Cover Story

The media has got it all wrong.

Over one recent week's time there was a spate of reports published by major media outlets about the seemingly questionable entanglement of foundations with politics.

The coverage has to do with this being a political season—a presidential political season, no less—when politics comes under more scrutiny. "Big money" and a whiff of potential scandal also sell newspapers. So do the movements of a little boy caught in a big international storm.

Here are a few examples of misinterpretations by the press and of what you should be aware.

What Sort of Playing Is Going On?

Media angle: Elian Gonzalez and his family went to the Georgetown home of Smith Bagley, president of the Washington, DC-based Arca Foundation and a trustee of the Z. Smith Reynolds Foundation in North Carolina.

The Washington Times reported on May 9 that the 20 or so guests dined on catered smoked salmon, shrimp and fruit. And that Elian was paraded around guests who later would be asked for Democratic campaign contributions.

The report also said, "The Bagleys have lobbied for years to end economic sanctions against the Castro government. As heirs to the R. J. Reynolds tobacco fortune, the couple has also been major contributors to Democratic Party candidates. They have been frequent guests of Democratic presidents and Mrs. Bagley is former U.S. ambassador to Portugal."

It continued, "Since 1994, the Bagley's Washington-based Arca Foundation has worked behind the scenes, giving millions of dollars to organizations and Democratic politicians working to lift sanctions." The article referred to the foundation as the "Bagley lobbying organization."

Response: The Arca Foundation has a long history of legally funding organizations promoting exchange between Cuba and the United States and campaign finance reform efforts. (In fact, its grantmaking guidelines read: "Domestically, our primary concern is the overwhelming influence of private money in politics and its effect on who runs for public office, who wins, and in whose interest they govern. Arca's funding emphasizes educational efforts to expose this legal form of corruption and suggest effective remedies at the state and national level.")

Bagley wrote a letter to the editor of the Washington Times, which the newspaper ran. In it, Bagley pointed out that the only people to attend the function were his own family, which includes a six-year-old boy, Elian's family and its lawyer Gregory Craig and four of his children, the head of the Cuban Interests Section and his children, and two Arca Foundation board members and their children. Some of the children spoke Spanish, and most adults were bilingual. And the food that evening was hot dogs and pizza.

"The sole purpose of the gathering was to offer a quiet evening and afternoon to the Gonzalez family and introduce Elian to some children his own age. Nothing more and nothing less," Bagley wrote.

Arca Foundation Executive Director Donna Edwards says, "If Times reporters had done some investigating, they would have found quickly there weren't Democratic donors there. But as a foundation, we can't make journalists investigate their stories."

She also says there is a difference between the personal and professional lives of Arca's board and staff. "In the story there was a mixing of apples and oranges in terms of the foundation's work and the private lives of its staff."

Edwards points out that through publication of annual reports, the foundation shows what it does and doesn't fund. "We as a foundation understand clearly what we can and cannot do, and we have a responsibility to provide support for organizations that can get involved in public-policy debate. Arca has a rich tradition of doing that. Other foundations should not be frightened by potential critics. We strongly encourage funders to be actively involved in the discourse of the day. It's our role to encourage what moves dialogue forward," she says.

Big Money Is Big Influence?

Media angle: On May 11, the Washington Post ran a front-page story, "Microsoft's Lobbying Largess Pays Off." It says that Microsoft has played key roles in creating lobbying groups with names such as Association for Competitive Technology—"organizations that do not fully disclose the company's funding and support."

The article also quotes an American University political science professor as saying of Microsoft and the Gateses: "They are going full blast in all dimensions of lobbying—coalition building, grassroots, top roots, contributions to charitable organizations."

The reporter writes that the Bill and Melinda Gates Foundation's $1 billion in grants for minority scholarships is also aimed at currying favor with representatives of the Congressional Black Caucus, which has many congressional members with historically black colleges in their districts.

Response: Microsoft has commented that one reason it lost the antitrust suit was that it's a Johnny-come-lately on the federal lobbying scene. But should it be automatically assumed that corporate charitable contributions always have a political angle?

Richard Truitt, principal of Truitt Partners LLC, has counseled senior management on public relations at a number of prominent industries. He says, "I bet I'm right in thinking that much of this giving from the Gates foundation has been truly aimed at helping the less fortunate. But by the same token, the more sophisticated you get and the more money you have, the more you think money has power. The more money you have, the more power you have, the chances are greater that you will use that money because you want the influence. But sometimes misusing it is only what people think you are doing with it."

But as for the third-party organizations, Truitt says, "I think there are a lot of businesses that give money to third-party organizations to further their business interests. If it's done openly with attribution clearly established, then there's not a problem."

Polishing Political Images?

Media angle: Roll Call, a political journal covering Congress, reported—correctly—on May 8 that Republicans, led by Senator Rick Santorum of Pennsylvania, opened the Good Neighbor Partnership Fund at the Philadelphia Foundation last fall to collect charitable contributions from corporate donors. (Microsoft was the first donor, with a check of $25,000.)

