Dispute questions anti-abortion group's use of taxpayer dollars

In the early 1990s, then-Pennsylvania Gov. Robert P. Casey came up with a novel way to advance his crusade against abortion by offering state funding to groups to provide "alternatives to abortion."

Most of the money went begging until a newly founded company, Real Alternatives, got the contract in 1997. Since then, the Harrisburg-based nonprofit has channeled more than $100 million from Keystone State taxpayers into a still-growing network that includes crisis pregnancy centers, maternity homes, and adoption agencies.

Led by lawyer Kevin I. Bagatta, Alternatives boasts a reputation for fiscal responsibility that has helped it expand nationally. Indeed, when the company discovered that a service provider was falsifying claims for reimbursement, it promptly notified the Pennsylvania Department of Human Services (DHS), which launched an audit, state records show.

Three years later, fallout from that audit hasn't ended.

Besides estimating that the errant service provider fleeced $480,000, the audit led to questions about whether Alternatives misused taxpayer money to underwrite its national expansion, and whether state oversight was lax. The audit flagged a practice in which Alternatives withheld 3 percent of all payments to service providers under a side deal they called a "program development and advancement agreement." Auditors ultimately estimated Alternatives had collected more than $800,000 over the last five years through this deal.

Alternatives' executives insist they have done nothing wrong. Nonetheless, they have refused to give a public accounting of the 3 percent fee arrangement.

"Real Alternatives continues to be shocked and dismayed by the misrepresentation of our company's outstanding accountability, performance, and transparency in administering the nation's first government-funded alternatives to abortion program," it said in a statement.

This month, a reproductive rights group, Equity Forward, became the latest entity to try to compel disclosure by suing DHS for records related to Alternatives' contracts. Equity bills itself as a watchdog "to ensure accountability among anti-reproductive health groups," but says the case transcends the hot-button issue of abortion.

"Real Alternatives has received millions in taxpayer funds with insufficient scrutiny," said Equity executive director Mary Alice Carter, a former Planned Parenthood official. "People should care about this issue no matter how they feel about abortion."

Crisis pregnancy centers have become a major part of the anti-abortion movement. Across the country, an estimated 3,000 centers, most associated with Christian charities, offer free services such as pregnancy tests and ultrasounds, and counsel women against abortion. Following Pennsylvania's trailblazing lead, 14 states now fund these efforts.

Abortion-rights activists decry these operations as "fake health centers" that use misinformation, deception and coercion to prevent women from accessing abortion. On Tuesday, in a closely watched case, the U.S. Supreme Court will consider a California law that requires crisis pregnancy centers to tell clients that they are not licensed medical facilities, and that state-subsidized abortion is available. At issue in National Institute of Family and Live Advocates v. Becerra is whether the requirement violates the centers' First Amendment right to free speech.

Alternatives' case, in contrast, is about accountability in public spending.

Some background from public records and Alternatives' website: Its annual funding has steadily grown from $2 million in 1997 to $6.6 million last fiscal year. A big bump began in 2001, when then-Gov. Mark Schweiker put $1 million of the state's federal funding for needy families into the anti-abortion program.

Bagatta's compensation also has grown. In 2015, he earned a total of $280,468 from Pennsylvania and other state grants, according to IRS nonprofit reporting forms.

Alternatives has a hotline and 33 service providers at 95 sites, and says it has helped more than 280,000 women. Under the Pennsylvania contract, Alternatives reimburses providers for referrals, counseling and education – such as parenting and sexual abstinence classes – as well as some material goods. The fee schedule includes $10.50 for a pregnancy kit, $1.05 a minute for counseling, and $2 each time a woman visits the "food, clothing or furniture pantry." She gets a maximum of 12 pantry visits — "as long as each visit is accompanied by at least 20 minutes of counseling."

Providers are forbidden from pushing any religion, but they can ask a woman whether she believes in God and what she has faith in.

