Let me preface these words with the fact that I am not a tax expert, investigative reporter, attorney, legislator nor anything other than a concerned citizen that is disturbed by the actions of a “watchdog organization” that purports to support taxpayers and protect them from government abuse while enjoying the benefits of being a tax-free organization. To me, that’s a conflict of interest. I have no intention of suing the organization or attempting to abuse them in any fashion, nor do I wish them any harm. I do personally feel, however, that both the spirit and (perhaps) the letter of the 501(c)(3) IRS regulations are being circumvented in the case of the Goldwater Institute and their dealings with the sale of the long bankrupt Phoenix Coyotes hockey club. I do admit to being, along with my entire family, a stone cold rabid Coyotes fan. Following is the as brief as possible synopsis as to why I believe this might be the case.
On Friday, June 8, the City Council of Glendale, Arizona passed ordinance 2804 and resolution 4578 by a vote of 4-2 in favor of the Coyotes despite the best efforts of some professional naysayers. This is a huge victory for the Coyotes and their fans.
One of the questions a good friend of mine always asks is “Why would they do that?”, meaning that suspicions are probably not true unless the motive for a person or organization can be discovered. It’s a good question, so in this case we should wonder what are the motives for Goldwater’s perceived obsession with this particular Coyotes case. I believe I have more than a few (deeper than ex-Coyotes owner Jerry Moyes being a former board member) answers for that puzzle as well, there are many millions of dollars behind the answers, but will leave those stories for other times.
A Brief History
The Goldwater Institute has been pulling out all the stops attempting to derail any Coyotes hockey club deal for over 3 years. Their suit of CoG filed in 2009 for not providing documents related to the Coyotes sale requested by Goldwater in a timely fashion is still ongoing. The previous deal with Matt Hulsizer ultimately failed on the back of Goldwater writing a letter to potential bond underwriters exclaiming the riskiness of the proposed upcoming $100M bond issuance by Glendale and then threatening to sue over a violation of a “gift clause” in the Arizona state consititution.
The current deal with the Greg Jamison group is substantially (if the potential of Coyotes hockey is realized) more lucrative for the city and citizens of Glendale, yet is still receiving a lot of scrutiny from the Goldwater Institute under their auspices as a tax exempt “watchdog” organization. Jamison was formerly associated with the San Jose Sharks and has put together a consortium of investors to purchase the club. Hockey cognescenti have a great deal of confidence in the potential success of the Coyotes under the leadership of Mr. Jamison, considerably moreso than with Matt Hulsizer.
After many long months of non-public negotiations between the National Hockey League (NHL, the owner of the hockey club), the City of Glendale (CoG, the owners of the Jobing.com arena where the Coyotes play), and the Jamison group, the status of the deal had finally reached a point where public discussion and a city council vote was required to move the transaction along. Once the arena lease and negotiated fees were completely delivered, the actual sale of the Coyotes hockey club to Jamison could be finalized.
CoG called for a special City Council meeting to be held at 10:15am on June 8, 2012 for a final vote to ratify the Coyotes deal, a huge step in the process of the sale finally being consummated. Earlier in the week, they had held several other sessions and workshops to discuss the Coyotes matter, including one the day before. Details of the proposed deal had been released to the public on Monday, June 4. Glendale has a complete list with videos and agendas at this link.
Potential Roadblocks Arise
Goldwater then filed a motion for a temporary restraining order piggybacked on their existing Superior Court Case (Goldwater Institute v. City of Glendale CV2009-020757) (Goldwater Motion for TRO 60812) to force the vote by the Glendale City Council (CoG) to be delayed. The motion cites their open case (since 2009) against CoG for not providing requested documents in a timely fashion and the fact that they believed there were three missing exhibits provided for the current proposal before the council. A hearing was scheduled for Friday morning several hours before the CoG meeting was to be held.
People familiar with the Coyotes were enlightened to learn earlier in the week, via Lisa Halverstadt of the AZ Republic, that, despite oft-repeated denials of same from National Hockey League (NHL, owner of the Coyotes) officers, there was indeed an NHL “deadline” being imposed for the sale of the team to “move forward” and that the deadline had been five days after the last game was played by the Coyotes. That last game was May 22, making the deadline May 27. We also learned that the deadline had been pushed back 30 (or more, depending on the source) days, so let’s call the NEW deadline June 17, a very short time away. Therefore, simply delaying the sale process for a couple weeks could be extremely effective in finally killing off the Coyotes in Glendale, regardless of the legal or ethical merits of the objections raised. Even losing a court fight or two and extending the process with more filings would be an effective tactical maneuver.
