March 28, 2009
March Madness, the Nonprofit Charade, and Indentured Servitude
An interesting op-ed in last week's L.A. Times exposes the open secret about NCAA basketball (and football, for that matter). The only people not profiting from nonprofit collegiate sports are the players themselves. And don't tell me that the players are profiting by way of a free education because for the most part nearly every student who wants to go to college can get about the same amount of financial aid that student atheletes get, and for a lot less "work-study." Anyway, here is an excerpt from the op-ed:
Just don't get bamboozled, for there is more to this heart-thumping event -- America's two-week Spring Hoops Fling -- than what shows. My advice: Love every minute of the slick production, the colors, the gloss. But don't forget, you're watching a charade. The NCAA trumps itself up as guardian of the lofty ideal of amateurism. How sweet. "But this is only amateur for the college athlete, and for some of them, amateurism is a stretch," said Randy Grant, who recently co-authored "The Economics of Intercollegiate Sports" and is an economics professor at Oregon's Linfield College. "It's certainly not amateur for the schools or coaches," he said. "No, this is big, big business." The NCAA will end up reeling in $6 billion from CBS for the current TV deal, which ends in 2013. A $6-billion treasure trove, and that's to say nothing of the myriad corporate sponsorships. Not bad for an entity protected by non-profit, tax-exempt status because of its "educational mission." Yet there are some schools in the tournament that seem to understand what education means. Based on the most recent NCAA graduation success-rate survey, which followed freshmen who entered school no later than 2001, seven tournament teams graduated their players at a 100% clip. Kudos to Utah State, Western Kentucky, Robert Morris, Marquette, Binghamton, Wake Forest and Florida State.
And then there is this gem:
Sure, many of these basketball studs get full-ride scholarships. But when you compare the price of a scholarship -- often a $20,000-to-$30,000 benefit -- to the hundreds of millions made from their sweat, where's the fairness? There is none. It hardly ends there. Players (who might better be termed laborers, given the boatloads of cash they produce for their schools) can lose their scholarships at the end of any year for any reason, even a whim. It's the coach's call. Moreover, NCAA transfer rules often strip players of the freedom to move around that other students enjoy because if you switch schools at the wrong time, you have to sit out for a year. And when these players need advice on the future, they're stuck on an island, alone. Even those on a surefire path to the NBA can't hire an agent without losing their eligibility.
Talk about indentured servitude! For a serious and more nuanced discussion see Professor Colombo's recent scholarly expose on the charade. In the meantime, go Pitt Panthers!
More Evidence that Nonprofit Downturn Worsening
A recent study confirms that nonprofits continue to suffer from the "triple whammy" (declining donations, decreased state funding, and increased demand for services) described in the DLC report we blogged a few days ago. According to a New York Times summary:
The financial health of the nation’s nonprofit groups is rapidly deteriorating, according to a survey of some 900 nonprofit leaders around the country. Only 12 percent of those organizations expect to end the year with an operating surplus, compared with 40 percent who ended their most recent fiscal years with money on hand, according to the survey by the Nonprofit Finance Fund, a charity that provides loans and other financial services to nonprofit groups. Almost a third said they did not have enough cash on hand to cover more than one month’s expenses, while roughly another third said they only had enough money to get them through the next three months. “It’s very clear how fragile financially many of these organizations are, and especially the ones on the front lines, the safety net or lifeline organizations,” said Clara Miller, chief executive of the fund. More than half the respondents said they would like help communicating their financial difficulties to their boards and donors, highlighting the growing belief in the nonprofit world that government and the public do not understand the role it plays in American society. “We don’t tell our financial story well,” Ms. Miller said. The survey echoes other recent reports on the woes of the nonprofit sector, and Ms. Miller said she hoped to use the data to argue for new operating principles and practices for nonprofit groups that would enable them to secure a better financial footing.
