Misuse of the Baltimore City Foundation

Update: November 11, 2009 (see below)

Is there any worse way to skirt government ethics rules and misuse public money and position than via a charitable organization? And yet it happens again and again. This time it happened in Baltimore, according to the results of an extensive investigation by the Baltimore Sun.

The Baltimore City Foundation, with over $7 million in its hands, was founded in 1981 "to raise money, primarily to benefit city programs for the underprivileged ... projects such as a summer jobs program for youths, funeral expenses for homicide victims and home smoke alarms for the needy." It raises money from local individuals and companies, as well as from foundations such as the Open Society Institute and, in least in one instance, from the state of Maryland.

Before I tell you what happened to some of the money, I want to discuss the foundation's oversight and transparency practices.

The president of the foundation "insists that it is the city agencies' responsibility, rather than his or the board's, to ensure that the foundation money is spent in keeping with its nonprofit status. When he receives a request from City Hall to sign a check, it is not his job to challenge it, he said." The board has to approve an agency setting up a foundation account, but after that, "the agency raises and spends money at its own discretion." One board member said, "It's [the city departments'] money. All we are is a fiduciary holding it for them until it is disbursed." In other words, the board considers the foundation an extension of the city and therefore provides no oversight.

The lack of oversight also applies to the city itself. "The annual financial report for the city of Baltimore lists the City Foundation among several groups for which the city claims no financial accountability 'beyond making appointments.'" In other words, each department or agency can use the foundation as it pleases, without being accountable to anyone.

Second, they can do it without anyone knowing. "Even veteran City Council members say they were unaware of the organization's existence until contacted by The Sun." There is no transparency. No one is looking over the city's or the board's shoulder. And it's hard to get at the information if you want to take a look, as the Sun did. Records before 2002 have been destroyed. The city keeps the books, and the foundation president (a long-time city employee) told the Sun he could not provide a breakdown of contributions because it would take too much time for the city clerk who does the foundation's books (nearly all foundation work is done by city employees on city time).

So the foundation has become a secret slush fund for the few people who do know about it:  city officials. Here are three examples of how the foundation has been cleverly misused, according to the Sun.

The area's largest builder contributed $20,000 to the foundation in 2007, intended for city recreation programs. But city officials spent the bulk of the money on the mayor's inaugural celebration. And the builder got a tax deduction, which he would not have received had he given the money to the inaugural fund.

The Department of Recreation and Parks placed into the foundation a $1 million private donation to the city, intended for the building of a visitors center at Cylburn Arboretum, so that the visitors center design did not have to be competitively bid.

Millions of state tax dollars intended for a court audiovisual system were placed by Baltimore Circuit Court officials into the foundation instead of a city court account. This enabled the court to spend the money as it pleased and accrue more than $86,000 in interest before state auditors uncovered the arrangement and put a stop to it, citing improper use of state funds. At least the state was watching its money.

The article quotes a city Circuit Court judge, who has been a member of the Baltimore City Foundation board for two decades, as saying that any potential problems with the foundation are outweighed by "innumerable examples where it has allowed government and nonprofits to do some important things." Does that mean the judge approves of employees skimming 10% off the top of charitable donations, because 90% of the money goes to a good cause? Not an argument that would hold up in court.

The mayor is a non-voting member of the board. The use of its funds for her inauguration is a more serious offense than taking gifts from someone doing business with the city, whom she was dating (see earlier blog post). But her spokesman has already set out her defense: "if an inaugural event such as Winter Wonderland was free and open to the public, the mayor was justified in using foundation money because she believed that the events benefited the community." But what about the dozen tickets to the inaugural ball the foundation paid for? And the foundation's stated purpose?

The foundation's treasurer is chief of the city's Bureau of Accounting and Payroll Services. He told the Sun that the city law department told him not to answer questions. Does the city law department represent an independent foundation? Doesn't the city's accounting chief have a serious conflict of interest, and don't both of his positions require transparency, even though it's not good for his personal interest?

The Sun article says that other city governments do not run their foundations this way. "The Mayor's Fund to Advance New York City oversees grant-writing and reporting, manages the funds, and works with donors, said Megan Sheekey, the group's president. Donations are vetted through legal counsel before acceptance, and funds are spent according to budgets developed in collaboration with city officials." The NYC fund has a website (unlike the Baltimore foundation) and it's received four stars three straight years from Charity Navigator. You can even read the fund's annual report online.

There's also the issue of city employees soliciting charitable contributions from contractors and the like. "City ethics rules prohibit employees from soliciting private donations from anyone who 'does or seeks to do business' with the employee's agency or whose business is regulated by the agency. Since 2004, however, the Board of Ethics can grant exemptions in cases where the funds would benefit an official government program or activity or a city-endorsed charitable activity. According to records provided by the ethics board, only 10 such requests for exemptions have come before it. Of those, two involved the Baltimore City Foundation, and both were from Fire Department employees."

City employees interviewed by the Sun said they either didn't know about the rule or felt soliciting for a good cause was okay, no matter who gave the money.

Once again, city officials have found clever ways to misuse a charitable organization. By doing so, they show disdain for state laws, city ethics laws, and the basic concepts of oversight, accountability, and transparency. The foundation was frozen this week. Its funds should be given to the United Way or another reputable charity, and its board disbanded.

There is talk about taking this mess to the city's ethics board, but this appears to be extremely complex, with many players, more likely a job for the state prosecutor. But what is most important is what the foundation says about the city government's ethics environment. Many departments and agencies appear to have been willing to make creative use of a supposedly independent charity, and the official position was to avert one's eyes. A city government that institutionalizes misuse of funds and a lack of oversight has serious problems that go far beyond the foundation itself.

Update: November 11, 2009
An article in the Baltimore Sun on the Baltimore Ethics Board's decision not to decide whether to investigate the city foundation mess ends on a very sad note. The board chair "said if the board decided to conduct a review, it would be unclear how much it could do, since it has only one staff member."

What better indication that those who run Baltimore care very little about government ethics than this serious underfunding of the city's ethics board.

Robert Wechsler
Director of Research-Retired, City Ethics

---