THE SUMMIT

A massive park in West Virginia was meant to lift the fortunes of the Scouts, sagging amid the fight over gay membership. Instead, it has added to their woes. The Boy Scouts’ $439 million gamble

By Robin Respaut and Brian Grow NEW YORK, JULY 15, 2013 REUTERS/Tim Sha r p

SPECIAL REPORT 1 THE SUMMIT The Boy Scouts’ $439 million gamble

n the misty, oak-filled woods of West Corporate America Virginia, the are keeps up the pressure buildingI their answer to Disney World. Known as The Summit Bechtel Family National Reserve, the 10,600-acre In hindsight, it appears to have been a park opens Monday, when 30,000 scouts Pyrrhic victory. are expected to visit for the quadrennial Christian churches sponsor a large National . The Summit will have proportion of Boy Scout troops in the more than five miles of zip lines, a white- United States, and the national leadership water-rafting circuit, a 120-foot tree house long sought to bar gay scouts and troop and a stadium for 85,000 people. masters. That effort culminated in a 2000 The Summit is more than the ultimate ruling by the U.S. Supreme Court upholding Scout camp. It was envisioned as a way to the Scouts’ right to exclude “avowed shore up the finances of an organization homosexuals.” burdened by a long-term drop in mem- REUTERS ILLUSTRATION/ELSA IENNA The victory proved costly, as some bership, costly sexual-abuse lawsuits and a corporate donors cut their funding of the bruising battle over whether to admit gay Boy Scouts. members. The park would bring in even be doing little so far to ease the pressure. Intel, a longtime backer of local councils, more in donations than it would cost to Conservative troops are threatening to now requires local Scout groups to pledge build, Scout leaders concluded. secede; one splinter group said this week not to discriminate. “The Summit gives us the opportunity it is forming a rival to the Scouts. Liberal Merck and CVS Caremark stopped giving to reintroduce ourselves to America and troops are meanwhile establishing more- to the national Boy Scouts organization in raise $1 billion for the best youth develop- inclusive policies. Many corporate donors recent years. ment in the world,” says a slide from a June continue to sit on the sidelines, even as The pressure has kept up. This year, 2010 presentation on the project. some regional Scout councils face severe Illinois-based Caterpillar Inc suspended its It isn’t panning out that way. Costs are deficits, according to Boy Scout executives $25,000-a-year support for a local Illinois rising. Initially budgeted at $176 million and council members across the country. council, saying it could not support an through 2013, the Summit’s cost is now “We cannot support an organization organization that continued to discriminate estimated to reach at least $350 million by that has a policy that is discriminatory,” said against homosexuals. the end of this year and $439 million by the Joanne Dwyer, a spokeswoman for CVS The Scouts’ decision in May to accept gay end of 2015, according to Scouts documents Caremark, which stopped all funding to lo- youth, but not gay adults, hasn’t gone far reviewed by Reuters. To keep up, the Scouts cal Boy Scout councils and the national or- enough for Merck, CVS and Caterpillar. issued new bonds last year – more than dou- ganization a decade ago. (See related story.) “We certainly applaud the BSA’s bling their previous borrowing for the project. The bottom line, said Doug White, decision to become a more inclusive The Scouts’ efforts to pay for the Summit who teaches nonprofit management at environment,” said Caterpillar are off target, too. Internal financial updates Columbia University, is that the Scouts spokeswoman Rachel Potts. “However, show that the Scouts’ national organization, “have real problems.” The combination of the Boy Scouts still discriminates against based in Irving, Texas, was $108 million be- the Summit fundraising slowdown, extra leaders, which conflicts with our policies.” hind its capital-raising goal for the Summit borrowing for the project and the financial as of the end of March. That was 32 percent impact of the gay-rights controversy “puts By Robin Respaut shy of its projection of $342.6 million. them in a very precarious position.” The Summit shortfall is part of a broad- The Boy Scouts declined requests to inter- er financial crunch facing the Boy Scouts view or na- as the organization shrinks. That decline tional president Wayne Perry about the non- has been exacerbated by the protracted profit’s financing. In a statement, the Scouts gay-membership battle. A compromise denied that Summit fundraising is suffering. See the Special Report online: adopted by Scout leaders in May – allow “It is inaccurate to review this document http://link.reuters.com/dud69t gay youth, but not gay adults – appears to and draw a conclusion that fundraising is

SPECIAL REPORT 2 THE SUMMIT The Boy Scouts’ $439 million gamble

An expensive camp Fundraising for the Summit is behind projections; borrowing has soared.