March 27, 2009
Professor Mary Crossley Posts "Non-Profit Hospitals, Tax Exemptions and Access for the Uninsured"
Dean and Professor Mary Crossley (Pittsburgh) posted "Non-Profit Hospitals, Tax Exemptions and Access for the Uninsured"on SSRN's Nonprofit and Philanthropy Law Abstracting Journal, an abstract of her working paper on nonprofits and hospitals. Here is the abstract:
These comments approach the topic of tax exemption for non-profit hospitals from the perspective of the 46 plus million Americans who have no health insurance and the significant additional number who are underinsured. In essence, persons who are underinsured have some form of health coverage but they remain at serious risk for significant out-of-pocket expenditures when they become sick. From this perspective, the key question is what role, if any, do the non-profit health care sector and, more particularly, non-profit hospitals have to play in addressing the vexing problems posed by the large number of uninsured and underinsured. These problems tend to be discussed primarily, although not exclusively, as problems of access.
To put the question in specific terms: Is tax exemption for non-profit hospitals a tool that could be used effectively to address, or at least to help to address, these problems? Should we try to fashion tax exemption standards for non-profit hospitals into a tool for responding to some of the challenges posed by the growing number of uninsured in our society?
Michael F. Murray Posts "Private Management of Public Spaces: Nonprofit Organizations and Urban Parks"
Michael F. Murray (Yale) posted an abstract of his recent article, "Private Management of Public Spaces: Nonprofit Organizations and Urban Parks", on the SSRN Nonprofit Law and Philanthropy Abstract Journal. Here is the abstract:
This paper argues that a theoretical account of the formation and operation of the nonprofit organizations (NPOs) that increasingly manage public property must have a place for the way in which nonprofits manifest responsibility. The current nonprofit models, therefore, must be extended and refined in order to explain the private management of public space by nonprofits. NPOs take responsibility in two ways that reduce the cost of monitoring their performance and, consequently, help to create positive outcomes for public spaces with respect to funding and maintenance. First, NPOs as a single entity assume responsibility for public space in a way that contrasts strongly with the diffuse accountability of governmental managers and, more importantly, in a way that makes them easier to monitor. Second, the dependence of NPOs on their revenue streams - donations or user fees, depending on the type of NPO - makes them responsible for the success of the park in a way that both contrasts strongly with insulated civil servants and places the burden on the NPO, instead of on individuals outside the organization, to compile and communicate information about their operation for monitors. Private managers, therefore, are more accountable for their actions than governmental managers because they are more responsible and, thus, less costly to monitor. Several policy and legal reforms are helpful to fostering NPO responsibility that reduces monitoring costs.
Professor Miranda Fleischer Posts "Theorizing the Charitable Tax Subsidies: The Role of Distributive Justice"
Professor Miranda Perry Fleischer (University of Illinois) posted an abstract of her recently published article, "Theorizing the Charitable Tax Subsidies: The Role of Distributive Justice", on the SSRN Nonprofit Law and Philanthropy Abstract Journal. Here is the abstract:
Distributive justice plays a starring role in many fundamental tax policy debates, from the marginal rate structure to the choice of base to the propriety of wealth transfer taxes. In contrast, current tax scholarship on the charitable tax subsidies generally either ignores or explicitly disavows distributive justice concerns. Instead, it focuses on the efficiency and pluralism-enhancing advantages of having charities provide public goods instead of or in addition to the government. While identifying these advantages is a necessary and important contribution to our understanding of charitable giving policy, avoidance of distributive justice concerns ignores the very purpose of charity: voluntary redistribution. After all, it's called the charitable deduction, not the public goods deduction.
As a result, the current body of work on the charitable tax subsidies is incomplete: It purposely under-theorizes "the good" in order to avoid making value judgments about which projects should be subsidized. Although this sounds appealing, completely avoiding such judgments is both impossible and counter-productive. Current scholarship thus over under-theorizes the good, creating confusion about the charitable tax subsidies in both theory and practice.
Explicitly addressing distributive justice - in addition to pluralism and efficiency - will enhance our understanding of the subsidies for three reasons. First, existing scholarship - which generally ignores distributive justice issues - is incomplete and inconsistent for so doing. It is incomplete because it does not adequately identify which projects deserve a subsidy; it is inconsistent because it implicitly contains value judgments that have distributive justice implications but that are unacknowledged (and often disavowed) by their proponents. Second, popular criticisms of the charitable tax subsidies raise distributive justice issues that have not been adequately addressed. And lastly, the law governing the charitable tax subsidies is itself confused on the role of distributive justice.
