Nonprofit group skirts lobbying laws, critics charge PDF Print E-mail
St Louis Post-Dispatch


By Deirdre Shesgreen
Post-Dispatch Washington Bureau
03/05/2005

WASHINGTON - In December, former House Majority Leader Dick Armey appeared on the cable network CNBC to tout generic drugs as a free-market solution to escalating prescription prices.

Armey was speaking as the co-chairman of FreedomWorks, a conservative advocacy group - but his pitch went beyond the usual Washington punditry.

Armey, a Republican from Texas, spoke glowingly of "Rx Outreach," a national mail order program for low-income people that had just been launched by Express Scripts Inc., a pharmacy benefit management firm based in Maryland Heights, Mo. Armey said buying drugs through the company was a better idea than allowing the import of cheaper drugs from Canada and other countries, as some lawmakers have proposed.

He urged viewers to look up Rx Outreach on the Internet: "It seems to me such a convenient option."

Armey's plug for the company was no accident. His nonprofit group had been working with Express Scripts' public relations firm, and a week later issued a news release praising Rx Outreach. Now, Express Scripts says it plans to donate money to Armey's group, though it won't say how much or when.

Critics say the arrangement could call into question FreedomWorks' tax-exempt status because it appears that the group was a "mouthpiece" for hire, an assertion sharply disputed by FreedomWorks.

Either way, their relationship highlights the often ambiguous role that some Washington think tanks and nonprofit groups play in political advocacy and their often-undisclosed connections to those who would benefit.

When corporations hire lobbyists to influence federal policy, those lobbyists must publicly report their fees and the issues or bills they're pressing lawmakers on. But think tanks or other nonprofit groups like FreedomWorks are under no such obligation, which makes them attractive to corporations and other special interests who want to contribute anonymously and under the public radar on controversial issues such as prescription drug prices or Social Security privatization.

"Educating the public"

FreedomWorks bills itself as a grass-roots advocacy organization that "fights for lower taxes, less government and more economic freedom," as the group's Web site puts it. It was formed last summer, the result of a merger between two similar conservative groups, Citizens for a Sound Economy and Empower America.

The group was until recently headed by three Washington power brokers:

Armey, who appears to be the most active in publicly touting FreedomWorks' agenda.

C. Boyden Gray, former White House counsel to President George Bush. Gray also serves as FreedomWorks' co-chairman and focuses on judicial nominations and school choice.

Jack Kemp, a former Republican congressman from New York and Bob Dole's vice presidential pick in 1996. He resigned last week due to "differences in approach" on some issues, according to FreedomWorks' spokesman, Chris Kinnan.

Kemp, Armey and Gray did not return calls for this story.

All three also work as Washington lobbyists.

Armey, for example, is a lobbyist for the Investment Company Institute, an association of mutual fund companies. In his role as FreedomWorks co-chairman, he has been an outspoken proponent of Social Security private accounts, which could be a boon to Wall Street.

None of FreedomWorks' officials are registered to lobby for Express Scripts, which has another firm, the Capitol Health Group, pressing its agenda in Washington.

But Express Scripts and its Rx Outreach program do have a relationship with FreedomWorks. The program's public relations company, Fleishman-Hillard Inc., contacted FreedomWorks last year "to help educate the public," according to Derrell Carter, an Express Scripts spokesman.

After his appearance on CNBC, Armey touted the program in a press release in which he said: "One innovative private sector program helping Americans to get the medicines they need is Rx Outreach, which lowers the cost of generic drugs for about 108 million people. ... This program can achieve real cost savings now while the reimportation debate continues ..."

Carter said Express Scripts planned to contribute to FreedomWorks "at some point in the future" but declined to say how much or when.

Carter said the company wanted to contribute for "philosophical and practical reasons: We agree on the need for private sector programs to address prescription drugs access, and we want to promote awareness of the (Rx Outreach) program."

"A lot of questions"

To critics, the prospective donation from Express Scripts looks like payment for good PR and raises questions about whether FreedomWorks is complying with rules regulating nonprofit groups.

"It looks like Express Scripts has hired a mouthpiece, and that's FreedomWorks," said Gary Ruskin, of the Congressional Accountability Project, a nonpartisan watchdog group. "It looks like FreedomWorks is totally for sale."

Bill Allison is managing editor of the Center for Public Integrity, a nonpartisan investigative group that tracks lobbying and campaign contributions. "It's rare to see someone pushing a company this directly," he said. "It does look like it's more of a commercial for this company than a discussion of policy."

Allison added that "if there is money coming, it doesn't really matter if you did something to get it beforehand or after."

Frances Hill, a law professor at the University of Miami who specializes in nonprofits, said the promised contribution from Express Scripts raises questions about whether FreedomWorks is abiding by rules that forbid a tax-exempt organization from acting for the benefit of a private interest.

