Friday, July 24, 2009

Tighter Controls Urged on Non-profit Student Loan Agencies

In response to a bill that was proposed last Tuesday in the House Education and Labor Committee to eliminate the Federal Family Education Loan (FFEL) program and use the savings in part to significantly boost spending on Pell Grants, some are calling for tighter controls on non-profit lender set-asides.  Higher Ed Watch, having already expressed opposition to the provision that would provide a set-aside for all existing non-profit student loan agencies to service the loans of up to 100,000 borrowers in their home states, has called on Congress to at least bar the participation of lenders found to have overcharged the government or acted against the best interests of students.  The article pointed to The South Carolina Student Loan Corporation to make the point:

Should the bill become law, it would give the agency, known as SCSLC, a guaranteed direct loan servicing contract in the state. But according to a recent Higher Ed Watch investigation, SCSLC appears to have used its ties to the state student loan guaranty agency to obtain excessive taxpayer subsidies from the federal government. The loan agency has allegedly done this by helping the state guaranty agency exploit an emergency program the government has in place to ensure that all eligible students are able to obtain federal student loans. The U.S. Department of Education is carrying out its own investigation of these allegations and is expected to issue a report soon.

The legislation would essentially give each and every one of the Education Finance Council’s (EFC) members a no-bid contract to service the loans in question.  Higher Ed Watch, unhappy that the final provision is nearly identical to that proposed by the EFC, points out that the trade association has been quietly shopping amongst a select group of Congressional offices in recent weeks.  It is calling for the federal government to start holding lenders accountable for their actions.  To start, it has suggested that the committee reconsider awarding no-bid contracts to non-profit student loan agencies such as the Iowa Student Loan Liquidity Corporation, which the state’s attorney general found deliberately steered students to its most expensive loan products.


July 24, 2009 in Federal – Legislative, In the News | Permalink | Comments (0) | TrackBack (0)

Muslim Groups Want to Be Removed from Holy Land Co-Conspirators List

The Dallas Morning News reported that the American Civil Liberties Union (ACLU) filed a request in Dallas federal court to have two Muslim organizations removed from a list of unindicted co-conspirators compiled by prosecutors in a case known as the Holy Land Foundation terrorism financing case.  The list originated from the case, which was tried last fall and involved the trial of five former organizers of The Holy Land Foundation, once the largest Muslim charity in the U.S., for funneling millions of dollars to a U.S. designated terrorist group. 

The Islamic Society of North America (ISNA) is a national community-based Muslim group and the North American Islamic Trust (NAIT) is a charitable trust that holds deeds on mosques and Islamic centers across the U.S.  The leaders of both groups say that they were blindsided by their inclusion as unindicted co-conspirators, noting that they were told by government authorities before last year's public release of the list that they were not suspected of any criminal activity.

According to the prosecutors, the list of 300 individuals and entities was compiled so that the statements from people in the named organizations could be used at trial without them being considered hearsay.  The ACLU lawyers filed papers with the U.S. District Judge Jorge Solis, arguing that ISNA and NAIT are mainstream Muslim organizations that have been unfairly branded as criminals by being included on the government’s list of individuals and entities allegedly linked in some way to the Holy Land case.  The Council on American-Islamic Relations (CAIR), a Muslim civil rights group, made a similar request in August to have it's name removed from the list, which is still pending.  The government's list says that ISNA, NAIT and CAIR have been tied to the U.S. Muslim Brotherhood. Prosecutors at last year's trial called it an Islamist group that is the parent organization of the Hamas movement.

Its unclear when Judge Solis will issue rulings on the three groups' requests.  The Holy Land Foundation case ended in mistrial last fall and the retrial is set for September 8


July 24, 2009 in Federal – Judicial | Permalink | Comments (0) | TrackBack (0)

Open Constitution Institute Targeted By Chinese Government

The Open Constitution Initiative (OCI), also known by the Chinese abreviation Gongmeng, is an independent legal research group that, until last week, brought together human-rights lawyers and academics to research legal topics and take on politically sensitive pro bono cases.

