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Hershey's Charity for Children Became GOP Slush Fund | The Nation

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Hershey's Charity for Children Became GOP Slush Fund

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A street light shaped as an Hershey Kiss candy is silhouetted along a street in Hershey, Pennsylvania (AP Photo/Carolyn Kaster)

With Matt Stroud (@ssttrroouudd on Twitter), a freelance journalist based in Pittsburgh.

Milton and Catherine Hershey signed the deed of trust establishing the Milton Hershey School as an orphanage in 1909, funding it with revenue from the famous candy company. Since then, the school has officially been dedicated to “the purpose of nurturing and educating children in need.” Because its founder gave MHS Trust a controlling interest in the Hershey Company, today it boasts a massive $8.5 billion in assets and also owns Hershey Entertainment & Resorts (operating hotels and an amusement park). In keeping with its mission, the Milton Hershey School serves about 1,800 students from pre-kindergarten through twelfth grade, who study in state-of-the-art school buildings in Hershey, Pennsylvania.

About the Author

F. Frederic Fouad
F. Frederic (Ric) Fouad is a corporate attorney and child welfare advocate. Follow @ricfouad on Twitter. 

What the charity also does, of late, is shovel money and favors to a coterie of prominent Pennsylvania Republicans. MHS’s alleged wrongdoing is pervasive and well documented, but thanks to the GOP’s grip on power in the state—most crucially its iron lock on the attorney general’s office—the charity has never been effectively called to account. With the first real possibility of the attorney general’s office shifting to the Democrats since it became an elected position thirty-two years ago, all this may change come November.

For a sense of MHS’s alleged misdeeds and the culture of impunity surrounding the charity, consider how, in 2006, board members of the school allowed the trust fund to purchase a failing luxury golf course called Wren Dale. The $12 million investment was two to three times the appraised value of the course and bailed out as many as fifty prominent local businessmen and doctors—including a former Hershey Company CEO who also sat on the MHS board. These investors stood to lose tens of thousands of dollars if the course closed. With the purchase, the investors turned their potential losses into profits of between $15,000 and $100,000. MHS’s board then sank another $5 million into a swanky, Scottish-themed clubhouse for the money-losing course, all paid for by the charity. The charity explained the purchase as necessary to create a “buffer” between MHS students and the community, and later claimed the land was for future MHS expansion.

By the fall of 2010, mounting questions and a probing Philadelphia Inquirer series pressured then–Attorney General Tom Corbett, now the state’s Republican governor, to launch an investigation. Since then, the attorney general’s office has confirmed only that an investigation is ongoing, without releasing any further information about its progress. “Normally, an investigation like this would never take that long,” said Randall Roth, a charitable trust and legal ethics expert at the University of Hawaii, who has written extensively on a parallel case in Hawaii involving the Bishops Estate trust. “It’s very surprising that it’s taking longer than two years.”

The ties between the charity and state Republicans go way back. In 2002, when Republican D. Michael Fisher was Pennsylvania’s attorney general, reform advocates (including myself) were pushing for an investigation of the charity. As Fisher’s subordinates were sitting down for a key Hershey meeting, Fisher was reportedly at Hotel Hershey—wholly owned by the charity—passing the hat among executives associated with Hershey for contributions to his gubernatorial campaign.

Fisher lost the election to Democrat Ed Rendell. But before leaving office to take a federal appellate judgeship handed to him by President George W. Bush, Fisher used the attorney general’s position to set in play a Republican takeover of the already dysfunctional charity organization.

He began by arranging for Pennsylvania Republican kingmaker LeRoy Zimmerman, himself a former Republican state attorney general, to join the charity’s board (he later became its chair). Zimmerman briskly proceeded to triple the board’s base compensation from $35,000 to $100,000 and retooled the charity as a partisan slush fund. Since then, Republicans have made millions from the Hershey Trust. Zimmerman collected nearly $500,000 annually, according to nonprofit filings, while James Nevels, a Bush-appointed former chair of the federal Pension Benefit Guaranty Corporation, made slightly over $580,000 in 2010. Meanwhile, former Pennsylvania Governor Tom Ridge, who became President Bush’s first secretary of homeland security, pulled in $200,000 annually, according to SEC filings obtained by The Philadelphia Inquirer.