Extending our understanding of the subsidies in this manner has three benefits. First, it will help the efficiency- and pluralism-minded scholars better address how to structure the tax subsidies to best promote those benefits. Second, a better understanding of distributive justice will help us assess existing justice-related criticisms of the subsidies. And lastly, because our society currently spends a great deal of resources subsidizing charity, such a discussion will help us allocate our resources in a more systematic fashion.
Professor Robert Keatinge Posts "LLC's and Nonprofit Organizations - For-Profits, Non-Profits, and Hybrids"
Professor Robert Keatinge (Suffolk and Holland & Hart LLP) posted "LLCs and Nonprofit Organizations -- For-Profits, Non-Profits, and Hybrids" on SSRN's Nonprofit and Philanthropy Law Abstracting Journal, an abstract of his working paper on LLC's and nonprofits. Here is the abstract:
This article deals with the LLC in the context of nonprofit organizations, both as a legal entity in which a nonprofit organization may be a member and as an organization that may, itself, be organized as a nonprofit organization, or a hybrid organization - one that may be organized for a purpose that is neither exclusively for-profit nor exclusively non-profit. Most legal organizations are created pursuant to a state law, referred to in this article as an "organic statute." Unlike partnerships and business corporations under the Model Business Corporation Act, LLCs (and - more recently - limited partnerships) do not need to be organized for profit.
March 26, 2009
Full Text of, and a little comment on Senator Ben Cardin's Newspaper Nonprofit Bill
One of the sticky issues with respect to idea that newspapers should or might have to convert to nonprofit status is what to do about advertising revenue? We blogged on the recent proposal to exempt newspapers from tax a day ago. As a general matter, the fragmentation rule prevents an exempt organization from shielding its ad revenue from taxation; it is very nearly impossible to successfully assert that paid advertising is part of the exempt charitable purpose rather than a separate unrelated trade or business made possible by the charitable purpose. See, e.g., United States v. American College of Physicians,475 U.S. 834 (1986). Treas. Reg. 1.513-1(d)(4)(iv), Example 7. Now, Senator Ben Cardin (D. MD) has introduced the Newspaper Revitalization Act, which would exempt advertising revenue from taxation (and thus solve the UBIT problem for newspapers). Here is the bill:
To allow certain newspapers to be treated as described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from tax under section 501(a) of such Code. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. TREATMENT OF CERTAIN NEWSPAPERS AS EXEMPT FROM TAX UNDER SECTION 501.
(a) IN GENERAL.—Paragraph (3) of section 501(c) of the Internal Revenue Code of 1986 is amended by inserting ‘‘(including a qualified newspaper corporation)’’ after ‘‘educational purposes’’.
(b) QUALIFIED NEWSPAPER CORPORATION.—Section 501 of the Internal Revenue Code of 1986 is amended—
(1) by redesignating subsection (r) as subsection (s), and
(2) by inserting after subsection (q) the following new subsection:
‘‘(r) QUALIFIED NEWSPAPER CORPORATION.—For purposes of this title, a corporation or organization shall be treated as a qualified newspaper corporation if—
‘‘(1) the trade or business of such corporation or organization consists of publishing on a regular basis a newspaper for general circulation,
‘‘(2) the newspaper published by such corporation or organization contains local, national, and international news stories of interest to the general public and the distribution of such newspaper is necessary or valuable in achieving an educational purpose, and
‘‘(3) the preparation of the material contained in such newspaper follows methods generally accepted as educational in character.’’
(c) UNRELATED BUSINESS INCOME OF A QUALIFIED NEWSPAPER CORPORATION.—Section 513 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
‘‘(k) ADVERTISING INCOME OF QUALIFIED NEWSPAPER CORPORATIONS.—The term ‘unrelated trade or business’ does not include the sale by a qualified newspaper corporation (as defined in section 501(r)) of any space for commercial advertisement to be published in a newspaper, to the extent that the space allotted to all such advertisements in such newspaper does not exceed the space allotted to fulfilling the educational purpose of such qualified newspaper corporation.’’