One of the frequent questions raised by people, including Goldwater, regarding the emergency status of the council meeting is “What’s the rush?” In my opinion, three years of drama isn’t rushing and the new stress of a known deadline is certainly worthy of some alacrity.
After being reassigned a judge (Katherine Cooper, hearing emergency matters) rather than the one assigned to the case (Arthur T. Anderson), who had consistently been ruling in favor of Goldwater, the Institute very quickly lost their bid to delay the vote of the Glendale City Council. Making lemonade from lemons, Darcy Olsen of Goldwater published this statement:
This morning, Judge Cooper denied the Goldwater Institute’s motion for a temporary restraining order on the grounds that she felt the court lacked the authority to block the vote. Simultaneously, she issued a strong warning to the City of Glendale about the implications of moving forward today, affirming the Goldwater Institute’s contention that the city has committed “clear violations” both of court orders and open meeting laws.
She emphasized the court would be receptive to considering holding the city in contempt if the council moves forward with the vote, stating that sanctions would be in order. We hope the council will heed the judge’s warning, comply with the law, and give the public sufficient time to review the council’s proposed action.
Earlier in the week, Ms. Olsen provided the following missive aimed at CoG and released to the public as a press release. It was titled “Letter to the Mayor and Councilmembers of Glendale” and was dated June 6. It is available on their web site as of today, however the PDF file they refer to by link is gone. Take special note of her point number III, italics mine, we’ll be discussing that in the future because it’s an interesting notation.
Dear Mayor Scruggs and City Councilmembers:
- I. What is the actual cost of managing Jobing.com Arena, minus the capital expenses for which the City remains liable under the proposed agreement? If the agreement is challenged under the Gift Clause, a court will look to the difference between actual management costs and the amount the City is obligated to pay to determine whether the agreement is a subsidy. The Council should insist on knowing those numbers so that it can determine whether the agreement is lawful and fair to the taxpayers.
- II. The City also is giving the arena manager parking rights. In the previous proposed deal with Matthew Hulsizer, the City valued parking rights at approximately $100 million over a specified period, and used those estimates to issue bonds. The Council should be informed of the value of the parking rights that are being transferred and the basis of that value, as part of the assessment of whether the agreement includes an illegal subsidy and is fair to taxpayers.
- III. We understand that the Tohono O’odham Nation has offered once again to partner with the City to relieve some of the financial obligations related to the arena. We are not aware that there has been any formal analysis of alternative Arena uses or a request for competitive bids for Arena management. We hope that the Council will explore all options before it exposes taxpayers to substantial additional long-term financial obligations.
- IV. We understand the Council is considering adopting the deal as an “emergency” measure, which would deprive Glendale citizens of their right to refer the matter to a vote. As you know, the circumstances justifying an emergency declaration are limited. Given that the City apparently has been negotiating this proposal for quite some time, and the dire financial condition the City is in, denying citizens their right of referral seems inappropriate.
Ray Bradbury is Dead, Robots Aren’t
Beginning on the evening of June 7, 2012, residents of Glendale, Arizona were contacted by “RoboCalls” urging them to contact the Glendale City Council to express their displeasure about the Coyotes deal. I know people who received the calls but, not living in Glendale and being a registered Independent anyway, did not receive on of the calls. I got the gist of the calls from them, and the calls were insisting that the citizens that their council representatives reject the deal, offering them a “press 1 to voice your concern” shortcut to the offices of the city council. Nobody recalled exactly the source of the calls beyond the telephone number on their caller-id. Contacting citizens directly in this fashion is a potentially serious violation of the IRS 501(c)(3) regulations against lobbying.
Here is a brief summary of the IRS regulations (from this link) for 501(c)(3) organizations to follow to reap the privileges of being a tax free entity
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.
The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization’s net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.
Section 501(c)(3) organizations are restricted in how much political and legislative (lobbying) activities they may conduct. For a detailed discussion, see Political and Lobbying Activities. For more information about lobbying activities by charities, see the article Lobbying Issues; for more information about political activities of charities, see the FY-2002 CPE topic Election Year Issues.
