Friday, February 6, 2009
After reading the student editorial advocating adoption of UPMIFA in Massachusetts, it seemed a good time to give an UPMIFA update.
Twenty-seven jurisdictions have adopted UPMIFA (26 states plus DC), with Ohio being the most recent adoption. Several legislatures are considering UPMIFA this session. UPMIFA has been introduced in Arkansas (SB 254), Hawaii (SB 121), North Dakota (1076), Maryland (HB 200), Mississippi (HB419/SB2335), Rhode Island (H 5244), Washington (HB 1119), Wisconsin (SB 31), Wyoming (HB 118). Workgroups are considering UPMIFA proposals in Maine, Massachusetts, New York, and probably a few other states. UPMIFA explanatory materials, as well as a copy of the Uniform Act with comments, can be found at www.upmifa.org. Some additional information is available on the NCCUSL website, although the list of bill introductions needs to be updated (many of these introductions have happened in the last couple of weeks).
This week's edition of Justice, the student newspaper of Brandeis, includes comments from Emily LaGrassa, a spokesperson for the Attorney General's office. Ms. LaGrassa explains that before the University can sell a piece of art, that piece of art must be reviewed for donor restrictions on use or sale of the art. A living donor can agree to release a restriction on the gift, allowing the University to sell the art, but if a living donor refuses or if the donor is no longer alive, the University will have to ask the court for approval to sell the art. Some pieces may not be restricted, but it seems likely that most carry a donor restriction, stating the donor's intent that Brandeis will continue to hold the art for display in its museum. As Ms. LaGrassa says, the process of going through 7,000 pieces of art "will take some time." Perhaps this is one reason President Reinharz said on Wed. that the University may not sell the art after all.
In the same issue, a student editorial urges the Massachusetts legislature to adopt UPMIFA. The editorial quotes Executive Vice President and Chief Operating Officer Peter French as saying, "UPMIFA establishes a sounder and more unified basis for management of charitable funds." As the editorial notes, under UPMIFA Brandeis would be able to continue spending from its endowment fund, despite the economic downturn, and the availability of some funds from the endowment could mean that Brandeis would not have to take the drastic measure of closing the Rose Art Museum.
After yesterday's gloomy post about Senators who think that artists don't do "real work" and that funding for arts organization is "pork" in the stimulus package, it was reassuring to find an article in today's New York Times with some good news about arts organizations that are alive and well in New York.
The Altria Group (which used to be Philip Morris) has announced that it will donate 150 works of art to the Whitney Museum. The Altria Group has had a longstanding relationship with the Whitney but has had to stop its charitable arts financing this year. In addition to that major gift, the Whitney is able to continue its usual rate of acquisitions, through financial help from some donors and gifts of art from other donors. The Whitney typically acquires about 17 works from its biennials, and it was able to do so in 2008.
Out of the economic turmoil comes "X," a new nonprofit space in Chelsea. X will be used for traditional exhibitions, site-specific installations, lectures and other events. The first exhibition will feature "installations by artists whose work questions today's shifting economic climate."
The New Museum of Contemporary Art has announced that its first triennial will feature the works of young - and mostly unknown - artists. The Museum will release today a list of the 50 artists featured in the show, "the Generational: Younger than Jesus." The artists are international by birth and background and all are under age 33.
It's nice to end the week with some good news about art in New York, even for those of us who won't be able to see the exhibitions described in the article.
Thursday, February 5, 2009
Speaking at the National Prayer Breakfast this morning, President Obama announced that he will sign an executive order today, creating the Office of Faith-Based and Neighborhood Partnerships. The executive order will require the office to seek assistance from the Attorney General on constitutional issues, including religious hiring. Obama says that the office will not favor one religion over another or religious groups over secular groups. Rather, the goal will be "to work on behalf of organizations that want to work on behalf of our communities, and to do so without blurring the line our founders wisely drew between church and state."
Joshua Dubois will serve as director of the new office.
Obama will also announce today members of the Council on Faith-Based and Neighborhood Partnerships, the body that will help determine how funds in the stimulus package will be spent by religious organizations.
The washingtonpost.com posted the story this morning.
The economic stimulus bill currently in Congress includes a small - compared to the overall package - allocation for the NEA. $50 million to the NEA in a package with an overall cost of $819 billion, but that's enough to cause loud criticism from some Republican legislators. The allocation isn't even in the Senate version of the bill. It's been taken out as "pork barrel spending." For a detailed account of the current criticism, reactions from the NEA and other arts organizations, and a bit of the history of the fight against government spending for the arts, see the story in the Boston Globe.
Henri Cole, a poet, described the impact of a fellowship he received from the NEA: The economy is like a dry riverbed. The fellowship money is like river water flowing into it."
