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Estate Planning Failures of the Rich and Famous V
 

Industrial museum officials: Grand jury dead wrong

Jan. 31-- Top officials with the embattled National Museum of Industrial History in Bethlehem on Friday resoundingly disputed a Northampton County grand jury report that alleged millions of dollars of donations were squandered on a museum that showed no signs of ever opening. Charles Marcon, chairman of the board of trustees, and museum President Stephen...

By Matt Assad, The Morning Call (Allentown, Pa.)
McClatchy-Tribune Information Services

Jan. 31--Top officials with the embattled National Museum of Industrial History in Bethlehem on Friday resoundingly disputed a Northampton County grand jury report that alleged millions of dollars of donations were squandered on a museum that showed no signs of ever opening.

Charles Marcon, chairman of the board of trustees, and museum President Stephen Donches, whom the grand jury report said should resign, said two recessions and the closing of Bethlehem Steel hampered their efforts to open the museum.

At the same time, Marcon said, their primary donor, Priscilla Payne Hurd, who has since died, wanted them to continue full speed even as they suggested scaling back their plans.

It's a very different story from one District Attorney John Morganelli said he was submitting late Friday to state Attorney General Kathleen Kane, whose powers include seeking to dissolve its board and making its directors personally responsible for the alleged mismanaged funds.

In the scathing 38-page report, the grand jury alleges Donches wasted and mismanaged millions of dollars on a museum that has no tangible signs of opening while his board exercised little oversight.

Marcon, who issued a five-page response separate from the board, has called an emergency museum board meeting in the next few days to further address the report.

"We're disappointed that the museum isn't open, too," Marcon said in a phone interview. "In hindsight, there were mistakes, but there was no mismanagement. This museum forged ahead against some very difficult obstacles, and at the direction of its biggest donor, Mrs. Hurd. She was adamant that we not change direction."

Donches not only disputed the report, but also took aim at Morganelli.

"Monday morning quarterbacking has no place in the serious responsibilities of a special investigating grand jury," Donches said in a seven-page written statement. "To suggest the project was a conspiracy to employ retired corporate executives is unfounded and demonstrates Mr. Morganelli's personal antagonism toward me and others who have put so much time, effort and money into the project."

Because the report had yet to arrive in Harrisburg, Kane had no comment Friday. But spokesman Joseph Peters said the office's Charitable Trusts and Organizations Section has been aggressive in going after organizations that mismanage donations made to nonprofits.

It's taking that kind of aggressive action in Conneaut Lake in Crawford County, where Kane has asked a county judge to remove board members of Conneaut Lake Park and hold them financially responsible for allowing its tax debt to accumulate to $900,000 and for failing to buy insurance before fire hit historic park buildings in 2008 and again in 2013.

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"We can't comment on the [Northampton County] situation, but the office of the attorney general has broad powers to ensure that funds and operations of charities in Pennsylvania are being administered appropriately," Peters said. "We could demand accounting and we could take action against board members who have abrogated their fiduciary responsibility. Attorney General Kane takes these matters very seriously."

Morganelli would like to see similar action in Bethlehem, largely because he's convinced the board will not check itself or Donches.

"My sense is that based on their blind confidence in Donches, I doubt they'll change anything," Morganelli said Friday. "They'll say 'Morganelli's crazy' and circle the wagons."

Late Friday, board members were huddled with their attorney drafting a statement, while Donches was doing the same with his Easton attorney, Philip Lauer.

They emerged to say they're not circling the wagons, but are looking at the same financial numbers that the grand jury panel looked at, but through a much more realistic lens, Donches said.

Yes, it's taken longer than expected, but that's because the museum has had to weather two recessions and the bankruptcy of Bethlehem Steel.

He added that the public has not been misled and, in fact, the museum never took its campaign to the general public. Instead it focused on large contributions from "sophisticated donors" who understood how long it takes to build a museum.

"The district attorney's assertion that the board simply defers to me and rubber-stamps my recommendations and decisions is untrue," Donches wrote. "The board consists of leaders in their fields who are used to exercising authority, who are thoughtful and who understand their responsibility as board members."

Conceived in the 1990s, the National Museum of Industrial History was once seen as an anchor to drive development at the soon-to-be-shuttered Bethlehem Steel plant. But 17 years later, the museum doors remain closed and the red-brick building remains vacant while $1 billion in public and private development, including the Sands casino and the ArtsQuest performing arts center, have been built around it.

The former Bethlehem Steel building where it is to be located has a $500,000 new roof and a new exterior that cost $2 million, but has little more to show for the $17 million to $19 million in donations and state grants it has collected, according to the grand jury.

There is $770,000 in the bank, but the rest has been misspent on employee salaries and for annual operation of a museum that is not open. For example, $125,000 is spent each year to store artifacts from the Smithsonian Institution in Washington, D.C., the report states.

