Saturday, September 27, 2008

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.


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