of paper, generated by the 22,000 public charities in Massachusetts, includes the federal tax filings of several thousand private foundations. State officials barely have a chance to look beyond the first page of foundation returns, let alone pinpoint those where there may be abuses, like excessive salaries and conflicts of interest. In fact, because the files are only partially computerized, state regulators don't even know how many foundations there are.
Neither does the Internal Revenue Service.
Inadequate hardly describes the system now in place to keep watch over the $429 billion in assets held by private charitable foundations. A Globe Spotlight Team investigation of hundreds of foundations nationwide found that oversight is virtually nonexistent, allowing excesses and abuses to go unchecked.
Trustees of private foundations know they can flout the law with almost no risk of detection, much less penalty. That's because the IRS has neither the resources nor the incentive to police this sector. And state regulators, including those in Massachusetts, admit that with their present budgets and staff they can do little more than warehouse the foundations' annual returns.
Massachusetts doesn't do much, but the state is considered among the nation's best at regulating foundations. That's because many states don't even try. In some, there is no one assigned to oversee foundations. In others, regulators seem blind to abuses.
In San Francisco, for example, a judge approved $750,000 in retroactive fees to each of the four trustees of the $147 million Larry L. Hillblom Foundation -- pay for four years in which the foundation made no grants. In Waco, Texas, the IRS audited the $131 million Christ Is Our Salvation Foundation, but expressed no concern that the foundation, which supports Christian education and evangelism, owned a private jet.
In Massachusetts, as the Globe reported in October, neither the attorney general's office nor the IRS was aware that Paul C. Cabot Jr. of Needham was paying himself more than $1.3 million a year from a family foundation with assets of less than $6 million. Cabot reported his pay on the tax returns of the Paul and Virginia Cabot Charitable Trust, which was created to fund arts and education. But the government's computer software is so ineffective that the most flagrant excesses go undetected.
Even the foundation world is crying out for more oversight.
"I am deeply concerned that there are not enough resources allocated at the federal level and the state attorney general offices to fulfill their responsibility to take out the bad guys," said Diana Aviv, president and CEO of Independent Sector, a national coalition of nonprofits and corporations.
Trustees at the vast majority of foundations take no fees. But there are many who violate federal rules requiring that trustee compensation be "fair and reasonable." The Spotlight investigation found trustees voting themselves excessive salaries, spending lavishly on travel and perks, operating for-profit businesses under the cover of nonprofit foundations, and using foundation assets to buff their own public profiles.
These are the kinds of abuses that were supposed to have been stopped by the Tax Reform Act of 1969, which was designed to increase compliance with laws regulating charitable giving by foundations. Yet they persist.
Foundations are typically established by wealthy, philanthropically inclined families or individuals who receive large tax breaks in exchange for setting aside assets for charitable causes. Foundation boards of trustees are required by law to give away at least 5 percent of the foundations' assets each year, but the Globe found numerous examples of foundations giving away far less, and sometimes nothing at all -- without drawing the attention or ire of regulators.
If they are discovered, abuses can result in significant penalties. Foundation executives involved in "self-dealing" can be forced to repay the funds, plus a penalty that can range from 5 to 200 percent. In egregious cases, foundations can lose their tax-exempt status.
A former head of the IRS's tax-exempt division, Marcus Owens, a Washington attorney who now represents private foundations, called the division the "stepchild" of the agency, a poor fit with the IRS's overall mission of collecting taxes. The division's budget has barely increased in the last decade, despite explosive growth in the number of foundations during the market boom of the 1990s.
The IRS estimates there are about 100,000 private foundations, though the agency doesn't know how many of those are defunct or fail to file tax returns. Industry groups put the number at 62,000. But one number is not in dispute: The IRS audits fewer than 120 foundations annually.
Asked why the IRS reviews so few foundation tax returns, Steve Miller, the current chief of the agency's tax-exempt group, said, "I'm not going to even remotely claim that we do as much as we could in the area."
He said the IRS is working to develop new systems to flag foundations with high expenses. "That doesn't take an MIT education," he said, "and we should be doing a better job of that."
According to Owens, the IRS's shortcomings force auditors in its tax-exempt unit to "figure out ways to make a big splash with a small pebble." That means federal regulators typically crack down only on the most serious violators, often only after they are identified in media reports.
