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Old money.

Why the mighty AARP spends as much furnishing its offices as it does on programs to help the elderly

The American Association of Retired Persons (AARP) receives approximately $75 million annually from the federal government to run a pair of job training and placement programs for older Americans--two of the largest of their kind. A recent phone call to AARP's Washington, D.C., headquarters to inquire about enrollment in the programs led to the following:

The caller, after unsuccessfully attempting to explain the programs to two befuddled receptionists, was bounced to Jack Everett, an official in the organization's Senior Employment Office, who cheerfully explained that AARP offers no federally funded job placement or training programs. Everett suggested calling the Department of Labor (the agency that pays AARP $52 million to run one of the programs) for help. He also offered other ideas, like, "Try the phone book under the senior citizens section," and suggested contacting the National Council on Senior Citizens, another, smaller advocacy group for older Americans. He even threw in some job-training advice: "You'll need a resume. That's always a good first step...."

Everett's not alone. Similar inquiries at AARP offices in major cities in 16 states turned up like responses: Only six of the offices were aware that these programs even exist, although AARP literature boasts that they're offered at 108 sites across the nation. One office suggested calling Elder Temps, a privately run job-placement firm. Another advised calling the Jewish Council for the Aging. Several others suggested enrolling in an AARP job search workshop and seminar--for a fee of $35.

In a way, those phone calls distill what's wrong with AARP, one of America's largest and most influential nonprofit organizations: In its brochures, it's dedicated to helping seniors work, play, and wield power. In real life, however, helping itself seems to be Job One. "It's no more than a big business," grumbles Virginia Fine, who until last year was an officer of a California AARP chapter. "The whole Washington operation is simply geared toward making money." A close look at the mammoth nonprofit's Washington command central offers a fair amount of evidence to back Fine's charge. In 1990, for example, AARP spent about as much on office furniture and equipment as it did on programs to help its 33 million elderly members.

The world according to AARP

Why should you care? If you're over 50, odds are you're a member: More than half the over-50 population has paid the $5 dues to belong. Next to the Catholic Church, it's the largest membership organization in America. But even if you're not an AARP card-carrier, you're paying for the organization's extravagance anyway, because AARP receives, in addition to its federal grants, a federal subsidy equivalent to nearly $20 million a year.

Of course, AARP's nonprofit status also grants it something money can't buy--the trust of millions of older Americans: trust to represent their interests in Washington, to sell them worthy products, and to use their dues and fees in their best interest. For most of the organization's 34 years, the media and AARP members have accepted that trust at face value. But a peek at AARP's finances and lobbying efforts suggests that this trust may not always be well-earned.

AARP describes its mission as threefold: to lobby on behalf of seniors; sell them products and offer them discounts on other goods and services; and provide them with the chance to both volunteer their services and benefit from the volunteer work of others. For their $5 investment, members get an assortment of goodies: a subscription to Modern Maturity, AARP's bimonthly magazine (far and away America's largest, with a circulation five times that of Time); discounts from car rental companies, major hotel chains, airlines, and on American Express travel packages; and, of course, the opportunity to save money on health insurance, prescription drugs, and other products sold by AARP.

And sell it does. AARP's nine business enterprises sustain a cash flow of about $10 billion annually and revenues of nearly $300 million, with the greatest portion coming from AARP's centerpiece enterprise: group health insurance. With more than 5 million policy holders, it's the largest of its type. Last year, AARP profited nearly $100 million from this business alone. AARP's only role in selling the policies is as a middleman: AARP's partner, Prudential Insurance, offers the policies, which are promoted through AARP publications and direct mail solicitations. For every policy sold, AARP receives a 4 percent administrative allowance simply for collecting the premium and passing it on to Prudential.

AARP's mail-order pharmacy, one of the nation's largest, brings the organization about $3 million per year. Its direct mail operation is so massive that AARP sends more than 1 percent of the entire nation's nonprofit third-class mail. Add to this the $100 million it collects each year in membership dues and the interest on about $50 million from Treasury bills, and total annual revenues add up to about 10 times the take of the United Way.

