Rocky Times at Colorado Foundation

State offices lose out as Daniels Fund makes cuts

As a pioneer in the cable industry, Bill Daniels amassed a billion-dollar fortune even while spending freely along the way — on money-losing sports teams, four wives and a parade of

girlfriends, and a Lear jet. His motto, “the best is good enough for me,” carried over into his philanthropy.

Mr. Daniels earmarked the bulk of his estate for his foundation, the Daniels Fund, and upon his death in March 2000, at 79, it became the biggest foundation in the Rocky Mountain region. Its assets stood at $937-million at the end of 2003. He wanted the money to be spent on scholarships for students from low-income families and other grants in the four states where he started his cable empire — Colorado, New Mexico, Utah, and Wyoming — and he spared no expense in getting the fund off to a quick start. He picked out three city lots in Denver’s upscale Cherry Creek neighborhood (at a cost of $1.5-million) for an elegant headquarters building. And according to several people who knew him well, he had the fund open field offices in the three other states following his death to show a serious commitment to their residents.

“Uncle Bill wanted the state offices to have a lot of autonomy,” says his niece Diane D. Denish, lieutenant governor of New Mexico and a member of the Daniels Fund board. “I think he knew how much they were going to cost.”

But while Mr. Daniels may have wanted a hands-on foundation, even if it came at a high price, the majority of board members now running the fund believe the spending on the field offices, at $1.25-million per year, was excessive.

In November, just 12 hours after the gala opening of the $10.5-million headquarters building, the Daniels Fund announced that it was closing all three field offices and laying off 21 employees, eight of whom worked in Denver. The cuts reduced the fund’s total staff by a third.

Hank Brown, the fund’s president, points to statistics showing that the Daniels Fund was spending more than twice as much on administrative costs as similar-size foundations. The savings from closing the offices and eliminating staff — some $2.6-million — will be used for additional scholarships and grants, he says. “Any foundation evolves and takes a look at having to do things better,” he says.

The reorganization, approved on a 7-2 vote at a board meeting the day before the announcement, has generated headlines and sharp debate throughout the Rocky Mountain region, with much of the talk centering on whether the Daniels board pruned in the wrong area. At first glance, Daniels’s move seems in the spirit of those who are pushing Congress to pass legislation that would forbid foundations from counting administrative costs as charitable spending. After all, Daniels is cutting overhead and putting the money into grants. But Ms. Denish and others say the jobs in the field offices were crucial, since the “fragile” charities operating in rural states like Wyoming and New Mexico need extensive hand-holding, even for tasks like filling out a grant request. What’s more, these critics argue, the Daniels board could probably have afforded to keep some field staff around if it had taken a sharp pencil to its own compensation. Daniels Fund directors can make more than $40,000 per year.

Rick Cohen, executive director of the National Committee for Responsive Philanthropy, in Washington, says he usually supports efforts to trim overhead and put the savings into grants. But he says he realizes that the Daniels Fund has a special role to play, and that may require a large staff, given that the philanthropic capital in Wyoming and New Mexico is limited. Wyoming ranked 48th and New Mexico 36th in a list of total foundation spending nationwide in 2001, according to the responsive-philanthropy committee.

“The foundation’s role ought to be using its money to fulfill the mission,” Mr. Cohen says. “If that requires staff in the field to get money out to distressed communities in rural states, it seems logical to put the money there rather than giving it to the trustees.”

Effects of Reorganization

The governors of both Wyoming and New Mexico have pleaded with the foundation to keep the field offices open, even though the cost-cutting will mean that each state gets $560,000 more in grants each year than they would have otherwise. And Ms. Denish feels so strongly about the issue that she has openly criticized the decision-making process pursued by Mr. Brown and her fellow board members.

Mr. Brown, a former Republican U.S. senator from Colorado, says he is surprised by the criticism. In an interview in the new three-story, 27,000-square-foot headquarters here, he says he is confident that New Mexico, Utah, and Wyoming will be ably served by staff members from the Denver office who will travel to each state an average of one week per month.

He expresses pride in an aspect of the reorganization that has been lost in the headlines: Charities in all four states will now be able to seek grants in all nine of the fund’s grant-making programs, which include aging and innovative education. Previously, some of the grant-making programs did not operate in certain states, and many other program areas didn’t accept unsolicited proposals. “You’ll see a much more open approach,” he says.

He also notes that the cutbacks at the Denver headquarters have freed up plenty of office space. Forty percent of the new building, both offices and conference space, will be set aside for nonprofit groups to use free.

