Some foundations spend lavishly on own board members

THE BALTIMORE SUN

CLARIFICATION

An article in Sunday's editions may have created an erroneous impression about the origin of the Baltimore Community Foundation. It was founded in 1972 by several Baltimore banks, but was boosted to its current structure and size by contributions of money and staff from the Goldseker Foundation.

In 2001, the George W. McManus Foundation gave $94,254 to charities. But it paid its board president, George W. McManus Jr., and its other trustees even more than it gave away.

Like McManus, the trustees of some Maryland foundations are collecting hefty fees to do what many of their peers consider volunteer work.

At a time when foundations are slashing contributions to charity because an ailing stock market has diminished their endowments, payments to board members are getting more scrutiny. While the practice is legal - as long as the fees are "reasonable" - most U.S. foundations pay their boards nothing.

"I was extremely surprised, based on my experience, to see foundation directors drawing salaries," said Bill Ewing, executive director of the Maryland Food Bank, a nonprofit that depends on foundation donations, when informed that some trustees earned fees. "It means ultimately less money for the nonprofit community."

Defenders of the payments say trustees should be compensated for the often considerable time they spend on foundation work - as corporate directors are. They say trustees' expertise in investing and the law leads to more effective giving.

But some local philanthropies pay board members considerably more than their peers, according to tax documents reviewed by The Sun. Several other foundations allow their total expenses to exceed the size of their grants to charity.

Among those who pay trustees:

The Goldseker Foundation paid the board's chairman and vice chairman - nephews and heirs of founder Morris Goldseker - more than $130,000 each in 2001, the most recent year for which figures were available. The $81.5 million foundation has a full-time chief executive who made $232,000, along with paid program officers, accountants and lawyers.

Walter D. Pinkard Jr., and his mother, Anne M. Pinkard, heirs to part of the fortune that established the $210 million France-Merrick Foundation, were paid $22,000 and $40,000, respectively, as vice president and president in 2001. Among the other trustees who accepted between $12,000 and $19,500 each were Freeman A. Hrabowski III, president of the University of Maryland, Baltimore County, and former Gilman School Headmaster Redmond C.S. Finney.

Six of Maryland's 10 largest foundations paid trustees in 2001, with three giving $50,000 or more to at least one trustee. The Harry & Jeanette Weinberg Foundation, the state's second largest, paid prominent local attorney Shale D. Stiller $55,000. Three other volunteer trustees received nothing.

The three trustees of the Kensington-based Edna P. Jacobsen Charitable Trust for Animals paid themselves $1,500 each in 2001 - while giving out $10,000 in grants. The trust's expenses, including payments to employees, totaled four times as much as it gave to charity.

Several national and local experts on foundations said they would seriously question the management of philanthropies like the Jacobsen and McManus funds - where trustee payments and expenses equal or exceed gifts.

"I can't imagine a scenario where you're paying more to have a foundation than what you're giving away," said Virginia Esposito, president of the National Center for Family Philanthropy, an association of family foundations.

Reviewing a random sample of tax returns filed by 100 Maryland foundations - about 8 percent of those incorporated in the state - The Sun found that 24 paid board members, in amounts that varied widely. Sixty-eight paid trustees nothing, even if the foundation had no paid employees. (For eight others, no compensation information was available.)

"I feel very strongly in the belief that this is a pro bono situation," said John C. Smyth, president of the $49 million Marion I. and Henry J. Knott Foundation and grandson of its founders.

The foundation does not pay its board.

"Our family has been very blessed by Baltimore over the years, and this is a way to give back," he said.

Practices at Maryland foundations mirrored national patterns. Three-quarters of the 707 U.S. foundations that responded to a Council on Foundations compensation survey in 1999 did not pay board members, although some reimbursed expenses. Among foundations that did pay, chairmen received a median of $12,000 and other trustees got $10,000.

In the tax-exempt world, foundations are the treasure chests - where wealthy families put their money to avoid taxes while contributing to charity. Nonprofit organizations - from the Baltimore Symphony Orchestra to the Center for Poverty Solutions - are the usual beneficiaries of foundation grants.

