Low Sierras: The Perils of Philanthropy
This is a cautionary parable for anyone who dreams of making a better world by leaving his or her money to tax-exempt foundations. In 1970 Harvey Mudd Jr., heir to a mining fortune and a resident of Hondo Arroyo, northern New Mexico, became much moved by the grievous situation of rural Hispanics in his locality. For four centuries these Hispanics had been pastoralists, grazing their sheep on communal lands north of Santa Fe. Under the 1848 treaty of Guadeloupe Hidalgo, the U.S. government was mandated to cede these lands to their historic grazers. Proceeding along the familiar trail of broken promises, the U.S. government did nothing of the sort. The terrain in question became a swindlers' bazaar, shunted from one land speculator to the next.
By the 1940s more than a million acres of these lands had ended up in the hands of the U.S. Forest Service, an agency with a traditional enmity toward Hispanic sheep ranchers, not on the ground that sheep degrade terrain (true across the arid West), but because communal use of the land was contrary to the Forest Service's own land ethic, where exploitable resources were required to yield a return under capitalist business principles. This was early 20th-century "progressivism," with big government and big business rationalizing federal assets at the expense of communal users in the Southwest and small sawmill operators in the Pacific Northwest.
In New Mexico the social engineers in the U.S. Forest Service wanted to turn the Hispanic pastoralists into timber workers. To this end they inexorably raised grazing fees to the point where the Hispanic shepherds could not possibly make a living. The grazing permits ended up in the hands of Anglo ranchers, banks, and insurance companies.
Having driven the grazers into bankruptcy, the U.S. Forest Service made a wretched hash of its timber projects. The mill destined to be operated by local people ended up in the hands of a British transnational, Hanson PLC, which preferred to employ Anglo workers. In 1967 the Hispanics finally rebelled in a spirited uprising aimed at recovering the lost lands. The rebellion culminated in the armed takeover of the county courthouse at Tierra Amarilla, in the Rio Chama valley.
Such was the social crisis that aroused the interest and the sympathy of Harvey Mudd. Mudd was a significant figure in the local environmental movement in northern New Mexico. Handsomely accoutered with a trust fortune, he created Frontera del Norte, a fund within the Sierra Club Foundation dedicated to the acquisition of grazing lands for rural Hispanics in the area. Mudd seeded the fund with $100,000 in Cyprus Mine stock, the family company that had made most of its pile in South America.
Later, in 1970, Mudd met with his friend Roy Graham III, a resident of Albuquerque and one of the heirs to the Firestone tire fortune. Mudd showed Graham photographs of a 2,000-acre parcel, known as High Mountain Ranch, which Mudd said could be bought for a cooperative of the grazers for $200,000. After assurances from Mudd and officials at the Sierra Club Foundation that his money would only be used to buy these grazing lands in northern New Mexico and that the interest on his money would accrue into that fund, Graham agreed to match Mudd's stake and put $100,000 in Firestone stock in Frontera del Norte.
Over the next 10 years Mudd received repeated assurances from the Sierra Club Foundation that its officers were assiduously searching for the appropriate property. The High Mountain Ranch deal had fallen through.
We now continue the story from Graham's perspective. The next he heard of the consequences of his donation came in the form of a desperate plea from the Sierra Club in 1980, requesting his permission to transfer temporarily his $100,000 gift to the Sierra Club general fund. Graham consented in a terse note, but urged the Club to get on with the all-important business of finding the grazing lands to which he had dedicated his money.
Another 10 years passed. In December of 1989 Graham read a newspaper story about the increasingly impoverished state of the Hispanics in northern New Mexico. He fired off a letter to the Sierra Club demanding an accounting of his gift. The Sierra Club Foundation's president, Stephen Stevick, responded in due course that A) no grazing land had been bought, and that B) the Frontera fund had a balance of $150,000 and that no interest had accrued. The interest on Graham's $100,000, which by that time should have amounted to almost $1 million, had been placed in the Sierra Club Foundation's general fund.
Graham filed suit forthwith against the Sierra Club on the grounds that the Club had defrauded him. In the discovery process that followed, Graham became aware of complex financial manipulations by the Club, which had ended up with the gifts from himself and other unsuspecting donors being used to buy the land underneath the Sierra Club's national headquarters on Polk Street in downtown San Francisco, thus allowing the Smith & Hawken pastoralists at the Foundation ample security as they grazed the rich slopes of tax-free donations. The Club had made no effort to buy any land for Hispanic pastoralists. The only other significant use of money in the Frontera del Norte account was a transaction whereby the Club purchased an office building in Santa Fe from Harvey Mudd.
Graham's case was filed in 1990 and ended in May 1992. The federal district court in San Francisco dismissed Graham's complaint on the technical point that he had no standing to enforce how his gift was spent. The law states that only the state attorney general in any relevant jurisdiction has the right to challenge the application of a gift to a nonprofit. In dismissing the suit Judge Charles Legge was unsparing in his remarks to the Sierra Club's lawyers. He called their litigation tactics "very excessive, terrible... look, you're a charity. A charity. You are litigating against somebody who has given you a substantial sum of money."
The California Attorney General had no stomach for taking on the Sierra Club, but in New Mexico the AG's office was held by Tom Udall, a son of Stewart Udall, who had been U.S. secretary of the Interior in the early to mid-1960s. Udall sued on behalf of the state of New Mexico and was joined in this enterprise by Ganados del Valle, representing the Hispanics and led by community organizer and MacArthur fellow Maria Varela.
This time the suit seemed to be going against the Sierra Club and in December 1995 the Club settled for $900,000, having spent $2 million in legal fees. The $900,000 went to Ganados del Valle, but the money arrived a quarter-century too late. With the advent of Shirley MacLaine and other Hollywood seekers of Southwest chic, plus the arrival of Intel outside Albuquerque, land values soared. What would have bought enough acres for sustainable grazing in 1970 could only get small pastures or sagebrush scrublands 25 years later.
But the Sierra Club wasn't finished. Smarting from their defeat, the Club's officers decided to devote their resources to personal revenge. They have sued Graham for malicious prosecution. Moral: give your money directly to the folks you want to benefit. The trouble is, Graham didn't want to give his money directly to the Hispanics. He wanted a tax write-off, so he had to give his $100,000 to a tax-exempt foundation. Losers: the Hispanics and the land in the Rio Chama valley, now butchered into ranchette subdivisions.
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