January 16, 2009
Indonesia's Minister of Education Discusses New Bill to Turn State Universities into Nonprofit Institutions
The Jakarta Globe National reports that Indonesia's new education autonomy bill, passed by the House of Representatives last month, is designed to improve quality and equity in the Indonesian university system and to help students gain more opportunities for study.
According to Dr. Bambang Sudibyo, Indonesia’s Minister of National Education, under the bill, the state universities will become nonprofit institutions and the government will aid in covering all operational funds not met by universities. Students at many schools are expected to see their enrollment fees decrease, as the bill stipulates that universities will be allowed to obtain a maximum of one-third of their operational funds from students — less than many institutions currently charge. Dr. Sudibyo said the bill will also pave the way for more low-income students to obtain scholarships to study at universities because the bill requires state universities to allot 20% of their seats to qualified students coming from poor families.
Although the bill has yet to become law, the government has almost completed its appraisal of the financial needs of the 89 state-run universities. The final draft will include needs per university, location and year, with numbers to be updated annually to reflect the economic situation. Once the bill becomes law, state educational institutions will have three to four years to comply with the new measures, while private institutions will have six.
Dr. Sudibyo said that ideally the government will increase its education budget, but that the ministry’s current allotment is enough to cover all funding specified in the bill. He confirmed the concerns of some private education institutions that the new system will increase competition, but said that the government cannot extend the same budget support to private institutions. Dr. Sudibyo said that if private universities want to remain operational, they will need to demonstrate their qualifications. Currently, many of Indonesia’s 2,800 private institutions lack accreditation and oversight measures, leading to accusations that they bilk unknowing students.
The bill stipulates that all universities must demonstrate good management and high degrees of transparency by forming bodies for audits, academic controls and education oversight. Dr. Sudibyo said private institutions stand to gain from one measure in the bill which calls for schools to acknowledge capacity limitations for the first time and turn away students if need be. In the absence of such limits, over enrollment has long been a feature of many state institutions.
New MA Law: State Income Tax Credit for Landowners Who Donate Conservation Land
This week, Massachusetts Governor Deval Patrick signed into law a bill establishing a state income tax credit for landowners who voluntarily donate qualifying conservation land to a municipality, the state, or a nonprofit conservation organization. Under the initiative, which goes into effect in 2011, the Massachusetts Executive Office of Energy and Environmental Affairs will determine whether properties proposed for donation meet public interest standards for natural resource protection. Eligible lands include those that protect drinking water supplies, wildlife habitat, scenic vistas, and those that boost the tourism, agricultural and forest product industries. The incentive requires that gifts of land be permanently protected. The tax credit is valued at 50% of the appraised fair market value of the land and limited to $50,000 per gift. Further, it cannot exceed the donor’s annual state income tax liability but may be carried forward for 10 consecutive years.
Under a similar tax incentive program in North Carolina, it was found that for every $1 in lost revenue, the state gets $12 in land. A cap is in place to ensure that no more than $2 million in tax credits is granted each year.
PA Nonprofits: Fall-out from Fumo Trial
The Philadelphia Inquirer reports that some Pennsylvania nonprofits claim that State Senator Vincent J. Fumo's federal criminal trial has caused many blogs to describe the nonprofit sector as corrupt. In response, many nonprofits are taking steps to protect their reputations through greater transparency and accountability. Fumo has pled not guilty to charges he misused more than $3.5 million from the state Senate, a South Philadelphia charity called Citizens' Alliance for Better Neighborhoods, and a museum.
The Inquirer reports that almost daily there have been new revelations of how Citizens' Alliance for Better Neighborhoods used its funds to benefit Fumo, such as spending $1 million on political polls, power tools, vacuum cleaners, and a bulldozer. The Inquirer reported on much of Citizens' Alliance's alleged misdeeds largely on the basis of public financial records the nonprofit group was required to file with the IRS.