The number of foundations multiplied during the boom economy, increasing by 90 percent between 1990 and 2001. At the same time, the Internal Revenue Service staff assigned to monitor them shrank by half.

Several high-profile cases of questionable trustee fees have attracted regulators' attention - including payments of $1 million to trustees of the $6 billion Bishop Estate in Hawaii during the late 1990s. Those organizations found to have "unreasonable" fees can be forced to pay back taxes or see their exempt status threatened.

Meanwhile, foundations that grew rapidly in good times have been hit hard by the recent stock market plunge, losing 10 percent to 12 percent of their $477 billion in assets last year, according to the Foundation Center.

The Goldseker Foundation, for example, announced it would have to reduce grants by $1 million this year because of a two-year decline in assets of $26.5 million. Even so, Chairman Sheldon Goldseker said in an interview that he earns his $133,875 fee by spending at least 25 percent of his working time on foundation business. He doesn't plan to reduce it.

"I'm working just as hard, if not harder, than I worked two, three years ago," Goldseker said. "So just because the foundation has had a few down years in the investment market doesn't mean that I'm not doing my job."

Bruce R. Hopkins, a Kansas City, Mo., lawyer and author of books on foundation law, said he was troubled that the Goldsekers had full-time foundation staff members to rely on and still paid themselves high fees - while their primary jobs are elsewhere.

"He apparently thinks he's worth about $500,000 a year," Hopkins said. "If he was working full time for the foundation, could he be properly paid $500,000 for that? And the answer would probably be no."

Large foundations are more likely to pay their directors than small ones. The $2.6 billion Annie E. Casey Foundation, based in Baltimore and one of the largest in the country, pays two trustees $20,000 each. Created in 1948 by the founder of United Parcel Service, the organization focuses on disadvantaged children.

Reason for partial pay

Kent "Oz" Nelson, former chairman of Casey's board and a retired UPS chairman, said he decided to pay two directors about five years ago because the other board members were either UPS employees working for the foundation on company time, or retirees made "comfortable" by ownership of UPS stock.

"We were just trying to figure out some modest form of equity," Nelson said. "We didn't want it to be a large amount, because it's a charity."

Stiller, the Weinberg foundation trustee, referred questions about his payments to Bernard Siegel, president of the foundation.

Siegel did not respond to calls or a registered letter.

Robert W. Schaefer, executive director of the France-Merrick Foundation, said board members like the Pinkards are paid not only for their work for France-Merrick, but for participating in other organizations and community events that give them "knowledge and expertise" in foundation affairs.

By contrast, at the similarly sized Eugene B. Casey Foundation in Gaithersburg, trustees took nothing for their work in 2001. They include Betty Brown Casey, the founder's widow, who said on tax forms that she spent 25 hours a week on foundation business. The $221 million organization, which is not connected to the Annie E. Casey Foundation, also had no regular paid staff.

Some paid trustees say they give away their board compensation. Last year, Hrabowski, for example, pledged $250,000 to UMBC over five years. "Those [foundation] funds are very helpful," Hrabowski said of his France-Merrick payments. His UMBC salary was $330,720 last year.

To accommodate trustees who would give their fees away, some foundations are starting to reward board members' work by letting them make small, discretionary grants to favorite charities from foundation funds instead of being paid directly.

Paying the most

Among those who do pay trustees directly, the Goldseker Foundation paid its trustees more than any foundation in Maryland's top 10.

When he died in 1973, Morris Goldseker, who had made his fortune in Baltimore real estate, left almost all of his money and property - worth about $26 million by the time the business was liquidated - to a foundation in his name. The Goldseker Foundation has since grown markedly in size and stature, giving away $4.3 million in 2001. It also gave birth to the Baltimore Community Foundation and the Association of Baltimore Area Grantmakers.

Childless, Goldseker also put $250,000 each in trust for his nephews, Sheldon and Simon, and appointed them to run the foundation. The nephews later started several real estate ventures that develop apartments and commercial complexes.

