Investigation: A behind-the-scenes look at how two former elected officials took money from a kids’ health care plan to pay for political campaigns—as they planned their return to public office

By Dan Pulcrano and Josh Koehn

A public agency created the Santa Clara Family Health Foundation more than a decade ago to fund the county’s groundbreaking children’s health care initiative, one that would guarantee that every child who needed a doctor’s attention would be seen. For the past four years, however, low income kids’ health insurance premiums have taken a backseat to personal ambition as Health Foundation officers ran for office, funded their $200k annual compensation packages and diverted money to pay for political consultants, mailings, public opinion polls, telephone banks and ballot initiatives.

All this transpired behind a shroud of secrecy that was lifted last week by Judge Carol Overton, who rejected SCFHF’s hard-fought legal battle to keep its activities out of the public’s view. Documents obtained as a result of last Friday’s superior court ruling show clearly that the Health Foundation repeatedly broke state laws by using a public agency’s funds and property to operate political campaigns in close coordination with local labor leaders.

A review of hundreds of internal Health Foundation emails and previously unreleased board meeting agendas and minutes present a detailed picture of how two members of the foundation’s executive committee—a former Saratoga mayor and a former San Jose vice mayor—derailed the foundation’s idealistic mission and turned it into a virtual political campaign organization operating in a public agency’s building as its activities were directed from the offices of the South Bay Labor Council.

And while the pair turned the public agency into an appendage of the valley’s most organized and aggressive political machine, both SCFHF CEO Kathleen King and Working Partnerships USA executive Cindy Chavez, who also headed the South Bay Labor Council until last December, imagined themselves as future members of the Santa Clara County Board of Supervisors. King ran in 2011-12 while collecting a salary as a public official, and Chavez is now running for George Shirakawa Jr.’s seat.

Over the last three years, the pair frequently discussed fundraising efforts, political polls and strategies to influence local voters and their elected representatives. According to California Government Code section 8314, “It is unlawful for any elected state or local officer, including any state or local appointee, employee, or consultant, to use or permit others to use public resources for a campaign activity, or personal or other purposes which are not authorized by law.”

While King and foundation attorney Ash Pirayou—who also represents SBLC’s political action committee —contend that the organization is a private nonprofit, SCFHF was created by the county-established Santa Clara Family Health Plan, a public agency that insures more than 100,000 residents and has an annual budget of more than $200 million. The foundation’s budget hovers around 1 percent of that, including donations it receives and turns over to the Health Plan.

Local municipalities and hospital operators sometimes make restricted donations to the health plan through the foundation. It also raises money through an annual wine tasting event and the Silicon Valley Leadership Group’s Applied Materials Silicon Valley Turkey Trot. At least $1.5 million of the unrestricted funds raised through those activities have been used to fund executive salaries, political campaigns and “outreach” through Chavez’s Working Partnerships. The Turkey Trot’s website lists the “Children’s Health Initiative of Santa Clara County” as a beneficiary—the race contributes more than $200,000 annually to the foundation—though there’s no indication that any funds make it to an organization that actually delivers health care services to children.

The two nearly identically-named organizations—SCFHF and SCFHP—work out of the same county building in Campbell and use the larger agency’s servers and email addresses. The model resembles that of the VMC Foundation, which until last November had a formal contract with the county hospital system. Chris Wilder, CEO of the VMC Foundation, the “fundraising arm of Santa Clara Valley Medical Center,” also frequently discussed political strategies and campaign fundraising with King and Chavez via email—and it appears he was doing so on county time, with county property.

“There’s no question in my mind that all three are public agencies,” said County Executive Jeff Smith.

Emails going back to 2010 between King and Chavez make it clear that electioneering never ceased after a county parcel tax measure failed to win two-thirds of the vote. The Health Foundation contributed $215,000 to a Measure A committee run primarily by labor’s political consultant Ed McGovern and Working Partnerships, according to an internal donor list.

Meanwhile, the VMC Foundation gave $432,000 to the committee—but email records indicate that $25,000 of that amount might have come from the Health Plan, which would be a prohibited use of public funds.

Elizabeth Darrow, CEO of the Health Plan and former Health Foundation director, said she gave a $25,000 check from the Health Plan to the VMC Foundation in 2010, as well as a personal donation of $1,000. But, she added, the former payment was “absolutely not” intended for a political campaign. “We did not donate (for Measure A),” Darrow said. “As a public agency we would never do that. ... What you can see is these people are sloppy.”

There is some uncertainty on who exactly knew what, based on an email King sent in September 2010 to Chavez, Wilder and former Working Partnerships policy director Sarah Muller, about a then-upcoming Health Foundation board meeting.

“A couple of sensitive issues; Elizabeth says she can be at the meeting on Saturday but she is giving from the Health plan to VMC Foundation so she wonders if it is appropriate to be there,” King wrote. “This could be sensitive issue and it maybe that she should not be there? I think she has a good point but she said she would do what we recommend. She also is giving $1000 personally through VMC for the campaign and asking everyone at her tables to give to VMC. About phone banking, she feels as a public agency, she may need to keep a low profile with her staff. There still could be a few whistle blowers over here. I could try to pull people together after work in the parking lot but that may not be the best use of my time. I can put one of my staff as a volunteer doing this.”

Chavez replied: “She should not attend if she feels uncomfortable.”

King and Chavez did not return calls for comment for this story. If the Health Plan, which receives money from the county and most municipalities in the area, did contribute $25,000 to the Measure A campaign, that would be a violation of the Political Reform Act.

Contacted on Tuesday afternoon, Wilder said he would review Muller’s donor list and his records as soon as he was in front of a computer. “Until I look at it, I don’t want want to comment on it,” Wilder said.

“I believe that the Health Plan is pretty clearly a public entity,” Smith said, “and though I can’t tell from the email, It looks like there was funding from the Health Plan to the campaign. I wouldn’t make a judgment from just emails, but I would hope that it’s not the case.”

While the Health Foundation states that its mission is to cover health insurance premiums for low-income children, SCFHF’s financials show it contributed just $51,889 to the Healthy Kids Program between July 1 and December 31, 2011. During the same period, it spent $235,209 on salaries and fringe benefits. More recently, the Health Foundation contributed $250,000 to last November’s Measure A initiative, which passed with 56 percent of the vote and will tap consumers for an additional half-billion dollars in sales tax over the next 10 years.

San Jose Inside will post excerpts from the emails and additional information as this story unfolds.

An earlier version of this article said that Chris Wilder had been unavailable for comment. We’ve since spoken to him and included his comments above.