The Pennsylvania Association of Nonprofit Organizations (PANO) provides guidance to nonprofit organizations on best practices and has adopted an ethics and accountability code - Standards for Excellence - patterned on a similar code established by the Maryland Association of Nonprofit Organizations.
January 15, 2009
IRS Considering Looking into Whether Colleges and Universities are Properly Paying Taxes on Transactions Unrelated to Their Core Nonprofit Status
The New York Times reports that the I.R.S. is considering expanding its scrutiny of colleges and universities to focus on billions of dollars associated with academic research, federal financing and intellectual property. The expansion of an investigation would put pressure on the schools to further disclose their inner financial workings as the I.R.S. undertakes a major effort to learn more about whether academic institutions are improperly using their nonprofit status to avoid paying certain taxes.
As part of its current investigation, which began last October, the I.R.S. sent unusually detailed questionnaires to 400 private and public universities and colleges about their executive compensation policies and their business activities. While the institutions are not obligated to respond, not doing so can potentially lead to an audit. The investigation is modeled upon similar scrutiny of hospitals that began in 2006 and has prompted audits, legislative hearings and stricter tax-filing requirements. The idea is to give the I.R.S. a clear view of how the business of academia operates in the 21st century.
Under its review, the I.R.S. is looking at whether universities and colleges are properly paying any special federal taxes owed on transactions, investments or businesses that are unrelated to their core nonprofit activities. The I.R.S. is also scrutinizing whether the large endowments held by universities and colleges are properly paying taxes due on income related to debt financing. Universities have invested in hedge funds in recent years, and the I.R.S. is looking at whether they are properly paying taxes owed on income produced by hedge funds that engage in leveraged, or debt-financed, investments. Some endowments have tried to avoid the unrelated business income tax on leveraged entities by dealing with offshore hedge funds, a move that has drawn scrutiny from Congressional regulators. According to I.R.S. Director of Exempt Organizations, Lois G. Lerner, the expanded review might take the form of a new questionnaire and would most likely also touch on offshore issues because intellectual property and its commercial applications are often held in overseas tax havens.
January 14, 2009
Bill Gates Discusses Some of the Criticisms His Foundation Has Endured
The Financial Times interviewed Bill Gates about criticisms that the Bill & Melinda Gates Foundation has received. Gates has been supporting his Foundation for a decade, backing projects which include internet development, education reform and global health. The Foundation’s endowment stood at $35 billion ahead of the downturn last fall.
As Bill Gates takes on a more active role in its leadership, the Foundation’s staff, beneficiaries and observers are asking how the Foundation will evolve, and whether it can make good on its optimistic objectives to foster equality of opportunity around the world. Given the disproportionate clout of Gates’ high profile and the sheer size of giving, his particular, corporate-inspired approach has an impact on the wider non-profit world, sparking both praise and criticism. "His message that wealthy people should give, and do so in their lifetime, is good," says Pablo Eisenberg, a veteran commentator on philanthropy. "But he is totally unaccountable."
Bill Gates' own growing involvement with the Foundation seems likely to reinforce it in his own image. With nearly 700 employees today, it has become far more complex and, according to a recent poll of organizations receiving grants, more bureaucratic, with insufficient clarity about its priorities. In response, Gates has already strengthened management drawn from the for-profit world and he stresses that more decision-making on grants has been delegated, with his and his wife's say-so only formally required on sums above $50 million. There is also greater back-and-forth with employees.
Gates bristles at critics' suggestions that the Foundation - which has only him, his wife and Warren Buffett as trustees - should broaden the number and diversity of those who set strategy. He has appointed outside experts to specialist advisory boards for each of its main activities, but sees no need for greater change at the top. He seems surprised at suggestions the Foundation could do more to improve transparency, pointing out that it is posting ever more information on its website, from details of grants provided to the (still limited details of) lessons learned from those that failed and succeeded alike.
