June 13, 2007
Federal Grant for a Medical Mission Goes Awry
By DIANA B. HENRIQUES and ANDREW W. LEHREN, NY TIMES

Correction Appended

In theory, it was simple: Congress gave two decommissioned Coast Guard cutters to a faith-based group in California, directing that the ships be used only to provide medical services to islands in the Central and South Pacific.

Coast Guard records show that the ships have been providing those services in the South Pacific since the medical mission took possession of them in 1999.

In reality, the ships never got any closer to the South Pacific islands than the San Francisco Bay. The mission group quickly sold one to a maritime equipment company, which sold it for substantially more to a pig farmer who uses it as a commercial ferry off Nicaragua. The group sold the other ship to a Bay Area couple who rent it for eco-tours and marine research.

The gift of the two cutters was one of almost 900 grants Congress has made to faith-based organizations since 1987 through the use of provisions, called earmarks, that are tucked into bills to bypass normal government review and bidding procedures.

Skipping those safeguards can generate more than accusations of political favoritism. As the case of the Coast Guard cutters shows, it also can give rise to grants that never achieve their intended purpose, with the government never even realizing it.

Canvasback Missions, in Benicia, Calif., took ownership of the cutters, the White Sage and the White Holly, in Baltimore in September 1999. This was the first time such ships had been given away through an earmark, the Coast Guard said.

Pressed for cash, Canvasback sold the White Sage a few months later for about $85,000. Two years later, the struggling mission sold the White Holly to the Bay Area couple for $330,000. The mission did not inform the Coast Guard property office about the sales.

Typically, decommissioned Coast Guard vessels are sold at auction, are included in foreign aid packages or are added to the nation’s mothball fleet.

If the two cutters had been sold at auction, the General Services Administration would have monitored their use for five years. But the Canvasback earmark required no such monitoring, and Coast Guard officials said they did not know about the sales until The New York Times asked about them.

The fate of the White Holly and the White Sage comes as a surprise to people who supported the Canvasback earmark.

Former Representative Frank D. Riggs, Republican of California, whose staff drafted the earmark, said it “would raise concerns” if the ships were “not used as intended.”

Senator Olympia J. Snowe, Republican of Maine, was also credited by Canvasback with working on the earmark. But David Snepp, Ms. Snowe’s spokesman, said she had merely voted for it. Mr. Snepp called Canvasback’s actions troubling and said the senator had asked her staff to research what is now a gray area: whether selling the two ships was legal.

“If they were not used in Micronesia, they were definitely not used in the spirit of the way this was written,” Mr. Snepp said. The text of the earmark gave the government the right to reclaim the ships, he added. While that was perhaps unlikely, he continued: “They were supposed to retain the vessels in case the Coast Guard needed them back. The charity does not have the option to sell.”

A harsher assessment came from Steve Ellis, vice president of Taxpayers for Common Sense, a watchdog group that opposes earmarks, and a former Coast Guard officer. “They are flipping the property,” Mr. Ellis said.

Jamie W. Spence, president and founder of Canvasback Missions, said all the sales proceeds supported the organization’s work in the Marshall Islands, where it has provided eye and dental care and counseling on diabetes prevention to thousands of people since it was founded in 1981.

“We did everything in our power to put these ships into service,” Mr. Spence said. But when the group could not raise the money to repair and maintain the vessels, it sold them instead, using the proceeds to cope with its financial difficulties, he said.

Mr. Spence said he had consulted with Canvasback’s legal advisers and was confident the sales were ethical and legal.

Coast Guard officials were surprised at the cutters’ fate. “The White Holly and the White Sage are in the South Pacific,” Lynn Brown, the personal property manager in the decommissioning office, said in March. She affirmed recently that her office had not known that Canvasback sold the ships.

Mr. Spence acknowledged that he did not give notice to Ms. Brown’s office. But he said he told Coast Guard employees in the Bay Area about the White Holly sale and mentioned the White Sage sale to the Coast Guard officer in charge of the Baltimore yard before the deal and to civilian Coast Guard officials afterward. He did not respond to requests to identify those people.

While all earmarks are troublesome to critics like Mr. Ellis, who called the Canvasback gift an “utter indictment of earmarks,” those made for faith-based groups involve special questions about the constitutional borders between church and state.

The Coast Guard ships were given to Canvasback for a secular purpose, providing medical services. But Mr. Spence said Canvasback did not isolate the sales proceeds; instead it mingled them with its general revenues, which also cover activities that include evangelism. And under most court decisions, evangelism cannot be paid for with federal grants.

Mr. Spence said no constitutional violations occurred. “I’m very certain that the proceeds were used for supporting our medical program,” he said, “and I’m absolutely sure they were not used for evangelism.” He said Canvasback, a nondenominational Christian mission, raises donations separately for its evangelism activities, which included donating Bibles translated into local languages and constructing a chapel.

Mr. Spence and his wife, Jacque, established their medical mission 26 years ago, using a 71-foot catamaran, the Canvasback, to navigate the shallow coasts of the poorer, more remote islands of Micronesia. As the ministry grew, it mobilized medical professionals to volunteer for short stints in the islands and delivered donated medical equipment and supplies.

When they sought the Congressional earmark, the Spences were hoping the two cutters would allow them to expand their medical ministry, Mr. Spence said. But the mission acquired and then sold those vessels, and a third vessel that was privately donated, because Canvasback determined that maintaining and operating the ships was too big a financial burden, he explained. But few of these details can be found in the annual statements Canvasback files with the Internal Revenue Service. Two leading nonprofit accounting experts examined the statements and found them to be incomplete and internally inconsistent.

“There is no clear audit trail for the boats,” said Julie L. Floch of Eisner L.L.P. in Manhattan, a member of the I.R.S.’s national advisory panel on nonprofits. Her view was echoed by Jody Blazek of Blazek & Vetterling L.L.P. in Houston, the author of six books on nonprofit tax law and accounting.

William J. MacLean, the accountant in Seaside, Ore., who prepared the filings, declined to comment.

These days, Canvasback has redirected its efforts from ship-based medical care in the remote islands to land-based clinics on the more populated islands, Mr. Spence said.

That work has won praise from health officials in the Marshall Islands — and fresh support from Congress. The tiny mission is now the lead contractor on a diabetes research program being financed through two $1 million Defense Department contracts. Those grants were directed to Canvasback by Congress through a pair of earmarks.

Correction: July 2, 2007

A front-page article on June 13 about a faith-based group’s sale of two decommissioned Coast Guard cutters referred incompletely to the terms of the federal grant that gave it the ships. The ships were to have been used to provide medical services to islands in the Central and South Pacific, not the South Pacific alone.