As a result, much of the oversight role falls to the states. In a handful of states with active attorneys general -- including Massachusetts, New York, and California -- officials say they police foundations as part of their broader effort to supervise all public charities. In general, the roster of states that pay any attention to foundations is very short, and also includes Connecticut, Illinois, Minnesota, Pennsylvania, and Texas.
Yet even in states that try to regulate foundations, like Massachusetts, enforcement action is rare. In recent years, only the Yawkey Foundation, whose assets came from the sale of the Boston Red Sox, has received any public criticism from the office of Attorney General Thomas F. Reilly: for making a major grant to an institution, Boston College, to which several of its trustees are closely tied.
Jamie Katz, chief of Reilly's public charities division, said his office has "on infrequent occasions" investigated private foundations, "but it's not many, and I can't quantify it." Typically, Katz said, his office reaches informal resolutions with foundations and sometimes refers cases to the IRS. But state officials say they are never told whether the IRS follows up.
William Josephson, chief of the New York attorney general's charities division, said one barrier to enforcement is an IRS confidentiality policy that limits cooperation between state and federal investigators. This can lead to absurdities, he said. In one recent case, Josephson recounted, an IRS agent called to ask him for a file on a charity that the IRS had misplaced. The IRS agent said he couldn't identify the charity, and asked Josephson to guess which file he might have lost.
Finding problems at private foundations is tougher than at other nonprofits, according to Katz, because they receive no money from the public, so they have no disaffected donors. They rarely have disgruntled employees, and grant recipients are not inclined to complain about them for fear of retribution. One notable exception is the C. K. Blandin Foundation in Grand Rapids, Minn. The paper mill and newspaper owner who created the foundation earmarked all of his charitable wealth for Grand Rapids, a small town 90 miles south of the Canadian border. But by 2001, large sums were going to other parts of the state and trustees of the $390 million foundation were spending $5 million on pay and expenses to award grants of $13.8 million. Local residents decided to take action.
On Dec. 17, a state court ordered that at least 55 percent of Blandin's annual grants go to the local community. The foundation agreed to hire a court-appointed "special master" who would ensure that the foundation follows the order.
But public involvement of that sort is rare. Private foundations are largely run in secret.
"Many foundations operate out of the limelight, so the public doesn't know the funds are there for their benefit," Katz said.
At many of the foundations investigated by the Globe, trustees refused to discuss their work. They argued that the foundations they run are private entities and balked at questions about what they do and how they spend foundation money.
One example: Leslie Peery Howa of the Louis Scowcroft Peery Charitable Foundation in Salt Lake City refused to answer questions about high expenses and apparent conflicts of interest on the foundation's board. Asked whether she felt any obligation to respond to inquiries, given the foundation's tax-exempt status, she said, "You're out of your mind, pal," before hanging up on a reporter.
Josephson, in a recent speech, said that many foundation benefactors and their offspring lose sight of the fact that foundation assets are reserved for charitable purposes. "Often they seem not to be able to distinguish between the money they gave to their foundations and their own," he said. And while many states focus enforcement on unscrupulous public charities that raise money from average taxpayers, he said, "The truth of the matter is, there appears to me to be more abuse in the private foundation area."
Change is coming slowly, prompted in part by corporate scandals at Enron and Tyco, among others, that have called attention to how the misuse of funds is often linked to conflicted or passive boards of directors.
A high-tech answer to the problem remains elusive, as if the last decade's technology boom bypassed the IRS and offices of state charities watchdogs. Even as Massachusetts and other states strive to get years of unwieldy paper tax filings into computer databases and archive new documents by scanning them when they come in the door, the near-term plans for upgrades are modest in scope.
Federal and state regulators would like to have quick computer access to reports and documents when they need them. But higher-level systems designed to ferret out abuses -- by flagging high expenses, for example -- are barely on the drawing board. Katz, for instance, said Massachusetts plans to adopt a system being tested in Illinois. Illinois said it is testing a system being used in California. But in California, an official said, the state is still "working to establish a new computer system."
On the federal level, foundations will be able to file their 2004 tax returns electonically for the first time, marking a step toward widespread automation. But the IRS has no plans for mandatory electronic filing. Some foundation specialists say profligate foundation trustees are unlikely to file electronically if doing so facilitates IRS scrutiny.
In almost every state, officials complain that funding is the problem. In New York, Josephson said he has been frustrated in getting funds for technology to better scrutinize charities, including foundations. He suggests the technology -- priced in the "very low seven digits" -- will quickly pay for itself in recovered revenue. In just one recent case, his office is expected to recover a significant portion of the $3.4 million trustees reaped improperly at the Grand Marnier Foundation. But the New York legislature has yet to allocate money for the system.