Recent articles in the Economist, the Wall Street Journal and the National Center for Policy Analysis (NCPA) have reported the organization was shuttered last week by the Chinese Government for allegedly violating laws that govern nonprofits.

Since 2003, Gongmeng has operated in a legal grey zone.  Due to a requirement that NGOs have government sponsorship to register, many groups, such as Gongmeng, are founded as businesses.  The OCI’s name in Chinese translates as the Public Alliance Information Consultancy Company.  Consequently, it has to pay business taxes, which the group says it paid.  The Chinese Government says otherwise. 

On July 17, in addition to levying a bill for little over $200,000, the authorities confiscated almost everything in the Gongmeng office: from files, computers and desks to the water cooler.  They have also declared the research group within the organization illegal because, they say, it is unregistered.

The NCPA calls the Gongmeng crackdown one of the larger incidents in a series of recent blows to Chinese human-rights lawyers.  Last month around 20 human-rights lawyers were effectively disbarred, in a clear warning to other lawyers not to accept politically sensitive cases.  It is also a warning to foreign donors who support Chinese NGOs (Yale's China Law Center provided grants to Gongmeng).

Gongmeng was a small think tank, but the fact that the Chinese authorities went out of their way to shut it down shows the value of its work, observers say.  The group has been so prominent in civil-rights cases that the government seems wary of confronting it directly.  Instead, it has decided to just make its continued operation practically impossible.


July 24, 2009 in International | Permalink | Comments (2) | TrackBack (0)

Thursday, July 23, 2009

New Law Lets Non-Profits Tap Into Their Endowments' Original Principal

Wisconsin State Governor Jim Doyle signed Senate Bill 31 into law on Monday and opened the door for non-profits to access funds that have previously been off limits.  The Milwaukee Journal Sentinel reports the Bill adopts new national standards for the prudent investment and management of institutional funds and allows charitable organizations that manage endowments to withdraw from, and therefore reduce, an endowment's original principal. 

Until now, organizations in Wisconsin typically  have been barred from spending from an endowment fund when the value of the fund dipped below the amount of the fund's original principal.  However, the historical losses incurred in the current economic downturn have led organizations and the legislature to look for more flexibility in the use of endowment funds.

The change was backed by institutions such as the University of Wisconsin Foundation and Marquette University, among others.  Although there is concern about over spending and severe drops in foundation levels, the Bill will permit groups to access  endowments funds during a recession, when the need is greatest and the earnings from such funds' investments  are  severely reduced. 

Variations on the measure have been passed in 41 states in the past three years.


July 23, 2009 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Elected Officials: Perhaps Not the Best Founders for A Non-Profit

With the many recent investigations and court cases relating to fraudulent non-profits and elected officials, perhaps it is time to legislate to prevent those in control of tax-payer dollars from starting tax-exempt organizations.  This was Glyn Vincent’s suggestion in response to a recent incident in New York involving Councilman Miguel Martinez pleading guilty to three federal charges of kick-backs and an additional charge of stealing $40,000 from a now shuttered non-profit, the Upper Manhattan Council Assisting Neighbors. 

In his article, Vincent reports having spoken with his Councilwoman, Gale A. Brewer, prior to her learning Martinez pled guilty.  Brewer indicated that she didn’t think there was anything wrong with a Councilman having a sister on the board of a non-profit, but added that Martinez had clearly acted illegally in siphoning off funds.  In discussing what has been dubbed the slush-fund scandal, she said there are plenty of rules and regulations governing Councilmens' ethical parameters that are well understood and easy to obey.  Simply put, you always have to declare what you’re getting and giving.

Despite the slush fund scandal and the ongoing investigation into the relationship between multiple officials and non-profits, Brewer did not think the Council needed more oversight or regulation.  Recently enacted Council ethical guidelines regulate even small gifts given by neighborhood groups and lobbyists.  Brewer mentioned, however, that perhaps elected officials should not organize or start new non-profits while they are in office.

Vincent, commenting on the wisdom of Brewer's proposition, suggested that it should be the law.  Given that the number of cases of elected officials tied to fraudulent non-profits is rising, it may not be long before a bill creating such restrictions materializes.  


