Huge Surplus Amassed by Guide Dog Charity: Critics Say Group Sitting On Too Much Wealth
by David Dietz ********** From the Editor, The following article appeared in the San Francisco Chronicle, May 12, 1999. No matter how effective and beloved a charity is, one is forced to ask hard questions when its income completely outstrips its expenses. The following story certainly raises such questions about Guide Dogs for the Blind. Here it is: ********** While many charities struggle to stay afloat, San Rafael's venerable Guide Dogs for the Blind never had it so good. The school, North America's leading facility for teaming the visually impaired with dog guides, has accumulated so much unspent money that critics say the operation is abusing its tax-exempt status while shortchanging the blind.
To the chagrin of state charity regulators and some benefactors and former students, the school wound up last year with more than twice as much money as it needed. It spent $21 million but still had nearly $24 million left over--at least the fifth consecutive year of hefty surpluses.
With the extra cash year after year, Guide Dogs has amassed a bulging endowment that now totals about $200 million, far surpassing those of many of the Bay Area's top charities. The renowned Haight-Ashbury Free Clinics, for example, does not even have an endowment, while the fund at San Francisco's Glide Memorial United Methodist Church, another major benefactor of the inner-city needy, totals only $16.7 million.
While Guide Dogs' wealth-building breaks no laws, regulators and organizations that monitor charities dislike heavy stockpiling of cash. The National Charities Information Bureau, which sets standards for giving, advises donors to be wary of organizations that generally hold in reserve more than two years' spending. Guide Dogs has set aside an amount of money that would cover its operations for about ten years.
"The point is that you shouldn't be accumulating money . . . if you're not going to spend it," said bureau spokesman Dan Langan. School officials defend the organization's riches, saying they are trying to perpetuate the operation and need to hedge against investment losses that would harm the endowment. They also forecast that the number of students will grow as the general population ages.
"This is acting as prudent managers," said Richard Graffis, an investment adviser who chairs Guide Dogs' board of directors.
But some critics say that the school, which was formed to help blinded servicemen during World War II, is run these days more like a business than a benevolent, nonprofit organization and that it seems more intent on enriching itself than trying to determine what more it can do to help the blind.
"Hoarding doesn't do anybody any good," said Yeoryios Apallas, a deputy attorney general in the state Department of Justice's charitable trust division. "Given the incredible needs of the sight-challenged, I cannot believe that these funds cannot be used more effectively."
The size of Guide Dogs' endowment is all the more startling, critics say, because last year the school graduated only 354 students and did not fill all its classes. It also must compete with nine other such schools for a relatively small number of students.
According to the American Federation for the Blind [no one at the National Center talked to the reporter, so who knows where these statistics actually came from], the nation's blind population of 1.1 million is growing only slightly, and fewer than 10,000 use dogs. Far more--about 130,000--use canes, according to the federation.
While California law puts no limits on nonprofit organizations reserving funds, state regulators operate by the standard that charities exist to give away money, not to save it. Occasionally officials will put pressure on organizations they consider to be violating a public trust. With Guide Dogs state regulators raised the enrichment issue once before, in a 1994 letter. But school officials said they have no knowledge of the state's concern and no action was ever taken.
Particularly upsetting to some critics is that despite the size of its endowment Guide Dogs continues to solicit public contributions energetically. The school, popular with donors since its founding in 1942, took in $16 million in bequests and donations last year--a rate of $44,000 a day.
No one quarrels with Guide Dogs' achievements, which have been captured in stories many times. Started in a rented house in 1942, the school, now headquartered at an immaculate eleven-acre campus spotted with willows and Japanese maples, has developed a devoted following among former students and donors.
It has trained 8,000 blind people in the use of yellow Labrador retrievers and other breeds--free of charge--then continued to support its graduates, affording them free counseling and even paying some of their veterinary expenses.
And the public has responded enthusiastically, giving twice as much in 1998 to Guide Dogs as the next-largest training school received. Many contributors are spurred by the sight of the school's alert and well-groomed dogs being trained on streets surrounding the organization's campuses in San Rafael and outside Portland, Oregon.
One of Guide Dogs' strongest defenders is Morgan Watkins, associate director of academic computing at the University of Texas at Austin, who attended the school and now serves on its board.
"As I sit here and rest my hand on my golden retriever and reflect on the many times I've been on campus, I think I can say that the services we provide are excellent," he said. "Are there ways to improve? There are always ways, and we are trying to do that with constant review."
Critics, however, complain that by soliciting donations at a time when Guide Dogs is already earning more money than it can use, the school is misleading the public and diverting charitable donations from needier causes.
"It would seem to me that anybody who has more than enough revenue from an endowment to run its operation should not be out there fund-raising," said Ed Eames, a blind Fresno author and co- writer with his wife, Toni, of a book on dog guide schools. "When do you let other guys get in and get part of the pot?" Besides, some researchers say the number of people with visual impairments may not necessarily grow as the population gets older.
Medical advances in areas such as cataract surgery and treatment of diabetes, a leading cause of blindness, could reduce visual handicaps. And even if the blind population does increase, the proportion of the sight-impaired who are drawn to the idea of using dogs will not necessarily rise, especially with increasing self-sufficiency generated by the computer age, observers say.
"The fact is we don't really know what's going on," said Emilie Schmeidler, senior research associate with the American Foundation for the Blind.