He is defiant on one more issue. Many argue that his passion for technology means he remains too focused on "magic bullet" technical fixes, such as developing new drugs and vaccines. Others suggest that most will remain useless without fresh effort to work out how to deliver them to the world's poorest and less accessible regions. Gates replies: "We look at problems and see where things like vaccines can solve those problems. We don't apologize that that was a thing that no aid group thought of themselves in any significant ways, driving new drug discovery for, say, a disease that kills a million people a year."
Gates concedes that the Foundation can play a catalytic role concerning delivery, but maintains that the provision of healthcare services is primarily the responsibility of developing world countries and government donors with far greater resources than his. At a time when the downturn is squeezing governments and philanthropists alike, he argues for continued public support for global health in the U.S., pledging that his Foundation will maintain its giving in spite of the downturn.
So far, the scientific research the Foundation has supported to discover HIV vaccines and microbicides has reported more setbacks than successes. Undaunted, Bill Gates point out that most of these issues require 15 to 20-year projects. "You only get the benefit,” he says, “if you really stay the course."
NGOs in Russia Waiting For Government to Determine Which Ones Are Allowed Tax-Free Grants
The Moscow Times reports that all money in Russia that went to NGOs is frozen due to the economic crisis and although some NGOs operating in Russia are intensifying fundraising efforts with Western donors, they fear that financing from abroad will also dry up.
Amid fears that Western money might be funneled to Russian NGOs to incite unrest, the government enacted a stringent law in 2006 that led to the closure of many NGOs and greatly increased the bureaucratic burden on those that remained. And now, the scarcity of funding combined with continued uncertainty about the authorities' actions is shaping into a perfect storm for NGOs. A top concern for many activists in recent weeks has been the government's failure to publish a vital list of which organizations can issue grants without having to pay taxes on them. Many donor organizations make tax-exemption an essential requirement for releasing the money.
In June 2008, Prime Minister Vladimir Putin signed a decree that listed just 12 organizations that were allowed tax-free grants, down from 101. The government said at the time that the list only contained intergovernmental organizations and that a list including all the other organizations would be issued by the end of the year. It remained unclear Monday when Putin would sign the second decree.
Other NGOs believe that Russian authorities feel threatened by possible public unrest linked to the economic crisis and therefore the government is tightening the screws. For example, Greenpeace Russia was forced to change its status from a national organization to an office of Greenpeace International. According to Greenpeace Russia's director, Sergei Tsyplyonkov, authorities told the organization that its status change was necessary because the legal statutes of Greenpeace Russia, founded in 1992, were out of date. "We received letters from the Federal Registration Service and the Justice Ministry that effectively gave us a deadline to reregister as a division of our international organization. Otherwise, we could have been dissolved," Tsyplyonkov said. He claims this was an effective way to increase state control over NGOs because the law sets more stringent restrictions on subsidiaries of foreign NGOs than on national NGOs.
Tsyplyonkov said he was also worried about changes to the Criminal Code announced late last year that would widen the definition of treason and spying. "Now speaking to members of foreign organizations could be an act of treason," he said.
Greenpeace is also finding it increasingly difficult to conduct fundraising in Russia because red tape at banks makes it cumbersome for people to give money to an organization. According to Tsyplyonkov, "Direct debit is impossible and standing orders are tedious, forcing donors to stand in line at Sberbank."
Bush's Faith-Based Initiative Will Be Part of His Legacy
USA Today reports that President Bush's office issued a final report Monday to its religious and secular partners, declaring the faith-based initiative a success. The report asserts that federal partnerships with faith-based and other community organizations have greatly expanded. According to White House tallies, nonprofit groups received $15.3 billion in competitive grants in fiscal year 2007, an increase of 3.9% over the previous year. That figure included $2.2 billion to faith-based nonprofits, which have received federal grants of more than $10.6 billion since the initiative got underway in 2002.
