Three Douglas County residents who believe the Douglas County Educational Foundation violated its nonprofit status say a Denver judge’s recent ruling against the school district adds teeth to their allegations.
An attorney for the DCEF says the organization did not cross any such lines. The foundation is the Douglas County School District’s nonprofit fundraising arm.
Administrative Law Judge Hollyce Farrell ruled Dec. 24 that DCSD violated the state’s Fair Campaign Practices Act by using district funds to pay for a September 2013 report complimenting its reforms. Half of the money used to pay for Rick Hess’ white paper, “The Most Interesting School District in America?” came from DCSD, the other half from the DCEF.
The DCEF also paid $50,000 to former U.S. Secretary of Education Bill Bennett for a speech and separate white paper. In both, Bennett praised the reform efforts.
Farrell found insufficient evidence to conclude public funds were used when the DCEF paid for the Bennett report. However, her ruling in the case filed by unsuccessful school board candidate Julie Keim concluded, “Dr. Bennett’s report was an endorsement for the district’s reform agenda, and was intended to influence the outcome of the board election.”
Bennett’s paper refers to the current district leaders’ “unanimous control of the board,” and its ability to “proceed full speed ahead virtually unfettered by opposition.”
Hess’ paper includes a section on “electing a reform board” and profiles of current board members. “DougCo is a compelling illustration of how a unified board majority can fuel rapid, ambitious reform,” he wrote.
Meg Masten, Susan Arnold and Bob Kaser — a former DCEF chairman — filed complaints with the Internal Revenue Service alleging improper behavior by the district’s nonprofit fundraising arm.
Masten and Arnold, whose filings allege the DCEF engaged in political campaigning as well as deceptive and improper fundraising practices by the foundation, said Farrell’s ruling bolsters their cases.
“We absolutely feel it gives some added strength to the complaints we filed,” Arnold said.
She and Masten recently filed the new information with the IRS, adding to their original complaints.
But DCEF attorney Jon Anderson said his law firm performed an independent review of the foundation’s legal compliance in 2013.
“Our review included consideration of the Dr. William Bennett report,” Anderson wrote in a Jan. 3 email. “We found that the Bennett report did not qualify as political activity under any of the IRS guideline factors. Our review concluded with a finding that DCEF is in full compliance with Internal Revenue Service regulations and applicable guidelines.
According to the Internal Revenue Service, 501 (c) (3) organizations like the DCEF “are absolutely prohibited from directly or indirectly participating” in any political campaign on behalf of any candidate for public office.
Additionally, the IRS states that “voter education or registration activities with evidence of bias that … have the effect of favoring a candidate or group of candidates will constitute prohibited participation or intervention.”
That prohibition applies to verbal and written public statements, and could cost the offending organization its nonprofit status.
The president of the Colorado Nonprofit Association, Renny Fagen, said he was not familiar enough with the issues in Douglas County to comment specifically. But he said loss of nonprofit status for campaign violations “would be uncommon.”
According to the National Council of Nonprofits, “Loss of tax-exemption could have disastrous consequences for a nonprofit organization,” including the requirement to pay corporate income tax, potential back taxes and penalties and inability for donors to receive tax deductions.