Finance & Investment: Frontline Philanthropists
Mark Solomon and Paul Silberberg can smile about the day they lost a $750 million account. Silberberg, the president of CMS Companies, a private financial services company in Philadelphia, recalls the meeting two years ago that he and Solomon, the chairman and founder of CMS, had with the prospective client. The would-be client had just sold his company, and he wanted CMS to handle his money. But he wanted no part of their philanthropies, which range from the United Way to Big Brothers Big Sisters to Yemin Orde, an international school in Israel for which they’ve raised more than $14 million.
“This fellow was 49 years old,” says Silberberg. “We said, if you just put your money in a bank and compound it at 5 percent interest, at your life expectancy you’ll see it grow to $3 billion. You won’t have a hole big enough to contain you and all your money. What do you want to do with it?” After three hours of philosophic debate, they turned him and his $750 million down. “Our values were too far apart,” says Solomon, a 60-year-old native of Manchester, Conn.
“He was really angry,” Silberberg says with a chuckle. “He had been determined to invest with us.”
Admittedly, the story has the ring of apocrypha, but CMS clients say they can’t imagine Solomon and Silberberg responding otherwise. “Philanthropy is essential to their corporate culture,” says CMS client Harold Toppel, founder of the Pueblo International food store chain and whose family foundation is a benefactor of Project Mind Foundation, a program that helps West Palm Beach school children learn math. “Their philosophy is that everyone who can, should work for the community.”
Working for the community can mean making monetary donations, and Solomon is quick to point out that there is nothing wrong with simply writing a check to a charity. “That’s the basis of philanthropy,” he says. “A lot of charities revolve around check-writing. And for most people, that’s as far as it goes.” But for Solomon, Silberberg, and other philanthropists driven to make differences in others’ lives, giving money to charities is not enough. They find greater gratification by becoming personally involved with the people served by those charities.
That’s the case with George McDonald. Once a manufacturer of women’s apparel, McDonald’s arena is no longer the boardroom, but instead the streets and slums of New York City, where the organization he founded, the Doe Fund, shows that the homeless can be helped to lead productive lives. “The popular image was that the homeless didn’t want to work, and then that they couldn’t work,” says McDonald. “We’re putting the lie to those beliefs.”
The settings for McDonald and Solomon are different, as are the challenges that they face, but the passion is much the same. “When I am giving of myself,” says Solomon, “whether I’m raising funds, giving my time, or building something with my own two hands, that’s where my psychic income comes from.”
Solomon’s philanthropic urge is hereditary. His mother and father delivered more than 10,000 dinners and lunches during their 20 years of volunteer work for Manchester’s Meals on Wheels program. His mother, an accounting major in college, also did the books free of charge for just about every local charity.
And when the town decided to build a new high school, she chaired the committee that raised money for the project. “My parents were great believers in casting bread upon the waters,” says Solomon.
By the time he started CMS, Solomon decided that the world was made up of two kinds of people: farmers and miners. “A miner is somebody who just takes from his community, without putting anything back in,” he explains. “A farmer not only harvests, but plants for future growth. When I started CMS Companies I was determined we would be farmers.”
At one stage of his life, McDonald was doing more mining than farming. It was 1979, and McDonald, then 35, was operating his women’s apparel businesss, living on Manhattan’s Upper East Side, regularly dining at “21”, and socializing with such sports luminaries as Joe Namath. One night that year, after enjoying a $200 meal in a stylish Manhattan boîte, he left the restaurant and stepped outside and over the body of a homeless man lying on the sidewalk. It triggered a memory of the nuns at St. Ignatius High School admonishing him, “Other people’s miseries are your miseries.”
“I’d had a good life,” says McDonald, “but it was time to get serious about something.” He closed his company and immersed himself in the world of the indigent, the penniless, and the desperate. McDonald took a minimum wage job as a mail room clerk and moved into an SRO, a single-room occupancy apartment. “I went from making a very good living to living the life of a mendicant,” he says. He also became a volunteer for the homeless, handing out sandwiches at Grand Central station. His life as an indigent lasted four years in the early 1980s, during which time he made three futile runs for Congress on a platform of aiding the homeless. Along the way, his ideas about the homeless had changed. “I got to know thousands of homeless people personally, and every night I would hear the same thing: ‘What I really want are a job and a room.’ ”
To that end, McDonald eventually formed the Doe Fund, which now operates in San Francisco, Jersey City, and Philadelphia, as well as New York. Like many organizations helping the homeless, the Doe Fund, through its subsidiary program, Ready, Willing & Able, provides a clean, safe place to sleep and decent food to eat. But unlike most other services for the homeless, it does not provide these things for free. Instead, its beneficiaries pay for their room and board with money they have earned from work the Doe Fund provides for them.
