A philanthropy watchdog group in Washington, D.C., wants Minnesota Attorney General Lori Swanson to investigate the Otto Bremer Foundation in the wake of last week's firing of executive director Randi Roth.
The three trustees running the foundation are paying themselves far too much, and they have removed critical checks and balances on the people who oversee the foundation's $800 million in assets, the National Committee for Responsive Philanthropy said.
The foundation is one of the Twin Cities' largest. Last year it gave away more than $38 million to charities, non-profit organizations and government agencies across the Upper Midwest. More than 150 groups and activities benefited, from the AIDS Resource Center of Wisconsin to the Zimmerman School District booster club.
The three trustees who run the foundation were paid a total of more than $1.2 million in 2013. Brian Lipschultz received $466,198, Daniel Reardon $465,313 and Charlotte Johnson $294,000, according to records filed with the state.
"It's just an outrageously high level of compensation for trustee service," said Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy.
Trustees at most charitable foundations, if paid at all, earn a median salary of $24,000 a year, Dorfman said. Even though it's a private organization, Dorfman said the three trustees' actions are a matter of public concern.
The Bremer trustees declined multiple requests for comment.
"These institutions get tremendously preferential tax treatment," he said. "And because of the tax-exempt status they enjoy, the rest of us pay higher taxes and in effect subsidize nonprofit tax-exempt charitable foundations. They're partners with the public in pursuing the common good."
Dorfman also said he was concerned about how the foundation is governed. Until Roth was fired, she oversaw a staff of 14. Now the three trustees are splitting that job as co-CEOs. Dorfman said putting both managerial and fiduciary control of the organization in just a few hands removes accountability and violates commonly accepted good governance principles that most foundations follow.
Dorfman said the situation is especially disconcerting because the Otto Bremer Foundation has what he calls a stellar reputation for helping underserved and marginalized communities.
But the original 1944 trust that established the foundation gives the trustees the power to manage and operate the Foundation.
The arrangement is not unheard of and may not necessarily be a conflict of interest, said Kansas City nonprofit law attorney Bruce Hopkins. But he said the pay levels of the three could raise some red flags with the Internal Revenue Service.
"The test here is whether or not the compensation is reasonable," Hopkins said. "One of the factors that you look at in making that kind of a judgment is if there's been a quick run-up in the increases. If there's sharp increases year after year, under a variety of court opinions, that is an indication that the compensation may be excessive."
The foundation's tax documents do show substantial pay increases. In 2004, the three trustees together received nearly $125,000. That figure has increased by nearly 10 times in 10 years. Two of the trustees gave themselves 157 percent raises in 2009, a recession year when the foundation's assets and grant payments dropped.
The trust also says the trustees, if they choose, can be paid up to four percent of the foundation's cash income. And even though the trustees pay has soared, it's still under that level.
The Bremer Foundation is unique in another way. It is also a holding company for Bremer Bank, which operates bank branches primarily in Minnesota, North Dakota and Wisconsin. The foundation, which invests a large portion of its assets in communities where there are Bremer bank branches, says it owns 92 percent of Bremer Financial Corporation.
While the bank fared better than many others during the recession, and the assets of the Otto Bremer Foundation grew considerably over the past decade, the pay of the foundation's trustees still far outpaced the growth of the foundation's assets or grants and the net income of Bremer Financial.
Neither former executive director Randi Roth, nor the foundation's trustees would comment for this story. And a spokesman for Minnesota Attorney General Lori Swanson would not say if Swanson plans to investigate.
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