Prairie Home Philanthropist
The Norwegian bachelor farmer—with his odd, quiet ways—is a staple of humor on Garrison Keillor’s A Prairie Home Companion. Surely Keillor’s many fans smiled when they learned that one such Minnesota farmer left a hefty share of a large fortune to charity.
Harvey (“Allie”) Ordung was a lifelong bachelor farmer who lived in rural Luverne, Minnesota. With his death in October 2007 at the age of 84, he left behind a $9.3 million estate, carefully accumulated over a lifetime of modest living and wise investing. Nearly half of his fortune—more than $4.5 million—was left to 12 nonprofits in Rock County, where Luverne is located. Checks from the estate were handed out in August 2009. According to the Rock County Star-Herald, Ordung had often said, “My money was made in Rock County, and it only makes sense that it should stay in Rock County.”
The largest gift, more than $2.9 million, went to Luverne Dollars for Scholars. Gregg Gropel, a friend of Ordung’s and his estate’s personal representative, told the Twin Cities’ Star Tribune that Ordung “was a bachelor and wanted to help out these young children. He would say today’s youth are our nation’s leaders tomorrow.”
Luverne schools superintendent Gary Fisher said that Ordung came to know many local schoolchildren through the school district’s “Adopt a Grandparent” program. “Harvey spent a lot of time in the community and saw the value of education,” Fisher explained. He added that Ordung’s gift will “have a major impact” on Luverne Dollars for Scholars, which now has the second-largest endowment of any Dollars for Scholars chapter nationwide.
Ordung’s wealth—but not his generosity—surprised many in the community. “He was very nice, a very kind guy, even before this money gift,” Luverne Mayor Andy Steensma told the Star Tribune. “Everyone thought so. And to look at him, you’d think he was rather poor, even—he never dressed in fancy clothes or anything like that.”
Linking Up Libraries
On July 16, the Bill & Melinda Gates Foundation announced $6.5 million in grants to support free Internet access programs in public libraries in 11 states. The Opportunity Online initiative is focused on helping libraries upgrade their patron computer services by paying for hardware updates.
In many low-income communities across the United States, public libraries are among the few locations providing free Internet access. Many experts consider them key players in bridging the so-called digital divide by providing all citizens with Internet access—access which is increasingly a prerequisite for economic and civic well-being. With demand for free Internet resources increasing in the midst of the economic downturn, libraries are eager to keep the quality of their technology high. The downturn, however, is making them increasingly vulnerable to budget cuts that would limit their Internet services.
About 800 library branches are eligible for the Opportunity Online grants. These grants are the latest in a series of three rounds of computer hardware grants provided by the Gates Foundation. In total, the foundation has contributed $350 million in grants for the installation and maintenance of computers and other multimedia technology platforms in libraries.
As part of the Opportunity Online grant program, eligible library branches must match the amount with money raised from local fundraising efforts in order to demonstrate the sustainability of the improvements. The foundation estimates that these efforts will generate $3.7 million in community-raised funds. In addition to this support, the staff of the participating libraries will attend a professional development conference organized by the Public Library Association.
Before the stock market crash, Harvard University’s endowment topped out at $36.9 billion. Although it has lost 30 percent since then, its $25.8 billion corpus dwarfs those of all private foundations save the Gates Foundation. In August, Barron’s reported that Harvard, along with 400 other colleges and universities, is now subject to an IRS survey into compensation practices at university endowments.
“This is the first time we’ve looked comprehensively at colleges and universities,” Lois G. Lerner, director of the IRS Exempt Organizations Division, told Barron’s. The IRS has been examining compensation at all tax-exempt institutions “for quite some time,” she added.
Harvard stands out among the other subjects of the IRS’s query, not only because of the size of its endowment but because of its managers’ incentive compensation structure. Jack Meyer, who achieved extraordinary investment returns while leading the Harvard Management Company (HMC) from 1990 to 2005, was paid up to $7.2 million per year, and two of his money managers were reported to have received more than $25 million each in a single year. (By contrast, the head of Yale’s endowment earns closer to $2 million per year.)
Barron’s also found that Harvard Management was the subject of a rare IRS audit in 2004 and 2005, following a published report about fee arrangements with the private firms. The agency rarely audits more than a handful of endowments each year. Harvard calls the audit “standard” and says it turned up “no deficiency” in tax practices.
According to Barron’s, “[t]he current IRS survey focuses on how endowments operate, and looks at such things as income they receive from controlled entities, whether their relationship to taxable organizations is at arm’s length, whether their investment committee approves the selection of outside managers to run the fund, and the amount and type of remuneration given to employees and how it is determined.” The agency expects to issue an interim report by year’s end.
