Saturday, July 4, 2009

Happy Fourth of July from the Nonprofit Law Prof Blog!

From the editors of the Nonprofit Law Prof Blog, we wish you all a safe and happy Fourth of July! 

At this time, I am reading about the history of charity and philanthropy in America, and the connections between them and civility.  Whether you are at the beach or sitting in your favorite chair at home, I highly recommend to you, Charity, Philanthropy, and Civility in American History, edited by Lawrence J. Friedman and Mark D. McGarvie.  New York:  Cambridge University Press, 2003.  This book provides an interesting survey of charity and philanthropy through the lenses of scholarly historians who attempt to track the evolution of these ideals and practices through time and movements -- gender, race and national origin.

AMT

July 4, 2009 | Permalink | Comments (0) | TrackBack (0)

Friday, July 3, 2009

Providence RI to Study Nonprofits, Possible PILOTs

Another example of the push by local governments to "tax" tax-exempt nonprofits comes from Rhode Island.  The Providence Journal reports that the city council of Providence agreed Thursday to establish a commission to study the potential for getting revenue from local tax-exempt entities.  Apparently, the Rhode Island state legislature is considering measures to give cities the ability to tax nonprofit hospitals and colleges that currently are tax-exempt. 

A proposal to assess a “student impact fee” on private colleges and universities is currently before the full state House of Representatives, and another proposal is pending before a House committee.  Another bill would authorize municipalities to collect a fee in lieu of taxes from nonprofit entities that own properties assessed at $20 million or more. That proposed fee has not yet been voted on by the House Finance Committee.

One wonders whether, particularly in cities on the east coast (Boston is another leader in this area), we are reaching some sort of "tipping point" where nonprofits will no longer be exempt, or perhaps only partially exempt, from local property taxes.

JDC

July 3, 2009 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Thursday, July 2, 2009

Should Wikipedia Not be Tax Exempt? Its British Cousin is Not!

Wikipedia describes itself as a "free encyclopedia that anyone can edit."  It has an .org suffix, presumably confirming its tax exempt status (or at least strongly suggesting it, but I presume it is tax exempt without checking, besides its free and I don't see any advertisement on its site).  No doubt it is "educational" in the Big Mama Rag sense of the word and therefore deserving of tax exemption under IRC 501(c)(3).  But our UK cousins have apparently determined that the UK arm, known as Wikimedia UK is not "educational" because the mere dissemination of ideas "is not in itself a charitable object unless it is combined with teaching or education."  Balderdash, I say!  By the way, this astonishing tidbit was reported to us by the very informative International Journal of Civil Society Newsletter (June 2009)..   According to the online Charity Finance"  (quoting the HMRC)::

In its guidance The Advancement of Education for the Public Benefit, the Charity Commission says organisations must provide evidence of educational benefit and states: “A modern example might be a ‘wiki’ site which might contain information about historical events but, if this information is not verified in any way, it would not be accepted as having education merit or value without positive evidence.”

To see a full copy of the UK determination letter denying tax exemption, go here.  The key language is this:

The production of an encyclopaedia is not the charitable advancement of of education and has not been accepted as such in law. In Re Shaw [1957] 1 WLR 729 Mr Justice Harman said "If the object be the mere increase of knowledge it is not in itself a charitable object unless it is combined with teaching or education". Nor is the support the Wikipedia, the stated primary purpose of Wiki UK Ltd, a charitable purpose.
.

Here is what the Wikimedia UK Secretary told its Board:

Their objection goes to the heart of what we have been established to do. On the surface, it does not appear that any different wording in our constitution or correspondence would have given us a different outcome. Nonetheless, the legal issues may be arguable - our job is not just to produce content in isolation, but also to spread that knowledge and make it accessible to all. I should imagine this will come down to the finer points of law, and it is probably best to engage a lawyer at this stage when we appeal. If we had applied to the Charity Commission before HMRC the application would have been considered by different lawyers but the same law would apply. Therefore, it is likely that we would have come up against the same problem. I'm contacting the Foundation to ask them if they are aware of any lawyers familiar with UK law who could help us pro-bono on this. I'm also sending a note to our MP to thank him for his help in speeding this up: although it is disappointed to get this response, it is better to get it now that in 3 or 6 months' time. In the meantime, we should probably stop referring to ourselves as a "charity" or an "exempt charity". Before receiving this letter it was reasonable for us to do this as that was our honest view. Now we know there is some disagreement over this, I suggest we should describe ourselves as a "not-for-profit" instead. Whilst we can still get Gift Aid declarations (HMRC have previously confirmed this was ok) we should probably add a caveat on the form explaining that our charitable status is contested.

