Chuck Grassley Is On Your Trial

The powerful Republican senator from Iowa, member of such influential Senate groups as the finance committee, judiciary committee and joint committee on taxation, has made it his mission to wade into some of the nonprofit world’s most embarrassing public controversies: misuse of funds by the United Way and the Red Cross; land sales by the Nature Conservancy; lavish, questionable spending by an American University president. Even televangelists aren’t safe from the senator’s scrutiny. And museums, you can be sure, are on his radar. For example, the recent spending habits of certain top Smithsonian officials; in July, he introduced legislation to revoke the institution’s exemption from the Freedom of Information Act, forcing it to make meetings and records publicly accessible. Or big-game hunters who allegedly finance their hunting trips by inflating the value of the taxidermied animals they give to museums. Or so-called fractional gifts: donations that appear, at least to Sen. Grassley, to offer unfair tax benefits to wealthy patrons who grant a museum ownership of a fraction of an artwork while keeping the work in their private collections, sometimes for years.

Is the senator a one-man crusade against abuse in the nonprofit sector? Or is he just another publicity-hungry Washington politician "engaged in a very dangerous and disturbing power grab," as the group Charity Governance Consulting charges?

To Grassley, his actions are consistent with his goal of holding nonprofits accountable for their tax-favored status. It is part of his responsibility, as his website notes, to "[go] the distance to make government more accountable" and seek "reforms that bring openness and transparency."

A senator for almost three decades, Charles "Chuck" Grassley describes himself as a conservative populist. He is a working farmer who returns to Iowa nearly every weekend to climb on his tractor and tend the family fields in New Hartford, population 700. He is proud of his Midwestern values, and these guide him in his senatorial tasks. As he stated in one of his committee hearings in 2005: "In exchange for these very generous tax breaks, charitable assets should be going to those in need. More and more, we’re seeing that some people view charities and charitable gifts as a chance to help themselves, not others. The last time we thoroughly revised the laws governing charities, a man first walked on the moon. It’s time for comprehensive reforms to shut down personal enrichment at the needy’s expense."

Some in the nonprofit community see Grassley’s efforts as simplistic or misplaced. On the issue of fractional gifts to art museums, art collector Norman C. Stone told the New York Times, "We have a very philanthropic society, and that’s because we have laws that make it attractive for givers to give." Glenn D. Lowry, director of New York’s Museum of Modern Art, agreed that tighter regulation of partial gifts negatively "affects the ability of donors to make gifts," complicating museums’ efforts to fulfill their own missions of public service.

Museum senior editor Leah Arroyo sat down with Sen. Grassley in his office in Capitol Hill’s Hart Building to hear from the man himself.Museum: The New York Times called you "the man museums love to hate." Why?

Sen. Grassley: Well, I think a lot of nonprofits would say that, because I’ve been investigating nonprofits and their use of money going back to 9/11. It includes the Red Cross; it includes museums, nonprofit hospitals, the Nature Conservancy, more recently televangelists. It comes from my oversight work of our laws on nonprofits that have not been changed since the 1960s. Are they outdated? Another responsibility is the oversight of the IRS. Basically, they admitted they were not doing their job because they put more resources into nonprofits [after Grassley investigated them]. Eventually, it brings me to the Smithsonian Institution and pointing out problems with the management of the Getty. There was misuse of the tax exemption on gifted portraits, gifted art, things of that nature, and so we have written some restrictions. But most of what we have done has been self-correcting within the organizations themselves.So you aren’t just out to get museums.

I think if museums just look at me, you know, policing museums, if nonprofit hospitals look at me just policing nonprofit hospitals doing charitable work, the Red Cross
not doing what they are supposed to do, the Smithsonian not having their director and a lot of their personnel being less transparent and everything, then each one of them can say, yeah, I don’t like museums, I don’t like the Smithsonian, I don’t like the Nature Conservancy, I don’t like the Red Cross. It happens I like all of them, and I enjoy my time at museums and the Smithsonian, and I want nonprofits to do their charitable work. I’m just making sure that the tax laws are enforced, that tax exemption is not being abused, that boards of directors are doing their job. In fact, if you looked at one thing in common in all these, it tended to be that boards of directors were not really doing their job of running the organization and having an arms-length relationship. That’s the best answer I can give you. Anyone would probably hate me, but when they see the big picture, they ought to know that I’m interested in doing the constitutional job of seeing if laws are adequate, doing the constitutional job to make sure that IRS is doing its job. I’m making sure we maintain the credibility of tax exemption, and I’m making sure that organizations that receive tax-exempt money, or tax-exempt donations that are non-monetary that have monetary value—that they’re good trustees of the money they receive.

