Goldwater Institute "Lends" $1.9 Million to Rich Guy on Its Board

The eyebrow-raising part of the newly-released "Reporter's Guide to the Goldwater Institute," isn't that GI's executives make lavish six-figure salaries working for a non-profit 501c3, or that the Goldwater Institute is, according to the report, a tool of the Koch bothers and the American Legislative Exchange Council.

Read the Center for Media and Democracy's just-released report on the Goldwater Institute.

It's not even that the organization itself is a pillar of hypocrisy, arguing against the perils of intrusive government and opposing the expansion of social-welfare programs such as AHCCCS, while feasting on the public tit in the form of tax-deductible donations.

Read the Goldwater Institute's 2011 IRS Form 990.

That we all know. Or we should know. For the most part GI's philosophy is the traditional Republican one, which says the rich should rule, and government is bad, unless it's helping the wealthy get wealthier, and then it's A-OK.

Read the Center for Media and Democracy's IRS Form 990 for 2011.

No, the most intriguing revelation of this new report released by the Center for Media and Democracy (itself a 501c3, natch) and the AFL-CIO-backed group Arizona Working Families is that the Goldwater Institute has "loaned" close to $2 million to Shamrock Foods Co., a privately held company, owned by one of GI's board members, Norman McClelland.

Read the AFL-CIO's financial filing for 2011 with the U.S. Department of Labor.

Indeed, GI's 990 form, the "return" filed by non-profits, states that GI has chosen to invest its "excess cash" in "two promissory notes with a privately held corporation owned by a board member."

The first "unsecured revolving promissory note" is for $200,000, and "bears interest at 10 percent annum" paid monthly to the institute.

The second note is far more generous, a whopping $1,700,000 at a rate of 2.25 percent. Both notes come due in 2015.

The report claims that "McClelland has donated an untold sum of his personal fortune from his business endeavors to help the Goldwater Institute," and notes that McClelland helped found the institute in 1988 and chaired GI's board from 1992 to 1994.

GI's close ties to McClelland are not hidden. In fact GI's website states,

"Through the generous contributions of 48 friends and Goldwater Institute supporters, the Norman P. McClelland Distinguished Fellowship was established [in 2008] to ensure Mr. McClelland's legacy will continue in the next generation of young conservative leaders."

The report itself does not imply that there is anything illegal about this arrangement, and most of the info about the loans is available on GI's website for anyone curious enough to read through it.

Still, I'm guessing those promissory notes are not part of the pitch to potential donors.

GI spokeswoman Lucy Caldwell quibbled with calling the promissory notes "loans," and preferred seeing the notes as investments.

"The Goldwater Institute...is not `loaning' Shamrock money, as the report suggests," said Caldwell."The Institute invests its idle cash in promissory notes with Shamrock and while they are holding our cash, we earn an above market interest rate. We draw the funds down as we need them throughout the year. Investing idle cash where it can earn interest is a prudent financial strategy."

According to thelawdictionary.org, which uses Black's Law Dictionary 2nd Edition as its source, a promissory note is, "A written promise to pay a debt by a specific date."

I guess a loan can be considered an investment, especially if you're the one doing the lending. But even if you call it an "investment," that doesn't erase the appearance of a conflict when the investment is such a large one and is being made to a business owned by someone who sits on your board.

The report makes a solid ideological point about the salaries of GI's top tier, information also gleaned from GI's 990 from 2011: Executive Director Darcy Olsen was paid $268,182 in 2011, which includes a $20,000 bonus; Gi's Director of Litigation Clint Bolick pulls down $300,624, which includes a $35,000 bonus; and GI's Director of Policy Development Nick Dranias scored $176,228 in compensation, including a staggering $50,000 bonus.

The GI can afford it, according to its 990, in 2011 it boasted net assets of $4.79 million. How can an institution raking in so much cash argue that people below the poverty line should be denied medical care from the state's Medicaid program?

Pretty easily, according to Caldwell.

"The Goldwater Institute is a private organization funded by private individuals--not a public body funded by taxpayers," she said when I asked her about the charge of hypocrisy.

But GI's wealth is not a result of making money the old fashioned way, you know, earning it, as John Houseman might say. Instead, GI's wallet is fat in no small part because it's a tax write-off, and because it has a habit of suing the government and then collecting attorneys fees.

You can read my Q & A with Caldwell verbatim below. Also, to be fair, a lot of execs for 501c3's are well-compensated.

For example, Lisa Graves, executive director of Center for Media and Democracy, which produced the report, was paid more than $110,000 in 2011. For the same year, CMD took in more than $857,000 and had net assets of more than $561,000.

Nothing to sneeze at, though hardly Goldwater Institute territory. And CMD is not arguing that poor people should be allowed to die rather than expand AHCCCS.

I don't yet have any specific info on this labor-promoted Arizona Working Families group, but, by way of comparison, the AFL-CIO's national headquarters shows $1.5 million in net assets for 2011 (gross assets were more than $100M).

The AFL-CIO's president Richard Trumka was paid a total of $293,750 in 2011, which, though good, is still bested by Bolick's $300M-plus.

I'm sure Clint's worth every penny.

Still, reading about all of these six figure salaries convinces me of one thing:

I'm most certainly in the wrong line of work.