Alternatives says it has advised 13 other states, and in 2006, "realized its dream of becoming a national program" by signing a consulting contract with Texas. Michigan has also hired Alternatives.

Another point of pride: Alternatives has had dozens of spotless state and federal audits, and repeatedly earned the Pennsylvania Association of Nonprofit Organizations' "seal of excellence," awarded for "upholding the highest standards of ethics and accountability in the public sector."

When auditors from the Department of Human Services completed their review in August 2015, they found Alternatives to be generally in compliance with the contract. But they questioned the 3 percent fee. Alternatives collected it by reducing the service providers' claims for reimbursement, even though DHS paid the whole claim.

"For example," the audit said, "a $100 claim would result in $97 being paid to the service provider and $3 being retained by" Alternatives.

Auditors could not tell when the practice started, but estimated that Alternatives amassed $809,000 over the last five years.

In response, Alternatives readily admitted having a side contract with service providers to raise money "for the advancement of its mission" nationally. But Alternatives contended that providers voluntarily signed on, and that DHS had approved the private arrangement from the start in 1997.

Alternatives said that back then, DHS explained "that administrators of other DHS programs have done the same thing, and it is none of the department's business what other contracts you have with your services providers. What they do with their money after they've earned it under the DHS agreement is not our business."

That became the crux of the conflict. Alternatives claimed the 3 percent "offset" payments were not subject to DHS scrutiny because it was "private corporate money," while DHS called that argument "unsupportable" and demanded the records.

In August 2016, DHS enlisted state Auditor General Eugene DePasquale to investigate and settle the matter.

Alternatives initially indicated it would share the records in question, but then went on the offense. It sued DHS and the auditor general in Commonwealth Court to block disclosure, much to DePasquale's ire.

"It is my sincere expectation that Commonwealth Court will see this action by Real Alternatives for what it is: an effort to obstruct two state agencies from gaining access to documents that will show Real Alternatives' illegal and secretive skimming of public tax dollars," DePasquale declared in an April 2017 news release.

Instead, the court ruled in Alternatives' favor – at least, technically. Three judges concluded that auditors can examine money only spent to fulfill the state grant agreement, and that "there is no dispute that Real Alternatives is not spending these funds for purposes described" in that agreement.

However, the court did not rule on the public or private nature of the funds, or the permissibility of the 3 percent side agreement.

Equity Forward certainly thinks the tactic is wrong.

Alternatives "has been an irresponsible steward of millions in taxpayer dollars since it was founded in 1997," Equity said in a news release. It "refuses to be transparent about its operations, even as Real Alternatives executives take home inflated salaries."

Equity tried to get the disputed records from DHS through the Right to Know law, but was denied because the documents do not qualify as public records — and besides, DHS said it doesn't have them. So Equity has filed an appeal of the denial — back in Commonwealth Court. The court is awaiting the government's response to Equity's petition.

Meanwhile, DHS seems to have backed away from promises to get tougher with Alternatives. Last August, in a letter to DePasquale, DHS acting secretary Teresa Miller said the department would "seek to recover funds collected by Real Alternatives from the 3 percent fee arrangement" and "include explicit language in future agreements … ensuring that all grant funds are used for the benefit of Pennsylvania residents."

But the new contract that DHS and Alternatives signed in January merely says the company must pay its subcontractors "without any deduction." And DHS has decided not to recoup the contested taxpayer funds because that would require "a protracted lawsuit using taxpayer funds," a DHS spokesman said last week.

Alternatives still has a program development agreement, but the collection and accounting methods have changed, said lawyer Matthew Haverstick, who represents Alternatives. Now, Alternatives fully reimburses service providers' claims – without any deduction. Then they pay Alternatives 3 percent.

Haverstick said he would welcome a definitive legal ruling on the underlying questions.

"At what point does public money becomes private money?" he said. "At what point does an entity get to spend money it earned without government looking over its shoulder?"

"It should not," he added, "be cast as a pro-life or a pro-choice issue."