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Morganelli said of the $4.5 million state grant allocated by former Gov. Tom Ridge for the project, $1.4 million has been spent. The rest remains unspent, only because Donches can't legally access it until he raises funds to match.

Former Bethlehem Steel CEO and current museum board member Curtis "Hank" Barnette pledged $1 million, of which $750,000 has been spent.

But another $9.5 million donated by the charitable foundations of the late Bethlehem philanthropist Priscilla Payne Hurd has been wasted, Morganelli said.

Officials representing Payne Hurd's charitable foundations did not return messages Friday, but her son, George Hurd Jr., reacted with anger.

"Are you talking about that piece of s -- -- organization that ripped off my mother?" Hurd said, when contacted Friday. "I've got nothing to say about that place."

The grand jury's recommendations include the immediate resignation or firing of Donches, and it suggests the museum's board consider filing a civil lawsuit against him "due to negligence and/or breach of contract" to recoup the money paid to him in the past 12 years.

Donches, 68, of Bethlehem did not submit to an interview Friday, but did submit the seven-page written statement.

The report, in particular, seized on Donches' annual salary -- reported as $181,092 in 2012 -- which appeared to be outsized compared with the salaries of other nonprofit directors in the Lehigh Valley. For a 10-year period ending in 2002, Donches was paid $2.4 million in salary and benefits, the report said.

Marcon, in his statement, said Donches has not received a raise since his salary was set in 2002 and claimed that Payne Hurd insisted the salary not be changed.

Charlene Donchez Mowers, president of Historic Bethlehem, makes $64,000 per year to operate a $1.1 million budget to run 20 historic museum buildings on 20 acres, while conducting hundreds of annual tours that are attended by more than 50,000 people a year.

Alan Jennings, executive director of the Community Action Committee of the Lehigh Valley, makes $94,000 to run a $20 million operation that serves tens of thousands of people a year with programs that include feeding and housing the homeless, giving jobs training to the unemployed, conducting small business seminars and weatherizing the homes of people who are struggling.

The only nonprofit president whose salary rivals Donches' is ArtsQuest President Jeff Parks, who directs an $18 million-a-year operation that includes arts programs for children and hundreds of musical performances, including Musikfest, that draw more than 1 million people a year to Bethlehem.

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Donches again disagreed that his salary was too high.

"My education, work experience and ability as well as the scope of my duties as president, planner and fundraiser were considered," Donches wrote. "Throughout my tenure, I have worked hard on behalf of the museum."

Marcon, in his statement, took issue with the report's finding that the museum's mission was simply the construction of a museum.

"While I hoped that the physical opening of the museum would have progressed more quickly, the mission of the museum is much broader than simply opening the physical museum," Marcon wrote. "The grand jury's conclusion that the mission of the museum ... has failed is simply erroneous."

Regardless of whether Kane takes action, the report could damage an already struggling campaign to raise money. Even the steelworkers whose history the museum seeks to commemorate are backing off.

"This is exactly the kind of actions that ran a steel company into the ground and here we go again," said Jerry Green, president of United Steelworkers Local 2599, which still has 1,200 members. "We were pulling for him [Donches], but not after this. I won't be donating to that place and I sure won't be encouraging our members to donate. Not until they change leadership. This is a shame. "

Still, Donches appears undeterred.

"Our objective is a first-rate building, superb exhibits and outstanding programming," Donches said. "While the report of the grand jury makes that more difficult, I am convinced the project is viable and vital to the community."

For his part, Morganelli said making the public and people like Green aware was his only motivation.

"No one is against that museum, but I feel like I performed a public service with this," Morganelli said. "All I did was shine a flashlight on it. If people still want to donate, God bless them."

matthew.assad@mcall.com

610-820-6691

MUSEUM BOARD MEMBERS

The National Museum of Industrial History's board includes some of the Lehigh Valley's most accomplished leaders. The members as listed on the museum's website:

-- Stephen Donches, museum president and CEO

-- Charles Marcon, board chairman, CEO of Duggan & Marcon Inc.

-- Ervin Rokke, retired president, Moravian College

-- Curtis "Hank" Barnette, former CEO, Bethlehem Steel Corp.

-- The Rev. Daniel G. Gambet, former president, DeSales University

-- Lee Butz, chairman of the board, Alvin H. Butz Inc.

-- Jeffrey P. Feather, vice chairman, National Penn Bancshares

-- Charles W. Campbell Jr., secretary, former associate general counsel and assistant secretary, Bethlehem Steel Corp.

-- Richard Schubert, former president and vice chairman, Bethlehem Steel Corp.

Source: NMIH website

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(c)2014 The Morning Call (Allentown, Pa.)

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