However, such spending decisions were subjected to numerous legal challenges. A federal appeals court ruled that a prominent faith-based prison rehabilitation program was unconstitutional, while the U.S. Supreme Court determined that atheist taxpayers lacked standing to challenge the overall faith-based initiative. Critics also accused the White House of using the office as a political tool to appease religious conservatives in the GOP base, and to build electoral bridges to blacks and Hispanics.
The initiative's long-term effects on public policy may be determined by the Obama administration — which has vowed to continue the program after a top-to-bottom review — but experts say it already has made significant changes in how religious groups can partner with governmental agencies.
While the Clinton-era "charitable choice" welfare provision expanded existing federal funding for faith-based social programs, the Bush administration added a "very splashy push" to public-private partnerships, said Ira C. Lupu, a professor at George Washington University Law School. Lupu recently co-authored a report that assessed the program's legal impact, and doubts that such partnerships will ever again be "categorically disqualified" for delivering social services. "The constitutional era of mandatory exclusion of intensely faith-oriented organizations from these kinds of partnerships is over," said Lupu. "It's really quite indelibly marked on the consciousnesses of both sides that things have changed, that if it's done right, it can be done in a way that satisfies the Constitution. If it's done wrong, it will invite lawsuits."
The faith-based push is not confined to Washington. According to White House figures, 36 governors — 19 Democrats and 17 Republicans — have established faith-based offices or liaisons, as have more than 70 mayors.
January 13, 2009
NGOs in China Are Becoming More Assertive and Pushing China's Government to Follow Its Own Laws
The International Herald-Tribune reports on the increasing assertiveness of advocacy groups in pushing China's government to follow its own rules and account to the public for its actions. Such confrontations may become more common as China seeks to expand its cooperation with NGOs in alleviating poverty, stemming the spread of AIDS and halting environmental degradation.
One citizen-activist group is challenging China's Ministry of Foreign Affairs over its plans for a historic residence the government owns in one of Beijing's oldest neighborhoods. The residence, a couple of kilometers north of Tiananmen Square, was originally an official's home and later the embassy of secretive North Korea. The Beijing Cultural Heritage Protection Center says the ministry may be violating national preservation regulations by renovating parts of the 19th century property - about 2.5 acres, of courtyards and classical gardens of bamboo groves, rock formations, ponds and pavilions. In November, the Foreign Ministry said it would restore the property to remove "safety threats" and eventually open it for public visits. The Ministry has not submitted its plans to preservation authorities for approval yet, and the center has received conflicting responses from other government departments, so it has continued its campaign.
"NGOs help the government solve a lot of problems," said Kang Xiaoguang, head of a research center at Renmin University in Beijing dedicated to the study of nonprofit groups in China. The groups also "have begun to challenge government policies and its administrative processes more and more."
The shift is part of China's transition from a socialist system centered on an all-powerful state to a market economy in which even the government must obey the law. Now, citizens have far more personal freedom and choice, and the government no longer provides many social guarantees such as lifetime employment and universal health care, leaving gaps that private groups can help fill.
The China Statistical Yearbook counted 386,916 NGOs at the end of 2007, without defining what the category encompasses. Kang said most are small, underfunded or dependent on the government for money. So far, they are much more prominent in service roles that support official policy aims than as gadflies or checks on power.
Chris Spohr, an economist based in Beijing for the Asian Development Bank, helped pilot the first program in China that allowed NGOs to bid competitively to run poverty-alleviation programs for the state. He says some people in government want to expand the initiative, because partnering with nonprofits produces better results and greater participation by the intended recipients - and also saves money.
While this has encouraged officials to support the expansion of citizens' organizations, they have not welcomed groups that delve into what they deem sensitive topics or that they feel are too critical or otherwise threaten their legitimacy. "We know the government likes our services but not our advocacy, so it's a contradiction," said Wan Yanhai, director of Aizhixing Institute, a nonprofit AIDS and human rights organization in Beijing. He was detained for three days in 2006 and forced to cancel a forum on blood safety that touched on compensation for people infected with AIDS through transfusions. He said many citizen groups do not push the government, for fear of having their funding or projects shut down.
