HOW CHARITY WORKS FOR THE RICH

A look at the Community Chest Trust Fund might lead to some uncharitable deductions.

In his cranberry Pucci-signature edition Mark IV, Walter B. Hailey Jr. drives along a dirt road that crests the most dramatic limestone peaks in his 1000-acre Hill Country ranch in South Texas. The Guadalupe River meanders in the valley below, a shimmering green vein against the browns of an eroded landscape. “This is simply the most beautiful place anywhere,” he says, with a glint in his blue eyes. One hand on the wheel, he slows the car and points out tracts of land he is selling away to make his ranch into a series of country estates. “The other day, a local man came up and said, ’You’re gonna make this another Dallas,’ and of course he was saying,’We don’t want more people.’ But I like people; I’d like neighbors here.”

That is why Hailey regularly has guests at the ranch. That is also why he has become deeply involved in the affairs of Hunt, Texas – a community situated 85 miles northwest of San Antonio. Not as a councilman, or a zoning board member, mind you; Hailey is a Benefactor.

The man once known in Dallas business circles as Hailey’s Comet – he once sold $1 million in insurance in one week, on his way to building an empire worth $78 million – has money sent, for example, to the tiny Hunt Elementary School, where one year each teacher got $1000 to spend as he or she saw fit. The Kerr County Livestock Show gets more than $2000 each year. The nearby Kerrville Independent School District has received money to bring in speakers to tout the blessings of American free enterprise. The Southwestern Children’s Theater in Kerr-ville, run by Hailey’s companion – former Dallasite Barbara Dunbar – received $5000 last year. But the project closest to Hailey’s heart is a foundation he organized to bring famous speakers to the ranch and nearby schools for the benefit of local residents. Masters and ! Johnson, for example, flew in last summer and gave a lecture first in Hailey’s living room and then at Schreiner College and the University of Texas at San Antonio. It was one of numerous projects sponsored by Hailey’s Hill Country Growth Center, a corporation that in thanked Hailey for $10,000 and in for two grants worth $25,000 and$45,000.

But the grants don’t come from Hailey; they come from the Dallas County Community Chest Trust Fund. Hailey gets the thank-you notes because the money is drawn from the half-million dollars Hailey gave to the Chest in 1971, and because Hailey told the Chest where to spend it. By acting as a charitable check-writing service, giving donors influence over where their contributions will be spent, the Chest has become one of the biggest success stories in the philanthropy business, with assets of $32 million, up from $3.1 million 10 years ago. In the process it has stretched the definition of “community foundation” until 22 percent of its grants are made outside North Texas.

People give money for all kinds of reasons. A rich person may give a lot of money away because it makes him feel good, increases his prestige, builds a political base, or extends his business contacts. But there is one common denominator among philanthropists: They give it away to avoid taxes and exercise some choice about where their money goes.

A decade ago, you could set up a private non-profit foundation, endow it with $400,000, take the full, immediate tax write-off, and have control over how and when the money would be spent. The 1969 Tax Reform Act changed all that, imposing a four-percent excise tax on a foundation’s income (to cover the cost of federal audits) and a requirement that private foundations make grants equal to all their annual net income or a percentage of their assets (now five percent), whichever was higher. If a donor wanted the privilege of control over his contributions, the 1969 Tax Reform Act made him pay a price.

In slapping the private foundations, the Tax Reform Act favored community foundations like the Dallas Community Chest Trust Fund, which offered donors a much better tax break. If you gave your money to a private foundation, you could write off up to 20 percent of your adjusted gross income. But with the Community Chest, you could write off up to 50 percent of your adjusted gross income and also enjoy a “five-year carryover.” The carryover means, simply, that if you earn $60,000 a year, you can enjoy a full tax write-off on much more than $30,000; you can give the Chest $180,000 in one year, then claim $30,000 a year for six years.