Even after the layoffs, according to an internal study, the percentage of spending on administration remains higher at Daniels (10.5 percent) than at similar-size foundations (8.6 percent) — which makes Mr. Brown wonder why he isn’t being scolded instead for permitting too much fat to remain.

“You’re staffed at a level three to four times the level the normal foundation is staffed at, and your proposal is to adjust so that you’re still staffed more than 20 percent higher than the average foundation,” Mr. Brown says. “How difficult a decision is that?”

Yet from a public-relations perspective, the reorganization — especially the layoffs just hours after the lavish new building’s public celebration — has been a fiasco for the Daniels Fund.

The board’s emphasis on cost cutting, meanwhile, has focused attention on its own compensation. Mr. Brown confided to a Rocky Mountain News reporter that he offered to take a pay cut this year. But when John V. Saeman II, the board’s chairman, told him that doing so would be inappropriate, given his strong leadership, Mr. Brown says he backed down and accepted a salary of $400,000 plus benefits.

The president’s accommodating stance elicited jeers from two local newspaper columnists. Board members, meanwhile, have come under fire for their fees, even though some decline them and most others say they donate the money to charity.

A Labor-Intensive Mission

Bill Daniels was a devoted Republican — the fund’s headquarters are filled with elephant figurines that he once kept in his office. But he was also a champion of the downtrodden, hiring former inmates and recovering alcoholics at his businesses, and anonymously dropping cash envelopes on the doorsteps of the needy during the holidays. Since he never earned a college degree, he set aside 30 percent of foundation spending for workshops on how to prepare for college and full-ride scholarships for promising low-income students who are at risk of not enrolling in college.

To help people in the states where he started his career, he earmarked 50 percent of the foundation’s grant making and scholarships to the Denver area, another 15 percent to the rest of Colorado, 10 percent each to New Mexico and Wyoming, 5 percent to Utah (where grants are exclusively focused on American Indians), and 10 percent to grants to charities from any state.

The fund’s charge — awarding scholarships to unproven low-income students and distributing grants throughout a huge swath of the rural West — is labor intensive.

Mr. Daniels didn’t want a conventional scholarship program. He wanted to hear about potential scholarship recipients from community programs, churches, and even homeless shelters, rather than from principals and teachers, fearing that the latter group would recommend only their best students.

The full-ride scholarships are a carrot to motivate underachieving students. To be eligible for an award, students must complete an intense college-preparation program that requires them to apply to at least four colleges, and fill out the federal government’s financial-aid application.

The most-striking statistics involve those who didn’t receive a scholarship. Ninety-five percent of the students who finished the program went on to college — even without Daniels Fund money. But only 45 percent of the students who didn’t complete the program went to college.

Of course, finding and preparing the students requires work — and there’s the rub.

In Wyoming alone, Daniels had the equivalent of more than three full-time people working on the scholarship program, and it had part-time contracts with individuals at five community colleges, where it provided the college-prep workshops. Although the deals with the community colleges remain in place, how the college-prep program will work in the future in Wyoming and the other states isn’t entirely clear. Staff members from the Denver office will travel to the other three states for workshops and meetings, but the fund will also rely more heavily on partner organizations, instruction over the Internet, and volunteers. “We have an extensive volunteer network already,” says Carrie Besnette, director of the scholarship program.

Wyoming’s Needs

Starting the grant programs in states like Wyoming required a similar amount of legwork. Very few foundations focus on Wyoming, the nation’s least populous state, so the Daniels Fund’s Wyoming office spent the first 10 months trying to figure out where to spend its money. It hired a Jackson Hole economist to analyze social indicators and identify the state’s greatest needs.

“We were very careful to start slowly,” says Michelle Sullivan, the former director of the office, which closed at the end of January. (She was offered a position at the fund’s Denver office, but declined the job.) “We were trying to look 20 to 30 years down the road to see how we could really make a difference.”

Some of the office’s efforts were on the cusp of paying big dividends. In November, Ms. Sullivan had nearly nailed down a deal with Wyoming’s Democratic governor, Dave Freudenthal, and the chairman of the State Senate’s Appropriations Committee to have the state match dollar-for-dollar any private contributions to the fund’s college-prep program.

Governor Freudenthal says the fund’s Wyoming office, which employed seven people, had a “creative approach” to tackling persistent problems in Wyoming, and “I’m not sure that is going to be maintained by periodic visits from somebody in Denver.” He sent a letter to Mr. Brown asking him to reconsider the decision to close the office.

The conversations about the matching grant — which had been penciled in for $500,000 to $750,000 per year — “have gone away until we see if there’s anything private to match,” Mr. Freudenthal says.