Numerous other prominent Republicans also snagged lucrative seats on the charity’s various boards. These included Barbara Barrett, a leading Arizona Republican, and Lynn Swann, a former Republican candidate for Pennsylvania governor. But during Zimmerman’s tenure, despite the MHS’s mission, no child welfare professionals were named to the MHS board.

Zimmerman also used Hershey Trust Company property to host a June 2007 fundraising dinner for the Republican State Committee of Pennsylvania featuring Karl Rove as the guest of honor, according to a legal complaint filed by Robert Reese, a former Hershey Trust Company president and Hershey charity board member, as reported by the Inquirer. The Hershey Entertainment & Resorts company’s PAC paid the GOP committee a $15,000 fee for the event.

Zimmerman did not respond to a request for comment for this article, and neither did MHS.

The public got its first real glimpse of these financial practices when The Philadelphia Inquirer published its detailed account of the Wren Dale deal. From the start, Tom Corbett’s investigation into the golf course purchase was notably lacking in zeal. Despite multiple complaints from MHS alumni as far back as 2006, Corbett’s office took no action until the Inquirer exposé forced the issue four years later. The target of the inquiry, after all, would be Zimmerman, a key Corbett ally.

Neither former Attorney General Corbett nor his hand-picked replacement, Republican Linda Kelly, now serving as interim attorney general, has indicated any progress in the case. To bring matters full circle, the Republican Party’s candidate for the office in November, David Freed, is the son-in-law of LeRoy Zimmerman—the very same person who, as MHS board chair, presided over the charity’s most eye-popping period of alleged financial misconduct.

“In terms of money, this is one of the largest scandals in the [commonwealth’s] history, and it’s been festering,” said Pablo Eisenberg, a senior fellow at Georgetown’s Center for Public and Nonprofit Leadership, who has followed the Hershey case closely. “And if, in fact, the regulators and the attorney general can’t be called upon to eliminate corruption in this case, how do they expect to oversee and enforce standards as a whole?”

But things could take an abrupt turn if a Democrat and outsider were to win the attorney general’s race and proceed to reform the commonwealth’s top law enforcement agency. And one just might. She is Kathleen Kane, an assistant district attorney for Lackawanna County in Pennsylvania’s tree-covered northeast region surrounding Scranton and Wilkes-Barre. Kane is unconnected to anyone associated with the Hershey investigation, she noted in an interview for this article.

In the midst of a campaign—and stressing that she would not make statements about the Hershey Trust investigation without understanding all the facts—Kane told The Nation that one of her main goals if elected will be “to uphold the integrity of all charitable trusts,” particularly if they exist to “foster and protect children.”

My Milton Hershey School Experience

Full disclosure: I have a strong and deeply personal interest in this story. As a child, I attended the Milton Hershey School.

My family unraveled after my father was shot and killed in 1963, leaving my mother to care for my sister and me. (We were 3 and 2 years old, respectively, at the time.) Debilitated by illness, our mother fought a losing battle to keep us with her. My sister was eventually placed with one foster family while I bounced among several others, arranged informally through our church. We visited our mother in hospitals and mental health wards as she struggled with personal demons and survived several suicide attempts. At age 11, as a last resort, I was placed in MHS, where I spent the next seven years before graduating in 1980. My sister was sent elsewhere.

While I was there, MHS consisted of group homes spread throughout 10,000 bucolic acres. The high school students worked on farms, milking cows and loading hay and straw. We lived in breathtaking surroundings, our quarters nestled among open fields and clear streams. Our lives were enriched by athletics, music, performing arts and other activities. Rather than feeling stigmatized by our backgrounds, we developed an us-against-them sense of pride and competed in local sports.

In many ways, that era reflected the intentions of the charity’s benevolent founder, Milton S. Hershey, who had no children of his own. In a singular act of kindness, he decided to bequeath his entire fortune to needy children, who, he wrote in the school’s original deed of trust, should be fed “plain, wholesome food,” “comfortably clothed,” “fitly lodged,” given “suitable and proper exercise and recreation,” and “instructed in the several branches of a sound education.”