Practically the only remaining incentive a potential donor had for opening his own private non-profit foundation was control of the money. In every other respect, it was cheaper to go with a community foundation. Many private foundations folded. Before 1969, there were more than 700 private foundations in North Texas, compared to about 350 today.

But the tax law contained a provision that some took as a loophole, and the Dallas Community Chest Trust Fund makes the most of it. It’s called the advise-and-consult fund.

The plan goes like this: You give your money, stock, or land to the Chest and a fund in your name is created. A dollar amount is assigned, based on fair market values. At the time you make your donation, you may specify where the income or a percentage of the principal should go. This might, for example, be to your church, alma mater, or favorite local charity. But after you complete the transaction – after you contribute with your conditions – you can issue no more directives. You are only allowed to come back later on with advice. The Board of Trustees of the Chest can tell you your ideas are good or bad; in any case, they have the final say on any new spending plans from your fund.

“We just have a pot over the side here, and give people a place to put their money,” says Trust Fund founder and president Fred M. Lange. “I used to say, ’Give us the money and let us hold it. How the hell are you gonna take a Texaco bond and cut it into $5 or $10 and $5 again for contributions?’ So 1 take the bond, put it in an account, and when they want to give something, we just send it. We’re just giving these fine people a service.”

Walter Hailey’s is an advise-and-consult fund, and if you multiplied it dozens of times over, you’d account for most of the money that is in the Dallas Community Chest Trust Fund. The trust fund is really an umbrella over many smaller funds, most of which are advise-and-consult. There is the Eppler, Guerin and Turner Inc. Fund, for example, which in 1974 spread $9110 in mostly three-digit contributions across popular charities in Dallas. There is the Marty Martin Fund, which in the same year gave $278,466 under the name of the Dallas Community Chest Trust Fund – including a $73,600 check to the Campus Crusade for Christ in San Bernardino, California. And there is the Perot Fund, founded by Ross Perot, which put Community Chest giving to perhaps its most creative use in 1976 with the purchase of horses in Shelbyville, Tennessee, for the New York City Police Department. The price tag on this gift was $16,467. (Saddles costing $10,464 were also purchased through Perot’s fund from a firm in Richmond, Virginia.)

In total, an estimated 130 advise-and-consult funds account for $25 million in the Dallas Community Chest Trust Fund. The entire fund is worth $32 million. That leaves $7 million remaining in assets – less than $3 million of which is in that category of greatest potential benefit to Dallas, the general fund. Earnings on money in the general fund have no strings attached; it is money that can be spent purely at the discretion of the Chest’s trustees. But there’s hardly anything to show for it.

In 1977, the Chest issued grant checks totaling $2,084,759. Only one of those checks was from a fund with no strings attached – it was for $50,000 to the Dallas Bar Association for the restoration of the Belo mansion. The Chest is in the somewhat peculiar position of having to turn down charities asking for money even when those charities know that the Community Chest is hooked into the fiscal arteries of Dallas’s rich. Advise-and-consult funds have shaped the growth and giving patterns of the Community Chest Trust Fund: Despite a 1214-percent growth in assets since 1960 (about $30 million), annual grant-making from the general fund has increased only 87 percent (about $970,000). But things are improving. In 1975 and 1976, there were no grants made from the general fund.

Lynn Roberts, executive vice president of the Chest, says he is waiting for the general fund to exceed $3 million, and then there will be enough annual income (better than six percent) to make simple “discretionary” grants. He is also quick to point out that many of the institutions and charities now receiving money through advise-and-consult funds are the same deserving ones that would otherwise receive discretionary grants. There are disbursements, for example, from Hailey’s fund to Ursuline Academy, St. Mark’s School, the Dallas Boy Scouts, and the March of Dimes.