A story in the Boston Globe describes a number of problems that led to the decision at Brandeis to close the Rose Art Museum. Brandeis relies heavily on current donations - $14 million of its operating budget comes from current donations - and those donations are nearly nonexistent this year. President Reinharz returned recently from his annual fundraising trip to Florida where he heard stories of financial losses and got little in the way of funds for the school. Brandeis's endowment, young by university standards, has dropped from $712 million to $549 million. Because the endowment is relatively new, nearly all the appreciation over the historic dollar value of the endowment is gone. Under Massachusett's version of UMIFA, Brandeis can spend little from its endowment until the market rebounds. In addition to these problems, Brandeis has overextended itself in recent years, increasing its debt with building projects and more financial aid for students. The way out will be difficult.
Although Brandeis turned to the Rose Art Museum as a way to save itself, President Reinharz has begun to step back from the initial announcements that sounded like the school would sell the entire collection. Reinharz now talks about selling "a minute number" of the 7,180 pieces of art and only "if and when it is necessary."
As Reinharz says, "We're not unaware of the fact that the art market is depressed. It's not like we were born yesterday. Everything is depressed. Housing is depressed. The arts is depressed. Everyone is depressed."
Wednesday, February 4, 2009
Two provisions in the current economic stimulus package ("The American Recovery and Reinvestment Act of 2009") that is pending in the U.S. Senate contain so-called "infrastructure financing" provisions that are likely to give a boost to infrastructure spending by all types of charities. The provisions provide incentives for individuals, banks and others to invest in "private activity bonds" which are tax-exempt bonds used by charities to fund building projects and other capital improvements. Here is a description of two infrastructure financing provisions from the Senate bill:
1. De minimis safe harbor exception for tax-exempt interest expense of financial institutions and modification of small issuer exception to tax-exempt interest expense allocation rules for financial institutions
Two-percent safe harbor for financial institutions - The proposal provides that tax-exempt obligations issued during 2009 or 2010 and held by a financial institution, in an amount not to exceed two percent of the adjusted basis of the financial institution’s assets, are not taken into account for the purpose of determining the portion of the financial institution’s interest expense subject to the pro rata interest disallowance rule of section 265(b). The proposal also amends section 291(e) to provide that tax-exempt obligations issued during 2009 and 2010, and not taken into account for purposes of the calculation of a financial institution’s interest expense subject to the pro rata interest disallowance rule, are treated as having been acquired on August 7, 1986. As a result, such obligations are financial institution preference items, and the amount allowable as a deduction by a financial institution with respect to interest incurred to carry such obligations is reduced by 20 percent.
Modifications to qualified small issuer exception - With respect to tax-exempt obligations issued during 2009 and 2010, the proposal increases from $10 million to $30 million the annual limit for qualified small issuers. In addition, in the case of “qualified financing issue” issued in 2009 or 2010, the proposal applies the $30 million annual volume limitation at the borrower level (rather than at the level of the pooled financing issuer). Thus, for the purpose of applying the requirements of the section 265(b)(3) qualified small issuer exception, the portion of the proceeds of a qualified financing issue that are loaned to a “qualified borrower” that participates in the issue are treated as a separate issue with respect to which the qualified borrower is deemed to be the issuer.
2. Repeal of alternative minimum tax limitations on tax exempt bonds issued in 2009 and 2010
The proposal provides that tax-exempt interest on private activity bonds issued in 2009 and 2010 is not an item of tax preference for purposes of the alternative minimum tax and interest on tax exempt bonds issued in 2009 and 2010 is not included in the corporate adjustment based on current earnings.
For a description of the entire economic stimulus package, see "DESCRIPTION OF THE AMERICAN RECOVERY AND REINVESTMENT TAX ACT OF 2009" available on the "legislation" portion of the Senate Finance Committee website.
The Chronicle of Philanthropy reports on the latest decision in the IRS's audit case against the Living Word Christian Center, a church located in Brooklyn Park, Minn. The IRS lost. A U.S. District Court judge, sitting in Minneapolis, upheld a December 2008 ruling by a U.S. Magistrate.
The IRS began to investigate the church in April 2007, based on information that the pastor had endorsed a political candidate from the pulpit. During the investigation the IRS uncovered information that suggested that some financial transactions between the church and the pastor had improperly benefited the pastor. The church responded to some early requests for information but then refused further requests, arguing that the requests violated the Church Audit Procedures Act. The court agreed with the Center that the audit had not been authorized by an appropriately high-level Treasure Dept. official.
The problem stems from a reorganization of Treasury that occurred after the Treasury issued regs under the Church Audit Procedures Act. The regs indicated that no one lower than a regional commissioner could begin an audit. When the IRS reorganized and eliminated the position of regional commissioner, the IRS gave the authority to audit a church to someone lower down the chain. This change in authority was not the product of formal rulemaking, so the person who authorized the audit of Living Word did not have a high-enough level of authority to do so.
