How the charities on your Colorado tax form used political clout, little state oversight to earn a coveted spot

Marketed as a simple way to donate to charities each tax season, a state-sanctioned program has raised more than $7 million in five years, all thanks to a voluntary checkoff on state income tax returns.

The nonprofits fortunate enough to make the list consider the program a godsend, helping the most popular causes to generate more than $150,000 with little effort.

But the official seal of approval obscures uncomfortable realities: Most of the organizations receive no state oversight and won a spot with political clout.

A reluctant General Assembly holds the key to the program’s gate, and the situation has become so troubled that lawmakers openly complain about picking winners and losers.

Sen. Owen Hill, R-Colorado Springs, this month appeared exasperated at “how frustrating the tax checkoff has become and how politicized it’s become” — even if it benefits worthy causes.

“It’s just this constant sense that we are picking between our friends,” Hill said.

This year, the one organization asking lawmakers for a place on the tax form is Urban Peak, a group that addresses youth homelessness. The bill sponsor is Rep. Leslie Herod, D-Denver, who recently resigned from the nonprofit’s board.

Daniel Borochoff, president of Charity Watch, an independent watchdog group, said Colorado’s checkoff list appeared to be “a random grouping of whatever the pet interests or contacts of the legislators are.”

Unlike states such as Oregon, Colorado’s program does not include requirements to track how the taxpayer donations are spent, a Denver Post review found.

“If they’re on the official state form, probably a lot of people are thinking that it’s been vetted or checked out,” Borochoff added. “That doesn’t appear to be the case.”

Not only that, the limited requirements the state imposes on participating charities often are relaxed by state lawmakers when they become inconvenient. The most recent change happened a year ago, when state lawmakers rewrote the program’s rules to prevent a half dozen organizations from dropping off the list for falling short of the minimum fundraising threshold.

Nation’s first program

Colorado’s charitable checkoff program became the nation’s first in 1977 and the state touts itself as a national leader for tax-season giving. In 2016, taxpayers donated $1.6 million to the 20 organizations in the program — the sole source of money for a handful of them.

The donations are collected when Colorado residents offer to donate portions of their tax refund or make contributions above the amount owed by filling out a supplemental form. The average donation last year was just under $12.

The listed programs run the gamut from major national groups such as the American Red Cross and the Colorado chapter of Habitat for Humanity, to comparatively small nonprofits such as the Colorado Youth Corps and Roundup River Ranch, a camp for children with serious illnesses.

A handful are run by the state. A homeless prevention fund is managed by the Department of Local Affairs, and the Public Education Fund deposits money into the state preschool program, run by the Department of Education.

Sen. Lois Court, D-Denver, acknowledges the system is inequitable and the list is laden with politics.

“I don’t know that a vast majority of nonprofits even know it’s an option, and that’s part of the problem,” she said in an interview.

For groups that appear on the form, she said, “frequently it’s because there is a lobbyist available to help — that kind of knocks out those who can’t afford lobbyists.”

The official state tax booklet provides a one-paragraph summary for each program, referring taxpayers to a group known as Checkoff Colorado for more information.

But Checkoff Colorado is a marketing organization that provides information only on nonprofits that pay the group $1,500 for outreach. This year, its website has information on just seven of the 20 groups.

The Colorado Youth Corps Association spent $24,000 on lobbying in 2014 — the year legislation to add it to the tax form won approval at the statehouse. Scott Segerstrom, the group’s executive director, said the tax checkoff bill was a small piece of its lobbying efforts, and according to its federal tax records, it has had an ongoing presence at the Statehouse in recent years. The group spent 24,000 on lobbying in 2013 and 2012, and $12,750 in 2011.

Urban Peak took a different path this year. Malinda Anderson, the group’s finance director, said she had considered the possibility for about a year before a light bulb went off.

“I went, ‘Oh, Leslie was just elected,’ ” Anderson recalled, referring to Herod, a freshman lawmaker who served on Urban Peak’s board of directors for eight years.

