NON-PROFIT PROPOSAL:91X guys angry with us, lawyer writes

Calif Private Transp Co (CPTC) operator of 91X Lanes cancelled its subscription to TRnl as a “statement of protest” against comments in the last issue (TRnl#31 Sept 98 p1) on its proposal for turning the road over to NEWTRAC, a private non-profit formed for the purpose. Greg Hulsizer, gen. manager of CPTC told us statements by Tom DiLorenzo in the article were “outrageous.”

DiLorenzo, a professor of management in Baltimore is a leading author and a strong critic of non-profits. We aired and endorsed his criticism. This was no reflection on the character of the people sponsoring or involved in NEWTRAC. But good people also set up the United Way of America, people who had no intention that future management would use its resources to support a playboy lifestyle by national president William Aramony, corrupt non-competed contracts with the businesses of his sons, apartments and all-expenses holidays for his mistresses, arbitrary firings of staff who raised questions etc. All of which persisted at UWA for 20 years under the private non-profit form. The guy’s shameless, and UWA still hasn’t rid itself of him. Two years into a 7-year jail term for robbing the place Aramony had the chutzpah to mount a civil case in the courts claiming UWA owes him millions in retirement money according to an employment contract that he and his cronies fixed. And he’s won the first round - see headline above!

While Aramony’s misuse of UWA resources was unusually brazen, DiLorenzo’s investigations have led him to believe that serious abuses are “endemic” among private non-profits. (See James Bennett & Thomas DiLorenzo “Unhealthy Charities,” Basic Books, 1992.) Aramony is still publicly defended by a number of other private non-profit leaders as having made “big contributions” while having made “mistakes.” (Like “Getting caught and jeopardizing the rest of us.”)

The founders of many private non-profits are well-intentioned but their basic institutional structure is, we think, wrong. More so when they are basically a business. At least with a charity donors can register a protest at abusive management by stopping giving, which was what finally ousted Aramony. Do Riverside Co motorists stop using the X-lanes because Hausdorfer’s successor doubles his own pay? Or “retires” with a million or two? Would they even know?

These shonky outfits have no chain of accountability. They have no owners who stand to lose if management is self-indulgent. And they aren’t accountable to elected representatives either. They’re in a netherland of unaccountability, a no-mans land between business accountable to shareholders, and government accountable to voters.

Hulsizer told us he thought our criticism was directed at all non-profits and that virtually all IBTTA members would be offended by it. Toll agencies in the US are almost all non-profits, he commented.

There’s an important distinction, surely, between the private non-profits and government non-profits. Imperfect though government may be, the Pennsylvania Turnpike, for example, is answerable via a government appointed board to the state of PA, and via the state political process to the voters. The Turnpike is obliged to abide by certain state standards of disclosure and surveillance and is answerable to elected officials.

As described to us NEWTRAC was established by four private individuals forming themselves into a board of directors at the suggestion of CPTC. The four will make their own rules, and appoint other directors. They are a self-appointed self-perpetuating clique, answerable to noone. The founders of NEWTRAC are admirable individuals, no doubt, but it is the institutional structure of a private non-profit that is a standing invitation to self-indulgence and abuse.

Gary Hausdorfer himself told us in the original interview that the “only” rationale for the non-profit form was that it can borrow tax-exempt, at a major advantage over a regular business. He told us that it was “the only way” 91X could be refinanced given that the opening of the Eastern was certain to seriously undercut 91X revenues.

Lawyer letter

After last issue we got a letter from a lawyer for Gary Hausdorfer chairman of NEWTRAC claiming that our article implied that Hausdorfer and his colleagues “intend to engage in... self-dealing or political empire building or that such conduct will inevitably result from NEWTRAC’s purchase and operation of 91X.” The letter also objects to our characterization of Hausdorfer as “principally a politician.” It ends with a demand that we publish a Correction statement they drafted.

Nohhh wayyy!! The proposed “Correction” suggests we attributed improper motives to Hausdorfer and his colleagues, when we did nothing of the kind. If we had known anything adverse about them we certainly would have reported it. We made no statement, as the letter claims, that corruption or abuse would “inevitably” result from the private non-profit form, rather that the lack of accountability of a private non-profit presents a temptation to abuse and that there is a tendency over time for such institutions to attract and provide a safe-haven for sharks.

“Politician”? We thought that 17 years as a mayor of a city and two longish terms on major county boards when his other occupations were quite varied and less prominent made Gary Hausdorfer “principally a politician.” Together with his ringing populist promises to turn the profits of 91X back to the local people etc. There’s nothing wrong with political self-promotion. It’s how people compete for elected office.

However calling down legal firepower on someone who disagrees with you is NOT evidence of political aptitude!

We’re happy to report further that Hausdorfer has also worked in commercial and mortgage banking, life insurance, PR, and management consulting. And he’s done a ton of good volunteer work. He seems to be a fine, energetic, public-spirited, all-round, capable guy, of good business as well as political credentials, with whom we simply differ on whether a private non-profit is a good way to run a road.

As for CPTC, it has done a great job pioneering the difficult but important new business of toll express lanes, but now wants out, and feels forced by the flawed US tax code to sponsor the private non-profit form. Looks as though the Eastern toll road’s competition makes 91X non-viable commercially. Hate to say it because we prefer the for-profit business form, but maybe the counties of Orange and Riverside should sponsor an authority which is tax-exempt and answerable to local elected officials to take 91X over?