PROJECTED COST AMOUNT BORROWED

Projected cash $300 $74 million million

200 Actual cash $64 million 100

0 2010 2011 2012 2013 Projected Actual commitments commitments 2010 Feb. 2012 Boy Scouts borrow $100 Boy Scouts borrow another $268.6 $170 million via bonds and take $175 million via bonds and million million a JPMorgan revolving increase the revolving credit line of $50 million. credit line by $25 million.

Source: BSA finance update and 2009-2012 Annual financial reports

behind schedule,” said Deron Smith, Boy United States, where it found fertile the Summit was seen as a means to help re- Scouts spokesman. “Projections are just ground. The appeal of merit badges and suscitate the ailing 103-year-old non-profit, that, and serve as estimates that are adjust- camping trips hasn’t kept pace with chang- according to internal marketing documents. ed throughout a project.” ing times and competing pastimes such as Some board members considered the Smith said the estimated $439 million video games and extreme sports, however. project a potential white elephant whose cost cost of the Summit was “subject to change” There were 2.7 million Boy Scout members could outweigh its usefulness, according to and “contingent upon securing donor fund- in 2011, down from a peak of 4.9 million in two people familiar with the matter. Rising ing.” As for the May compromise on gay 1972. The U.S. population grew 49 percent spending soon became a concern for some. members, Smith said it is still too early to in that time. By 2015, cumulative spending is pro- assess the impact on donors. To help stem the decline, the Boy Scouts jected to reach $439 million, according to National Council launched a plan for a internal records seen by Reuters. That is LONG DECLINE bold investment in 2009: The Summit. The more than the organization’s current $274 The Scouts movement originated in brainchild of former chief scout executive million endowment. England and launched in 1910 in the Robert Mazzuca and other board members, Text continues on page 5

SPECIAL REPORT 3 THE SUMMIT The Boy Scouts’ $439 million gamble

MONEY AND VALUES: Boy Scouts in Los Angeles (above) have seen donations plunge amid the controversy over gay membership. At headquarters in Irving, Texas, site of the National Museum (below left), leaders long fought admitting gays. The policy caused liberal donors to flee, including Eagle Scout Stephen Spielberg. REUTERS/JONATHAN ALCORN/MICHAEL PRENGLER/DAVID MANNING/FILES

SPECIAL REPORT 4 THE SUMMIT The Boy Scouts’ $439 million gamble

An organization in retreat Boy Scouts’ total youth membership at end of each year

4 million

3 Total membership is at its lowest level since 1953

2 Cub Scouts

1

Boy Scouts 0

1913 '20 '30 '40 '50 '60 '70 '80 '90 '00 '10 Source: Boy Scouts of America 2009-2011 local council index, local council finance facts

Spokesman Smith said the Summit’s doubled their borrowings for the project. bank credit to $75 million from $50 mil- cost expanded as the Boy Scouts secured They did this mainly by a form of tax- lion. The bonds were bought by JPMorgan donations and determined it was “wise to exempt municipal bond known as a “con- Chase, which organized the deal, provided increase the investment in the infrastructure duit,” in which an organization essentially the credit line and still owns the debt today. of the property.” He declined to elaborate. borrows the name of a local government in The bank declined to comment. Mazzuca, the chief executive when the order to raise cheap long-term financing. The bonds were issued in the name of Summit was launched, declined to talk for The Boy Scouts added $175 million in Fayette County, West Virginia, where the this article. new conduit-bond debt last year to a pair Summit is located. The county received a Last year, the Scouts drew up a finan- of existing issues worth $100 million – $100,000 fee to issue the bonds on behalf cial plan to address rising Summit spend- bringing total Summit borrowing to $275 of the Boy Scouts, but it is not responsible ing. A February 2012 internal memo from million. The Scouts also increased a line of for payments, according to bond docu- Boy Scouts president Wayne Perry advised ments and the Scouts’ 2012 annual report. senior Boy Scout executives that available The Summit gives us Fayette County, with a population of cash from donations would be insufficient the opportunity to reintroduce 46,000 and average per capita income of to cover the “cash burn” rate for the Summit. ourselves to America and raise $18,000 a year, won a national competition Perry, a former telecom executive and a $1 billion for the best youth in 2009 to be the site of the Summit. It was part-owner of the Seattle Mariners baseball chosen for its rugged terrain along the New team, declined to comment. development in the world. River Gorge and its location within a 10 To cover construction costs, the memo Boy Scouts of America hour drive of 65 percent of the U.S. popu- shows, the Boy Scouts last year more than June 2010 presentation on Summit project lace, according to the Boy Scouts.

