TWISTING IN THE WINDHillcrest-Pride-Flag

At least $147,000 raised for charity, but who knows where the money is?


[Originally published: April 22nd, 2014]  
[Last updated: May 24th, 2014]  

Over the years, there were many in the LGBT community of San Diego who came to believe that a large Pride Flag, much like that which already existed in the Castro neighborhood of San Francisco, would also be a desirable landmark in the neighborhood of Hillcrest.

While there were several individuals and organizations behind this effort, it needed at least the approval of the Hillcrest Business Improvement Association (HBIA), which was given authority by the City in 1984 to initiate permits for right-of-way and events in their territory.

However, the HBIA is a business organization, and is supposed to be limited by City contract and so is not allowed to engage in non-business development activities.

Early on, the HBIA recognized that it needed to address the legal requirement for distance, yet seemed to hesitate about giving up control. As revealed in this article from June 2011, the HBIA said that it was simply acting as a "fiscal agent" for Pride Flag fundraising (for the Amazing High Heel Race, the first of what have been three annual events), and that the HBIA would be "handling all the money and accounting and making sure everything is above board."

In October 2011, the HBIA went on record before Uptown Planners, the official City-recognized community land use group, saying they would simply be "stewards" of the Pride Flag and planned Monument subject to public input - even though the designs they presented at this meeting were not appreciably different from the final construction.

The public commitment to distance increased in February 2012, when the HBIA testified again before Uptown Planners that, "A total of about $10,000 would be raised and set aside for the insurance and ongoing maintenance of the flag. The funding would be raised from private donors; with San Diego Pride administering the funds. The Hillcrest Business Association would be responsible for raising and lowering the flag."

However, shortly after the Pride Flag was finally built in July 2012, everything changed. San Diego Pride wouldn't be administering the funds after all.

Since the HBIA was not supposed to be able to be directly involved in more than offering approval, it began using the Hillcrest Community Foundation (HCF) to be the legal authority controlling the Pride Flag funds. The HCF was originally incorporated by the HBIA in 2004 to be a legally separate, 501(c)(3) non-profit charity to foster "quality of life," non-business community development efforts. But it did not seem to engage in major activity after its founding, and in fact only filed one annual Statement of Information with the California Secretary of State out of a required seven.

On September 4, 2012, a second Statement of Information was filed for the HCF, officially naming HBIA executive director Benjamin Nicholls as Secretary, HBIA vice president Johnathan Hale as Chief Financial Officer, and Hale employee Benny Cartwright as the nominal CEO.

From then on, the HCF was identified in public as the true recipient of any funds, with HBIA again acting only as "fiscal agent." But there are problems with this story.

The HCF does not report to anyone in the community except the HBIA. This means that there is no accountability outside of the HBIA Board for how money is actually spent. And the only outside oversight, since the HCF is legally a separate corporation, was that it still needed to separately account for its own financial activities to the State of California. And as is shown below, even this minimal requirement wasn't met.

At the HBIA Board Meeting on March 12, 2013, Johnathan Hale officially "volunteered to take over fundraising for the Hillcrest Pride Flag and presented a memo to the group outlining his fundraising plan." The vote approving him was unanimous.

The Amazing High Heel Race was first held in 2011 to raise money for the Pride Flag, and has been held every year since to continue to raise funds for the Monument and other Pride Flag site improvements. As assembled from HBIA Board Minutes, here are the amounts that have been raised through this special event:

2011 $7,689
2012 $11,500
2013 $12,000
Total: $31,189

Another special event, the Pride of Hillcrest Block Party, was inaugurated to coincide with the completion of the Pride Flag in 2012, and income from that event has been split equally between the HBIA and San Diego Pride. Noting that "all HBA proceeds from this event go right back into supporting the new Hillcrest Pride Flag." As assembled from HBIA Board Minutes, $27,500 was raised in 2012 and $13,500 in 2013, for a total of $41,000.

Also according to HBIA Board Minutes, the approved quote to pay for the Flag Pole was $25,865, and the approved quote to pay for the Flag Monument was $12,000, or $37,865. Combined funds generated from these two events was $72,189. This should have left $34,324 remaining, and been more than adequate to sustain maintenance and improvements, as well as eliminate the need for two fundraising events.

