Friday, June 13, 2008
The idea of linking diversity requirements to nonprofit organizations is actually nothing new. The Rockefeller Foundation published a lengthy report on the topic a few months ago. Here is a brief excerpt:
Recently, some segments of the public have become critical of a tenuous relationship between private philanthropy and those populations that are most vulnerable – the poor, racial and ethnic minorities, and other marginalized communities. Because for the most part philanthropic funds are exempt from public taxation, some say it is only fair to expect that they serve the common good to justify this benefit, especially given the federal government’s changing role as the safety net for the poor and disenfranchised over the last decade. This has led to growing skepticism as to whether private values are an equal substitute for public values that have survived a democratic vetting process. Furthermore, there is growing pressure for foundations to be more effective in their service to these diverse communities and to be more responsive to their needs.
In September 2007, the U.S. House Committee on Ways and Means, Subcommittee on Oversight held hearings to examine whether public charities and private foundations serve the needs of diverse communities. In its testimony, the National Committee for Responsive Philanthropy criticized private foundations for “not doing as much as they could or should …,” noting that the portion of dollars allocated to racial minorities and the poor are disproportionately small, and that these allocations are not growing in pace with overall charitable giving. Julian Wolpert, Ph.D., of Princeton University argued that private philanthropy is not responsive to the needy, that “The poor and members of diverse communities and their needs are not prominent to donors…. decisions are largely made without rigorous analysis of social needs and priorities.” He also stated, “The losses in federal and state revenues from charitable deductions far exceed donor transfers to the needy.”
Hmmmmm. Maybe California's proposal is not such a bad idea. For more on this topic see David A. Brennen, RACE AND EQUALITY ACROSS THE LAW SCHOOL CURRICULUM: THE LAW OF TAX EXEMPTION, 54 J. Legal Educ. 336, 342 (2004):
Tax exempt law sometimes requires that a tax-exempt charity's board of directors represent a broad cross-section of the community served by the charity. This requirement is most exemplified in the context of the private foundation rules applicable to tax-exempt charitable organizations. A private foundation is a tax-exempt charity that either fails to serve certain specified charitable purposes or fails to demonstrate that it has appropriate levels of public financial support. Unless a charity serves certain educational, religious, medical, public safety, or governmental purposes, it must demonstrate that it receives substantial financial support from a wide array of public sources to *349 avoid private foundation status. To satisfy the substantial financial support requirement, a tax-exempt charity must show either that it receives more than one-third of its support from a variety of public sources or that it receives more than ten percent of its support from these sources and satisfies other factors. Among the other factors is that the board of directors represent a broad cross-section of the community.