SPECIAL REPORT 5 THE SUMMIT The Boy Scouts’ $439 million gamble

Fayette County commissioners say they High spending The Scouts board of directors, led by approved the financing deal to generate The Boy Scouts’ massive new park Perry, is unpaid. But the paid executives jobs and exposure. The Summit is expected who manage the organization earn signifi- could cost $439 million, to create 60 permanent jobs for Fayette cantly more than their peers. County and as many as 1,000 seasonal internal memos show. In 2011, the average compensation and jobs, says County Commission president PENNSYLVANIA benefits for the top five Boy Scouts ex- Matthew Wender. ecutives totaled $696,862, compared to As collateral for the bonds, the Boy Scouts $550,673 for the top five Girl Scouts ex- pledged a major portion of their assets, ac- OHIO ecutives and $351,714 for YMCA officials. cording to the internal documents, including WEST VIRGINIA Scouts spokesman Smith said the sala- “the unrestricted portion of the endowment, ries are justified because the organization Summit donor pledges and all other receiv- “seeks and retains nothing less than the best ables” of the Boy Scouts of America. Charleston THE SUMMIT talent available.” Park opens July 15 in A financing task force for the Summit Mount Hope, W. Va. R Haunting the Boy Scouts are dozens of initially set rosy donation goals. The lawsuits alleging sexual abuse by local employ- February 2012 memo from president Perry ees and volunteers dating back to the 1960s. VIRGINIA to the Scouts’ National Executive Board Litigating those cases remains one of the ma- says Summit donors were expected to jor risks to the Boy Scouts balance sheet, ac- pledge $220 million by early 2012. From cording to the Scouts’ 2012 annual review. there, the Scouts anticipated $150 million Source: Boy Scouts of America In 2010, for example, an Oregon jury in new pledges each year. Cumulative do- awarded $19.9 million in damages to a nations would reach $520 million by the Scout who had been sexually abused by an end of 2013, and $1.4 billion by 2019, ac- to an analysis conducted for Reuters by assistant troop leader in the early 1980s. cording to the memo. Daniel Borochoff of charity-evaluation The risk of further payments looms. In Actual giving has fallen short. Documents service CharityWatch. 2012, an Oregon court ordered the Boy prepared for board members at the Scouts’ Still, spending has grown faster than rev- Scouts to release 1,200 files that document annual meeting in May show the organiza- enue. The nonprofit’s financial statements allegations of sexual abuse by Scout leaders tion had raised $234 million for the Summit show that revenue from membership fees from 1965 to 1984. Last year, the Scouts as of March 31. That is compared to its and product sales grew 21 percent from boosted self-insurance reserves to $132 “original projections” of $342.6 million. 2003 to 2012, to $229 million. But spending million from $87 million. In a statement to Reuters in May, on salaries, insurance, and programs nearly Spokesman Smith confirmed the Boy spokesman Smith said the Scouts had se- doubled in the same period, to $212 million. Scouts have also set aside in a special reserve cured approximately $332 million in donor an extra $65 million from their endowment commitments and in-kind contributions to to cover litigation costs. “However,” he said, fund the Summit, and that the Boy Scouts “no transfer of funds from the endowment were “in a strong financial position.” Asked to the general liability (fund) has taken about the gap between that amount and place and would require board approval.” the $234 million fund-raising figure high- “LIKE SPENDING YOUR IRA” lighted in the board documents, he said the difference is accounted for by the in-kind The fiscal pressures at Scouts headquarters donations. He declined to describe those are felt in other corners of the country, too. donations or explain why the board high- Thirteen years ago, the Los Angeles Boy lighted the $234 million figure. Scouts Council was flush with donations Despite its falling membership, the from well-heeled charities and wealthy national Boy Scouts organization has a Hollywood film directors. strong balance sheet. The Scouts could SPLINTER GROUP: Ex-member John Then, in 2000, the U.S. Supreme Court operate for nearly three years on their Stemberger is helping create a faith-based rival ruled the Boy Scouts of America had the readily available funds alone, according to the Scouts. REUTERS/DAVID MANNING right to bar gays from their ranks. The