Here follows my email interview with Goldwater Institute spokeswoman Lucy Caldwell:

Hi Stephen,

I've answered your questions below--thanks! Let me know if you need anything else--sorry to be sending from email, but I'm out of town and am going on hour 4 of dead cell phone!

Lucy Caldwell | Communications Director | Goldwater Institute | www.goldwaterinstitute.org | o: (602) 633-8986

"The Goldwater Institute is simply in the liberty business - and there's no institution in the country that performs that business better." - Columnist, journalist and author George Will

On Mar 14, 2013, at 8:15 PM, "Stephen Lemons" wrote:


Going through the report and comparing it to GI's 990 for 2011, most of the dollar amounts re: wages, bonuses and loans seem correct.

I'd like for you to respond to these allegations from the report:

1) Regarding the $1.9M in loans to board member Norm McClelland, the reports claims this is improper and a conflict of interest for these reasons: McClelland has donated money to GI, and GI is the recipient of taxpayer funds in the form of its nonprofit status and attorney's fees it gets from suing governments. How does GI respond? Is this practice an abuse of your taxpayer status? If not, why?

The Goldwater Institute invests is not "loaning" Shamrock money, as the report suggests. The Institute invests its idle cash in promissory notes with Shamrock and while they are holding our cash, we earn an above market interest rate. We draw the funds down as we need them throughout the year. Investing idle cash where it can earn interest is a prudent financial strategy.

The Institute follows all standard non-profit accounting rules and practices, that is why Charity Navigator gives us a 4-star ranking, the highest ranking possible for responsible financial stewardship.

2) The report also states that GI employs people who lobby for GI, yet GI reports very little in lobbying expenses. why is this?

The IRS requires 501c(3)h organizations (nonprofits that engage in lobbying) to report how much of the budget is spent on lobbying. There is no single employee at the Goldwater Institute who works as a lobbyist exclusively, so the amount spent on lobbying is determined as a prorated calculation of percentage of a staff member's time spent lobbying ie if a staff member spent 5% of his time lobbying, we would report 5% of his compensation as going toward lobbying and so and so forth (that's just a hypothetical). That figure is an accurate representation of the funds that are spent on lobbying as a prorated calculation of salaries of those who lobby and resources spent toward lobbying.

The Goldwater Institute is in full compliance with both IRS lobbying reporting standards (which are actually far more comprehensive that Arizona's requirements, which do not require us to register our policy analysts as lobbyists) as well as state requirements.

Let me know if you need more explanation on this.

3) How does GI respond to the charge that it is essentially a tool of the Koch brothers and ALEC?

The report highlights the fact that the Institute is supported by individuals and foundations that fund other conservative organizations. This fact is hardly a suprise: The Goldwater Institute is a conservative organization so naturally we receive funding from and work with other conservative organizations.

4) What is your response to the allegation that GI is heavily financed by out of state interests?

We don't operate exclusively in Arizona, though we are proud to call the Land of Goldwater our homebase. We work in statehouses and with policymakers across the country--we've impacted policy in over 40 states. So we are proud to have supporters in all fifty states.

5) What's GI's response to the charge of hypocrisy, that GI consistently argues against the rights of workers, the amount of money public employees are paid, the expansion of AHCCCS, and yet, GI itself pays exorbitant salaries and offers its top employees lavish bonuses?

The Goldwater Institute is a private organization funded by private individuals--not a public body funded by taxpayers.

Charity Navigator, America's leading independent charity evaluator, gives the Goldwater Institute a 4-star ranking, the highest possible rating in the industry. Ratings are based on transparency, accountability, ratio of administrative costs to program costs, among others. Less than 1% of U.S. charities have earned this ranking. In addition, the Goldwater Institute has passed an IRS audit without any findings. We continue to make our IRS Form 990 available on our website along with audited financial information.

6) Is there anything in the report that you fees is inaccurate that you wish to address?

Neither the Center for Media and Democracy nor Arizona Working Families attempted to contact the Goldwater Institute in the course of producing the report, which may have contributed to the multiple errors the report contains.

The report criticizes the Goldwater Institute for accepting attorney's fees in legal cases we win.

The Goldwater Institute acts in the public interest to defend the constitutional rights of citizens. When government entities violate those rights, they become responsible for the legal fees associated with the defense of those rights. Any expenses recovered by the Goldwater Institute are applied to the further defense of taxpayers in future cases. The Goldwater Institute always warns governmental entities before engaging a lawsuit. However, when governments willfully violate constitutional rights, the Institute will not compromise on attorney fees due to the need to deter future illegal activity and encourage government to abide by the law.

Stephen Lemons 8:53 PM (40 minutes ago) to Lucy


Thanks for this, one follow-up re: this statement, "The Goldwater Institute is a private organization funded by private individuals--not a public body funded by taxpayers. "

But you are a tax-exempt organization, and donations to GI are tax-deductible, right? I mean, it's not as if you're a private business and pay corporate tax, correct? So the taxpayers do give you a break, a huge break, and if you have "promissory notes" as they're called in your 990, aren't you doing that in part with tax-exempt donations?


Lucy Caldwell 9:16 PM (18 minutes ago) to me

Our supporters are private individuals who choose to donate to us, not taxpayers, as in the case of government.

I'm not sure what you're getting at, but it certainly is completely typical for a non-profit to invest for the future (this is why, for instance, many non-profits have endowments), so hopefully that answers your question.

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