McDonald’s plan didn’t begin to take shape until 1989, when he received a grant from the NYC Department of Housing Preservation and Development to acquire an SRO in Brooklyn’s Bedford-Stuyvesant district. He used the grant money to renovate the building to house 70 men whom McDonald had recruited from shelters. Next, McDonald landed a contract to renovate vacant city-owned apartment buildings to give his Ready, Willing & Able trainees paying jobs. Besides working, the men also had to swear off drugs and alcohol, and adhere to curfews. Those who didn’t comply were dismissed from the program.
To some political activists, the idea of putting the homeless to work was heresy. For decades, they had preached that homelessness was a matter of economic injustice, that the homeless were incapable of holding down jobs. In short, they said, it was their destiny to be victims.
But as McDonald explains, the cult of victimization had resulted in little more than warehousing the homeless and programming them for a lifetime of dependency on charity. “The entire idea of Ready, Willing & Able is to liberate people from welfare,” he says.
Brooms in hand, a dozen of his recruits, all dressed in blue uniforms, greet McDonald as he moves down Lexington Avenue on Manhattan’s Upper East Side. The uniforms are more than a decorative touch. Before each of the trainees is deemed worthy of donning the uniforms and caps with “Ready, Willing & Able” embroidered across the front, he has to undergo 30 days of one-on-one counseling and group sessions.
Once a trainee has graduated to the street-cleaning detail, he is responsible for an area measuring 10 city blocks in length. The purpose, explains McDonald, is to teach the virtues of discipline, punctuality, and courtesy. After six to nine months cleaning the streets, trainees may select on-the-job training in such fields as light construction and general building repair, commercial food preparation, or clerical work.
Of those who enter the program, says McDonald, 62 percent will complete it. No less important, 85 percent of the graduates will still be gainfully employed three years later.
“The uniforms stay at Ready, Willing & Able,” says McDonald. “But what the men have learned here stays with them forever.”
Solomon and Silberberg want to leave a lasting impression of a different kind on their workforce. Each of the 110 employees of CMS is expected to participate in at least one of the company’s philanthropic interests, just as the company’s clients do. For the company’s chairman, president, and 15 other principals, charity begins with their paychecks, from which 10 percent is deducted and contributed to the CMS Foundation, which benefits primarily youth-oriented programs. “That’s 10 percent off the top, not after taxes,” says Silberberg, who joined CMS in 1971, while he was a second-year law student at the University of Pennsylvania.
Almost all the company’s employees volunteer at least four hours every month for the Red Cross, and the company closes down one day a year for its annual Day of Caring, during which the entire workforce turns out en masse to perform community service. Last year they built a playground for a child care center in Philadelphia.
Sometimes the psychic income that Solomon speaks of comes in an unexpected form. In 1992, Solomon was raising $1.7 million for the Gesu School, a private Catholic elementary and middle school for inner-city children in Philadelphia, which had gone bankrupt when the parish closed down. While helping to save the school, Solomon was a mentor to an African-American boy named Daryl Shore. Daryl had been living with his grandmother, and when she entered a nursing home, Solomon—whose children from his first marriage, David and Karen, were grown—took the boy into his own home, ultimately sending him to a local private school, the Westtown School, after his graduation from Gesu.
“I remember driving Daryl to his first day at his new school,” says Solomon. “He was so nervous he threw up in the car. A few months later, he was voted class president.” Today Daryl is a junior at Emory University in Atlanta and remains a major focus of Solomon’s life as his adopted son. “Adopting Daryl and seeing him become the young man he is today has been the most rewarding experience you can imagine,” says Solomon.
Doubly rewarding, perhaps, because the son shares his adoptive father’s interest in “farming.” He already serves on the Gesu School’s board of trustees and has decided what he wants to do with his life. Says Daryl, “I plan a career in philanthropy.”