July 23, 2009 in State – Legislative | Permalink | Comments (0) | TrackBack (0)

Stimulus Legislation Opens More Capital to Non-Profits

Media Health Leaders reports on new opportunities emerging for non-profit hospitals to fund projects they’d been holding off on due to the inability to access capital.  The Tax Reform Act of 1986, which limited the sale by non-profit hospitals of bank-qualified bonds to $10 million a year, was changed in February when President Barack Obama signed the American Recovery and Reinvestment Act of 2009 into law.  The temporary provision makes it possible for non-profit hospitals and other 501c(3) organizations to sell up to $30 million in tax-exempt bank-qualified bonds in a single calendar year.

The stimulus package not only increased the amount available to non-profits, it decreased the obstacles and provided incentives for organizations to get involved in the bond program.  There is no application fee and the financing can be done in as few as 60 days, compared to regular tax-exempt bond financing, which takes 90 days or more. 

Additionally, under the Build America Bonds program, there is an option to have the federal government pay 35% of the interest on the bonds each year as a tax credit through the life of the bonds. 

Currently, the program is only open to new issue capital expenditure bonds issued before January 1, 2011. 


July 23, 2009 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 22, 2009

PA Non-Profit, Victim of Fraud, Seeks Restitution Whilst Facing Possible Revocation of its Corporate Franchise

The sentencing of Ruth Arnao, former aide and longtime friend of convicted ex-State Senator Vincent J. Fumo, brings limited closure to a sordid tale of petty theft from a Pennsylvania non-profit.  Arnao, once the head of Citizens’ Alliance for Better Neighborhoods, was found guilty of conspiring to defraud the nonprofit by getting it to pay for hundreds of personal and consumer services.  She was sentenced to serve 12 months and 1 day behind bars while Fumo got 55 months.

Meanwhile the state Attorney General’s Office took the first step toward dissolving Citizens’ Alliance in April, filing a civil complaint seeking revocation of its corporate franchise.  The non-profit has issued a statement casting itself as a victim of Fumo and Arnao’s fraud scheme.  According to the Philadelphia Inquirer, in the victim impact statement submitted last week just prior to Fumo's sentencing, Citizens’ Alliance said that it wanted restitution, including the $2.1 million it had contributed to Arnao’s defense.  The report stated that the non-profit’s reputation had been “damaged irreparably as a result of its constant associations with the illegal activities of the defendants.”  It also said that in addition to having to discontinue many of its programs and discharge employees, the reputation of its board of directors had been harmed. 

As for the financial loss, Assistant U.S. Attorneys John J. Pease and Robert A. Zauzmer contended that as a result of Fumo and Arnao’s fraud, which included purchases of tools, expensive paint, farm equipment and cars,  the non-profit suffered $1.7 million in losses, not including the money spent on lawyers.


July 22, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Tax Exemption Proposal For Struggling Newspapers

In response to the quickly shrinking newsroom staffs and the alarming rate of papers going out of business, the idea of major newspapers turning into non-profits is not so far fetched.  According to an article in Media Shift, it was among the options discussed at a hearing before the Senate Subcommittee on Communications, Technology and the Internet.  One advocate, Arianna Huffington, co-founder and editor-in-chief of the Huffington Post, suggested a new revenue model to combat the industry’s economic problems and opposed trying to increase revenue by restricting access to online content.

"The great upheaval the news industry is going through is the result of a perfect storm of transformative technology, the advent of Craigslist, generational shifts in the way people find and consume news, and the dire impact the economic crisis has had on advertising," she testified. "And there is no question that, as the industry moves forward and we figure out the new rules of the road, there will be -- and needs to be -- a great deal of experimentation with new revenue models."

Another backer of broadening the options for the struggling papers was Senator Ben Cardin.  The committee discussed his proposal for legislation that would allow newspapers to transition to non-profit entities, thereby qualifying for exemption from certain taxes.  The catch is that, as non-profits, newspapers would have to refrain from endorsing political candidates.  His proposal is pending as S. 673 (111th Cong., 1st Sess. 2009).   Although the bill has been referred to a committee, no further action has been taken on it since its introduction in March.


