Earthquake Foundation’s Gift Scrutinized

SACRAMENTO —  A nonprofit foundation that state Insurance Commissioner Chuck Quackenbush created with insurance company contributions for earthquake research gave $500,000 to the Greater Sacramento Urban League after he joined the organization’s board of directors.

The donation, which the Sacramento Urban League president said was set in motion by Deputy Insurance Commissioner George Grays, was directed to the local community group even though it has no activities or business related to earthquakes and serves a region where earthquakes have never been a serious threat.

Urban League President and CEO James Shelby said the contribution helped pay for the construction of a $5.1-million building to be used for worker training.

The transaction is under scrutiny as part of an audit by state Atty. Gen. Bill Lockyer to determine if the foundation violated any laws. Under state law, use of money from nonprofit foundations is restricted. For example, it cannot be used for personal or political gain.

The $500,000 gift to the Urban League came from the California Research and Assistance Fund, set up by Quackenbush in his capacity as insurance commissioner and funded by contributions from the companies he regulates.

At his direction, six of the state’s major insurance companies were required last year to contribute nearly $12 million to the fund, a payment that his staff said was a penalty for mishandling of Northridge earthquake claims. Quackenbush’s legal team had proposed hundreds of millions of dollars in fines for the companies, but Quackenbush chose instead to require the contributions to the foundation.

The companies have contended that the contributions were not penalties but donations to pay for research into earthquake damage assessment.

Quackenbush was unavailable for comment. But Dan Edwards, a deputy commissioner and Quackenbush’s spokesman, said Sunday that the commissioner, who was invited to become a member of the Urban League’s board of directors last August, had nothing to do with the foundation’s decision to give the group $500,000. Nor, he said, was he ever aware that a member of his staff was involved in setting up the contribution.

He said Grays, who was Quackenbush’s campaign manager in his last election, was only put in charge of making sure the foundation was established in accordance with the law and was not authorized to get involved in any way in its operation.

“The foundation is supposed to sit as a board and make all decisions for disbursements of money, and George Grays is not a member of that board or the foundation,” Edwards said.

He said he is confident that no laws have been violated, because the foundation has a broad mandate that includes support of community organizations dedicated to helping racial minorities.

All the commissioner’s news releases and public statements indicated the money was solely dedicated to earthquake research and reimbursements to Northridge victims who had been treated unfairly by their insurers. There was never any mention of community outreach.

“Our goal [is] to make victims of the Northridge earthquake financially whole, as well as to improve the manner of earthquake science, education and outreach in California,” he said in an August 1999 release.

In the same news release he emphasized that “clearly, the actions, which I have ordered the insurance companies to take, focus on science, education and outreach. This focus ensures that Northridge earthquake victims’ needs are met, and that everything possible is being done to reduce the number of victims of any future earthquake here in California.”

“This all smells rotten. Whether it’s illegal can only be determined by law enforcement,” said Harvey Rosenfield, a Los Angeles lawyer who sponsored a 1988 ballot initiative that made the commissioner’s office an elective post.

“First Quackenbush reduces massive penalties that should have been assessed against insurers to a pittance,” Rosenfield said. “Then he directs them to contribute to a nonprofit foundation, and then the guy who sets up a $500,000 donation from the foundation to something that has nothing to do with earthquakes is a member of his staff. There are a lot of funny coincidences here.”

No full accounting has been made public for the foundation’s $12 million. The only known expenditures are $3 million for television spots featuring the commissioner, the $500,000 Urban League donation and an undetermined amount used to create a child-oriented earthquake Internet site featuring Los Angeles Laker Shaquille O’Neal.

The World Wide Web site is at https://www.quake-ready.com.

Shelby said the gift from the foundation had no connection with the decision to put him on the league’s board. “Chuck and I never discussed at any time anything about the contribution,” he said.

Shelby said he had discussed the organization’s need for donations to its building fund with a friend, who suggested there might be money available from the research and assistance foundation. He said the friend put him in touch with Grays, who then brought it up with members of the foundation’s board.

In October, the Sacramento Bee printed a photograph of a smiling Quackenbush wielding a gold sledgehammer on a structure that was to be demolished to make way for the organization’s new building.

Shelby said Quackenbush had been selected as one of the people to make the symbolic gesture because he was a member of the league’s board of directors.