The United Way: Come to think of it, the comparison doesn't end there. AARP devoted about $30 million last year, and just $14 million in 1990, to programs aimed at directly assisting the elderly--a pittance compared to the funds it lavished on itself. Perhaps the most conspicuous symbol of AARP's use of resources is its new 10-story Washington headquarters. Leased for about $16 million a year, the 500,000-square-foot building is one of Washington's most alluring. Fellow lobbyists refer to the structure as the "Taj Mahal"; The Washington Post's architecture critic described it last year as "a knockdown surprise, a classical package whose odd vigor is at once apparitional and relentless."

It's little wonder he was impressed: The structure, crowned with a medieval-style turret, boasts a state-of-the-art radio and TV broadcast studio, a fitness center, and a beautifully appointed marble lobby. Office lights are guided by motion sensors; even the stairwells are wallpapered and carpeted.

Nor was expense spared in furnishing the thing. Dozens of mahogany bookcases costing $1,800 each, for example, are built in throughout, and stained-glass windows adorn every floor. Total costs for furnishings and equipment came to $29 million in 1990.

"Even people here wonder if it's proper for a nonprofit for the elderly to be housed this way," says one AARP insider. As for the old furniture, it now sits idle in a Virginia warehouse rented at AARP expense. AARP officials defend the costs, saying that they sought to construct a building that would last for years to come. Also, they say, internal calculations showed that moving the old furniture to the new building would have cost just as much as the new decor.

Still, the decor is chump change compared to the $43 million spent on salaries for the 1,100 headquarters employees. "There are layers of people here, many of whom have little or nothing to do," says one D.C. insider. Busier, apparently, are the organization's lawyers. AARP pays out nearly $2 million annually in lawyers' fees, which is more than it devotes to all but four of its more than a dozen elderly assistance programs. AARP, in fact, retains two sets of lawyers: an in-house counsel and a team of lawyers from the New York firm of Miller, Singer, Raives, and Branden. The two lead attorneys, Alfred Miller and Lloyd Singer, have been closely associated with AARP since 1971, when the firm was formed specifically to provide legal counsel to the organization. Former AARP executive director Jack Carlson, who was fired after a 15-week tenure in 1987 following a dispute with the board of directors, explains that the lawyers' roles range from overseeing the business enterprises to monitoring committee meetings. "They permeate the whole organization," Carlson says. "There's a heavy-duty orientation to the commercial side and they didn't want anyone to come in and sabotage it."

Overseeing the empire today is executive director Horace Deets, a former Jesuit priest who joined AARP in 1975. He is described as a low-key leader who travels frequently and who views his mission as decentralization of AARP and "intergenerational expansion" (that is, recruiting younger members). His salary is $200,000--not in the Aramony stratosphere, but at the high end of the spectrum of nonprofit executives' salaries. Deets reports to a 15-member board of directors and six national officers--all of whom are unpaid volunteers with roles limited mostly to making ceremonial appearances at functions representing AARP, attending conventions, and sitting on various committees that oversee AARP's commercial enterprises. Board members and about 250 other top-level volunteers scattered throughout the country enjoy expense accounts, free travel, and other perks that were worth about $11 million in 1990 alone.

Back in Washington, the 1,100 paid staffers are apparently not enough to get the job done at AARP-central. Every year, nearly $10 million is doled out to an army of consultants brought in to write public opinion polls, newsletter copy, and radio scripts and to perform other odd jobs, like providing "media training" to top-level volunteers preparing for radio and television appearances. AARP officials say they are unsure how many consultants are hired each year, but insiders place the number in the hundreds. Last spring, AARP paid nearly $2 million to a consulting firm to run an in-house workshop called "communicating with co-workers." Another consulting firm, Synectics of Cambridge, Massachusetts, was called in to instruct AARP employees on how to better provide input on projects and set priorities in the office. The amount Synectics received is unknown, but it was enough to prompt the firm to set up a satellite office in Alexandria to serve AARP. And last July, as staffers prepared to move from the old AARP building to the new headquarters, more hired guns were ushered in--in this case to help train employees in how to pack their belongings into boxes for moving.

