Funds for Charity : Speech Fees: Handy Tool for Congress

WASHINGTON â€”  A bust of Rep. Dan Rostenkowski (D-Ill.) stands in the Polish Museum of America, an enduring monument to the veteran congressman’s generosity to the museum and many other ethnic charities in his hometown, Chicago.

Rostenkowski, chairman of the House Ways and Means Committee, enjoys being known as a generous man in his home district. He enjoys it so much, in fact, that he gave away nearly $219,000 in 1987, most of it to local charities. He is by no means a rich man, however. His net worth in 1987 barely exceeded the amount he gave away.

What enables Rostenkowski and many other members of Congress to engage in philanthropy beyond their means is a little-noticed legal loophole that permits them to accept and donate to charity any speaking fees that exceed the specified limit.

Another Benefit

In the eyes of congressional watchdog groups such as Common Cause, Rostenkowski’s gambit represents just another way--albeit an indirect one--that members of Congress have found to benefit from their relationships with special interests.

“Clearly,� said an aide to Rostenkowski, “he benefits in some immeasurable way by contributing to charities in Chicago. It clearly is going to create some good will.�

Congress is considering banning speaking fees in return for President Reagan’s proposal that congressional salaries be increased 50%, but even if members of Congress decide they no longer will accept such payments, knowledgeable congressional sources say they probably will still be permitted to earn speaking fees to be contributed to charity.

Financial disclosure reports show that in 1987, more than $2 million from excess honorariums was funneled to charities, or about 20% of the total amount of speaking fees special-interest groups paid to members of Congress. The figures for 1988 will not be known until the members file their next financial reports, due in May.

Own Charities Set Up

This system of converting honorariums to charitable donations has become so ingrained that some lawmakers, including Senate Minority Leader Bob Dole (R-Kan.), have even set up their own charitable foundations to disburse the cash.

Those who take advantage of this scheme can act as modern-day Robin Hoods, taking money from fat-cat lobbyists and giving it to the needy. Indeed, there is a certain rough justice in the decision of Rep. Tony Coelho (D-Merced) to take fees from the liquor lobby and give them to groups such as Mothers Against Drunk Driving.

Senators and representatives themselves acknowledge that excess honorariums dispensed to charities generate considerable favorable publicity and help to enhance their images. That, in turn, assists them when they go out to raise the kind of money that is most important to them personally: campaign contributions.

In addition, at least several dozen members of Congress include their total income from honorariums--even the part they are not permitted to keep--in computing the amount they can shelter in Keogh retirement accounts for the self-employed.

Moreover, while the law requires them to disclose publicly the sources of their speaking fees, they are under no such obligation to tell where the money goes. Thus there is no assurance that money from excess honorariums actually goes to bona fide charities, as the law requires.

The current system of congressional philanthropy grew out of Congress’ decision to set a strict limit on the amount from speaking fees that a member may keep. House members are permitted to retain fees up to 30% of the annual salary (now $89,500); the maximum for a senator is 40% of that amount. Moreover, senators and House members may keep only $2,000 for a single appearance, and any additional payment must be donated to charity.

Recipients Not Named

The vast majority of lawmakers refuse to disclose how they dispose of this excess money. They say it would only stir resentment among charities that do not benefit. Yet many of those who make their contributions known say the disclosure causes them no such problem.

Until recent years, the lawmakers seldom received honorariums in excess of the limits, but as special-interest groups increasingly came to rely on the payments as an effective means of lobbying, the amount of money available as speaking fees has grown--to a record $10 million in 1987--creating a substantial excess.

So rapidly have the opportunities multiplied for leading members of Congress that Rostenkowski now usually demands much more than the $2,000 he is legally permitted to keep for making an appearance. According to an aide, he routinely asks $7,500 or more to speak outside his home district.

In 1987, Rostenkowski kept $25,844 of the $245,000 he earned in honorariums and gave away the rest. He also gave away $24,000 in campaign funds. Although he refuses to name the recipients of his excess honorariums, they are known to include many churches and ethnic institutions, such as the Polish Museum of America.

The benefits of Rostenkowski’s reputation for generosity are obvious in his home district, where he is widely viewed as a hero.

Link to Bust Exhibit

Andrew Novak, curator of the Polish Museum of America, said in a telephone interview that Rostenkowski’s contributions apparently figured in the decision to display the bust of the congressman, which was sculpted in 1974 by Ijnacy Prosjowski.