But it gets worse. In addition to these special event fundraisers, there was also a special outreach in 2013 to solicit funds from individual donors in exchange for getting their names engraved on the proposed Pride Flag Monument. According to the pricing that was presented to the public on donation levels for the Monument, the sum total contributed by the final 98 separate donors engraved at the Monument should have been $74,900. This round of donations was officially closed on June 30, 2013, with the final Monument unveiled on July 12. Yet, on July 9, Johnathan Hale reported to the HBIA Board that the Monument donor campaign raised $32,000 - which would leave $42,900 unaccounted for.

Further complicating matters, and throwing all of this lack of transparency into an even harsher light is the fact that, since Johnathan Hale took over fundraising, every solicitation, every event ticket, even drink and food ticket sale, has been illegal.

On February 1, 2013, the California Secretary of State had suspended the HCF on behalf of the Franchise Tax Board for failure to file taxes. This suspension forbid the HCF from conducting any business, so anything it has done since then was illegal. As of May 16, 2014, the HCF remains suspended. (Check SOS database here for current status of Entity Number C2585751)

From what can be determined from Charity Navigator, the HCF last filed a tax return, a 990-N, in September 2012. However, a 990-N is restricted to charities whose annual gross receipts are less than $50,800; so after the 2011 tax year the HCF should have had to file a full 990. And again, no financial statements have ever been released to the public.

Yet astonishingly, fundraising continues for future Pride Flag site improvements.

 

UPDATES:

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On April 25, 2014, the San Diego Uptown News published an article describing the latest "Meet the Mayor" event with newly-elected Mayor Kevin Faulconer that was held at the The LGBT Center. The following question was asked by an audience member and, although it seemed to generate the greatest reaction, no mention of it occurs in their article. Following is the question as written by the person who asked it:

"A block away from us is the Pride Flag and Monument. These have been paid for by holding the Amazing High Heel Races and Pride of Hillcrest Block Parties, in addition to asking individuals and groups for tax-free donations. But now all those event patrons who contributed and the donors who gave money are being told that their donations were never supposed to be tax-free and cannot claim them on their taxes, because the charity in charge of all the money was suspended by the Secretary of State for failing to file its taxes -- which means that for the last 16 months it has been raising funds and operating illegally. It seems that $147,000 was raised but only $38,000 identified as spent; and we have no idea where the rest has gone.
Mr. Mayor, please, what will you do to help us?"

Notice of this omission, along with the above quote and a link to this webpage, was submitted as a form-post comment on the sduptownnews.com website, and at the time of this post was "awaiting moderation." [04/26/14, 18:45]

Update to this update:

The online version of the San Diego Uptown News did post the comment mentioned here in full on Monday, 4/28, but so far has not indicated it will publish a correction to this same article that ran in the print edition. Full disclosure: the publisher of the SDUN is a member business of the HBIA, and is a "media partner" with Johnathan Hale's SDGLN.com, and its Director of Sales and Marketing, Mike Rosensteel, serves on the Board of the HBIA.

Update to this update:

The Friday, 5/9 print edition of the San Diego Uptown News did contain a reprint of the online comment posted on their website as described here, but as a Letter to the Editor not as a correction. However, rather than reprint the link to this web page, it directed those who were curious to search the paper's online comments to get to here.

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UPDATE:

According to documents received from the California Secretary of State, on April 8, 2014, a new Statement of Information for the Hillcrest Community Foundation was filed electronically. It identified Glenn Younger to replace Benjamin Nicholls as President, Michael Brennan to replace Johnathan Hale as Chief Financial Officer, and Sharon Gehl to replace Benny Cartwright as Secretary.

Younger is a current HBIA Board member and the most recent past President of the HBIA. Brennan is also a current HBIA Board member and the person whose private business was awarded without competition the projects to design the Hillcrest Pride Flag and Monument. And Gehl is a resident of Mission Hills (not Hillcrest) who is known primarily for her pro-developer positions.

Further, the Agent for Service of Process and Address for Service for legal matters were changed from the executive director of the HBIA and the address for the HCF at 3737 5th Ave #202 (the same address as the HBIA), to Younger and the address for Younger's private business, Grah Safe & Lock.

Any change to the officers and agent of service of a non-profit organization receiving public funds was required to have been voted on in a public meeting. But yet there have never been any public notices of meetings of the HCF posted and no minutes from any of its meetings made available - not even the names of those serving on the Board of the HCF are public knowledge.

But what is known is that this action involved several violations of the Bylaws of the HCF (as filed with Registry of Charitable Trusts), most importantly:

"Article V: The property of this corporation is irrevocably dedicated to charitable purposes and no part of the net income or assets of the organization shall ever inure to the benefit of any Director, officer or member thereof or to the benefit of any private person."