For instance, I would suggest to you that if the Smithsonian director [former secretary Lawrence M. Small], before he resigned, got one-and-one-tenth million dollars for the use of his house for entertainment and fundraising when it was not used for that, or he was spending $4,000 to fix up on his home, his swimming pool, that maybe it was abuse and wrong. Or the fact he resigned and other people resigned, or the Getty Museum director resigned, or we expose the tax consequences of people going on a safari in Africa and killing some exotic animal and bringing it back here and having it stuffed and donating it to a museum and getting four times the value written off of taxes so they get a tax-expense-paid trip to Africa—that these are things that are wrong and they are pretty obvious. So that’s where we are coming from: What meets the common-sense test? If museums are disgusted because people can partially donate a piece of art to a museum but leave it hanging in their own home for years and we try to correct that, try to explain that to people in Iowa that pay taxes.

Some have questioned whether it’s your role to go after these organizations.

The legislative branch writes the laws, and the executive branch enforces the laws. My responsibility as a leader [former chairman and now ranking member] of the Senate committee with exclusive jurisdiction over tax policy is to evaluate the effectiveness of that policy. I look at whether the law is weak in certain areas and allows people to exploit, say, tax-exempt groups for personal gain. I leave the enforcement of existing tax law to the IRS, the executive branch agency with that responsibility.

How do these issues grab your attention?

Two things, I think. Number one, people in your business of enterprising journalism doing investigative work write about them in the Wall Street Journal, Washington Post, New York Times, maybe almost any newspaper. Right now a lot of my investigation on transplants being abused is because of a Los Angeles newspaper writer. I don’t read all those newspapers, but things come to our attention, and you kind of look at it and say, "This does not look quite right; maybe we ought to look into it." Now, sometimes you look into it and things are okay, maybe the journalist is wrong, but most journalists are not all wrong, so there is something there.

And then another source is whistle-blowing within the organizations. A lot of this stuff we found wrong with the Smithsonian was [that] people inside just knew something was not right, and they came to us, and then we started investigating. Then pretty soon we raise enough questions that people are embarrassed by what is written in the paper, and they resign.

The Smithsonian is unlike any other museum complex in the United States. How widespread do you consider these problems to be with museums—should museum directors be losing sleep over whether they’re next?

I would think more than museum directors losing sleep, boards of directors and boards of trustees ought to be losing some sleep and think in terms of whether they know what is going on, because if they knew what was going on, a lot of this stuff would not be happening. Or if they knew what was going on, then they are just as guilty as the people doing the wrongdoing. In other words, it is kind of like my wife said about those of us that are in the U.S. Senate: If we think any part of our life is private, we need a sanity test. I might be thinking about doing something here or there, and she asks, "How will it read?" How did she put this. . . . "Will it pass the Des Moines Register test?" That’s our leading newspaper, a very outstanding newspaper. If they were asking you questions, could you defend what you are doing? And, so, a little bit, it is the same way with these people that are on the boards of directors: When they are doing something, if it ends up on the front page of the Washington Post, how is it going to look? You talk about enterprising journalism—the Washington Post led us to the investigation after which the American University president resigned.

The basic problem is boards of directors, boards of trustees, maybe not being on top of things, and people seeing what they can get away with, people not being questioned, maybe a culture that has developed over a long period of time within the organization. And when you get right down to it, that’s particularly the case with the Smithsonian. They are a public institution. They get a lot of their money privately, but they get some tax money. I don’t want to say everything with every nonprofit organization ought to be made public like if they were a government bureaucracy, but at least when it comes to government, in everything we do except national security, we ought to be very transparent.

Many nonprofits provide social services that government agencies used to provide. What role do you see museums playing in society?