Over the years, certain positive changes were made to the charity’s mission. For instance, the original deed allowed only poor, white, healthy male orphans to be admitted. This was later changed to include girls, children of color and children whose parents may have been alive somewhere.

But other changes were not so benign. Even before my time, MHS’s mission had begun to shift away from the most desperate cases. Simultaneously, the charity’s assets, which had grown monumentally with the success of the various Hershey brands, started to be diverted from the school. One case in point was the 1963 construction of a medical school for Pennsylvania State University, which cost $50 million. Next came Founders Hall, a colossal administrative building constructed on MHS property in 1972 at a cost of another $50 million. It boasted the nation’s second-largest unsuspended dome (after the US Capitol) and draws 50,000 visitors annually. Republican Dick Thornburgh held his Pennsylvania gubernatorial inaugural celebration there in 1980, trumpeting how much money he’d saved taxpayers that day. Contributing to the savings, MHS children served as uncompensated waiters, parking lot attendants and the cleanup crew.

While I attended the school, this trend continued. Land and cash were siphoned off to develop a local tourist industry centering on Hersheypark, the famous amusement park owned by MHS through its Hershey Entertainment & Resorts subsidiary. There were also several hotels and golf-related expenditures—no fewer than three courses, all subsidized by the charity.

As a teenager, I witnessed this use of the charity as a local piggy bank, but I did not grasp the depth of the problem at the time.

Years later—long after I’d graduated from MHS and gone on to the University of Pennsylvania and the New York University School of Law, and then to my commercial law practice—I was still bothered by these issues, even as I appreciated how much the charity had done for me personally. So I started to look into them. The real wake-up call came when an administrator told me that I would never have been accepted under the new “prep school” enrollment criteria. I discovered that foster care children and similar cases were no longer even being considered, while the number of wards of the state had dropped dramatically. I also returned to find that MHS kids had been removed from their magnificent community-wide homes and squeezed into a fraction of the land once used for them, with the rest going to local development.

So I plunged into alumni activism in 1999, first as part of the MHS alumni association and then through Protect the Hersheys’ Children, an organization that pressed for reforms after the alumni association walked away. The reform battle was all uphill and depended on the action of a state attorney general (Mike Fisher, when I started) reluctant to force changes on a resistant MHS board. Nonetheless, in July 2002, Fisher imposed reforms that addressed bedrock corporate governance matters, such as the elimination of conflicts of interest. As a result, the charity’s business operations were separated from the school’s management. The reforms also addressed some child-safety problems that had arisen as a result of the practice of housing older children with younger ones, making them vulnerable to sexual assaults.

But these reforms were too burdensome for Zimmerman, who swept them away immediately upon joining the board in 2003. That act permitted him to convert the charity into one that funded his two principal passions, luxury golf and Republican politics. It is in this context that his son-in-law, David Freed, is running for state attorney general today.

All in the Family

After two calls and two e-mails requesting comment, Freed—currently the chief prosecutor in Harrisburg-area Cumberland County—chose not to speak with The Nation. But he has openly acknowledged the conflict of interest. In January, he told a reporter for Allentown’s The Morning Call that if the investigation “involved my father-in-law, I’d appoint counsel to handle it.”

But would that be enough of a firewall to divorce Freed sufficiently from the investigation? Kathleen Clark, a law professor at Washington University in St. Louis who specializes in ethics standards for government officials, sees cause for concern. “To really enhance the public’s trust in the sufficiency of the investigation, the person running it has to actually be independent of the attorney general and can’t be a subordinate of the attorney general,” she says.

For her part, Democratic contender Kathleen Kane, while not making any explicit promises about the Hershey case, pledged that she “will look at every single fact without taking political considerations” into account. Kane paints herself as an outsider, pointing to her primary battle. “I didn’t have the support of anyone in the Democratic Party,” she said, before adding, “except President Bill Clinton.” Indeed, after supporting Kane in her upset victory, the ex-president also gave her a resounding endorsement at a recent Philadelphia fundraiser for her upcoming race against Freed.