The third paragraph is the one that is important, the feds specifically restrict 501(c)(3) organizations from participating in polite society as lobbyists, although the weak language seems to give a little leeway in the matter. So, if you follow the link that the IRS provided on that page, you arrive here:
Political activities and legislative activities (commonly referred to as lobbying) are two different things and are subject to two different sets of rules and have different consequences of exceeding the limitations. The rules applied in a given situation depend on several issues:
- The type of tax-exempt organization (different rules apply to private foundations than to other section 501(c)(3) organizations),
- The type of activity (political or lobbying) at issue, and
- The scope or amount of the activity conducted.
The opening paragraph further defines what “lobbying activities” are, but provided links to drill down further on the “political” and “legislative” branches. In this case, the “political” branch seemed to be a dead end because it is more related to directly attempting to influence an election. While a Glendale mayoral candidate and city council candidate were attending the Coyotes meeting, the RoboCalls weren’t targeted at them, rather they were targeted at what would take place at the meeting. So, let’s follow the “legislative” branch and see what we find:
In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.
Legislation includes action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure. It does not include actions by executive, judicial, or administrative bodies.
An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.
The text of those regulations seems pretty clear, any corporation registered as and receiving the tax benefits of a 501(c)(3) is essentially prohibited from making any direct contact with any private citizen to unduly influence legislation. The legislation in this case was regarding the Jobing.com arena and the sale of the Coyotes.
Once information about the RoboCalls came out, there was a response on Twitter and other social media outlets, where communities of Coyotes fans and detractors discuss, debate and insult each other about the state of the hockey team.
I have had exchanges in the past with the @Goldwaterinst person, I try to remain always polite but clear that I am not a fan of their philosophies or actions. If you can read the portion of our brief conversation yesterday, I asked them if they knew who actually was behind the RoboCalls to the Glendale residents. The response was no, and that they were trying to determine if somebody was using their name.
I explained that I didn’t think they were the suspect because their name was actually used in the calls, rather that they would be a natural suspect just as a husband is a likely suspect in his wife’s murder.
The negative reaction to the RoboCall accusations being made on Twitter made me wonder why such a vehement reaction when their reaction is usually measured or to simply ignore potential misstatements or insults? It’s because the calls are clear violations of the 501(c)(3) thing, I guessed. But, since nobody knows who made the calls, we have to believe Goldwater when they deny knowledge of them, even if denying it using carefully drafted language.
Interesting RoboCall Related Email
I had a copy of an email message circulated internally at the CoG offices fall into one of my inboxes this morning that’s directly related to the aforementioned RoboCalls. As already stated, Goldwater Institute denied responsibility for the calls through their Twitter account. It appears that, somehow, the CoG had discovered the source of the calls and advised the council members of same prior to the Friday meeting. The text of the email is as follows:
THIS E-MAIL MESSAGE IS PROVIDED TO COUNCIL FOR INFORMATION ONLY. PLEASE DO NOT USE THIS E-MAIL MESSAGE TO ENGAGE IN ANY DISCUSSION OR DELIBERATION AMONG A QUORUM OF THE COUNCIL. IN KEEPING WITH THIS REQUEST, PLEASE DO NOT “REPLY TO ALL” IN ANY SUBSEQUENT COMMUNICATIONS RELATED TO THIS E-MAIL MESSAGE.
Kristen asked that I provide you with the following information.
It appears that many residents received “robo-calls” yesterday that included a message to call their Councilmembers and voice their opposition. The calls were directed to the Council Assistants’ extensions, we all picked up many messages that were left on our VM last night.
This morning the calls continue, and I just spoke with one resident who said he had received this robo-call message last night. I asked him if there was any information left about who was making the call, and he responded as follows:
The robo-calls came from “The Arizona Free Enterprise Club”, the number was (602) 598-8632. The recorded message stated something to the effect that the “city of Glendale is close to bankruptcy; they are considering giving away $425M for the NHL Coyotes; and in order to pay for this they will be increasing taxes”. (And of course, then a message to press one to voice their concern.)
I Googled this organization and found the following:
They are a lobbyist group whose primary goal appears to be keeping an eye on public policy – particularly as it relates to taxes. From their website:
The Arizona Free Enterprise Club is a 501(c)(4) non-profit organization whose mission is to advance policies that promote a strong and vibrant Arizona economy. The Club believes that entrepreneurs and private enterprise are the principle drivers of our economy. The Club lobbies Arizona lawmakers in support of policies that allow the market to flourish and vigorously opposes policies that hinder private industry.
The Club was the primary driver of the 2006 ten percent income tax cut that was passed by the legislature and signed by the governor. This $300 million permanent income tax cut was the first since 1998.