Where the Dallas Community Chest Trust Fund saw promise in the use of advise-and-consult funds, other foundations saw problems – even an encroachment upon the law. The oldest and perhaps the most respected community foundation in the country is Cleveland’s (“It’s a model to follow for all,” says Roberts), and to this day it won’t touch an advise-and-consult fund. With assets totaling $189 million, the Cleveland Foundation last year made grants of more than $10 million. Roughly $8 million of that was given out purely at the judgment of a grant-making committee, with no institutions named by donors. The Cleveland Foundation will accept a contribution and give the donor a one-time opportunity to specify where income from the money should go – but it will not take advice later on. Moreover, the grant-making committee (separate from the trustees, who do not have final authority on spending) reserves the right to decide later that what was originally specified in these “donor-designated” funds is no longer worthy of support. About 20 percent of Cleveland’s giving is from donor-designated funds.

“While we might make a lot more money with advise-and-consult funds, we thought it wise not to,” says Tim Arm-bruster, a spokesman for the foundation. “The donor gets the full break and control of the money, which means all the advantages go to him. It seems imprudent to say, ’Here’s a way to control your gift,’ providing all the advantages of a public charity without the disadvantages of a private foundation. It seemed to me to ask for trouble. It’s generally agreed that advise-and-consult funds are a no-no.”

That may be an agreement among wealthy foundations only, however. Money changes perceptions, and apparently interpretations of the law as well. The Cleveland Foundation, which is off-and-on the richest in the nation, can afford to snub advise-and-consult giving.

So can the San Francisco Community Foundation, which has $55 million in assets. Only $3 million, or five percent, of its money is tied up in advise-and-consult funds, compared with Dallas’s 78 percent, and you’d better be very cautious about going back with advice after you give your money. “These donors know our grant-making pattern before they give,” says Martin Paley, director. “Our geographical limitation on making grants is in the Bay area, or the five counties surrounding the city, with few exceptions into the nine-county area, and there are no grants to religious or political groups.

“We make the assumption that you get the tax benefit at the time of your gift, and that we get the money to use for the benefit of the community. Otherwise, you get a community foundation tax shelter,” as if it were a private foundation, he says.

Reflecting on the Dallas Community Chest Trust Fund, Cleveland’s Arm-bruster says, “It’s a new and go-go kind of thing.”

The Dallas Community Chest Trust Fund is one of the fastest growing community foundations in the United States. It is a money machine bulging with assets: The trust fund now sits on roughly $32 million, making it the seventh largest in the country. That figure is up $28.9 million since the 1969 Tax Reform Act – a growth in assets of 932 percent. Nearly $23 million, or 80 percent of the Chest’s total growth, has been in advise-and-consult funds.

Even if a grant doesn’t go to a Dallas charity or an institution that helps the Dallas community, it is going for the benefit of mankind, says Lynn Roberts, citing one section of the Chest’s charter that says money shall be spent to “most effectively assist, encourage, and promote the well-being of mankind and primarily the inhabitants of Dallas County and adjoining counties in Texas.”

This is a qualifier, however lame, that does not find its way into the paid newspaper advertisements of the Community Chest Trust Fund. In the July 12 edition of the Times Herald, a message from the fund was printed beneath a photo of Russell Perry, chairman of the Chest’s board of trustees. It said that from the time the fund was established in 1953, “. . . more than $16 million has been granted through and by the Trust Fund to assist virtually all the community’s worthwhile causes.” There appeared a string of ads in the spring of 1977 which featured the headings, “Economy,” “Flexibility,” “Benefits,” and “Honor.” These ads sold the trust fund hard, and the buzz words were always “community benefit.” Those two words, however, have recently taken on a new meaning with the appearance of an ad in the November 6 Fortune magazine: “You can be sure,” it read, “that a donation or bequest you make through the Trust Fund will endure to help your community and serve the highest purpose intended.” People in Houston or Midland, in other words, can send their money to Dallas, reap the tax benefits of giving to a community foundation, then send the money back home. A dozen or so already have.