Anderson said she suggested the idea to Herod, who agreed to sponsor House Bill 1055. The measure — which is expected to receive bipartisan approval Tuesday in the Senate — adds Urban Peak to a waiting list and may appear on the 2018 tax form.

The organization hopes the donations will restore services the group cut after it lost a $150,000 federal grant. This year, she said, Urban Peak shed staff and reduced its program outreach.

“I feel like the best way that I now can advocate for homeless youth is by focusing on my work in the legislature,” said Herod, who resigned after being elected in November, citing time constraints.

“Urban Peak has never done this before because Urban Peak doesn’t have a lobbyist or anything like that,” she continued. “…This was really a good solution, and something that could make a huge difference in how we serve homeless youth.”

Herod’s sponsorship may raise eyebrows, but it doesn’t appear to violate the state’s ethics rules. A 2006 advisory opinion from the legislature’s ethics board found that even current board members could vote on legislation that benefits their nonprofit, as long as they don’t personally benefit from the legislation.

Revamp effort fails

An effort to overhaul the program debuted earlier this session. Court sponsored legislation — Senate Bill 54 — to create a five-year rotational schedule that would allow more nonprofits to appear on the form.

In the program’s 40 years, she noted, only 38 nonprofits received one of the coveted slots. “I think it’s somewhat ridiculous that we have to write laws every time someone wants to get on this,” Court told the Senate Finance Committee.

Colorado National Guard Chaplain David Nagel told lawmakers the checkoff line is the only way his organization receives money to help families of deployed service members.

“We are asking a lot of these young men and women to go into harm’s way and represent us, and to help us in state fire and floods,” he said. “And without (the checkoff program) we don’t have a lot of unique ways to get funding when they go through times of distress.”

Court acknowledged that she wasn’t confident that her proposal is the best system and suggested  these important causes should receive money in the state budget.

A majority of the committee raised questions about the program’s administration but rejected the bill, only to later vote in favor of the Urban Peak bill.

“Every person that comes up brings up the life-or-death scenario that these funds depend on,” Hill told the committee. “Every single year, three, four, five times a year we are asked to make this decision and pick winners and losers.”

Lawmaker questions

Jon Pushkin, a spokesman for the Colorado Checkoff marketing effort, said donors can be confident the organizations on the 2017 list are spending their money wisely, because they’re “carefully vetted by the state legislature.”

But some lawmakers worry that little vetting actually occurs.

When the House Finance Committee considered granting Urban Peak a tax checkoff earlier this year, state Rep. Susan Beckman, R-Littleton, questioned whether the legislature truly scrutinized these groups, or simply said yes to popular programs with strong advocates.

“I do have concerns that we do not do any kind of vetting — besides people that feel passionately about the good works that their organizations do — to put it on the checkoff,” said Beckman, who ultimately supported the Urban Peak bill. “That’s a concern for me.”

Indeed, Colorado’s process looks haphazard in comparison to other states. There’s no formal application process to get into the program, and once the nonprofit is on the list, the state has no way to determine how the money is spent.

Contrast that with what happens in Oregon: To qualify for a tax checkoff, a nonprofit has to submit detailed financial statements every two years, show proof that they’re in compliance with state and federal nonprofit rules, and collect 10,000 signatures to show that the public supports the organization’s inclusion.

Plus, any money raised has to go toward services, and not administrative costs, a provision that safeguards against nonprofit administrators directing taxpayer donations toward their own salaries.

Nonprofits rotate off the Oregon list every two years, but they can return if they stay in good standing. An independent commission is charged with enforcing the rules and determining who gets on the list.

In Colorado, the lack of state oversight means the onus falls on donors to determine which groups are worthy of their money.

It’s “donor beware,” said Borochoff at Charity Watch. “People need to make the effort to know about the groups and check the groups before donating.”

Correction: An earlier version of this story erroneously reported how much the Colorado Youth Corps Association spent on lobbying, due to a change in the group’s accounting practices. The group spent $24,000 in 2013, according to its federal tax filing.

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