A Controversial Vote

Ms. Denish, the lieutenant governor of New Mexico, and her boss, Gov. Bill Richardson, had a similar reaction to the closing of that staff office, which employed four people. Governor Richardson marched into a meeting in Santa Fe between Ms. Denish and two of her fellow board members, including the chairman, Mr. Saeman, and asked them to keep the state office open.

“The smaller states have a very fragile nonprofit environment,” Ms. Denish says. “Leadership and technical assistance are very important, and that’s accomplished through strategic philanthropic collaboration and not by just being a check-writing organization. Even though there’s a pledge on the part of the board and president that we’ll get more money, I’m still not convinced that the fund will know where to put that money without having a full-time person or two in New Mexico.”

Ms. Denish believes the fund acted with far too much haste in closing the state offices. The plan must have been hatched quickly — the specifics were not discussed during the time that Jack Daniels, Bill Daniels’s brother, chaired the board. Jack Daniels stepped down from the board in August 2003 and died in September.

Ms. Denish learned about the plan at the board meeting, just hours before the vote. So did Stephen M. Schuck, a local developer and one of two new board members attending their first meeting on November 17.

The board approved the plan on a 7-2 vote, with Ms. Denish and Phillip J. Hogue, the founding president of the fund, voting against it.

“I regret the fact that some of our newer board members didn’t have the opportunity to see what the smaller states were doing before this alternative was presented,” Ms. Denish says. “It was difficult for us to have the option to examine other alternatives.”

Mr. Schuck says the logic of the restructuring was so compelling that he felt comfortable making a same-day decision. “To me, it wasn’t gray,” he says. “Our organization seemed to have many more bodies than seemed normal and appropriate given my experience with other foundations. It was easy to see the logic of reducing body count and increasing charitable giving.”

Grants Program Hit Hardest

The fund’s reorganization hit the grants program the hardest, with the number of professional grant makers dropping from 12 to 5. Some of the departing staff members have many years of grant-making experience, and a few have raised questions about how fund leaders decided who should stay and who should go.

Two of the remaining grant makers — Doug Elliott, whose responsibilities include New Mexico, and Karren Turner, whose responsibilities include Wyoming — each have roughly a year or less of grant-making experience. Mr. Elliott, who for many years managed facilities and performed other jobs for Mr. Daniels, had no previous grant-making experience before being hired last fall. Ms. Turner, who worked for Mr. Brown for about a decade while he was in Congress, has only been making grants for the 15 months she has been with the fund.

“It feels like a pretty significant lack of understanding of the amount of work it takes to do the job right,” says one departing staff member, who requested anonymity.

Kristin Donovan was put in charge of the grants program in November. Ms. Donovan, a former top official at the El Pomar Foundation who was tapped by Daniels early last year to head the communications office, says she is “very comfortable with the [grant-making] team that we’ve assembled.”

Ms. Turner grew up in rural Colorado, and so understands the challenges faced by small communities whose economies are heavily dependent on agriculture, Ms. Donovan says, while Mr. Elliott “knows probably better than anyone else” what Mr. Daniels’s thinking was like.

“Everybody brings different skills and different experiences to the table,” Ms. Donovan says. “Whether or not they have direct grant-making experience, they have other experiences that help create the full spectrum.”

THE DANIELS FUND

History: Established in 1998 by Bill Daniels, a cable entrepreneur

Purpose and areas of support: The foundation focuses on the states in which Mr. Daniels initially built his business — Colorado, New Mexico, Utah, and Wyoming — and provides grants in the following nine program areas: aging, alcoholism and substance abuse, amateur sports, child and youth development, developmental disabilities, equipment for physical disabilities, ethics and integrity in education, the homeless and disadvantaged, and innovative education.

Assets: $937-million as of December 31, 2003

Grants and operating programs: In 2003, the foundation made grants totaling roughly $24.95-million, and spent another $6.14-million, not including administrative costs, on its Daniels College Prep and Scholarship Program, which focuses on students from low-income families who are at risk of not attending college. The fund’s spending is expected to increase in coming years, thanks to savings from a reorganization, but the savings may be partially offset by severance payments this year.

Key officials: Hank Brown, president; John V. Saeman II, chairman of the board

Application procedures: Grant seekers must be tax-exempt under Section 501(c)(3) of the Internal Revenue Code. Additional information is available on the foundation’s Web site.

Address: 101 Monroe Street, Denver, Colo. 80206; (303) 393-7220

Web site: http://www.danielsfund.org