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New Pennsylvania attorney general must put an end to Hershey Trust scandals

Posted 8/30/16

Now that Pennsylvania is about to get a new attorney general, perhaps the state will finally take responsibility for curbing abuses at the $12.3 billion Hershey Trust. 

The resignation last week of Kathleen Kane, hours after she was …

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New Pennsylvania attorney general must put an end to Hershey Trust scandals

Posted

Now that Pennsylvania is about to get a new attorney general, perhaps the state will finally take responsibility for curbing abuses at the $12.3 billion Hershey Trust. 

The resignation last week of Kathleen Kane, hours after she was convicted of perjury, means that in November the state will elect a new top law-enforcement officer. He or she will inherit the long-running scandal at the trust, which has become a symbol of the broken state and federal systems for regulating charities. 

One of Ms. Kane's final acts was to announce a settlement with the Hershey Trust. It came after Mark Pacella, who oversees nonprofit regulation in the attorney general's office, demanded that the trust dismiss all board members who have served more than ten years and reduce trustee compensation. 

The settlement also came after regulators learned about the latest troubles at the trust, which oversees the Milton Hershey School, a boarding school for needy students. Internal board disputes grew so serious that Hershey spent $4.2 million to conduct legal investigations. The U.S. Justice Department was reviewing a claim of discrimination against disabled youngsters, and the school faced allegations of inappropriate conduct toward students by staff members. 

Even with such serious difficulties, a total overhaul of the school's governance structure was not in the cards. The agreement with the state essentially leaves that structure intact, does nothing to ensure improved school policies and programs, and doesn't require a change in school administrators. 

The latest problems are hardly the first at the Hershey School, which for more than 20 years has been plagued by poor administration, political patronage, board pay that exceeded $100,000 annually for each member, conflicts of interest involving trustees, and questionable real-estate deals. 

In all that time, local, state, and federal regulators have repeatedly failed to hold the trust and school officials accountable. They have been incapable, or, more likely, unwilling, to stop school policies and practices that have been harmful to students, preferring instead to support the political and financial interests of board members and administrators. 

They have tolerated board excesses and actions that are rarely seen in the nonprofit world. 

A series of Pennsylvania attorneys general sought to curb the school's problems, but they never went as far as they should have. 

In 1994, responding to state pressure, the Hershey Trust announced some changes, including limits on board tenure (to two five-year terms) and new criteria for membership, such as experience working in education and child development. But today there still are no board members with such qualifications. 

Another round of regulation was touched off in October 2010 when then-attorney general (and future governor) Tom Corbett launched an investigation into Hershey's purchase of a failing golf course for $12 million, way above the actual value of the property. 

Two-and-a-half years later, Ms. Kane, who had inherited the case, closed the investigation, absolving the board members of any criminal wrongdoing but adding some mild requirements to improve governance at Hershey. She sought to tamp down excessive board pay, take steps to avoid conflicts of interest, limit trustees' ability to serve on multiple boards at the same time, and bring in new members with education backgrounds. 

But the agreement had no teeth and failed to attack Hershey's substantial governance issues. 

The 2016 deal is probably worse. It doesn't require any repayment of the $4.2 million wasted on internal investigations. It permits board members to step down at their own convenience and name their successors. It doesn't require new trustees to possess experience in education or youth development. And it permits board compensation to be as much as $110,000 annually per person — a sum higher than that in the 2013 agreement, which was supposed to curb excessive pay. It also allows three board members to double-dip by sitting on subsidiary boards of the trust and collecting additional lucrative stipends. The agreement is shameful in the way it protects the board at the expense of the students. 

But it's not just the state that is at fault here. The federal government has been slow to take action. 

Three years ago, as a result of the suicide of Abbie Bartels, an outstanding Hershey School student and athlete who suffered from moderate depression, the Justice Department started an investigation of the school's policies toward students with mental-health problems — policies that may have denied students like Abbie the possibility of getting suitable treatment. 

The school denies any wrongdoing. The Justice Department is still investigating. Why is it taking Justice so long to act? 

The Internal Revenue Service has been even less attentive. 

Seven years ago, I called the significant problems that had been uncovered at the trust to the attention of Lois Lerner, then the head of the agency's tax-exempt division. She told me the IRS was well aware of the serious nature of the school's troubles but said only that she had a colleague in Texas following the case. The IRS has yet to take any visible action to investigate. (The IRS is typically forbidden from commenting on pending investigations, and when I asked last week whether there was an update on the Hershey Trust, a spokesman declined to provide any details.) 

Regulators' ineptitude and cowardice have been reinforced by a widely shared conspiracy of silence throughout Pennsylvania. 

With the exception of Bob Fernandez, a reporter at The Philadelphia Inquirer, the state's journalists have done little. 

Not even the local paper, The Patriot-News in Harrisburg, has had the courage to cover a major institution less than 20 miles from the capital. The Pennsylvania Association of Nonprofit Organizations has refused to get involved or make any public comment, even though the school undermines the reputation of all nonprofits. Academics, youth-development specialists, and school educators throughout the state are well aware of what is happening at Hershey but have chosen to remain silent.

Protect the Hersheys' Children — a dissident group of alumni headed by a tough lawyer, Ric Fouad — is the only organization that has continually fought to overhaul the school's policies and practices. Thanks to its persistence and courage — and in spite of harsh criticism and attacks on its integrity by school officials — the Hershey pot has been kept boiling. 

It's time the Hershey School scandal was put to rest. The school needs a totally new board with some education and youth-development experts. It needs a change in board-compensation policies. It needs a new set of administrators who have the interests of the students at heart and know how to run an effective educational institution. 

It's one thing for the elected state attorney general, buffeted by political pressure, to do little. But why, across years of scandal, haven't the career civil servants in the attorney general's office done more to demand serious reforms? 

Given the lack of action, a Pennsylvania citizens' board of inquiry should be established to advise the regulators on developing a new school structure. When a new attorney general takes office in January, I hope he or she will finally help ensure the Hershey School becomes an institution that focuses solely on doing its best to meet the academic and health needs of its students and no longer gets involved in financial shenanigans. 

The public can no longer tolerate what has happened at the Hershey School. It must demand a drastic change. 

Pablo Eisenberg is a senior fellow at the Center for Public & Nonprofit Leadership at Georgetown University's McCourt School of Public Policy. His email address is pseisenberg@verizon.net.