In 1969, a US Senate version of the tax reform bill earmarked the annual excise tax paid by foundations -- 1 or 2 percent of annual income -- to fund IRS oversight of the sector. But that provision was never enacted. So the tax, which eats up $500 million in charitable funds annually, goes directly to the US Treasury, while the IRS's tax-exempt division has an annual budget of $72 million. That, said Josephson, is "an outrage."
Given the complexity and enormous size of many foundation tax returns, the lack of automation creates huge barriers to enforcement. Some returns reviewed by the Globe ran to hundreds of pages -- the return of one $5 million foundation in Salt Lake City was 823 pages -- with critical attachments tucked in remote places. Without electronic filing and automated searching techniques, finding key information in a single return can literally take hours. Meanwhile, filing errors are so common that 25 percent of all nonprofit returns are missing data or filled out incorrectly, according to the IRS.
In many states, foundations file their annual returns to the secretary of state's office, and no one ever looks at the forms again. In Oklahoma, for example, where the Globe found that the $900 million Samuel Roberts Noble Foundation purchased a $5.7 million jet that is often used improperly, no state official has taken action. A spokesman for Oklahoma's attorney general, Drew Edmondson, said he had no idea who regulated foundations in his state: "If somebody does, it's not our office."
Also in Oklahoma, the $28 million Kerr Foundation, established to fund local social and cultural causes, spends twice as much on travel, administration, and perks, such as a $44,000 Jaguar, as it gives in grants. The foundation has been audited more than once by the IRS but has been cleared each time.
Paula Ross, a spokeswoman for the Oklahoma Tax Commission, said, "We just receive the income tax return. We have no regulatory oversight."
Marjorie Welch, a commission lawyer, said, "I do not see any designated regulatory body [in Oklahoma]. . . . If there's some sort of crime, our [district attorney] would look at it."
Similarly, in Florida, where the Globe revealed serious problems at two foundations -- including a $36 million private jet bought by the $444 million Arthur S. DeMoss Foundation, the mission of which is to fund Christian organizations -- the attorney general's office said it would investigate a foundation only if it received local complaints.
Even states that take an active role in regulating charities tend to let transgressions by foundations slide -- sometimes for years.
In the mid-1990s in California, for instance, the attorney general's office sent out yearly letters to Franklin Holding Corp., pointing out several glaring problems with the foundation's tax return, including excessive pay and an improper $350,000 loan to the CEO, both of which were detailed in the Spotlight series. The letters went into the state's public files, but regulators apparently never followed up.
In 1999, California stopped issuing the type of red-flag letters sent to Franklin, according to Tom Dresslar, a spokesman for California's attorney general, Bill Lockyer. The letters had been aimed at helping charities avoid potential audit problems but, he said, "they really weren't that helpful to our enforcement." That was due in part to insufficient resources to follow up on them, he said.
Following the Globe report, the attorney general is now reviewing Franklin's spending, including a $3.5 million payment in 1998 to Franklin's chief executive, Gregory Monardo. Monardo has not returned repeated phone calls seeking comment.
"The bottom line," said Dresslar, "is that these foundations are not supposed to be about profit motive. They're not about funding lifestyles of the rich and famous. They're about helping people in need and supporting worthy programs."
In Minnesota, active probate courts have played a significant role in making the state one of the most successful in policing foundations. Historically, Minnesota has required trustees to file a court petition every three to five years listing foundation expenses, such as trustee pay, fees paid to lawyers, and other spending. Not only does a probate judge have to approve those expenses, but the attorney general's office routinely reviews the filings. That gives Minnesota regulators a window into abuses that other states lack.
The court petitions provide vital leads for the charities division, according to Lori Swanson, head of charities oversight in Minnesota's attorney general's office. The documents often highlight lavish trustee pay and conflicts that are not apparent in the cumbersome federal tax filings.
"We take it very seriously," Swanson said. "If charitable assets are being diverted or squandered, that doesn't serve anybody's
interests -- other than those who are taking the assets for themselves." The charities division sees its role not only as guarding charitable assets, Swanson said, but also as protecting donors -- many of them long dead -- who left their wealth for good works.
"There definitely are problems in the private foundation area," she said, because so often "the person whose money it is, is really no longer there."
Sacha Pfeiffer can be reached at pfeiffer@globe.com.