Hot for profit

While the Washington crowd enjoys the riches of the organization, the level of support that flows back to members is rather paltry. Of the approximately $30 million spent assisting the elderly in 1991, $4 million went to coordinate programs such as educational forums and diet and exercise activities, $4 million was spent on the biennial convention, and $3.7 million was devoted to "education of older workers and employers in matters of obtaining employment . . . keeping employment and retirement planning." With respect to the last program, what AARP neglects to mention in its public financial records is that it also charges members $35 to enroll in such courses.

AARP has a penchant for charging members for services. One of the organization's most popular assistance programs is its 55/Alive driving education course for seniors. It is, of course, an important and useful service, but while AARP spends about $2.8 million to run it, it also collects an $8 fee from most of the 450,000 enrollees.

Leaders of local AARP chapters across the country also charge that the national office, despite its bulging bankrolls, does little to support them beyond printing pamphlets and offering moral encouragement. Many chapters hold bake sales or fundraisers to scrape up money for meetings or events. The scant support shows. So disorganized were local chapters that when phone inquiries were made regarding three of AARP's most vaunted volunteer programs (legal aid services, Medicare/Medicaid advice, and a widow support service), only about a third of the offices contacted had any idea that the programs exist.

The response wasn't much better when similar inquiries were made to the Washington headquarters about its Medicaid/Medicare assistance program and the Financial Information Program (offering advice on money-related topics). In each case, callers were told that no such programs exist. But inquiries about purchasing health insurance and prescription drugs were handled promptly.

Another example of AARP's emphasis on profits over service occurred last year when chapter officer Virginia Fine of the Sacramento, California, AARP asked AARP's national office for a list of all AARP members in her region in an attempt to encourage members to become more active in the local chapter. AARP refused to release the list, saying it was confidential. Eventually she and other local leaders petitioned the state attorney general to force AARP to release the names. Why the hesitancy from Washington? Its 33-million-name list is the heart of AARP's financial empire; alone it's worth millions of dollars, since direct mail solicitations are the corner-stone of its fortunes. So protective of this list is AARP that its bylaws call for expulsion or suspension of any member who releases "a complete or partial list of members" without written permission from AARP's president.

Capitol crimes

Of course, direct services to the elderly aren't AARP's only game, as officials there are quick to tell you. AARP's real forte is helping its members on Capitol Hill. AARP's legendary lobbying arm, which absorbs about $18 million of its budget, includes a team of 18 lobbyists and researchers in its policy shop, the Public Policy Institute. As expected, chief among AARP's causes are averting cuts in benefits for the elderly, protection of pensions, and various health care initiatives. AARP's lead lobbyist, John Rother, describes his team's lobbying style as "low key," presenting carefully researched data rather than holding press conferences or issuing "damning reports."

AARP has in past years been charged with neglecting the elderly poor in favor of the well-to-do, who are more likely to buy its services. More and more congressional aides and lobbyists, however, now credit AARP with placing greater emphasis on issues like low-income housing, as well as reemphasizing long-time causes like age discrimination, Social Security, and consumer-related issues. Yet some congressional AARP watchers still argue that the lobby has been conspicuously silent in several recent battles over bills designed to assist the elderly that could, coincidentally, also threaten AARP's financial empire.

* Medigap insurance reform: In 1990, after investigations into Medigap insurance (policies designed to offer seniors coverage in areas not covered by Medicare), Congress, convinced that insurance sellers were swindling many seniors into buying protection they didn't need or already had, moved to clean up the mess. The reform legislation, which called for a fairer system for seniors but a less profitable one for insurance providers, won the hearty support of all seniors groups--except, according to congressional aides involved in enacting the legislation, AARP. AARP officials today insist that they fully backed the legislation. But one senior-level aide to a congressman who sponsored the measure disagrees. "They met with us and gave some suggestions, but most of these were on how to soften the bill."

* Prescription drug prices: After congressional hearings in 1990 found that drug companies were overcharging Medicare for pharmaceuticals, legislation was introduced to force lower fees. The bill aimed not only to save the government billions of dollars, but also to help people insured through Medicare, who often faced out-of-pocket costs of 50 cents to a dollar per prescription, limits on the types of medications covered, and in some cases restrictions on the number of times they could refill those prescriptions. The losers were, of course, the drug sellers, who'd see their profit-margins diminish. Again, full support came from almost every seniors group except--you guessed it. While Rother insists that AARP worked hard to enact the bill, Hill staffers close to the legislation again disagree. "Sure, we wished AARP would have supported it, but they weren't involved," says a senior Senate staff aide instrumental in the bill's enactment.