(d) DEDUCTION FOR CHARITABLE CONTRIBUTIONS.—Subparagraph (B) of section 170(c) of the Internal Revenue Code of 1986 is amended by inserting ‘‘(including a qualified newspaper corporation as defined in section 501(r))’’ after ‘‘educational purposes’’.
(e) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
We have previously blogged on the subject of nonprofit newspapers. I am not so sure this is a wise or even workable proposal. Anybody who has read Big Mama Rag ought to know how hard it is to distinguish "educational" from something else. Apparently, though, if the "newspaper" is "educational" in nature (presumably, the bill intends to apply to newspapers as we currently understand that term), all revenue from commercial ads will be exempt (so long as space devoted to news educational stories is greater than space devoted to advertisements). It seems to me, the bill might open the door to exempt revenue from all printed [or printable] news sources, even those on the internet -- places like Yahoo, Google and other generators of information who have caused the revenue drain on print media in the first place. In other words, the bill might logically be interpreted to exempt advertisement from all print[able] media.
Martin Feldstein on The Charitable Contribution Deduction Proposal
Here is what Harvard Economist Martin Feldstein had to say in the yesterday's Washington Post:
President Obama's proposal to limit the tax deductibility of charitable contributions would effectively transfer more than $7 billion a year from the nation's charitable institutions to the federal government. But the high-income taxpayers affected by the rule change are likely to cut their charitable giving by as much as the increase in their tax bills, which would, ironically, leave their remaining income and personal consumption unchanged.
The rest of the op-ed goes on to support Feldstein's view that the proposal to limit the charitable contribution deduction (along with all other itemized deductions) is a bad one. I have pretty much been on the fence with regard to this issue, but having read this op-ed, and the Democratic Leadership Report, about which we blogged a few days ago, I now agree the idea is a bad one and I, of course, am a staunch Obama-ite. According to the DLC report, authored by one democrat and one republican, the number of people employed in the nonprofit sector, the wages paid, and the gross domestic product generated by the nonprofit sector surpass the automobile and financial industry several times over. We have poured billions into those industries. Indeed, if the American nonprofit sector were a country, it would have the seventh largest GDP in the world. True, the wealthy and ultra wealthy "madoff "like fat cats under Bush tax cuts, but the charitable contribution deduction is the one provision that comes as close as possible to simultaneously acheiving both efficiency and equity in the tax code. The wealthy can benefit only by giving back to the rest of us. If they are able to benefit by pretending to give back, we should adjust the conditions under which the deduction is granted, but we should not do so in a manner that will reduce the frequency with which deductions are made.
March 25, 2009
Now, More Than 1.2 Million Charities Registered in United States
The Chronicle of Philanthropy reports that the number of charities registered with the IRS has increased by over 10% in the past two years to the most recently recorded level f 1.2 million. Here is an excerpt from the article:
The number of groups classified under Section 501(c)(3) has increased by 81 percent since 1996, when the IRS counted a total of 654,186 of them.
The number of all charitable organizations increased by 6 percent from 2006 to 2007; 1.7 percent from 2005 to 2006; 3.5 percent from 2004 to 2005; 4.8 percent from 2003 to 2004; and 6 percent from 2002 to 2003.
For the entire story, see "IRS Says Number of Charities and Foundations Hit 1.2 Million" in the March 24, 2009, issue of the Chronicle of Philanthropy. In addition, go to the IRS Data Book for 2008 to see all of the statistics.
Senator Benjamin Cardin (D- Maryland) proposed in Congress Tuesday that the nations newspapers should be permitted to operate a tax-exempt organizations, similar to public broadcasting television and radio stations. Here is an excerpt from the article:
Cardin introduced a bill that would allow newspapers to choose tax-exempt status. They would no longer be able to make political endorsements, but could report on all issues including political campaigns.
Advertising and subscription revenue would be tax-exempt, and contributions to support coverage could be tax deductible.
Cardin said in a statement that the bill is aimed at preserving local newspapers, not large newspaper conglomerates.
We are losing our newspaper industry," said Cardin. "The economy has caused an immediate problem, but the business model for newspapers, based on circulation and advertising revenue, is broken, and that is a real tragedy for communities across the nation and for our democracy."
For the entire story, see "Senator proposes nonprofit status for newspapers" in the March 24, 2009, issue of the Washington Post.