Aizhixing, which had a program budget of 6 million yuan, or $878,000, last year, provides health training and education and is introducing rapid testing of people at risk for AIDS. The institute also offers legal services that challenge the government, such as protesting abusive police treatment of drug users. Its push for greater privacy of health information for job applicants was reflected in a labor-contract law that went into effect last year. It also issued requests for release of policy information from five agencies - and got responses from all of them. "That's a big change," Wan said. He said activist groups like his are preparing the way for a different kind of government - based on law - that is more transparent and responsive. "NGOs will eventually push democratic change," he said. "Whatever the Chinese government thinks about that, it will happen eventually."
IRS Official Gives Preview of Results of Study of More than 500 Nonprofit Hospitals
The Chronicle of Philanthropy reports that an IRS top official gave a preview of findings from a much-anticipated study of more than 500 nonprofit hospitals which focused on the amount of compensation hospitals pay to top officials and how much “community benefit” hospitals provide the public.
Steven T. Miller, commissioner of the IRS’s tax-exempt and government entities division, indicated that almost every hospital that answered an IRS questionnaire for the study said it set compensation by following a set of federal rules. The rules allow charities to go through a series of steps-which include the use of data to compare salaries earned by executives at similar charities-to establish what is known as a “rebuttable presumption of reasonableness.” Mr. Miller stated that the examinations confirmed widespread use of comparability data and the rebuttable presumption. The IRS determined that nearly all of the compensation arrangements were reasonable under the current standard. But noting that compensation was “pretty high,” Mr. Miller speculated that such compensation might be judged differently in the “court of public opinion.”
As for the current federal “community-benefit” standard, used to help determine if a hospital qualifies for a tax exemption, Mr. Miller noted that the IRS created the standard in a ruling 40 years ago and suggested that the standard may now be outdated. Under the current standard, nonprofit hospitals have to show that they benefit their local areas and the public through such categories as having a full-time emergency room open to all regardless of ability to pay and being willing to admit all types of patients. “Despite enormous changes in the health-care sector since then, and the seemingly diminishing distinctions between nonprofit and for-profit hospitals, that definition of the community-benefit standard continues to guide the federal determination of tax-exempt status for nonprofit hospitals,” said Mr. Miller.
The IRS study shows that “there are some hospitals that provide a great deal of charity care and other uncompensated care, but many that do not,” Mr. Miller said.
The hospitals surveyed by the IRS reported average combined community benefit expenditures in all categories of 9% of total revenues with a median of 6%. “Uncompensated care was by far the largest of the expense categories: 56% of expenditures,” Mr. Miller said. “If you take out the research expenses attributable to the 15 leading research hospitals in the study, which account for 93% of all research reported, uncompensated care constituted 71% of all expenditures,” he said.
Large and urban hospitals spent the most on community-benefit costs, both in raw dollars and as a percentage of their revenues. Community-benefit expenditures as a percentage of revenues were lowest for rural hospitals. Profit margins at hospitals varied with just over 20% of respondents in a deficit position, though on an aggregate basis the profit margin was 5%.
According to Mr. Miller, the new Schedule H for the redesigned Form 990 that hospitals will soon be filling out will allow the IRS, and other observers, to analyze how-and how much-hospitals around the country are benefiting their communities. As that data comes in, the IRS intends to assess whether it has identified the right set of expenditures for hospitals to report, and to take a more informed look at whether any part of bad debt, Medicare shortfalls, or community building should count in the calculation of community benefit.
Mr. Miller said that the IRS needs to consider whether refinements to the standards are warranted and whether someone-Congress or the IRS-should attempt to comprehensively redefine the community-benefit standard.
Mr. Miller’s remarks, made in a speech at a conference in Texas, are available here.