* National health insurance: Instead of endorsing any of the nearly one dozen plans introduced in Congress, AARP recently released a preliminary draft of its own health insurance plan, one it claims is best for all Americans, not just the elderly. While it includes a few "Canadian-style" features like universal long-term care coverage, the plan is, first and foremost, a "play-or-pay" model that calls for employers to provide insurance to employees or pay into a public fund. Employer-based programs have received criticism from other elderly groups because they do less for seniors than Canadian-style systems. As a result, elderly advocates question AARP's motives in eschewing any of the proposed Canadian-style plans, noting that an employer-based model, unlike nationalized health care, would allow AARP's $100 million insurance-selling enterprise to survive.

If the profitmaking impulse occasionally affects AARP's lobbying efforts, it also sustains the group's flagship publication, Modern Maturity, which the organization considers a crucial tool in its mission to educate seniors. While the magazine is filled with innocuous service pieces, there is a seamier side to the publication: its thinly masked mission to promote AARP's business enterprises. A survey of recent issues showed that on average more than a third of the advertising inches promoted AARP-sponsored products or services offered by its discount partners. In fact, about one in every 10 pages featured an ad pushing an AARP product. (Competing products and services almost never appear in the magazine.)

Of course, Modern Maturity doesn't run articles that outright endorse any of AARP's products or services. Instead, what you'll find on, say, the page opposite the health column is a full-page ad for the organization's insurance plan. And while articles offering advice on how to wisely invest money don't make specific mention of AARP's investment service (and of course omit mention of other plans, no matter how highly rated), they do appear close to ads for AARP's Scudder investment plan. "They wouldn't write a piece on a trip to the Second Coming unless it was operated by American Express tours," says Leonard Hansen, a New Orleans-based syndicated columnist on elderly affairs.

You might think some of AARP's members would get wise to self-promotion like this and do something about it. But while there are nearly 4,000 local AARP chapters across the nation, each with its own elected leadership, members have little voice in setting AARP policy. Washington keeps a tight grip on the selection of both regional and state leaders. State directors, area vice presidents, and state coordinators are all appointed by AARP's Washington-based executive committee. In the past, members attempting to assert their own opinions on political issues have faced the wrath of the Washington office. Ted Ruhig, who served several terms as an officer of AARP's Carmichael, California, chapter, was a regional director of AARP's voter education drive in 1989. Unhappy with AARP's position on catastrophic care legislation, Ruhig spoke out publicly against the lobby. A few weeks later, he received a letter from the Washington headquarters thanking him for his years of service to AARP and dismissing him from his leadership post.

"Occasionally we have to terminate people," Rother explains, "although it's not a pleasant thing to do."

Elder hostile

From the headquarters to the magazine, AARP seems a lot more of a business than a charity or grassroots lobby. In fact, the organization has in many respects evolved into a giant merchandising company that taxpayers subsidize to the tune of millions of dollars. "If I could, I'd walk into AARP and immediately shift the money around," Kurt Vondran, a lobbyist with the National Council on Senior Citizens, says enviously, thinking of the services and programs that could be created with that glorious $300 million budget.

Of course, Vondran's wishes aside, AARP doesn't have to chuck the mahogany bookcases, the box-packing consultants, the $11 million executive perks, or the selling obsession. It doesn't have to start functioning as a nonprofit, running programs on behalf of the seniors it's chartered to serve. There's another reasonable option. AARP can keep on peddling those products and living as baroquely as it likes --just as long as it drops the charitable cover and pays its taxes like other American businesses. That'd mean, hmmm, millions of dollars saved every year by the federal government--probably a bigger help to America's older people than the AARP will ever be.
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Title Annotation:finances of the American Association of Retired Persons
Author:Georges, Christopher
Publication:Washington Monthly
Date:Jun 1, 1992
Previous Article:How Phil Donahue came to manage the '92 campaign.
Next Article:Stealing home.

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