March 24, 2009
"Quiet Crisis: The Impact of The Economic Downturn on The Nonprofit Sector"
The Democratic Leadership Council (DLC) has issued a rather stark report entitled "Quiet Crisis: The Impact of the Economic Downturn on the Nonprofit Sector." Ironically, my quick read tells me the report provides empirical data in opposition to the President's plan to limit the value of itemized deductions (including the charitable contribution deduction) to 28%. The DLC is a democratic party think tank, by the way, but the report was co-authored by economic advisors to Presidents Bush and Clinton. Here is what the report recommends via the tax code in response to the harms suffered by nonprofit organizations:
A handful of modest changes in the tax code would help keep nonprofit contributions by individuals and foundations from plunging: extending the IRA rollover so Americans over 70 can make charitable contributions through tax-free withdrawals from their retirement accounts; making the mileage deduction for volunteer travel, currently at only 14 cents per mile, the same 58.5 cents per mile as for business travel; creating a broadbased nonprofit investment tax credit to help charities hold their own in a brutal credit environment; suspending the 2 percent excise tax on foundation earnings for grant makers that give more than the 5 percent of assets required by federal law; and allowing the 65 percent of all taxpayers who do not itemize their tax deductions to claim a deduction for charitable contributions.
Historic Preservationists are Concerned That Recent Court Action in Illinois Might Hamper Efforts to Maintin Historic Buildings and Neighborrhods
The City of Chicago appealed that decision this month, and both sides are waiting to hear if the Illinois Supreme Court will take the case.
City lawyers say that if the ruling stands, any of the city’s landmarks — except perhaps those that are protected through separate federal or state programs — could have their protected status challenged, said Jennifer Hoyle, a spokeswoman for the city’s law department.
Advocates of preservation worry that the ruling might ultimately threaten popular landmarks like Wrigley Field and the works of the architects like Louis Sullivan and Mies van der Rohe and Frank Lloyd Wright. The outcome could also have legal consequences for other Illinois cities with similar ordinances. And while it would set no legal precedent outside the state, the case threatens to embolden opponents with like-minded challenges, given the similarities of many landmark ordinances, advocates say.
Cities and towns across Illinois, as well as preservation advocates from places like Cleveland, New York and Pittsburgh, have filed court documents supporting Chicago’s appeal.
“Once the door opens, other people will be making the same argument,” said Julia H. Miller, special counsel at the National Trust for Historic Preservation. “The potential for havoc is there.”
For the entire story, see "Challenge to Landmark Law Worries Preservationists" in the March 24, 2009, issue of the New York Times.
March 23, 2009
Say it Ain't So! MLB Players Association Files Grievance to Stop Mandatory Charitable Contributions
Baseball season starts soon. I live in Florida -- in St. Petersburg, to be exact -- where baseball is not at all appreciated. St. Pete, for example, has the worst baseball stadium in the whole world. Its dark and dank with artificial turf, just awful. Like playing baseball in an old, poorly lit basketball arena. People in Florida don't appreciate a warm day at the ballpark like they do in places like Pittsburgh and Chicago. Ah yes, the wafting smell of hotdogs, brats, and cotton candy in the stands. I suppose I understand why, but there are ways to provide shade even at outdoor stadiums in Florida. Fortunately, I will be spending some time in Pittsburgh this summer -- the team there ain't that good, but they have a terrific stadium and there are always good seats.
But I digress. On Friday, the major league baseball association filed a grievance alleging that major league teams are acting unfairly when they insert clauses in ballplayers' contracts requiring that the players contribute a certain percentage of their salaries to team affiliated charities. The players' association website has information and press releases on just about all the great things ball players do, including volunteer service and pharmaceutical commericals (not really), but strangely no mention of the grievance. I guess they prefer not to publicize this part of their community spirit. To get an idea of what's going on, see this Newsday article. Here is a teaser:
On Friday, a rare day without a WBC game during the tournament's 19-day run, the players association filed a grievance regarding, of all things, the inclusion of designated charity contributions in players' contracts. What the union wants from a third-party arbitrator, should the grievance get that far in the process, is money returned to the players who already have made such donations. The Mets are one of 22 teams identified that have utilized this practice, according to the union's notice of grievance to central baseball. The others are Arizona, Atlanta, Baltimore, the Cubs, Cincinnati, Cleveland, Colorado, Detroit, Florida, Houston, the Angels and Dodgers, Milwaukee, Philadelphia, Pittsburgh, San Diego, San Francisco, Seattle, Tampa Bay, Texas and Toronto. It's a growing trend in baseball: When free agents sign with teams, they're essentially required to donate a percentage of their salary to a charity "associated or affiliated with the Club," to use the union's wording.