Me thinks our brethren have this completely wrong.  The dessimination of uncensored, raw and un-commented upon information (nevermind that the dessiminator cannot possibly dessiminate without at least implicit comment, even the organization of information is a subjective comment) is, if that is even possible, as valuable or more as censored, edited, and commented upon information.  Stupid is as stupid does.

dkj

July 2, 2009 in International | Permalink | Comments (0) | TrackBack (0)

Male Nonprofit CEO's Make More than Female Nonprofit CEO's another Study Finds

A Study completed by the Rollins Philanthropy and Nonprofit Leadership Center confirms that "the man"  (pictured above in recline) is still in charge.  According to the 200 page report, summarized online but made available in full for the tidy sum of $139.00, "On average male CEO/executive director pay is $110,962 per year; for women, the average executive director pay is $80,897 per year. A relatively greater number of men are found in the CEO/executive director positions of the largest organizations, which tend to pay higher wages."  Thats nearly a 30% discrepancy, according to this article in the Chronicle of Philanthropy.


dkj

July 2, 2009 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Obama to Search for "Most Promising" Nonprofits in America: A Reason to Use the Tax Code instead of Direct Appropriations to Fund Charities

On June 30, 2009, according to the Chronicle of Philanthropy, the White House announced that administrative officials will search for "worthy" charitable recipients of a $50 million fund designed to help charities expand innovative social projects:

Surrounded by more than 100 philanthropic leaders in the East Room of the White House, Mr. Obama said he was glad there were some “deep pockets” in the audience, as he also wants corporations and foundations to chip in to help the administration create a “new kind of partnership between government and the nonprofit sector.”  Our nonprofits can provide the solutions,” he said. “Our government can rigorously evaluate these solutions and invest limited taxpayer dollars in ones that work.” But, he said, private donors are needed to provide seed capital, matching funds, and strategic advice.

The Social Innovation Fund, described in flowerly optimistic language on the White House Blog, was part of the Edward M. Kennedy Serve America Act (signing video of signing ceremony and link to million page act) though Congress has yet to appropriate the money.  Perhaps this is the charitable version of an "unfunded mandate."  Still, I don't want to be too cynical about the initiative just yet.  But I'd rather hold my applause until the checks are sent.  Who can complain, though, when the government wants to give $50 million to charitable organizations.  Ok, here is food for thought:  The Nonprofit Sector is known as the Independent Sector for a reason.  It is independent and not beholden to either government or business. In an ideal world, it should receive all of its funding from grass roots sources so that it may maintain its independence and indeed, its appareance of independence.  Once the government starts doling out funds in a selective manner to nonprofits selected this administration or that, we should expect that only those charities whose political inclinations are in line with the doler-outers will receive funds.  Will the Obama administration, for example, direct funds to the conservative Heritage Foundation?  Probably not; if I were in charge the public interest law firm that challenges all sorts of affirmative action efforts -- the Center for Law and Justice, I think is their misnomer --  would not get a red cent!  Hey, I am just being honest.  I'd find some way to label them "unworthy".  See, that's the problem with what seems like a good idea.  It has to be administered by people on an official level.  In this case, it seems innocuous enough but wait until a liberal think tank gets a grant but a conservative one does not.  Or in some future administration, a conservative group gets funded but a liberal one doesn't.  Good intentions don't always lead to good results.  The point is, if nonprofits ought not finacially support any particular governmental philosophy, perhaps the opposite is true.  That's my point of view.

dkj

July 2, 2009 in Federal – Executive | Permalink | Comments (2) | TrackBack (0)

The Pocantico Declaration: Forming a Nonprofit Investigative Reporting Network

We have blogged several times recently about the possibility of using the nonprofit form for failing newspapers (see prior posts here, here, here and here).  Efforts to create a broader nonprofit news-gathering infrastructure got a boost this week when representatives of some 25 nonprofit news-gathering organizations and journalism schools completed a three-day conference on the state of investigative journalism and issued The Pocantico Declaration to form a nonprofit investigative news network.  The Declaration sets up a steering committee consisting of Bill Buzenberg, executive director of the Center for Public Integrity; Sandy Close, executive director of the Pacific News Service; Sheila Coronel, director of the Stabile Center for Investigative Journalism at Columbia University; Margaret Engel, executive director of the Alicia Patterson Journalism Foundation; Laura Frank, cofounder of the Rocky Mountain Investigative News Network; Margaret Wolf Freivogel, founding editor of the St. Louis Beacon; Brant Houston, Knight Chair professor in Investigative and Enterprise Reporting at the University of Illinois; Joel Kramer, CEO and Editor of MinnPost; Charles Lewis, founding executive editor of the Investigative Reporting Workshop at American University; Scott Lewis, CEO of voiceofsandiego.org; and Robert Rosenthal, executive director of the Center for Investigative Reporting.  The Declaration says that the steering committee's initial goal is to

seek and obtain sufficient grant funding to develop a plan for sustaining and strengthening nonprofit investigative journalism. The Committee will begin immediately to spearhead the fundraising work for a planning grant and a possible grant for continued editorial project collaboration, including doing major investigative projects, and foster greater administrative and related, “back office” organizational efficiencies. In addition, the Committee will design and construct an Investigative News Network website, and will take full advantage of other emerging technologies to coordinate, curate and showcase the best content of the Network member publishers and its growing, searchable “long tail” archive.