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UPDATE:

On May 1, 2014, the California Attorney General issued a Warning of Assessment of Penalties and Late Fees, and Suspension or Revocation of Registered Status to the Hillcrest Community Foundation (HCF) for failing to file both its required annual renewal reports and taxes as reported to the IRS - and paying the required fees - for every year since 2008.

For a charity operating in the State of California, this is a very serious matter; and failure to comply within 30 days of the date of the letter could result in the HCF being de-listed as a charity and losing its tax-exempt status.

According the Department of Justice, not registering each year and filing annual reports can result, "In addition to a registration fee, a...commercial fundraiser, fundraising counsel, or co-venturer may be assessed a late fee or an additional fee of twenty-five dollars ($25) for each month or part of the month after the date on which the registration statement or financial report were due to be filed,” - apparently with no cumulative restrictions. This would be in addition to any amounts past due and penalties and interest levied by the Franchise Tax Board and the IRS.

It is possible that thousands of dollars may be owed, and per California law,

"Charitable assets cannot be used to pay these avoidable costs. Accordingly, directors, trustees, officers and return preparers responsible for failure to timely file the above-described report(s) are personally liable for payment of all penalties, interest and other costs incurred to restore exempt status."

Further complicating matters, the Hillcrest Business Improvement Association (HBIA) has been handling all the finances of the HCF and making decisions on its behalf. As such, it appears to be in violation of the exemption granted it in 2011 from having to register with the DOJ (Check DOJ database here for current status of State Charity Registration Number EX533579), because the HBIA asserted that it did not hold "funds or assets in trust for charitable purposes." This could revoke the tax-exempt status of the HBIA, which would cancel their contract with the City of San Diego to administer the Hillcrest Business Improvement District, as the terms clearly state they must maintain their tax-exempt status.

If either the HCF or the HBIA loses their tax-exempt status, they may also have to pay taxes retroactively to the point at which they were deemed to be non-compliant and fined for the same.

Note: both the HCF and the HBIA are governed by the Nonprofit Integrity Act of 2004, which is more strict than Federal law because,

"The law's application is not limited to entities that are tax exempt under section 501(c)(3) of the Internal Revenue Code, which pertains to charities. With certain limited exceptions, the law applies to any person holding money or property for charitable purposes. This includes entities that are tax exempt under other subsections of section 501(c), entities that are not tax exempt, and for-profit entities, if, apart from their general purposes, they hold assets for charitable purposes."

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UPDATE:

On April 8, 2014, the Human Rights Campaign (HRC), the nation's largest LGBT civil rights organization, officially endorsed Representative Scott Peters for re-election to Congress for the 52nd District of California. This endorsement was seen as a snub to Carl DeMaio, who is running for the same seat as an openly gay Republican. Johnathan Hale cohabitates with his partner Carl DeMaio. Here in San Diego, "local LGBT and HRC leaders announced the endorsement at the Pride Flag in Hillcrest."

On May 7, in response to repeated criticisms by the HRC of his partner's record on issues of LGBT equality, Johnathan Hale took to his public Facebook profile (followed by 392 people) to use a photo taken of that event and made as part of a public post the following statement:

"But what else would you expect from an organization that holds their press conference to endorse Carl's opponent at the Hillcrest Pride Flag, a monument that I spearheaded with with the financial support of my partner Carl DeMaio."

What does this have to do with the Hillcrest Community Foundation? As noted in the original article, there have been hundreds of people in different civic organizations, event attendees and volunteers, associations and individual donors, who have contributed to creating this public space. Based on the records cited earlier, "Johnathan Hale & Carl DeMaio" paid $5,000 of the $147,000 raised to have their names listed first on the Pride Flag Monument; but there is no public evidence of any other involvement, financial or otherwise, by DeMaio.

This attempt to re-write history seems to make the claim that the time volunteered by those serving as officers of a charity, who are supposed to be unpaid, nevertheless should be compensated in some way - such as with deference or other entitlements related to ownership. But more importantly, by making the public statement he did in his capacity as a former officer and possible current board member of the Hillcrest Community Foundation, Hale has publicly violated a core principle that allows the Hillcrest Community Foundation to exist as a tax-exempt charity, as stated in its Articles of Incorporation:

"The corporation shall not participate or intervene in any political campaign (including the publishing or distribution of statements) on behalf of, or in opposition to, any candidate for public office."

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UPDATE:

A recent edition (extracted on May 24, 2014) of Hillquest.com featured a "newslink" to this ongoing issue on their website.

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