January 12, 2009
Nonprofit Thrift Stores Exempt From New Federal Law Aimed to Prevent Selling Products Containing Lead for Child Use
The Nonprofit Times reports that nonprofit thrift stores dodged a bullet as the Consumer Product Safety Commission (CPSC) clarified a law that threatened to paralyze children’s clothing sales by February and would have hit consumers relying on thrift stores for child clothing and toys in the tough economy.
The Consumer Product Safety Improvement Act (CPSIA) will require all children’s products sold on or after February 10, 2009 to be tested to make sure the items have less than 600 parts per million total lead content and less than 0.1% specific phthalates, an element that affects plasticity.
The CPSC clarified that under the new safety law, “sellers of used children’s products, such as thrift stores and consignment stores, are not required to certify that those products meet the new lead limits, phthalates standard or new toy standard.” The bill, which was signed into law by President George W. Bush on August 14, 2008, did not make a distinction between domestic manufacturers and resellers, such as nonprofit thrift stores.
While nonprofit thrift stores will not be required to test all materials, resellers can face civil and/or criminal penalties if they sell products that violate the new limits under the law. The CPSC recommended that nonprofit thrift stores be especially discriminating towards products that may contain lead, including jewelry, painted toys and products with small parts, such as buttons, that a child could swallow. The CPSC, which will be responsible for enforcing the standards, has tentatively approved exemptions for such items as clothing made of natural fibers like cotton, wool and silk.
The Consumer Product Safety Improvement Act was passed in 2008 after scores of toy recalls.
CT AG Proposes Law Allowing Only Nonprofits to Operate Debt-Reduction and Foreclosure-Prevention Entities Amidst Numerous Scam Complaints
Connecticut Attorney General Richard Blumenthal proposed legislation last week that would allow only nonprofit organizations to operate debt-reduction and foreclosure-prevention entities in Connecticut and would ban up-front fees for such services. He said he hopes the legislation, backed by many Democratic leaders in the state legislature, will be passed and put into effect quickly because of the hundreds of schemes that residents have been reporting to his office.
Blumenthal is investigating complaints involving a company called S.K.A. Properties Inc. of Attleboro, MA, which CT resident Gary A. Gudat alleges bilked his 76-year-old mother out of her nest egg and left him and a disabled sister, Debra Durocher, without a place of their own.
Judge Rules that Church is Minister's Personal Business, Not Religious Nonprofit, and Awards Half of Church's Assets to Minister's Ex-wife
The Houston Chronicle reports that Jose Luis de Jesus Miranda, who gained international notoriety by declaring himself first to be Jesus Christ, then the Antichrist, lost his divorce court bid to protect his church from financial claims by his most recent ex-wife.
Miami-Dade Circuit Judge Roberto Pineiro ruled that De Jesus' Growing in Grace church was his personal business rather than a religious nonprofit body, and awarded Josefina de Jesus Torres the more than $2.2 million she sought in the divorce — the amount her lawyer deemed was half the assets of her ex-husband and his church.
De Jesus disappeared in August, when the judge declared him in contempt of court and ordered him to surrender to authorities for not paying Torres $15,000 a month in alimony. The divorce trial went ahead without him.
De Jesus' lawyer, Leonardo Renaud, is in the process of appealing the ruling and is filing a request to halt the property transfers.
International Journal of Civil Society Law - January 2009 Newsletter
January 11, 2009
Money From Defunct Nonprofit to Fund Scholarships at Indiana University Northwest
The Associated Press reports that Indiana Attorney General Steve Carter says $675,000 recovered from the now-defunct Gary Urban Enterprise Association will fund scholarships at Indiana University Northwest.
Carter said the scholarships will be available for residents of Gary's Emerson neighborhood, an area that did not benefit from the association's work because of mismanagement.
The association was created in 1985 to buy and improve land in Gary's poorest neighborhoods under a state law that allowed businesses to pay reduced taxes by donating more than $15 million to the nonprofit group between 2000 and 2003.
The association was dissolved last year after its top managers were charged with embezzlement.
This is the largest endowed scholarship established for Indiana University Northwest.