Feds investigating the low-income workers union
A nonprofit organization founded by California's largest union local reported spending nothing on its charitable purpose — to develop housing for low-income workers — during at least two of the four years it has been operating, federal records show.
The charity, launched by a scandal-ridden Los Angeles chapter of the Service Employees International Union, had total expenses of about $165,000 for 2005 and 2006, and all of the money went to consulting fees, insurance costs and other overhead, according to its Internal Revenue Service filings.
Charity watchdogs say that nonprofits should never have zero program expenses in two successive years and that well-performing charities direct at least 70 percent of their annual spending to their charitable purpose.
"Of the 5,000-plus charities we've looked at, I don't think we've ever seen one that didn't spend anything on its charitable programs," said Sandra Miniutti, vice president of Charity Navigator, an online rating service.
Last year, the nonprofit reported spending $513,000 in connection with a Compton, Calif., housing development, and $59,200 in consulting fees for its charitable programs, which together accounted for about 88 percent of its total outlays.
The primary mission of the charity — the Long Term Care Housing Corp. — is to provide affordable homes for the local's members, most of whom earn about $9 an hour caring for the elderly and infirm. But SEIU officials declined to discuss the charity, saying it is a separate legal entity from the union, even though its board is dominated by officials from the local. The charity is located at the local's headquarters.
Tyrone Freeman, then president of the 160,000-member United Long-Term Care Workers, helped start the charity in 2004. Freeman and the local are the subjects of a federal criminal probe and a congressional inquiry because of his spending practices. After an internal investigation, the SEIU accused Freeman and another former union officer of receiving improper payments from the nonrofit.
Freeman — who stepped aside in August, less than two weeks after the Los Angeles Times first reported on his financial dealings — has been banned for life from union membership or employment. The SEIU has ordered him to pay the union more than $1 million in restitution. Attorneys for Freeman and others involved in the charity declined to comment.
The nonprofit is also caught up in the federal and internal investigations. The Times reported that the charity had listed the home of a union official as its administrative address, had failed to obtain a federal tax exemption and had lost the right to do business in California.
The charity had also claimed to have a relationship with the prominent California Community Foundation, which said it had never heard of the organization.
Despite the legal troubles, the IRS has since granted the group an exemption retroactive to 2004, and its right to do business has been restored, according to the California secretary of state's office. IRS officials declined to discuss the matter.
The charity did not file an IRS return — a Form 990 — in 2004, apparently because it had revenues of less than the reporting threshold of $25,000. In 2005, it sold $495,000 in unspecified "inventory" and made nearly $87,000 in gross returns from the sale, its sole reported source of revenue that year, according to the IRS documents. Los Angeles County assessor records show that the nonprofit sold two Compton homes in 2005 for amounts that totaled $495,000.
It could not be determined why the nonprofit did not report where it obtained the $495,000 in inventory, or why it did not list any part of the transaction as a charitable program expense.
The charity reported paying consulting fees of $31,000 in 2005 and nearly $68,000 the following year but did not specify who received the money. In 2006, the union donated $50,120 to the nonprofit, which appeared to be the charity's only income. The nonprofit ended the year with a $56,000 deficit and a negative net worth.
In 2007, the charity reported revenue of $633,000, although it did not specify the source. It listed its biggest expenses as the $513,000 for a contractor for a project in Compton, described on the city's Web site as a 28-townhouse development; and $60,385 for consultant services from Kenya Nelson, who is identified on the nonprofit's Web site as the organization's executive director. The charity again had a negative net worth, and a $17,850 deficit.
Attempts to reach Nelson were unsuccessful.
John Ronches, an SEIU trustee who has been running the local since Freeman stepped down, declined to comment.
Laurie Styron, vice president of the American Institute of Philanthropy, said the nonprofit should be more forthcoming. "Charities have an ethical obligation to be transparent," she said.
The SEIU has accused Freeman of taking about $2,400 a month in improper payments from the housing nonprofit from January through June of this year, in addition to a lump sum of $14,500. The payments were part of a self-dealing "consulting agreement," the SEIU said in a report. The union said Freeman "controlled and directed" the charity.
Freeman's former chief of staff, Rickman Jackson, whose Bell Gardens home was listed as the charity's address, has been ousted as president of the SEIU's largest Michigan local because, the union alleges, he received improper lease payments of $33,500 from the nonprofit. Jackson, who was president of the nonprofit's board, could not be reached. Former California Attorney General John Van de Kamp, who has been advising the SEIU on its internal investigation, said the union could determine that only one nonprofit meeting was held at the Bell Gardens home. Jackson is repaying the $33,500 in installments plus interest, an SEIU spokeswoman said.
In the meantime, Compton is investigating whether Freeman and the nonprofit defrauded the city by accepting a gift of municipal land when it had no tax exemption. An attorney for the charity, former California Assemblyman Dario Frommer, said the charity is cooperating in the investigation. He declined to comment further.
Attorneys for the nonprofit have said the initial failure to obtain the tax exemption was the result of a "routine" IRS request for more information.