It Takes a Villages. . . CEO to Get a Lucrative State Contract?

The story about Mitch Daniels' TV ad featuring the head of a non-profit entity endorsing him in arguable violation of IRS regulations has run either on, or in, WIBC, WFYI, WTHR, WISH, WTHI (Terre Haute), the Muncie Star Press, the Elkhart Truth, the Northwest Times (Hammond), the Louisville Courier-Journal, the Indianapolis Business Journal, and the Chicago Tribune.

If you read this blog, you know that Sharon Pierce, the CEO of two non-profits, The Villages and Prevent Child Abuse Indiana, spoke of Governor Daniels in glowing terms in the Governor's current commercial. I contend that Pierce's actions are contrary to IRS regulations prohibiting non-profits from engaging in political activism. For most of you, that's serious yawnsville, so you may be wondering, "How did a technical legal argument grow media legs?"

There is a new element to the story of which I was not aware: the Villages recently received a contract from the state for $12 million that covers the next two years. This is not an insubstantial amount, as The Villages' website states that its annual budget in 2007 was $25 million (a good portion of which was from existing state contracts).

For those who don't know state procurement (a/k/a "those who have a life"), Indiana law only requires the lowest competitive bidder on supplies and equipment. When the state seeks professional services, no bid is necessary. There is a middle option, however, called requests for proposal ("RFPs"). This method offers the semblance of competition by requiring each submitting entity to at least ostensibly "meet specifications" while outlining why they're good. However, the method of awarding RFP contracts is almost as subjective as no-bid professional service contracts. The only difference is that the state must give the reason a particular vendor was selected. This is limited only by the state’s creativity of phraseology, which gives it essentially unfettered discretion, even when it uses RFPs.

As a result, there is an air of quid pro quo on this commercial, which could be deflating or inflated depending on the answer to a series of questions:

(1) When did Ms. Pierce ultimately agree to appear in the ad? Was it before or after the contract was awarded to The Villages?

(2) Whose idea was the ad and when was it first broached between the parties? Was it before or after the RFP process began several months ago?

(3) Did Daniels (and his agents) know that The Villages was vying for a state contract (this is more of a rhetorical question really. The answer is yes, given that ALL social services in the child welfare system were out for bid).

(4) Were leaders of any other non-profit organizations approached by the Daniels campaign, and if so, what was their response? Were they bidding on state services as well at the time?

(5) Was The Villages the lowest bidder for the service it sought to provide? Or was there subjectivity in the state's award to The Villages?

When I wrote my letter to Ms. Pierce, I had two points: (1) I believed the ad should be withdrawn because it violated IRS regulations by giving the impression she was speaking for her agency, and (2) The Villages board was foolish for signing off on the ad because current and prospective donors might not want to support an organization that lets its CEO wade into electoral politics.

The first idea got some support yesterday from Julia Vaughn. From the Chicago Tribune:

Julia Vaughn, policy director of the citizens' watchdog group Common Cause Indiana, which lobbies for open and accountable government, said she has worked for nonprofits for 20 years and "you're not allowed to take sides."

"If they're not crossing the line, they've stepped right up to it with their toes squarely on it," Vaughn said.

But the contract sapped the vitality of my second argument. If you ran a company you expected to receive a quarter of its annual budget over the next four years from the Governor, why would you care about losing smaller private donations? DOING the ad might be the savviest play after weighing the pros (a lucrative contract plus the glowing admiration of a Governor who will be issuing new contracts in two years) against the cons (an almost non-existent likelihood of losing 501(c)(3) status even if the IRS determined there was a violation). One could say that The Villages just put its mouth where its money is.

But that would seem a cynical oversimplification. First, Ms. Pierce is no partisan hack. She's nationally known and highly-regarded in her field, and she has served both Republican AND Democrat administrations. Ms. Pierce was the then-Governor Evan Bayh's Deputy Director for the Department of Child Services between 1991 and 1993.

Also, The Villages is a multi-state organization that serves over 1200 kids annually. One could easily argue that The Villages didn't need to appear in any commercial to get business from the state, and that Ms. Pierce's motives were NOTHING about finances, but rather just about advancing the welfare of children with a Governor who has increased the number of case managers. (Of course, one wonders what contact Ms. Pierce had with Jill Long-Thompson to assess whether Ms. Thompson would hire even more case managers and also accept an independent investigator in child fatality cases, an idea not favored by Governor Daniels).

But there's a real easy way for non-profits across the state to avoid being subjected to this kind of "what's really going on under the surface" scrutiny. When in doubt, leave your non-profit’s name out.

I hope the boards are paying attention.

It Takes a Villages. . . CEO to Get a Lucrative State Contract?

Is IPOPA Hypocritical? A Response to Advance Indiana

One of many problems with politics these days is group-based generalizations. Everybody gets grouped into one thing, and all views, actions, and inactions are then attributed to a group regardless of the connection. This crystallized for me when Advance Indiana referred to the hypocrisy of Democrats over non-profit entities. Here’s the deal.