July 22, 2009 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Sunset Provision Suggested for Non-Profits

The Philanthropy Journal draws attention to the interesting suggestion made by Tom Belford on his blog, The Agitator, that the IRS introduce a sunset provision on the designation of “charitable status.” Recent news reports that urged Massachusetts’ 36,000 nonprofits to consider merging and highlighted the inefficiency and potential harm the myriad of “unregulated” aid groups operating in the health field can create, led Belford to the conclusion that the nonprofits should meet some sort of performance measure or close their doors. 

Belford’s suggestion for a sunset provision of some kind on the IRS charitable status is meant to support a “perform or die” methodology, in which the non-profits “ … figure out a way . . . to establish that [their] nonprofit actually is performing… performing in the sense of achieving substantial goals, not just processing stuff.”

Though he admits his approach may be found crude by some readers, his theory that Massachusetts or Africa would not be worse off if half as many non-profits were expending the same level of resources in each region, has merit.


July 22, 2009 in Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 21, 2009

CIVICUS Condemns Zambia NGO Bill as a Threat to Civil Society Freedoms

CIVICUS, The World Alliance for Citizen Participation, has condemned the Zambian government's second attempt to pass a highly restrictive NGO bill that is slated for the upcoming Parliamentary session.  First introduced in 2007, the original bill was struck down due to widespread criticism.  Although some of the original concerns for civil society freedoms have been addressed, as Ingrid Srinath, Secretary General of CIVICUS points out, there are key aspects that remained unchanged.

The Bill vests the government-dominated NGO Registration Board with overreaching powers to “approve” the area of work of NGOs; issue policy guidelines on “harmonizing” their work with the national development plan; and “advise” on strategies for efficient planning of activities.

The government can ask NGOs to submit important information regarding their activities, accounts and administration within an unspecified time frame. Failure to submit the information can result in suspension or cancellation of registration.

All NGOs, including community-based organizations, are required to submit themselves to compulsory registration which must be renewed every three years.  Registration can be denied in the “public interest”, which is not defined in the bill.

Also significant, the bill imposes a self-regulation and peer monitoring by obliging NGOs to adopt a code of conduct and create a Council of NGOs to coordinate the activities of their peers on a number of issues, including programs, fund raising and development of national human resources, keeping in mind "national security" and "public interest" needs.


July 21, 2009 in International | Permalink | Comments (0) | TrackBack (0)

New York Times Considers Foundation Funding for News

The Poynter reports that The New York Times is considering seeking foundation funding to help cover some of its news gathering costs. 


                Craig Whitney, an assistant managing editor at the Times who serves as the paper's standards editor, said in a telephone interview Friday, "[w]e've begun to ask ourselves whether it would be possible to get the kind of support that NPR does from foundations for its journalism."  He said Times editors have not yet reached any conclusions or gone to any foundations but that the idea of seeking broad foundation support for areas of coverage "seems conceivable.”  No formal committees have been formed within the paper to explore foundation funding yet but the idea has been discussed by the top editors who make up the paper's masthead.  Whitney stressed that the paper would be careful to avoid letting foundations have a say in specific coverage and would guard against being influenced by any particular agenda.  He said the Times has "no desire to become a nonprofit corporation." 

The idea of foundation funding, which was first discussed by the editors last year, seems to have been rejuvenated by the recent events involving the free lance environmental journalist Lindsey Hoshaw.  Hoping to create a multimedia slide show and maybe an article on the mass of floating trash in the middle of the

Pacific Ocean

, known as the Great Pacific Garbage Patch, Hoshaw approached The New York Times for backing.  Although the paper expressed interest in the project, it could only offer $700, which was $9,300 short of the estimated expenses.  Instead of giving up, Hoshaw turned to Spot.Us, a non-profit that gives journalists the opportunity to make a pitch and for the public to commission the journalism that it wants.  The pitch Hoshaw made had incredible success, raising over $4,600 towards a goal of $6,000.