Corporate contributions to nonprofits are not supposed to benefit the donor, Hill said.

With Armey touting the Express Scripts program, she said, "then I think what it begins to look like is that the organization is operating for the private benefit of the company."

"... If in fact the organization is taking money from a company that's going to directly benefit from the (nonprofit's) message, then there is a private benefit to the company" and that could "undermine" FreedomWorks' tax-exempt status. "There's a lot of questions that raises," said Hill, including whether the contribution was anticipated and how much the company plans to give.

"We totally comply"

Kinnan, FreedomWorks' spokesman, said the group doesn't discuss its sources of funding. But he flatly rejected the contention that FreedomWorks is for sale or that is has abused its nonprofit status.

"We totally comply with the law," Kinnan said. "Our role in this debate has been to raise awareness of different solutions to these public policy issues. It's certainly not to tout a company ... But if there are interesting private sector solutions, we will bring those into the debate." He said the Express Scripts program fits the group's ideology precisely because it offers a private sector solution to a pressing public problem - the rising cost of prescription drugs.

As for any contribution for Express Scripts, he said: "We work on a set of explicit (free market) issues ... People support us because they understand that mission and they want to support that mission."

Kinnan said Armey was not available for an interview. He provided a statement from the former congressman, who said: "Any funding accepted by FreedomWorks is consistent with our mission of individual choice ..."

FreedomWorks' predecessor group, Citizens for a Sound Economy, weighed in on controversial issues and then secured donations from corporate interests who could benefit from the group's advocacy.

In 1998, it attacked a proposal to restore the Florida Everglades. Afterwards, three of Florida's sugar companies, which stood to lose cane-growing property under the measure, gave the group $700,000, according to The Washington Post.

The Post also reported that the group took more than $1 million from Philip Morris Cos. as it was opposing cigarette taxes and got an additional $1 million from US West Inc., while the group was pushing for deregulation that would benefit the phone company.

Advocate, lobbyist

As a public policy advocate with FreedomWorks, Armey has been an outspoken proponent of President George W. Bush's call for letting workers put a portion of their Social Security taxes into private accounts.

He's also a lobbyist paid to work for the Investment Company Institute, the mutual fund industry trade group, which has an interest in the issue. The firm where Armey works as a lobbyist, Piper Rudnick, earned $100,000 from the institute in the first six months of last year for lobbying lawmakers on several measures calling for tighter regulation of the mutual fund industry, according to the most recent lobbying reports.

Meanwhile FreedomWorks has made private Social Security accounts one of its top issues, mounting what Kinnan calls "an aggressive grass-roots education campaign." The group has dispatched activists to attend politicians' town hall meetings and organized "fly-ins," where activists travel to Washington or their state capital to lobby lawmakers.

Private accounts "are the answer to the Social Security crisis," Armey said in a FreedomWorks news release dated Aug. 11. "President Bush clearly understands the profound issues at stake, and he is outlining a bold vision to modernize and strengthen Social Security." (The White House has since said that privatization would not address the eventual funding shortfall.)

In an op-ed column in October in the Wisconsin State Journal, Armey touted a bill by Rep. Paul Ryan, R-Wis., to allow workers to divert half their payroll taxes to private accounts. Armey said the move would "let all workers begin to accumulate real assets for retirement" and help "avert the program's coming financial shortfall."

Armey was identified in these statements as head of FreedomWorks, not as a lobbyist whose clients include the Investment Company Institute.

Chuck Martin, an editorial writer at the Wisconsin State Journal, said Friday that he doesn't believe the paper knew that Armey was a lobbyist for the mutual fund industry when it ran his column. (The editor who handled Armey's piece has since left the paper.)

Martin said he would have identified Armey differently. "It's important for the reader to know that he is paid for producing views on behalf of a client," Martin said.

Like many other Wall Street interests, the investment institute has not taken a position on Bush's plan, and the issue is not listed among those Armey is being paid to lobby for.

Greg Ahern, the institute's chief public communications officer, said, "We commend the administration for putting Social Security reform and retirement finance on the national agenda. But we are not lobbying for private accounts, we are not lobbying against them."

Under Bush's proposal, Ahern said, the fees on such accounts would be very low, so the mutual fund industry does not view them as a big potential money-maker.

But skeptics have said that Wall Street interests are shying away from the debate because they don't want to be seen as pushing an issue that will line their pockets.

"These are companies that stand to benefit," said Allison, of the Center for Public Integrity. Armey's dual roles, he said, mean that he is "certainly profiting from a policy position, and it does raise questions about what he's saying, whether it's to the benefit of the American people or to the benefit of his client."

Kinnan said he didn't see any problem with Armey's two roles. "He's been a longtime proponent of personal accounts," he said. "You can always look for connections like that, but it's quite clear where Mr. Armey stands on these issues."
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