SPECIAL REPORT 6 THE SUMMIT The Boy Scouts’ $439 million gamble

United Way, which once gave $1 million a Scouting, but there have also been former year to the local council, ended its funding, donors now making contributions,” he said. according to a former council president. The financial pinch in relatively liberal Some of the Hollywood glitterati parts of America could worsen. A bill in the also fled – including film director Steven California state legislature would deny tax- Spielberg, an Eagle Scout who once cred- exempt status to youth groups that discrimi- ited the Boy Scouts with inspiring him to nate based on sexual orientation. The bill make his first film. After the Supreme Court was triggered by the Scouts’ policy on gays, decision, Spielberg resigned from the Boy said California state senator Ricardo Lara. A Scouts’ advisory board and stopped contrib- similar bill has been proposed in New York. uting to the local council, stating that it was The May compromise appears to be “a real shame” to see the Scouts “actively and alienating traditionalists, too. publicly participating in discrimination.” On July 9, a coalition of parents and A representative for Spielberg said scout leaders formerly associated with the the director had no statement to make REUTERS ILLUSTRATION/ELSA IENNA Scouts said it would launch a rival, faith- on whether he would resume participating based outdoors program for boys in January. in the Scouts. Gay children will be allowed, but won’t be Today, the Los Angeles Council, which permitted to profess their sexuality. serves many inner-city minority scouts, is $696,862 “It remains to be seen what the exodus relying on its endowment to fund program is going to look like,” said John Stemberger, services. The council ran a $3.25 million Average total compensation of founder of OnMyHonor.net, a group help- deficit in 2011; since 2001, it has run an top 5 Boy Scout executives in 2011 ing to form the new program. “But we’re average annual deficit of $1.3 million, tax seeing it in droves everyday in thousands of filings show. people contacting us.” “It’s like spending your IRA to pay your an April webcast to 1,400 delegates, the Jeremy Miller, a leader in bills, because you don’t have a job anymore,” Scouts released the survey results. The study Cincinnati, Ohio, said his entire troop is said John Harbison, a former president of found that if both gay youth and adults were planning to leave over the May decision. the Los Angeles Council. “That’s obviously allowed to join, the Scouts would suffer a Miller told his 7-year-old son, Evan, in not a sustainable model, and we won’t be “significant membership loss” of 200,000 to June that he wouldn’t be returning to the able to do that for long.” 400,000 youths, a leadership loss of 10 to Cub Scouts. Boy Scouts spokesman Smith said the per- 15 percent, and a financial hit upwards of “We said, the Boy Scouts have made de- centage of councils with money troubles has $30 million. cisions that don’t follow the Bible, so we’re fallen since 2005 through a national program If the Boy Scouts didn’t change their not going to be part of it,” said Miller. to “help ensure councils are financially sus- blanket ban on gays, the survey found, the tainable.” He declined to provide examples. group expected “continued membership Reporting by Robin Respaut in New York In the wake of the May compromise loss across all regions,” a financial position and Brian Grow in Atlanta; edited by Blake on gay youths, the conflicting demands of that “continues to erode and continued loss Morrison and Michael Williams liberals and conservatives on the issue leave of corporate support.” the Scouts in a severe bind. Indeed, the The survey didn’t assess the impact of the May decision came shortly after an internal compromise the Scouts eventually chose at FOR MORE INFORMATION study projected continuing financial dam- the May meeting – allowing gay youth but Robin Respaut age if the Scouts stuck with their universal not adults. [email protected] ban on gays – and continuing damage if Spokesman Smith said that the reaction Brian Grow they ended it, too. of donors so far has been mixed, and it’s too [email protected] The issue was to come to a head at the early to know the net effect. “We are aware Michael Williams, Global Enterprise Editor Scouts’ annual national meeting in May. In of some donors withdrawing support of [email protected]

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SPECIAL REPORT 7