JDC

July 2, 2009 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 1, 2009

Two New Studies on Recession's Effects on Charities

Two new studies, one by the Johns Hopkins Listening Post Project and the other by The Bridgespan Group detail the effects of the recession on charities.  As one would expect, the news is mostly grim: the Johns Hopkins study found that 80% of charities reporting financial stress and nearly 40% of the respondents described that stress as "severe."  Theater and orchestra groups appeared particularly pessimistic, with one-third of theater respondents and almost a quarter of orchestras reporting concerns about whether they would continue to exist.

The Bridgespan report, which is an update of a survey first taken in November of 2008, found that the percentage of nonprofit that have laid off employees increased during the six months from the first survey and that more charities were making broad-based program reductions.  More organizations were drawing down on reserves, as well.

Still, some charity leaders see a silver lining.  Forty-five percent of those in the Bridgespan survey were optimistic that their financial position would improve over the coming year, while only 22% thought it would worsen.  And many saw a benefit to paring down services to their core mission - a chance to "refocus" their efforts on what they do best.

JDC

July 1, 2009 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 30, 2009

Musings on charitable endowments and reserves

Not very long ago, Senator Chuck Grassley, IA, "put the screws" to big universities for hoarding money in what he believed were "excessive" endowments (see prior blog post here).  But this article in the Washington Post should remind us all that charities are just as vulnerable to economic downturns as any for-profit business, and that having significant reserves to weather these downturns is prudent management.  The article details a study of Washington D.C. area charities and found that a significant percentage had too little (or none at all) in reserves to help weather the current downturn.  Interestingly, the study found that bigger charities were more likely to have insufficient reserves than smaller ones.

So charities clearly need to keep a prudent amount of reserves for weathering bad economic times.  But the other side of this question is when, if ever, does a stash of cash become excessive?  Truth is, I don't know.  Squirreling away huge sums of money for the future, whether we call it a "reserve" or an "endowment" implicates the pros and cons of spending for the charitable needs of the current generation vs. future generations.  Many prominent scholars (e.g., Evelyn Brody at Chicago-Kent; Henry Hansmann of Yale; Michael Klausner of Stanford) have written about this issue, with varying conclusions, though I'd say that the weight of opinion is that there is no really good reason for charities to skew their spending towards future generations and a few foundations have made courageous decisions to spend themselves out of existence rather than conserve resources in order to exist indefinitely.  I'd say that Harvard's endowment is (or at least was) beyond the point of reasonable for the scope of its charitable enterprise, but I don't think there is any good consensus on when a prudent reserve crosses the line to Scrooge McDuck's money bin . . .

JDC

June 30, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Monday, June 29, 2009

Exempt Charities or . . . vacation spots?

The line between an exempt charity and a commercial business has grown ever murkier in our society.  Nonprofit hospitals offer services and operate much like for-profit counterparts, down to using debt collection agencies for past due bills.  Universities raise tuition, build hotels and "research parks," and race to form research partnerships with for-profit entities while shoveling billions into endowments.  But a recent trio of state exemption cases may best describe the tension between what is a charity and what is a commercial business.  In McDuffie County, Georgia, the local property tax assessors are challenging exemption for Fountain Campground, which claims exemption for some 70 acres of land as a site of religious worship - except that the land appears to be fenced, with posted no-tresspassing signs, and is regularly used as a hunt club.  In the Davenport, Iowa, area, local bars and music clubs are claiming unfair competition from River Music Experience, an exempt charity which offers live music acts in its Redstone Room performing venue.  And in Cape May, New Jersey, an order of nuns is seeking tax exemption for property they claim is a religious retreat: three buildings with 160 rooms overlooking the Atlantic Ocean.  Local officials opined that "some of the retreats sound a lot like vacations."


So when, exactly, is an organization an exempt charity or a hunt club, or a bar with live entertainment, or an ocean vacation spot? If the legendary Blue Note in New York City decided to convert to nonprofit status and offer jazz appreciation classes, would it be a tax-exempt charity?  If Tesla Motors was formed by environmental activists as a nonprofit dedicated to commercializing an all-electric sports car in order to save the environment, would it be a charity?

Food for thought . . . 

JDC

June 29, 2009 in In the News | Permalink | Comments (2) | TrackBack (0)