Like George McDonald and Mark Solomon, Susie Krabacher wanted to become personally involved in a charitable project. However, her help was not initially welcome. When Krabacher first visited Cité Soleil in 1994, residents of the Haitian slum shouted insults and threw rocks as the former Playboy Miss May 1983 strode past the tiny tin homes that line the garbage-filled streets. “I called out to them not to hurt me, that I just wanted to help,” says Krabacher, “but they didn’t understand me.” (Click image to enlarge)
Rather than deter her, the visit only strengthened Krabacher’s resolve to help. “I had originally come to Haiti to sponsor a child, but I knew that I had to do more than that,” she says. “I just couldn’t walk away. I was appalled by what I saw. There was garbage in the streets, open sewers, and rats the size of Chihuahuas.” There were also hundreds of abandoned children, including one particular baby at a hospital. “The baby screamed when I picked her up,” says Krabacher. “I realized that she had lain in the crib so long that her skin had bonded to the mattress and had torn off when I picked her up.”
Krabacher called her husband, Joseph, a lawyer, at their home in Aspen, Colo., and told him to close the antiques store she had recently opened and sell the shares they owned in a restaurant so they could use the money to help build a school and a clinic in Cité Soleil. After the Krabachers conducted some additional fund-raising in Aspen, Susie returned to Cité Soleil a few weeks later to watch construction begin. The school has no electricity or running water, and the heat is stifling at times, but every day more than 100 students cram into its three small rooms. In addition to an education, many of the students also receive their only meal of the day from the school.
The Krabachers weren’t finished. A year after building the school and clinic, they formed the Mercy and Sharing Foundation, a nonprofit agency that today operates four schools, two orphanages, and one clinic in Haiti.
Krabacher, now warmly regarded in Cité Soleil as Mama Blanche, first felt compelled to help underprivileged children after watching a television documentary about orphans in Mongolia. She couldn’t reconcile the fact that there were children on the other side of the world living in sewers and eating rats while she and her husband were enjoying the good life in Aspen— though Krabacher’s life wasn’t always so good.
“I understood the look of hopelessness that was on the children’s faces,” says Krabacher, who struggled through her own childhood in Alabama. She was in foster care by the time she was 12 and living on her own at 16, working as a restaurant hostess and office receptionist, before going to work at the Playboy mansion at the age of 20.
After watching the documentary, Krabacher, now 37, called several relief agencies and found that they were all willing to take her money, but none would let her help personally, so she bought a plane ticket to Mongolia. Before she could leave, however, a friend from her church stopped her. The friend didn’t understand why Krabacher would want to travel all the way to Mongolia when there were children just as needy in Haiti, a country only 500 miles from the coast of Florida.
“Joe and I started the foundation not as a means of providing charity, but opportunity,” says Krabacher. “We want to give the forgotten children of Haiti a chance to thrive and become the saviors of their own country. Our goal is to empower them with education and love so they can pass it on.”
Benevolence and Tax Breaks
Frontline philanthropists value their personal involvement with the people they help, rather than the tax benefits of their actions. Still, there are some tax advantages to their altruism.
An architect, for example, who flies his jet to South America to help locals rebuild a church, can’t estimate and deduct the value of his time and professional expertise. He can, however, claim the standard 50 percent deduction on measurable expenses such as fuel, landing fees, food, and lodging that are specific to the volunteer trips. The IRS does not allow deductions for the jet’s depreciation and insurance costs.
Similarly, doctors who donate their time working in third-world hospitals are allowed to deduct only travel and lodging costs. As far as the government is concerned, your time and skills are purely altruistic gifts, says Marco Svagna, a tax partner at Berdon LLP in New York. “The government doesn’t give you a lot of flexibility with deductions when you’re doing charitable activities,” he says. “It’s important to stress that there has to be no significant personal benefit—you can’t spend most of the time sightseeing. With doctors in Africa who spend all their time in surgery working with children, it’s very clear that the travel and any lodging expenses are charitable expenses.”
Tax benefits from frontline philanthropy by members of a limited liability corporation or a partnership are not necessarily different from an individual’s benefits. A company with fewer than 75 shareholders that elects S corporation tax status—as opposed to C corporation status—is not taxed as an entity separate from its owners or shareholders. For instance, if you own an LLC construction company with S corporation tax status and you donate your time, laborers, and machines to Habitat for Humanity, you could make deductions for those donations on your personal tax return. “If the company has an outlay for charitable purposes, such as concrete and materials, those are deductible,” says Svagna. “Workers who are loaned out are also a charitable deduction. The lines are a little blurry on what’s a charitable and what’s a business expense, but the charitable contribution benefit passes through to that shareholder.”
The extent of those benefits can depend on whether an expense is considered charity- or business-related. Charitable gifts are itemized deductions, which have limits. The allowance for business mileage is 34.5 cents a mile, for example, but the allowance for mileage associated with volunteer work is only 14 cents.