Russell Perry insists that grants of considerable size get a thorough review by the trustees of the Chest. But he admits that the day-to-day giving, which is performed through the trust fund without a blink, amounts to nothing more than a check service. “If I had a big amount over there, I might make a list and send it over there once a month, you know, with $40 or $50 here and there and, what the heck, they’d probably do it.

“We are providing a check service on the smaller amounts.”

The Centennial Liquor Stores Fund is a good example. According to documents that list all grants made under the name of the Dallas Community Chest Trust Fund in 1974, only four of the 29 credited to Centennial’s fund were worth more than $250. Typical Centennial grants were $30 to the Police Athletic Leaue; $25 to Hadassah; $25 each to the Boy Scouts and Dallas Civic Opera. The apparent advantage of managing a year’s donations this way is that a lump sum of money kept in a tax-free account is earning more money from investment activity – and you simply don’t have to fiddle with making the contributions.

Perry won’t budge on whether the check service extends into big amounts. There is no donor control of money, he says, on contributions that weren’t specified at the time of donation. The approval of bigger grants, he says, is a simple matter in which the trustees are periodically mailed grant lists; if they have an objection, they can call Lynn Roberts or ask about it at the next trustees’ meeting.

Yet the grant lists are replete with disbursements that suggest donor control: $10,000 to the Hospital of St. John of Jerusalem in Jerusalem; $3000 to the City of Grandview, Texas, Tennis Fund; $2000 to the Future Farmers Association of Madison, Wisconsin; $2500 to the Cincinnati United Appeal; $1000 to the Women’s Auxiliary of the Hunt, Texas, Fire Department; $27,000 to Pro-Athletics Outreach, Scottsdale, Arizona; $200 to the Tulane University Parents’ Programs; $27,200 to the Pine Grove Conference Center in Tyler, Texas. . . .

“Hell, all a lot of those people do,” says one former Chest trustee, “is wash their money through Dallas and send it out somewhere.”



Fred Lange is the streetwise Baptist minister’s boy from Jersey City who built the Dallas Community Chest Trust Fund. He can get $50,000 out of you before you blink. Some say a million. Julius Schepps, the man whose name appears on many a corner store, once said of him, “Fred Lange taught Dallas how to give.” American presidents, a Queen, and a Pope have honored Lange for his money-raising prowess, which is said to be responsible in whole or in part for over $500 million throughout the Southwest.

At 80, Lange is not in good health, but he still shows up daily at his office in the Community Chest’s Fred M. Lange Center on Live Oak – a $250,000 tribute his friends built in 1971. His zeal for humanitarian causes goes back 47 years.

Lange came to Texas from New Jersey by way of Florida, where in the early 1930s he endured three losing seasons in the coffee-and-tea business. On Christmas Eve, 1932, he started as a lay worker with the Salvation Army in San Antonio. That following summer he moved to Dallas and served as statewide public relations director for the Army. He helped raise money for 10 new buildings, and as early as 1940 had a building named for him, the state camp at Midlothian. “I remember, one Christmas Eve, these guys were going for a penny on the street, and 1 said, pointing up to the Medical Arts Building, ’The money’s up there! So I just took that bell, went on up and said, ’Hey! Here I am! It’s Christmas! And I got $34 – more than they could collect in two weeks.”

More than anything else, Fred Lange is not afraid to ask for money. After a brief stint as public relations director for the Dallas Chamber of Commerce in 1940, he was named the first executive vice president of the Dallas County Community Chest. The Chest ran citywide fund-raising drives during the 1940’s and 1950’s and later became the United Way. The Community Chest Trust Fund, by contrast, was set up to be a depository for money that is, for the most part, not given out. It was conceived of as a way to build endowment and capital improvement money for the city’s social, cultural, and charitable agencies. Most of them had depended heavily on fund-raising drives for support, and had little in the way of permanent endowment; the YMCA, for example, at the time the Trust Fund was formed, had $2700 in annual earnings.