Sharon Pierce, the CEO of the Villages, Inc., and its auxiliary organization, Prevent Child Abuse Indiana (both of which go some good work), appeared last night during 60 Minutes in a campaign ad that speaks glowingly of Governor Daniels. The problem is that both of these organizations are 501(c)(3) non-profits, which means that they enjoy tax exempt status, but they must refrain from engaging in political advocacy.

At the outset, let me say that I am not a tax lawyer, nor do I play one on TV. But I’ve read the IRS provision restricting 501(c)(3)'s from engaging in politics, and I do not see how having the CEO of two specifically identified organizations gush about a candidate complies with the law.

So I wrote Ms. Pierce a letter today encouraging her to have Daniels pull the ad and to establish a policy to prohibit any officer or board member of either The Villages, Inc. or Prevent Child Abuse Indiana from appearing in future political ads with organizational attribution. Not only does such activity risk tax-exempt status, it risks ill-will among celebrity endorsers and politically active potential donors. In my letter, I noted that Colts coach, Tony Dungee, had been in a public service announcement for Prevent Child Abuse Indiana. I do not personally know Dungee’s politics, but I offered that he might be put in the awkward position of having to explain why he just did an ad for an organization that endorsed a campaign he might oppose. Moreover, any 501(c)(3) that plays politics risks alienating donors who might otherwise agree with the agency's mission but not its politics.

Anyway, within minutes of my letter being sent, Jim Shella blogged on it, which prompted Advance Indiana to note:

It’s funny that Marion County Democrats didn’t see anything wrong with Andre Carson’s campaign using Forest Manor Multi-Service Center to stage press conferences to promote his campaign at the center. And didn’t one or more not-for-profit employees appear in ads for Carson’s campaign?

First, notice how Advance Indiana says that “Marion County Democrats” didn’t see anything wrong. To have hypocrisy, you need person A (Chris Worden) calling into question a practice that person A (again, Chris Worden) has sanctioned in the past.

Respectfully, we cannot say what “Marion County Democrats” thought about the “Forest Manor situation” because we haven’t polled them to see if they even knew about it. But we can say what Chris Worden thought about it. He didn’t know about it at the time and still is not sure of the specifics.

If any individual, organization, or candidate can use the facility without cost, I’m not sure letting Carson do so constitutes advocacy. It seems more akin to an “open door” policy. If, however, there is normally a cost to use the center for a brief period, and the Congressman didn’t pay it, he should do so immediately. No 501(c)(3) organization should provide any service to a political campaign without charging the “market rate.” If I learn of a facility that does this, I’ll call them out on it as well as the candidate, be they Democrat, Republican, or Libertarian.

With respect to employees of Forest Manor appearing in a Carson ad, though, this is a trickier issue. I’m a firm proponent of individuals being able to support a candidate as individuals. If Ms. Pierce and her boards want to write checks to Governor Daniels, they can (and many have). But when it comes to political ads, the only way employees should appear is without organizational identification.

Accordingly, Forest Manor would have only acted improperly had it given its employees permission to appear in an Andre Carson ad specifically either with identification as Forest Manor employees or on regular work time. Absent that imprimatur, the employees appear only as individuals.

Admittedly, some leaders of organizations are so recognizable that even appearing without attribution will have the feel of an organizational endorsement. Quite frankly, this is something with which we’ll have to live because we honor the 1st Amendment. But the Daniels ad isn’t one of those situations.

To do right in this situation, all the Boards for The Villages and Prevent Child Abuse had to ask was this question:

“Is Ms. Pierce’s individual presence in the TV commercial made even remotely more advantageous for Governor Daniels by virtue of her identification as CEO of The Villages and Prevent Child Abuse Indiana?”

The answer is, “Of course, it was!” In fact, precisely what makes the ad powerful is that Ms. Pierce is speaking from organizational knowledge that she would not have but for her role as head of these not-for-profits. It seems impossible to assert that these organizations have not handed their PR heft, public good will, and organizational knowledge to Governor Daniels for his political benefit.

I am not interested in revoking the 501(c)(3) tax status of The Villages, Prevent Child Abuse Indiana, or any similar organization. I just want them to stop playing politics. When these organizations receive dollars, be they from grants, donors, or fees for services, they grow in the public’s esteem by virtue of not paying taxes. The tax exemption frees dollars that are used to spread the organization’s mission and good name in the community. To then turn that name over for the benefit of a particular party or individual candidate is just inappropriate, in my opinion.

So now everybody is on notice. Play politics as a 501(c)(3) entity, get chastised by Chris Worden. (I'm sure you're all terrified). Now, where is the hypocrisy again?!?

As a final note, Jim Shella’s blog identified me as a “public defender.” That is not an adequate description, as it (ironically) might convey that I am speaking for an agency. It is correct that I am currently a contract public defender, but my words were not written as a full-time employee for the Marion County Public Defender Agency. I would never want anyone to think I’m speaking for that agency when I’m not. This was simply me, as an individual, exercising my 1st Amendment rights by writing a letter on an individual lawyer’s private stationery.

Is IPOPA Hypocritical? A Response to Advance Indiana