Sheldon Goldseker said the payments he and his cousin draw for their foundation work are not only reasonable, but also less than they are entitled to under Maryland law as administrators of a trust.

But foundation experts said that state laws on trustee fees have no bearing on what the IRS considers "reasonable" for board members.

Of the 25 organizations in the $100 million to $250 million range that reported trustee payments to the Council on Foundations, the highest amount any paid its chairman was $50,000. That's less than half as much as each of the Goldsekers collected in 2001, when their foundation was that size.

At the other end of the spectrum, small foundations are less likely to pay trustees, and those payments are likely to be lower. A few, however, wind up spending more on trustees, employee salaries and other expenses than they do on grants.

According to its tax forms, the Edna P. Jacobsen Charitable Trust for Animals typically makes annual grants of $1,000 to $3,000 to the same group of nine institutions for scholarships and promotion of "dog and cattle research."

The foundation had assets of $732,804 in 2001, but gave only $10,000 in grants. Meanwhile, its expenses - including $4,500 to its three board members and $33,264 to employees - came to $41,332. Tax forms for the previous three years also showed a pattern of costs greater than grants.

The Council on Foundations recommends that organizations with $1 million or less in assets, such as the Jacobsen trust, hire no staff at all.

Two of the trust's board members did not respond to telephone calls or registered letters sent to their homes. The third, Kevin P. Bonner of Laurel, declined to discuss the foundation.

At the McManus foundation, costs also have exceeded grants. When payments to trustees were added to expenses such as travel, accounting, entertainment and cleaning the foundation's offices at George W. McManus' home in Guilford, the foundation paid more than twice as much to run itself in 2001 as it gave away.

McManus was a high-profile Baltimore lawyer until he was convicted in 1986 of evading $546,242 in taxes. He initially lost his license to practice but regained it in 1994 after pledging to use his legal skills to help the poor and vulnerable. His work was described in a book about his life called Saved to Serve.

Now retired from practice, he still advises groups such as the Legal Aid Bureau and Catholic Relief Services. Most of his foundation's grants go to Catholic causes.

But McManus doesn't do his charitable work for free. He bills his foundation - which has no full-time staff - $81,000 a year. Other directors, including two members of religious orders, made $3,000 to $5,500 each.

McManus asserted that he spends most of his time on foundation work. "I get a lot of requests each day, by phone or by letters, from a lot of organizations in town," he said.

The Council on Foundations suggests that foundations of similar size hire no more than a part-time staffer at a salary of $38,750 a year - half the amount McManus pays himself. "Being paid [$81,000] to spend $95,000 - that strikes me on the face of it to be excessive," Bruce Hopkins, the foundation expert, said of McManus' fee.

Rules of the IRS

IRS rules also prohibit "disqualified persons" - such as a foundation's board chairman or benefactor - from doing business with the foundation. That includes charging rent on property the person owns or billing the foundation for cleaning that property, Hopkins said.

Tax returns for the McManus foundation show that it paid several thousand dollars in 2000 and 2001 for cleaning of its offices - even though the foundation operates from McManus' home.

The foundation also paid $6,797 for "occupancy" during those years. Steven L. Wiseman, an accountant who prepares the foundation's return, said the money was not paid as rent, but he could not say precisely what it did pay for.

McManus said he had sought legal opinions about the use of his home for the foundation and believed he was doing nothing inappropriate. He said he had not received money directly from the foundation for its offices.

As for his compensation, McManus said he might well forgo it after learning from a reporter that the foundation's costs were eclipsing its grants.

"What money I get from the foundation, I get very little of it, because I have to pay high taxes on it," McManus said. "It almost doesn't pay me to get any money from it. I didn't know there are organizations that don't pay anything. I could do it all for nothing."

If so, McManus might look at the Pikesville-based Jack Wilen Foundation. With assets of $3.1 million - about the same size as the McManus foundation - it awarded grants of $138,349 in 2001, mostly to Jewish institutions and causes. It did not pay any directors or employees.

Its total administrative expenses: $170.

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