Last November, a few hundred people donned their best suits and gowns and converged on San Jose’s historic Hayes Mansion to toast some of the East Side’s most accomplished alumni. The stars that night, honored in the East Side Union High School District Education Foundation’s Hall of Fame fundraiser, consisted of a 10-person class led by Khaled Hosseini, a 1984 graduate of Independence High School and author of The Kite Runner.
The nonprofit’s mission from the outset has been to support the East Side Union High School District (EDUHSD), which has been hard hit by state funding cuts. It was set up in 2007, when George Shirakawa Jr. was the president of the district’s school board. Shirakawa is now a county supervisor who is fighting to save his career in the face of illegal spending allegations. His current chief of staff, Eddie Garcia, was one of the first three foundation trustees. The district contracted with Cindy Chavez, now head of a union-aligned think tank and advocacy group, to establish the foundation.
To date, the organization has donated more than $70,000 in grants, school supplies and sports donations to ESUHSD, which paid more than that to get the foundation rolling.
But on Nov. 15, 2011, the IRS revoked the foundation’s nonprofit status. And yet almost no one outside of its board—including donors—knew about its lost certification when it threw a fundraiser a year later.
As a result, some of the charitable donations that were made may not be eligible to be claimed as tax deductions on contributors’ 2012 returns. The foundation now awaits word from the IRS on reinstatement of its nonprofit exemption. Foundation board members hope that will happen in the next two to four months.
“It’s embarrassing and it’s unfortunate we found out after we began the Hall of Fame fundraising for this year, because it kind of puts everyone’s tax deduction in a status that they might not be able to use as a write-off,” says Chris Funk, the ESUHSD’s new superintendent and vice chair of the foundation.
Funk says he was surprised to learn in August 2012—a month after he assumed his two roles—that the foundation lost its nonprofit privileges because it failed to file required Form 990s for three consecutive years, from 2009 to 2011.
“I sent [the notice] to my business office,” Funk recalls, “and said, ‘What the hell is this?’
“The understanding was that unless you were making a profit, you didn’t have to file your paperwork, which was a mistake.”
While it is not unusual for nonprofits to have their status revoked due to inexperience in filing forms, it appears the East Side foundation’s precarious footing can be traced, in part, to its creation.
When the ESUHSD board decided to create a nonprofit foundation to bridge funding gaps, it tapped a company called California Leadership Services to create bylaws, tour the district’s high school campuses and write grant applications.
What few if any of the ESUHSD board members knew at the time was that Chavez, fresh from a defeat to Chuck Reed in the 2006 San Jose mayoral election, controlled California Leadership Services.
“When Cindy was hired by the district, I honestly don’t think the board was aware it was hiring her,” says Frank Biehl, who still holds a seat on the ESUHSD board. “I know I wasn’t aware of it.”
By the time Chavez’ contract expired in the summer, she had been paid $79,000 in consulting fees from school district funds. However, the foundation had almost nothing to show for this payment—no website, a board still stuck at three members and less than $5,000 in the bank.
“We were appalled that all this money had been spent and there was little to show for it,” says Diane Blum, whose children attended East Side schools at the time the foundation started. “There was really not a lot of work to show for it. … Definitely out of whack with the money that had been spent. I think people should be held legally responsible. I think she should pay it back.”
Bob Nunez, the ESUHSD superintendent at the time, who was also under investigation for questionable spending of district funds, remembers that “the few times that we did talk about the foundation, it was that it was moving along. It wasn’t very specific that I can recall.
“I do know [the foundation] was no place close to being ready.”
Chavez declined comment for this article, but those involved with the foundation say that it was still in its infancy when she left. Nunez filed the incorporation papers after Chavez’s engagement ended. Though she had had no prior experience in the nonprofit world, county Supervisor George Shirakawa defended Chavez’s hire in a September 2009 San Jose Mercury News article, noting that “she had the thickest Rolodex in the valley.”
A little more than two years after he made those comments, Shirakawa made his own contribution to the foundation: a $2,500 sponsorship for the 2011 Hall of Fame dinner. That contribution, made via PayPal in December 2011, proved to be problematic, along with many others Shirakawa made in his first four years as a supervisor, as he donated county funds without receiving the Board of Supervisors’ approval.
On Jan. 19 of this year, the foundation returned Shirakawa’s $2,500 “Silver Level” sponsorship to the county’s controller-treasurer department.
Shirakawa’s office did not respond to a request for comment for this story, and he remains under investigation by the District Attorney’s Office and the Fair Political Practices Commission for his own misuse of county funds and failure to file campaign disclosure documents.
Lost and Foundation
Kathy Camin, an East Side Hall of Fame inductee in 2011, took over as foundation treasurer in the summer of 2012. The IRS revocation, she says, could have been avoided by simply sending in an annual 10-question postcard.
With the foundation’s 2012 signature event just weeks away—the Hall of Fame dinner occurred Nov. 3 at Hayes Mansion—the foundation forged a fiscal agent agreement Oct. 19 with the Silicon Valley Education Foundation. Less than a week after the ceremony, Nov. 9, the East Side foundation filed an application to have its nonprofit status reinstated.
What’s concerned many of the people contacted for this story who have close ties to the foundation is the lack of transparency in failing to alert stakeholders of the revocation.
The foundation raised just $9,062 from May 2008 through June 30, 2011, according to Form 990s the foundation provided to Metro. But in the following fiscal year, more than half of which followed its yanked status, the foundation raised $84,179.
There was no announcement to 2012 Hall of Fame attendees of the lost nonprofit status, and there are still multiple sources online, including the foundation’s Facebook page, where the organization misrepresents itself as a registered 501c3. The East Side, parent-organized booster program “Save Our Sports” donated roughly $50,000 to the foundation last year, and it is not clear if that group has been made aware of the changes.
“This is news to me,” Biehl said when contacted on Monday. “This is the first I’ve ever heard of this.”
“No, I was not aware,” said Muhammed Chaudhry, the president and CEO of Silicon Valley Education Foundation. “You really want to be up front about that.”
San Jose Councilmember Ash Kalra, who was inducted into the Hall of Fame this past winter, told Metro he also was unaware of the foundation’s decertification.
Officials on the foundation board could not say for sure how much money was collected while its nonprofit status was revoked, but Camin estimated that the total is “at max a couple thousand.” To date, the Silicon Valley Education Foundation has collected $18,400 on behalf of the foundation, Chaudhry says.
But other issues remain. Chaudhry says that a typical nonprofit’s expenses eat up about 20 to 30 percent of funds raised. But of the East Side foundation’s $162,000-plus of total revenue raised to date, according to documents the foundation provided, a little more than $70,000—or 43 percent—has gone to expenses, including two Hall of Fame dinners at Hayes Mansion, which cost $23,800 in 2011 and $26,728 in 2012.
Funk says he is confident that the foundation’s current leadership, which consists of 13 unpaid boardmembers, will correct any past issues.
“I think the district has put all the safeguards in place,” he says, “so going forward we can be good stewards of the public money.”