Likewise, the Li’l Richard Polka Band, which recently received a $450 donation from Rostenkowski’s campaign coffers, regularly shows its appreciation by playing an original composition known as “The Danny Rostenkowski Polka.�

There is no federal tax effect for most members of Congress who accept honorariums in excess of the maximum and then donate the money, but a spokesman for Rostenkowski said that he must pay Illinois income taxes on the entire amount--even the part he cannot keep--because Illinois allows no deduction for charitable contributions. Last year, that meant that Rostenkowski paid an extra $5,000 in state taxes.

Nevertheless, the fees permit Rostenkowski and others to shelter a large amount of their incomes each year in Keogh accounts. Each House member who raises $120,000 or more from honorariums may salt away in a Keogh account the maximum $30,000 permitted by law.

Examples From California

While Rostenkowski is the undisputed leader in generating excess honorariums, he is by no means the only practitioner. Among the most generous givers to charity in Congress are two prominent California Democrats, Coelho and Rep. Henry A. Waxman of Los Angeles. In 1987, Coelho and Waxman gave away nearly $53,000 each from money they took in from special interests.

Waxman, as chairman of the House Commerce subcommittee on health and environment, is in demand for gatherings of health-related organizations, even those whose interests he occasionally has opposed.

He disburses his excess fees in amounts ranging from $5 to $5,000, primarily to Jewish organizations. He acknowledged that his contributions enhance his clout in the Los Angeles Jewish community, where he has a reputation as a master political fund-raiser.

Like Rostenkowski, Waxman also uses the excess honorariums in computing his Keogh savings. (He noted that artificially inflating his income makes it harder for him to take advantage of the deduction for medical bills, which applies only to expenses that exceed 7.5% of total income.)

Waxman, who provides a list of recipient charities to reporters who request it, says he generates the excess fees primarily because he gets a kick out of giving money to deserving groups. “I get a good feeling that I am giving to very good causes,� he said.

‘Redistribution’ of Funds

“Often I take money from groups that disagree with me on environmental issues and give it to environmental groups,� Waxman added. “It’s a sort of redistribution.�

Coelho, who ranks third in the House Democratic leadership, would not name the recipients of his contributions, but one major beneficiary is known to be the Epilepsy Foundation of America. The foundation maintains a special “Coelho Fund� that supports Tony Coelho Job Training Centers for epileptics around the country. An epileptic himself, Coelho earned the foundation’s highest award--the “Tony�--in 1984.

The Dole Foundation, established in 1983 by the senator, is perhaps the most elaborate outgrowth of excess honorariums. Dole, whose right hand is withered as a result of a World War II injury, set up the organization to support job training for disabled workers.

Although Dole contributes his excess fees to other groups as well, some of his fees are turned over to the Dole Foundation, which had an operating budget of $1.1 million in the fiscal year ended June 30, 1987, and disbursed $622,700 in grants.

‘Mistake’ on Dole Report

While Dole takes no direct role in running the foundation, his relationship with it is so close that a $15,000 contribution to the foundation from Browning-Ferris Industries, a Houston-based waste-disposal firm, was listed as an honorarium on Dole’s 1987 financial disclosure form. At the time, Browning-Ferris was headed by Harry Phillips Sr., another contributor to Dole’s unsuccessful presidential campaign. The entry was later deleted, and aides to the senator called it a mistake.

A $2,000 honorarium from the Flue-Cured Tobacco Cooperative Stabilization Corp., an association of tobacco producers that works with the government on the price-support program, demonstrates how Dole’s system gives special-interest groups a double return for their money. Dole funneled the money to the foundation and the foundation listed it as a grant like any other in its annual report.

Sen. Richard G. Lugar (R-Ind.) donates a substantial part of his excess fees--$12,500 in 1988--to a March of Dimes fund for prevention of infant mortality that is named for his wife, Charlene. The Lugars are closely identified in Indiana with the fund’s latest achievement, a mobile prenatal-care clinic known as the “Mom-mobile.�

System May Survive

Even if Congress bans the personal receipt of honorariums in connection with the 50% pay raise, such a rule might not stop the practice of diverting the fees to charity.

Some members of Congress are pressing for a rule that, while prohibiting them from accepting honorariums directly, would allow the fees to be given in their names to charities of their choosing. Such a rule would leave the current system virtually intact, except that the honorariums would not be considered part of congressional income for any purpose, including tax-deferred retirement accounts.