Guide Dogs said it has no evidence to back up its growth prediction and is primarily banking on trends. The school has begun research to get better answers, officials there said.
While sympathetic to the charity's desire to save money for a rainy day, critics implore the school to attend more to the current needs of the blind, even if it means altering the charity's charter to branch out beyond dog guide training.
"The future for a charity is today--to take care of the needs of their constituents," said Apallas, the state charity regulator. "All they need is to be a little more creative."
Even Vernon Crowder, a blind Bank of America agricultural economist who is an unwavering supporter of the school's work, suggested that the organization is squandering opportunities to increase the mobility of its students and the sight-impaired in general.
Crowder, who once lost out in a bid to become Guide Dogs' chief executive, said the school should consider providing basic mobility training for the newly blind, even if they do not choose to use dogs.
He also suggested that the school put its weight behind research and development efforts to improve mobility, particularly in adapting electronic signs so that they can transmit orientation signals to the visually impaired.
"This is a natural extension of what Guide Dogs is doing," he said.
But Richard Bobb, Guide Dog's president and chief executive officer, rejected any likelihood in the foreseeable future that the school would branch out, arguing that the organization has more than enough on its hands to train dogs and pair them with students.
"Our mission is relevant," he said. Apallas said the state has no authority to force Guide Dogs to spend more of its resources, but it could raise its concerns with school officials. Regulators cited the wealth issue in their 1994 letter, but there was no apparent follow-up.
"Excess revenue accumulated during the year seems high," Larry Campbell, registrar of charitable trusts, wrote to the school at the time. "Determine if more excess income can be used to provide more current public benefits."
There was no response from Guide Dogs on file with the Justice Department, and current school officials said they were unaware of the state's inquiry.
In any event the letter has had no apparent effect on Guide Dogs, which has continued to accumulate surpluses.
As the school's wealth has soared, some of Guide Dogs' critics include longtime donors who are now having second thoughts about helping the organization.
"I knew they had an endowment, but I didn't know it was to this degree," said Carol Spivak, a self-described dog lover who has given generously to the school since 1988. "I think I'll reduce what I give."
Controversy is not new to Guide Dogs. It was criticized several years ago for being slow to put blind people on its staff and board of directors and for treating some blind staff members dismissively. It rejects the accusations.
Currently five of the school's 235-member staff and four of its eighteen directors are blind. There are no blind people in top management.
The school also was caught in a 1994 imbroglio over construction of its $14 million Oregon campus. Critics accused Guide Dogs of heavy-handedness in winning local government approval of the project, and the school, despite its wealth, persuaded the state of Oregon to help provide it with a low- interest building loan from a bank.
The Guide Dogs' endowment has benefited from the longest stock market boom in history. Typically the organization taps only endowment dividends for present needs, plowing back all capital gains or surpluses.
Last year Guide Dogs spent about $5 million of its $28 million in endowment proceeds on operations. To use trading profits for continuing needs would be imprudent, school officials argue.
The school pays most of its expenses with public contributions, which have risen 52 percent in five years, according to financial statements submitted by the organization to the Internal Revenue Service. Eighty percent of the donations to the organization come from bequests.
Just as revenue is up, spending has increased--particularly on overhead.
With the opening of the Oregon campus the staff has nearly doubled, and management costs have jumped 185 percent in the past five years. Three of Guide Dogs' top managers earn more than $100,000 a year, and Bobb received a 14 percent raise last year, bringing his annual salary to $200,000.
Fund-raising costs have also increased, even as the endowment ballooned. The school spent $796,171 on development last year, up 10 percent, in line with a campaign to increase donations. The $16 million in combined bequests and donations received last year was up about 30 percent from 1997.
"Part of the reason I was brought here is to keep the bar high," said Bobb, a former leasing company executive.
Some of Guide Dogs' competitors yearn to have it so good.
"We obviously wish we could have that budget," said Don Robinson, executive director of Guide Dogs of the Desert, a small, innovative Palm Springs-area school that strains each year to meet a spending program of just under $1 million. "It's a struggle. It's nonstop."
As Guide Dogs' wealth is scrutinized, critics note that England's largest dog guide school was under similar fire four years ago, resulting in the British government's drawing up strict rules forbidding cash stockpiling by charities while asking the public for money.
Robert Gnaizda, a San Francisco public interest lawyer who has sued rich charities, holds the view that organizations like Guide Dogs should be subject to periodic state review to determine whether they are fulfilling their mission and enjoying community support.
"The state would have much greater authority to look into expenses and might take into account if charities hoarded," Gnaizda said. "This would be a check against the wealthy getting wealthier." ********** CHART A CHARITY'S OVERFLOWING COFFERS Guide Dogs for the Blind is one of the Bay Area's leading charities. Critics say it is too rich and accuse the school of operating more like a business. ********** CONTRIBUTIONS [in millions] Donations are growing '94 $10 '95 $13 '96 $19 '97 $12 '98 $16
EXPENSES Annual expenses [in millions] have doubled '94 $10 '95 $12 '96 $16 '97 $19 '98 $21 ********** SURPLUSES Unspent money [in millions] soars '94 $11 '95 $14 '96 $11 '97 $21 '98 $24 ********** ENDOWMENT In millions of dollars '94 $80 '95 $91 '96 $104 '97 $160 '98 $189 ********** Endowment currently totals about $200 million Figures have been rounded **********