            This could be an indicator of how we’ll end up paying for the news stories important to us in the future.  The Times, in an opinion piece, acknowledged the events as a step in a new direction, one that would have been unthinkable even a few years ago. 



July 21, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

VP of Nonprofit Lives in Million-Dollar Home Bought with the Nonprofit's Funds

According to The Oklahoman, Larri Sue Jones, the vice president of Feed the Children and daughter of the organization’s founder and president,  Larry Jones, has been living in a house that was purchased by Feed the Children in May 2007.  The new four-bedroom home just outside Hollywood in Burbank, California, cost the charity $1.2 million dollars.

The discovery was made as a result of a legal battle for control of the organization.  The suit, which began last December, was initiated by five board members who alleged being fired improperly, just before a board meeting at which several members planned to discuss placing Larry Jones on sabbatical.

Larry Jones called the house a residence and office and said it was bought “to start an operation on the West Coast to reach out to celebrities.”  He said that he had “no regrets” about buying it and that it was bought from funds raised to expand the reach and opportunity of the organization.  Specifically, Jones said, it helps the charity approach celebrities who can open doors to in-kind and monetary gifts.

The report also quoted the president of the American Institute of Philanthropy, Daniel Borochoff, a critic of the charity, saying it is a ridiculous use of charitable money and an outrage that this kind of thing should be going on.  Borochoff also said the charity could get into serious trouble with the Internal Revenue Service for buying the home.

The house’s value has dropped below $1 million. 


July 21, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)

Monday, July 20, 2009

Serbian Law on Associations Enacted

The European Center for Not-for-Profit Law reports that on July 8, the Serbian Parliament approved the Law on Associations.  The Parliament’s decision marked the culmination of long efforts to bring the legal framework for associations in Serbia closer to international standards and regional best practices. 

The Law requires only three natural or legal persons to establish an association, permits informal associations to operate, and sets out rules governing the establishment of branch offices of foreign associations operating in Serbia.  Currently, those branch offices operate in a legal vacuum.  The Law envisages the Agency for Registration of Commercial Companies as a registration body for associations.  This novel approach gives rise to a number of issues, including the Agency’s non-exposure to international standards pertinent to freedom of association.


July 20, 2009 in International | Permalink | Comments (0) | TrackBack (0)

New Study from the Philanthropy Roundtable Defends the Limited Relationship Between Philanthropy and Government

The Alliance for Charitable Reform published a press release yesterday for a new report on charitable giving and the government’s relationship with foundations and charities.  The report, How Public Is Private Philanthropy? Separating Reality from Myth, is a comprehensive legal analysis that examines the claim that charitable funds are “public money" because they are exempt from federal taxes, receive state charters, and are subject to oversight by state attorneys general.

The report, released by the Philanthropy Roundtable, is co-authored by Evelyn Brody, Professor at the Chicago-Kent College of Law, and John Tyler, Secretary and General Counsel of the Ewing Marion Kauffman Foundation.  The conclusion, based on numerous applicable legal precedents, is that the public-money assertion is not well grounded.

Brody and Tyler demonstrate that it is deeply problematic to consider the federal tax exemption and the charitable tax deduction subsidies to charities, and even more problematic to assert that the public has a legitimate claim to private philanthropic assets. Individuals and businesses routinely receive tax preferences, the authors note, but they are never considered governmental entities nor are their assets considered public property.

The law treats foundations like private entities devoted to public ends, but they do not have to serve the government’s purposes nor even those of the public at large. Similarly, a charter from the state does not make foundations and other charities into public entities. Policymakers cannot use these arguments to intrude into the governance, missions, and operations of philanthropies.

The authors criticize the “public money” claim as an unjustified attempt to direct and control foundations and other charities and  argue in favor of such organizations maintaining independence and legal separation.

“American philanthropy is the envy of the world, with charitable giving last year at over $307 billion,” said Adam Meyerson, President of The Philanthropy Roundtable.  “But it’s under attack by activists, legislators, and policymakers who are clamoring for greater governmental authority to regulate the activities of American philanthropists.”

The full monograph and the synopsis are available online. 


July 20, 2009 in In the News | Permalink | Comments (0) | TrackBack (0)