Regarding the Hershey case, it’s easy to understand why Kane might tout her outsider status. Even if she were to defeat Freed and his Pennsylvania Republican backers, the new attorney general’s path to reform at Hershey would likely face substantial obstacles from the establishment Democrats who opposed her in the primary, including Ed Rendell.

While serving as governor, Rendell ignored allegations of misconduct at the Hershey Trust, such as excessive compensation, child crowding (including an unsuccessful experiment in creating twenty-child bedrooms) and the luxury golf course purchase. Rendell’s former chief of staff and law partner, John Estey, was recently named Hershey Trust Company general counsel. Were the Democrats preparing to make their own move on the charity, seeking merely to displace Republicans?

The spoils are tempting. Consider that while MHS assets have grown from $200 million in 1970 to $8.5 billion today, the number of children served has increased by only 200, from 1,600 to 1,800, over the past forty-two years.

Meanwhile, the national interest in the Jerry Sandusky scandal at Penn State could draw new attention to a Hershey pedophile scandal that emerged in 2008. The perpetrator was Charles Koons, whose mother was a Hershey group-home substitute housemother. Koons admitted to molesting seventeen children in the area, and used his access to MHS to victimize several Hershey students as well. In early 2011, MHS paid $3 million to five of Koons’s Hershey victims—a settlement that included a confidentiality clause. Despite a 1998 sworn affidavit from the mother of one of Koons’s MHS victims, along with multiple complaints from MHS children dating as far back as the 1980s, Koons was not arrested until 2008—and even then by a neighboring town’s police force on the basis of acts committed beyond Hershey. Koons had continued molesting children in the area for a decade after 1998, eventually pleading guilty and receiving a sentence of thirty-five to 100 years.

Last year, an MHS administrator named William Charney Jr., who was in charge of training houseparents, went to prison for receiving and distributing child pornography. The Philadelphia Inquirer exposé described how yet another administrator, Peter Gurt, mocked a sexual act involving several students, reportedly seeking to elicit laughs from this at a senior roast. Gurt was later promoted and is rumored to be in line today to become the next MHS president. Another two MHS teachers were fined and disciplined in 2006 and ‘07 for engaging in sex with students.

All this happened while an unbroken string of Republican attorneys general, from Zimmerman in 1981 to Corbett in 2011, did nothing but make matters worse.

“Given the regulatory environment, and given the people who are the enforcers at this point, only public pressure is going to force regulators and the attorney general to make changes in the Hershey Trust,” said Pablo Eisenberg, the Georgetown nonprofit expert who has closely followed the charity and its recent public troubles.

“What [the charity] needs is a new board with people who are at least very familiar with the problems of children’s education and indigent youth,” Eisenberg said. “If you ask me, you need to separate the school from the Hershey Trust and then appoint educators who understand how to run a school for boarded kids.”

That kind of reform would face some legal hurdles. Robert Sitkoff of Harvard Law School has written about Hershey’s unusual status as an industrial foundation: a charitable organization that has controlling ownership in a public company. (Hershey is one of only a few remaining US industrial foundations with an exemption grandfathered into the 1969 law banning foundations from holding more than 20 percent of a business’s voting shares.) “The problem with the Hershey Trust,” Sitkoff says, “is that its massive fund has been captured by Pennsylvania politicians to provide takeover protection for a local company. But that’s not the purpose of the trust. The purpose of the trust—which enjoys a federal tax subsidy—is to take care of needy kids.”

Given its enormous size, Sitkoff adds, the trust should be required to expand its charitable operations beyond a single school. “It should open other Hershey Schools across the country.” With more ambitious operations, he says, “the trustees would be forced to manage more efficiently, and the cost of the local politicians’ interference would be more obvious.”

Nation blogger Ben Adler reports (October 15) that the Romney campaign faked a photo op of Paul Ryan cleaning up at a soup kitchen, exposing the fraudulence of GOP charity rhetoric.

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