The fund is set up in conjunction with the Republication National Convention, which will be held in Philadelphia beginning July 30, to buff the image of Republicans as "compassionate conservatives."

But Roll Call also reported that because the Philadelphia Foundation's charter requires its grant to go solely to local charities, this gives Pittsburgh Republican Santorum, who's in a heated Senate race, a "chance to give out grants all across the voter-rich Philadelphia region, where he is still not a household name."

One event that is already scheduled for convention week is a big party hosted by Santorum for the largest corporate donors.

In the article, Meredith McGehee, legislative director of Common Cause, cites this fund as a new twist on campaign "soft money," with the Santorum party as just one example of the added access lobbyists will receive for their charity donations.

Response: Whatever your interpretation of soft money, the foundation itself has done nothing wrong.

The fund is a "field-of-interest fund," with the beneficiaries being nonprofits that help alleviate the effects of poverty on women, children and families. It is not a donor-advised fund and no politicians are involved in deciding grants. Distributions will be made by an 11-member committee of service providers representing five counties the foundation serves. The foundation's board will approve the recommendations. Philadelphia Foundation executives expected to start giving out grants from the fund in June.

(What can happen when politicians mix with foundations? See below: "Curbing Political Foundations—What's the Law?")

Curbing Political Foundations—What's the Law?

Politicians have long saddled up with nonprofit organizations. President Franklin D. Roosevelt established the reputable National Foundation for Infantile Paralysis, now the March of Dimes Birth Defects Foundation, to battle the polio virus.

But in another instance, former New York City Congressman Fred Richmond used a private foundation to gain political favor in his congressional district, so much so that his 1968 opponent announced that he was the "first congressman to have run against a tax-exempt foundation."

In a more recent example, Senator Bob Dole (R-Kansas) was forced in 1995 to disband his Better America Foundation when it appeared to be aiding his senatorial and presidential candidacies, and not promoting issues.

Mixing politics and foundations raises concern in two ways:

• Because federal campaign finance law restrictions become effective only when money is being donated specifically for an election, no limits apply to contributions to nonprofits politicians are affiliated with. Nonprofits can be used to give access to politicians.     
• The affiliation of politicians with charitable organizations raises concerns that the organizations are engaging in electioneering activities on behalf of the politician. Nonprofit organizations can be misused in ways that support the research needs of a candidate—for example, to prepare policy material for use in campaigns or to give a candidate wide exposure by sponsoring political forums.

As part of the Revenue Act of 1987, at the urging of former Representative J. J. Pickle of Texas, Section 4955 was added to the Internal Revenue Code. This section imposes penalties on any 501(c)(3) organization and its management for political expenditures, which are defined to include payments to (or on behalf of) a candidate for (1) speeches or other services, (2) travel expenses, (3) expenses for conducting polls or surveys, (4) expenses of advertising, publicity or fundraising and (5) any other expense that has the primary effect of promoting public recognition of the candidate. —D.S.

Actions That Are Not Illegal

(For private foundations and charities electing the 501(H) Rule)

1. *Direct Communications with legislators or their staff members about a general issue of concern where there is
   • no reference to specific legislation or
   • no view expressed on such legislation.
2. *Most grassroots communications to the public about a general issue of concern where there is
   • no reference to specific legislation,
   • no position taken on the legislation or
   • no call to action.
3. *Communications with executive officials (i.e., the president, governors, mayors) or their staff members about a general issue of concern where there is
   • no reference to specific legislation,
   • no position taken on the legislation or
   • the official or staff member will not participate in forming the legislation.
4. Action to affect regulations or other acts implementing existing laws that are performed by administrative bodies.      
5. Class-action lawsuits or similar public-interest litigation in attempts to influence judicial bodies.      
6. *Self-defense lobbying activities directed at legislators or their staff members (but not to the general public) on matters that might affect the organization's existence, powers, duties, exempt status, etc.      
7. *Responding to written requests from a legislative body (not a single legislator) for technical assistance on pending legislation.      
8. *Making available the results of nonpartisan analysis, study or research on a legislative issue.      
9. *Discussion of broad social, economic and similar policy issues requiring legislative solutions, as long as the discussion does not address the merits of specific legislation.      
10. Communications to members of an electing public charity (not applicable to members of a private foundation) that discuss specific legislation but do not urge action by the members.      
11. Private lobbying activity conducted by foundation managers on their own time and at their own expense.

* It is not clear that this definition or exception will apply for charities who do not elect to be treated under the 1976 rules—sections 501(h) and 4911.

Source: Foundations and Lobbying: Safe Ways to Affect Public Policy (1991), by John Edie, published by the Council on Foundations. Explains the Treasury Department's and Internal Revenue Code's definition for lobbying by private and community foundations. $20 for members; $30 for nonmembers. Call 888/239-5221.