I guess I am all for "freedom of giving" and don't like the idea of forced contributions. I would side with the teams, nevertheless, if the clauses merely required players to give to a charity of their own selection. Why should the team get to select the charity? On the other hand, these are not really "mandatory" charitable contributions. A player can always turn down the contract -- but who would do such a foolish thing, give up a major league baseball career over a charitable contribution dispute. MLB is a buyer's market. Only a few players are so rare that they cannot be replaced by someone else laboring away in the minor leagues -- and thus can demand the removal of the clause. So maybe the charitable contribution clause is a contract of adhesion after all.
Latina and Latino Critical Legal Theory Call for Papers and Panels
OUTSIDERS INSIDE: CRITICAL OUTSIDER THEORY AND PRAXIS
IN THE POLICYMAKING OF THE NEW AMERICAN REGIME
American University - Washington College of Law
October 1 - 4, 2009
Please join us at LatCrit XIV, the Fourteenth Annual LatCrit (Latina and Latino
Critical Legal Theory, Inc.) Conference, which will take place in Washington, D.C.,
from Thursday, October 1 through Sunday, October 4, 2009.
For more information, please see attached document. Download LatCrit XIV Call for Papers and Panels_final_March9
House Passes GIVE Act
Last Thursday, the House of Representatives passed a "human capital" stimulus bill for nonprofit organizations. The GIVE (Generations Invigorating Volunteerism and Education") Act "would create an array of new volunteer projects" according to a recent Chronicle of Philantropy news report. If you thought the tax code was full of complexity derived from simple ideas (take a look at Section 170, a provision intended to just give people a deduction for giving to charitable organizations), wait til you see this bill. Not that I agree with all the naysayers and silly critics who claim the government is "usurping volunteerism." But sheeesh, do we need all of this verbiage and over legislation to convey a simple notion? I am just a bit frustrated that I can't really give an informed outline of the bill because it is so long and takes up so many pages and cross references just to say "we will give you college assistance and other benefits if you do something good for the community." It would take days to read and comprehend this bill! Here is just one gem -- a gem that actually has some relevance to the meaning of a "scientific research organization" for purposes of tax exemption (since it is sometimes the case that an issue arises over whether an organization is "scientific" or not):
The term ‘principles of scientific research’ means principles of research that—
‘‘(A) applies rigorous, systematic, and objective methodology to obtain reliable and valid knowledge relevant to education activities and programs;
‘‘(B) presents findings and makes claims that are appropriate to and supported by methods that have been employed; and
‘‘(C) includes, as appropriate to the research being conducted— N
‘‘(I) use of systematic, empirical methods that draw on observation or experiment;
‘‘(ii) use of data analyses that are adequate to support the general findings;
‘‘(iii) reliance on measurements or observational methods that provide reliable and generalizable findings;
‘‘(iv) strong claims of causal relationships, only with research designs that eliminate plausible competing explanations for observed results, such as, but not limited to, random assignment experiments;
‘‘(v) presentation of studies and methods in sufficient detail and clarity to low for replication or, at a minimum, to offer the opportunity to build systematically on the findings of the research;
‘‘(vi) acceptance by a peer-reviewed journal or critique by a panel of independent experts through a comparably rigorous, objective, and scientific review; and
‘‘(vii) consistency of findings across multiple studies or sites to support the generality of results and conclusions.
It just seems like something else is going on here, something other than just encouraging high school and college students to give back to the community. It seems like an effort to bolster some other argument, perhaps relating to creationism or stem cell research or some other social argument. I may or may not agree with the hidden agenda, but I can at least disagree with the hiding of the agenda. Or maybe I am just being cynical. Anyway, here is an audio report on the bill from NPR.