Oregon’s Attorney General Aims His Sights on Charities’ Spending

As a federal prosecutor in New York, John Kroger helped put Mafia thugs from the city’s toughest neighborhoods behind bars.

Now settled amid pine trees and mountains on the other side of the country, he no longer faces violent criminals in big-city courtrooms. But as Oregon’s attorney general, he regularly squares off against groups that he considers public threats of a different sort—charities that misrepresent themselves to donors or divert most of their donations to their executives or professional fund raisers. Since he took office in 2009, Mr. Kroger, an ex-Marine, has charged a string of veterans nonprofits and fund-raising companies with fraudulent activities.

He started publishing an annual list of “Oregon’s 20 Worst Charities,” naming groups that spend small percentages ofthe money they raise on charity.

And he attracted nationwide attention for pushing a bill, the first of its kind in the country, that would disqualify such high-overhead groups from getting gifts that are eligible for state tax deductions (The Chronicle, May 5).

A Violation of Trust

Mr. Kroger, 45, who has won both fans and enemies in Oregon for his hard-charging style, is hoping his efforts will influence regulators beyond Oregon’s borders.

“The question of whether we’re going to continue to provide a tax subsidy to all nonprofits regardless of performance is a serious national question,” he says in his Portland office, where he is dressed in jeans for comfort following a couple of days of suited-up meetings with state legislators in Salem.

That issue may seem tame compared with some Mr. Kroger tackled earlier in his career, when, for example, he was part of the legal team that helped to prosecute Enron Corporation executives for fraud and other crimes. But he says he finds bad behavior by charities particularly galling.

“When a business is ripping off a consumer, that’s a bad thing and we want to stop that,” he says. “There’s something particularly bad about it if you’re doing it under the guise of running a charity. If there’s something about this that made us want to focus a little more on it, it’s that violation of trust that seems particularly serious.”

Experienced Prosecutor

Mr. Kroger had his first brush with the law in high school in Houston, when he got caught stealing hub caps. His father kicked him out of the house, so he enlisted in the Marine Corps, serving for three years in California and Panama, on a submarine, and on an assault carrier. He did not see active duty but served in an elite intelligence and special operations unit.

He studied philosophy at Yale and got a law degree from Harvard. His career has included stints as deputy policy director of Bill Clinton’s 1992 presidential campaign, clerk for a federal appellate judge, and assistant U.S. attorney in Brooklyn from 1997 to 2003.

He was drawn to Oregon after taking a two-month cross-country bicycle trip in 2000, an adventure he describes in a highly readable book that was published in 2008, Convictions: A Prosecutor’s Battles Against Mafia Killers, Drug Kingpins, and Enron Thieves.

The book recounts some of his successes as a federal prosecutor, but it also describes the “moral stress” that comes with a job that sometimes involves threatening witnesses with prison or exerting pressure on defendants by going after their spouses. “By 2003 I had become a very good prosecutor,” he writes. “I had also concluded, to my deep regret, that sometimes it is impossible to be both a great prosecutor and a good human being.”

A Model for Other States

Mr. Kroger, who was a law professor at Lewis & Clark College, in Portland, for five years, ran for attorney general in 2008 when his predecessor decided not to seek a fourth term. He says in his book he was eager to go after “crooked mortgage brokers, scam artists, and identity thieves,” along with drug cartels and polluters.

The new attorney general inherited a charity-regulation office that is considered one of best in the country.

“When other states seek to improve their charitable-sector activities, I recommend that they look to Oregon as a model,” says Bob Carlson, a Missouri assistant attorney general who is president of the National Association of State Charity Officials. “Oregon consistently brings actions in all areas an [attorney general] is responsible for and maintains a great registration system.”

Soon after taking office, Mr. Kroger met with Elizabeth Grant, head of the 19-member charitable-activities section, which supervises more than 16,000 registered charities, along with charitable-gaming activities. She joined the attorney general’s office in 2003, leaving a job at the Federal Trade Commission, where she had worked to combat telemarketing fraud.

Among the goals the two regulators set, according to Mr. Kroger: “to try to tackle this problem of charities that are raising a lot of money, but very little of it is going to charitable purpose.”

Ms. Grant’s office tried in 2007 to sell the Legislature on the idea of denying state tax deductions to groups with extremely high administrative and fund-raising costs.

But some nonprofit representatives thought the text left too much discretion to the attorney general’s office to determine which groups would be penalized. Ms. Grant worked with them to fine tune the legislation, but in the end, she says, time ran out.

Still in Negotiation

This year’s version of the bill, SB 40, outlines specific criteria that trigger the tax penalty: Gifts would not be deductible if they go to groups with revenue of at least $200,000 that spend less than 30 percent on programs on average over three years, as they report on their federal tax returns. The legislation also allows for various exceptions—for example, if a group is less than four years old or is raising money for a capital campaign.

It is designed to pass muster with the U.S. Supreme Court, which has ruled that states cannot bar groups from operating or require them to provide donors with information about their fund-raising costs simply because they spend a small percentage on programs.

The text won critical support from the Nonprofit Association of Oregon, a coalition of charities, and it sailed through the state Senate in April on a 28-2 vote.

However, it may face a tougher road in the House, which is evenly divided between Republicans and Democrats, leaving every committee with two co-chairs. Vicki Berger, the Republican co-chair of the House Revenue Committee, which is in charge of the legislation, does not like the text.

“This kind of effort sends a mixed signal to the public: we’re cleaning up these scurrilous nonprofits that are out there hunting you,” says Ms. Berger, who has considerable experience raising money for charities, for example, as a former president of a YMCA board. “All the public hears is: All nonprofits are untrustworthy.”

Focus on Veterans Groups

Echoing critics from elsewhere in the country, Ms. Berger says the attorney general has broad powers to prosecute charities that are breaking the law, and he should accomplish his goals that way. She says even holding a hearing on the bill could create too much negative publicity.

“We’re optimistic we’ll ultimately be able to resolve her concerns,” says Tony Green, Mr. Kroger’s spokesman. “There is no legitimate charity in Oregon that would be negatively affected by this bill.”

Indeed, Mr. Kroger’s office has also stepped up its court activity against allegedly fraudulent nonprofits and fund-raising groups, especially those that say they are helping veterans.

Mr. Kroger says his office is scrutinizing those nonprofits because so many fall into the category of “sham charities” that spend little on their programs, appealing to people’s patriotism to get donations.

But Mr. Kroger and Ms. Grant say proving that a charity has fraudulently misrepresented its purpose is difficult: Many donors don’t know enough to complain, and if they do, the statements that telemarketers for nonprofits make over the phone are hard to document.

“The reality is the overwhelming majority of nonprofits are doing good work and they’re being honest with their donors and they’re financially run well,” Mr. Kroger says. “I don’t feel like we’re facing this giant wave of illegality and we’re overwhelmed.”

But, he says, “the big question is, at a time when tax dollars are short, how much are we going to subsidize nonprofits and why and which ones?”