For more information, please visit:
Cholla and Sahuaro Districts
(623) 930-2016 Phone
(623) 931-8526 Fax
Please consider the environment before printing this e-mail.
So, it appears that another group, NOT Goldwater Institute, was actually the source of the phone calls. You will see that the Arizona Free Enterprise Club (AFEC) is a 501(c)(4) organization, NOT a 501(c)(3). That led me to wonder what was the difference between the two types of corporations under the IRS tax code? Can you guess what I found? Yes, of course, one of the main differences in the two types of corporations is the ability of a 501(c)(4) to engage in lobbying activities!
So, there’s nothing wrong with AFEC having their robot calling the good residents of Glendale asking them to pressure their city council to turn down the proposed Coyotes deal while the same action by the Goldwater Institute would possibly result in them losing their tax exempt status and being penalized with a hefty excise tax. But, what if the two organizations were actually related? Sure, the @Goldwaterinst Twitter feed person essentially denied (but not actually, if you read closely) knowing who was behind the calls. Would the (AFEC) be restricted legally from doing such favors for the Goldwater Institute, essentially doing their wet work? I don’t know, nor do I know if it’s against the rule of law for a Goldwater representative to ask them to do the favor, but I do know I would try and teach my children that such machinations are morally wrong.
It also explains the perceived moral outrage displayed by the Goldwater Twitter account person, he or she is apparently very much aware of the potential liability of having the Institute behind the RoboCalls, financial liability if not ethical liability.
So, the next question I asked myself was, has the AFEC ever demonstrated any interest in the Coyotes before this round of RoboCalls?
I perused with some diligence the web site of AFEC (http://www.azfree.org/), looking for any prior mention of the Coyotes or anything to do with the Jobing.com arena. I came up empty, although I did NOT visit every nook and cranny of their site and I am also aware that the world does not necessarily provide ALL information on a web site. One thing that did pique my interest, however, was the relationship between Goldwater and AFEC that popped up now and then in their efforts to protect the populace of Arizona from the ravages of the left (sorry, couldn’t help myself).
So, if AFEC has never been interested in the Coyotes fiasco before, including through the turbulent Hulsizer deal mess, why would they be interested now? A cynical person would think that, maybe, a Goldwater person or perhaps even a person associated with BOTH groups, would put the push in to underwrite RoboCalls essentially on behalf of the Goldwater agenda while not using the Goldwater name and messing up the tax status of the Institute. That would be hard to prove, even for an investigative reporter, but looking through the necessary tax and corporation filings is probably the place I’d start to look for pieces of the puzzle that overlapped.
Since I have a job that requires me to spend most of my days working, I don’t have the time to look into this thing too much further. I’ve been accused of being paranoid in the past, and maybe everything is on the level.
There’s enough easily Google’d things between AFEC and Goldwater that overlap that even a non-cynical person would raise their eyebrows. There are enough links between the two organizations that are public, not to mention the private ones, that it is highly unlikely there wasn’t at least discussion between the two groups regarding the RoboCalls.
- AFEC and Goldwater together commissioned Dr. Arthur Laffer to come up with an Arizona flat tax proposal.
- AFEC and Goldwater worked together on the “Arizona Free Enterprise Club’s Freedom Club PAC v Bennett” cases.
- AFEC and Goldwater together had a “spending clock” for Arizona.
- AFEC founding members Randy Kendrick and Eric Crown are currently board members of Goldwater Institute.
- Randy Kendrick was the director of AFEC, although since AFEC is currently delinquent in filing their annual report with the Arizona Corporation Commission (AZCC) we don’t know if she still is involved. AFEC is “not in good standing” with the AZCC, by the way.
- Mrs. Kendrick is the wife of Diamondbacks Ken Kendrick. The Diamondbacks compete for ticket dollars with the Coyotes.
- Jerry Moyes is a limited partner in the Diamondbacks.
- Another board member of AFEC, Sam Garvin, has an interest in the Phoenix Suns, who compete for ticket dollars with the Coyotes.
- Dean Riesen is listed as being on the board of Goldwater and as Chairman of AFEC at this link.
My next step would be to demand the tax return and reporting documentation that has to be provided to ANYBODY who requests it according to the 501(c) rules, that is if I had the time. Some digging by people who know how to do it versus an amateur Googler like myself would probably return much more interesting results.
Thanks for taking the time to read this.