Following The Money (Part 1)

“ALG’s funding comes from thousands of Americans all over the country,” John Tillman, the president of the Chicago-based tax-exempt organization, told the Center for Public Integrity in an October 24 e-mail.

The Center’s review of public records from 2004, however, shows that the operations of Americans for Limited Government and its affiliated foundation were financed almost entirely that year by a handful of large donors, as were the operations of other tax-exempt organizations led by or otherwise connected to ALG’s chairman, New York real estate investor Howard Rich.
A review of these documents by the Center shows that the Rich-connected organizations, whose stated missions have little in common, appear to have operated essentially as interrelated bank accounts, collecting money from donors and sharing it among themselves.

In 2004, for example, Legislation Education Action Drive, a tax-exempt organization that Rich founded to promote vouchers and tuition tax credits, collected more than $1.35 million for “research and public education of the developments in school choice initiatives,” according to its federal tax returns.

Records show that 99 percent of LEAD’s funds came from just five donors:

• $620,000 from the National Taxpayers Union, a tax-exempt organization in Alexandria, Virginia. The group claims 350,000 members and favors, among other things, “repeal of existing taxes,” according to a spokesman.
• $450,000 from Patrick M. Byrne, the chairman and chief executive officer of Overstock.com, the Salt Lake City-based Internet retailer. Byrne is also the general partner of High Plains Investments in Park City, Utah, and the founder of First Class Education, a tax-exempt organization that promotes what it calls “the 65 percent solution” — compelling public school districts to spend at least that portion of their operating budgets on classroom instruction.
• $225,000 from Jeffrey Yass, a co-founder and managing director of Susquehanna International Group, an options and market-making firm in Bala Cynwd, Pennsylvania. Yass, a former professional poker player, is on the board of directors of the libertarian Cato Institute, as is Rich. He is also a director of the Susquehanna Foundation, as is Eric Brooks (see below).
• $36,500 from the American Education Reform Foundation, a tax-exempt organization in Milwaukee. The organization, which supported school-voucher campaigns, is now part of the Alliance for School Choice, a Phoenix-based group that describes itself as “the nation’s leading advocacy organization for school choice.”
• $25,000 from Eric Brooks, a co-founder and former managing director of Susquehanna International Group (see above). Brooks is a director of the Decision Education Foundation in Palo Alto, California; the biographical sketch of him on the organization’s Web site says that his “particular area of interest is the furtherance of education and educationally-based programs at the K-12 level.” It also notes that he has been “a member of the board of trustees for the Legislative Education Action Drive.” Brooks is also a director of the Susquehanna Foundation.

The Center sought comment from all five donors; two responded.

Susan Mitchell, who in 2004 ran the American Education Reform Foundation and its sister organization, the American Education Reform Council, told the Center in a telephone interview that she did not recall specifics about the contribution to Legislative Education Action Drive and did not know how the money ultimately was spent. She said, however, that the foundation only made donations in support of education initiatives.

“Any contribution we made was designed only for school choice,” Mitchell said. “We had a policy of not doing pass-throughs.”

Pete Sepp, a spokesman for the National Taxpayers Union, did not directly answer the Center’s questions about its contributions to Rich-connected groups but noted in an e-mail that NTU has “partnered with numerous organizations, which would include everything from coalition-building to financial contributions.”

Even as money came in to Legislative Education Action Drive, money was also going out in the form of loans, to Rich-connected organizations.

On the last day of 2004, records show, Legislative Education Action Drive made loans totaling about $530,000 to four other Rich organizations: LEAD Foundation ($255,000), Americans for Limited Government ($100,000), Americans for Limited Government Foundation ($159,678), and U.S. Term Limits ($20,000).

Rich is the chairman of LEAD Foundation (which has since been renamed Parents in Charge Foundation), the chairman of Americans for Limited Government and a director of its affiliated foundation, and the founder and president of U.S. Term Limits.

In 2004, the records show, Rich himself did not make a single contribution of $5,000 or more to any of the organizations.