When Lange moved to the Trust Fund, he brought with him wide contacts from his previous fund-raising activities throughout the county. He had served as vice president of the Southwestern Medical Foundation (now the Health Science Center, a part of the University of Texas System), and as a trustee of the Caruth Foundation (Will Caruth Jr. has been a generous donor of money and land to Lange’s Trust Fund). And by this time, Lange was very good at raising money.

As the Trust Fund grew, so did Lange’s reputation as an inspired philanthropist. He became Consul General to the Dominican Republic, after he visited at LBJ’s request; in 1969, he received the Christopher Columbus medal from that country. The Dallas Community Chest Trust Fund has made a number of disbursements to the Dominican Republic. Lange says it is within the purview of the Chest to support foreign organizations – like the Hospital of St. John of Jerusalem, which in 1977 received a grant of $10,000. In 1975, Lange was named by Queen Elizabeth 11 an officer of the Most Venerable Order of St. John of Jerusalem, an ancient society that supports the ophthalmological hospital there. In 1977, the Queen made Lange a Knight of the Order.

Recipient of the Order of the Star of Ethiopia, president of the Friends of Korea School of Social Work, holder of the distinction of King Great Band of the Order of African Redemption – Lange’s list of international honors rolls on. He particularly treasures his election as Visiting Fellow and Member of the Board of St. Cross College, Oxford, and the Benemerenti Medal, bestowed by Pope Paul VI for Lange’s work in the Dallas diocese. He was granted a private audience with the Pope in Vatican City. “That medal is the thing I’m most proud of,” he says. “When he died, I went down to the services here, wearing the special vestment and that medal around my neck, and I prayed. What more can a man ask for?”

“You ask me how I live like I do,” Lange says. “Well, I’ve got friends. And there’s nothing wrong with that. There are people around and about me, and they say, ’Here, you go and do this for me.’ ” (Lange gestures as though he’s pulling a wallet from his rear pocket). Without being specific, Lange says some of the biggest donors to his Community Chest Trust Fund simply pick up his tab.

“All I can do is persuade. A priest in the Catholic Church or a rabbi in the Jewish faith hits you over the head and says you’re a good Catholic or you’re a good Jew, now give so much money. I can’t do that. I can’t hit anybody over the head. All I can do is persuade.”

And offer incentives.



Walter Hailey is sitting on the sun deck outside his living room, the afternoon sun making long shadows across the Guadalupe River valley a quarter-mile below. Deer run silently across a close-cropped lawn that ends at cliff’s edge. There is a breeze, punctuated occasionally by puffs that blow open the collar of Hailey’s navy sport shirt, revealing a heavy gold chain and cross around his neck.

“I’ve always given money out of the philosophy of Andrew Carnegie,” he says, “and that is, ’The way to get rich is to enrich others.’ “

He tells a story about his son, who didn’t grasp this principle. “Two years ago, my son was 15 years old and he came to me and said, ’Dad, the only reason you’re so charitable is ’cause you’re evading taxes. Somebody told me the only reason that they pay so much in taxes is because you don’t pay any’. He thought that guys like me were actually the cause of other people’s taxes.”

Taxation and giving aren’t so simple. People really don’t make money by giving it away, no matter what the write-off. It is a fact, however, that the tax laws were written to encourage people to give, especially the rich: When Congress passed the 1969 Tax Reform Act and, for publicly supported foundations like the Community Chest, increased the allowable tax-free contribution level from 30 to 50 percent of a person’s gross income, it meant “that charity can be an equal partner with respect to an individual’s income,” says the congressional report that explains the law.

That’s an incentive from the I.R.S. – a bid by the government to keep thousands of social welfare agencies nourished by private individuals and businesses, and out of the machinery of state and national bureaucracy.

“The only reason I went with the trust was to have some influence,” Hailey says. “If it hadn’t been for the Community Chest, I wouldn’t have given so much. If there was no Chest back then, I probably wouldn’t have been thinking about charity.

“I’m gonna say, they taught me how to give.”

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