The IRS is especially interested in “unrelated-business taxable income” (UBTI)—income earned from activities that are not directly related to a 501(c)(3)’s primary mission. “There are some concerns about UBTI across the board,” Lerner said. The IRS is examining how UBTI relates to business arrangements with private companies, such as money managers. HMC has drawn the agency’s attention for, according to Barron’s, farming business out to the private firms of former HMC employees.
The Senate Finance Committee has also been examining UBTI. It has focused on how organizations may have used offshore firms to avoid UBTI from hedge fund investments, which are routinely invested in by endowments.
Soros on Opening the Iron Curtain
Twenty years after the fall of the Berlin Wall, George Soros reflected on his initiatives to spread civil society in Eastern Europe in an essay on CNN.com.
Soros established his first foundation in 1984 in his native Hungary in an effort to undermine the authoritarian control of the state in favor of an “open society”—a concept he learned from Karl Popper as an undergraduate at the London School of Economics.
“In an open society every individual or organization was supposed to implement their own plan,” Soros wrote. “To make the transition from a closed to an open society would require outside help and that was what my foundations sought to provide.” By providing photocopiers to scientific and cultural institutions, the foundation undermined the state’s monopoly on communications and weakened the influence of its communist dogma. Eventually, “with a budget of $3 million, the foundation had more influence on the cultural life of Hungary than the Ministry of Culture.”
Despite his foundation’s success in Hungary, Soros notes that he soon recognized that the situation in each Eastern Bloc country was different. His model of reform needed to be adapted to local circumstances. “Right at the beginning, I had a disagreement with the Polish board about the way the foundation should be run,” Soros wrote. “But that taught me a lesson. They were right and I was wrong. I realized that the people living there understood their country better than I did and I deferred to their judgment.”
By 1992, “there were foundations in 22 countries and expenditure had reached $53 million. A year later we were spending nearly $184 million.” In that year, 1993, Soros established the Open Society Institute, today one of the world’s largest foundations, to support the many foundations in Eastern Europe’s democracies. Although the post-communist transition in Russia and some former Soviet republics does not match the development of the “open society” in Eastern Europe, Soros is still hopeful. He remembers the words of his father, a survivor of the Bolshevik revolution of 1917: “In revolutionary times things that are normally impossible become possible.”
L3Cs to IL
According to the Chicago Tribune, Illinois has become the sixth state to explore the creation of legal entities that straddle the line between nonprofit and for-profit status. On August 4, Gov. Pat Quinn signed a law that allows the incorporation of low-profit, limited liability companies. These companies, known as L3Cs, are sometimes described as for-profit companies that serve a nonprofit function.
For L3Cs, making a profit is, by law, secondary in importance to achieving a social goal. According to the Tribune, a L3C must be organized to “significantly further the accomplishment of one or more charitable or educational purposes,” and must not have the purpose of the “production of income or the appreciation of property” (although the company is permitted to earn a profit). Examples of L3Cs already existing in Vermont (one of five states besides Illinois that incorporate L3Cs) include publishers, chess camps, and alternative energy companies.
Experts say this hybrid structure might be the answer to the capital crunch that many socially minded firms face. Many private foundations consider L3Cs good candidates for what are known as “program-related investments” (PRIs). The requirements that a firm must satisfy to qualify as an L3C are the same as those outlined by the Internal Revenue Service to receive PRIs. This allows foundations to invest in L3Cs as part of their mandated 5 percent payout without having to navigate the complex channels of an IRS petition. “This new form will leverage foundations’ program-related investments to attract private capital for the benefit of all of us,” Marc Lane, president of the Chicago chapter of the Social Enterprise Alliance, told the Tribune.
Bernard Madoff’s fraud put many donors (and the nonprofits that rely on them) in dire straits. But one philanthropist is working to make things right—on his own dime. The 401(k) plans of employees at Robert I. Lappin’s real estate development firm and private charity were managed by Madoff. When the money disappeared, Lappin spent $5 million to replenish his workers’ retirement savings.
“I wanted to do the right thing,” Lappin told the Boston Globe. “And, I feel, I’ve done the right thing and that to me is my reward.” After his donation to his employees and his personal losses from the Madoff scandal, his net worth is below $10 million, a reported drop of 90 percent.
The Robert I. Lappin Charitable Trust itself lost its entire $8 million endowment in Madoff’s scheme, and was forced to close its doors. But Lappin has revived the charity and has been working to ensure that the charitable trust’s signature program—funding travel to Israel for Jewish youths—continues.
Jewish philanthropies and nonprofits were especially hard hit by Madoff, who used social networks within the Jewish community to recruit clients. Hadassah, a volunteer women’s organization, lost $90 million, and Yeshiva University lost $110 million.