Museums are art, they are history. When I think of museums, the preservation of history, the preservation of social things—I’m not sure I’m the right one to give you a definition of a museum, but they are a preservation of the culture and history and social aspects, artistic and humanitarian, of all kinds of societies.

What changes do you think need to be made in museums’ governance? Is it just a matter of clearer public accountability, or is there something more fundamental in this system that needs an overhaul?

Right now I do not have any specific suggestions just for museums. I don’t want it assumed that I assume that every board of directors or board of trustees is not doing its job because I don’t know that. I only know the ones that I have investigated, which ones have and which ones were not.

Do you have a favorite museum or a favorite memory of going to one? Did your family go to museums much when you were growing up?

Oh, my gosh, yes. Probably in rural America, not like you. Going to the University of Northern Iowa Museum as an elementary-school kid would be my first memory—that was ten miles away from where I went to school. I went to a little rural school, probably didn’t even have a public library; the only library would have been the high school library. I remember my mother being a librarian for a couple years at the little town of New Hartford where maybe the library, with just a few books, was open two hours on Saturday night. Now, of course, they have a nice library building and all kinds of books and everything else.

My memories of museums is going to—you will have to give me the name of the famous one in Berlin—or going to the Louvre Museum. Let’s see, I don’t know how many museums I have been in, but I enjoy them because I love history. Now, maybe I’m not as appreciative of art quite as much as a lot of people are. I enjoy viewing art; I went to see the Mona Lisa. I was quite surprised it was such a little picture; I was expecting it to be 40 feet long and 50 feet high, but it wasn’t any bigger than that [gestures with hands].

You have written that tax exemptions involve a special compact. What is that compact as regards museums?

It wouldn’t be any different than for universities. We want to maintain the credibility of the tax exemption, so my job is to make sure the tax exemption is not abused and that people that get tax exemption from the government, that don’t pay taxes, are using the money for the purpose for which it was contributed.

Now, in the case of universities, I don’t think it is any different from museums. Well, a little bit different, in the sense that universities are about education, and we found just a very small percentage of their endowment—not even a small percentage of their growth—being used for helping students. But as I say, a lot of this is self-correcting. There has been nothing more satisfying to me than the response of the university presidents to being more responsible in their use of endowments. The only thing we had to do is hold one hearing, and all of a sudden things started changing. Harvard, Yale, Brown, Cornell, most of them immediately go up from maybe not even a full 1 percent [of their endowments] helping students to 5 percent. I mean, it has reached the point with Stanford now—the president was in here, and he said that kids [whose families make] under $60,000 won’t pay even room and board to go to the university. Now, that is further than others have gone, but I am proud of the response.

So you are getting the kind of responses you’ve been hoping for.

I don’t know as much about museums’ response to what maybe I have done or have not done as I do maybe some others. I get back to the word "self-correcting." That has been done here. If I can measure it for you this way: We put out what people thought was a proposed bill and it wasn’t; it was just a compendium of a lot of things that ought to be looked at with nonprofits. It was probably that thick [he hold his hands up, a foot apart]. We put it out in the summer of 2003, everything including the kitchen sink, because we wanted to get a public discussion among nonprofits of a lot of things that we thought ought to be changed in the law.

Well, they [nonprofits] thought we were writing a bill, and they got all nervous about it, but, you know, it brought 150 of them together under the umbrella group Independent Sector, and they started cleaning up their own backyard, and the number of laws we have had to pass has been minuscule compared to that thing that we put out for a talking paper. So whether it is the universities or whether it is the museums, nonprofit hospitals—I’m not sure all of this is cleaned up the way it should be because you cannot tell immediately. But when you have people from the Red Cross who are in leadership come in because of things that were not right with [Hurricane] Katrina, and we start investigating them, and they sit right there where Jill [his press secretary] is and they say, "We are sorry for what we have not done right"—those are not the exact words that they use, but I know the words "We are sorry" were in there—they said, "We are going to fix it." They had a 50-member board of directors, a lot of them were not even attending the meetings, nobody was paying attention. The local chapters were run to such a [poor] extent that they had somebody embezzle a million bucks up in New Jersey, and they had a debate within their board of directors about whether or not they ought to expose it because it might give the Red Cross a bad eye.