It sounds like the IRS needs to engage in some rule-making, pronto, but in the meantime maybe the Commissioner can step in to authorize the audit. If there is suspicion that the church has engaged in political campaigning and self dealing, then an investigation seems in order.
For a longer explanation of the situation, see the article in the Chronicle.
The Kennedy Center has announced a new program, designed to provide emergency planning assistance to ailing arts organizations around the country. For the press release, go here. "Arts in Crisis: A Kennedy Center Initiative" will consult with struggling arts organizations, providing strategic advice about management and fundraising. The goal is to help arts organizations stay afloat during the economic downturn. Any nonprofit arts organization can register on the initiative's website. The assistance is free and may involve email, phone calls or a site visit. Experienced arts managers can use the website to register as mentors. The initiative hopes to link mentors with arts organizations in their local areas.
Attorney General Greg Abbott has announced a new online service that provides information on charities for donors. The link, labeled Charity Search, is easy to find on the AG's homepage. The database includes 990s and instructions on how to use the 990s to learn about charities, as well as links to other resources. The website has already posted some 990s and will add more in the coming weeks and months. The goal is to give donors as much information as possible about charities, about where their donations are going and what they will support, so the donors can make wise decisions. A video of General Abbott announcing the new service is posted on the AG's website. In the video General Abbott also talks about the importance of charitable hospitals in Texas and says that a Charitable Hospital Summit was held "to empower and inspire hospitals to provide charity care."
Thanks to Jason Havens for sending information about the AG's announcement.
Phillip "Terry" Ragon and his wife, Susan Ragon, will contribute $100 million to create a new research institute, the Phillip T. and Susan M. Ragon Institute. The Boston Globe reports that the new institute will operate as an AIDS vaccine research center, joining researchers from Massachusetts General Hospital, Harvard, MIT and other institutions in the search for a vaccine. The idea is to encourage collaboration and free the scientists from the need to struggle for federal grants and other funding.
The story has a slightly unusual beginning. Bruce Walker, an AIDS researcher, had approached Terry Radon about help in funding the research Walker was conducting in South Africa. Walker convinced Radon that the best way to understand the work and the problems was to come to South Africa and observe the work Walker was doing there. They went, and Radon was so moved by what he saw - young people preparing for death, each one sicker than the next, that he and his wife began discussing what they could do. Eventually he approached Walker and they developed the idea of the interdisciplinary institute. Walker will head up the new institute.
In addition to the hope that these resources will accelerate the work of finding a vaccine for AIDS, the gift also serves as a reminder of the good uses of great wealth. As each day brings new revelations of excessing personal spending by bank CEOs, the Radons' gift stands as an example of what donors can accomplish. As Dr. Peter Slavin, President of Massachusetts General says, "Hopefully this will make a difference in the lives of millions of people with HIV and other infectious diseases. And I hope that it will inspire other people to remember the importance of philanthropy even in difficult economic times."
Tuesday, February 3, 2009
The IRS has issued an updated Publication 526, Charitable Contributions. The publication contains information useful in filling out 2008 tax returns, covering all the basic deduction rules. In addition, the publication highlights changes for 2008:
The Midwestern Disaster Relief Act: increases the standard mileage rate for cars used to provide help to victims of the Midwest storms and flooding; provides that taxpayers may not need to pay tax on money received from a nonprofit for mileage reimbursement; and provides that cash contributions related to the Midwestern disaster area are not subject to limits on itemized deductions or the 50% AGI limit.
Provisions due to expire at the end of 2007 have been extended for contributions made in 2008 and 2009: contributions of food inventory; IRA disributions given to charity; and the special deduction limit for qualified conservation easements.
An editorial in today's Harvard Crimson discusses the compensation received by Harvard's in-house investment managers, and opines that the large salaries are necessary to maintain the quality of advice for investing Harvard's substantial endowment. Ten members of Harvard's Class of 1969 recently called for reduced pay for the investment managers. The editorial responds, arguing that the managers are worth what they're paid.
For fiscal year ending June 30, 2008, the top six officials at Harvard Management Corporation were paid, collectively, $26.8 million. In the four months following the end of the fiscal year, the endowment lost about $8 billion dollars, 22% of the value of the endowment. The students point to past returns: from 1995 to 2005 the annualized return was no less than 15.9%. It's hard to know what that means, given that the timeframe includes both the significant bull market and the downturn around 2000, without comparing it with returns earned by other endowments. Perhaps Harvard's endowment fared better than others. And perhaps Harvard is paying its managers at "market rate." A salary of $4-5 million probably isn't out of line, especially given the excesses of recent years. The fact that investment managers are worth so much more than faculty members and university administrators still rankles, but as the students write, outsourcing investment advice may also be expensive. The market is always the the reason given for salaries so high that they are unfathomable to mere mortals, but the market may be changing.
The Boston Globe reports today that Southern New Hampshire University, a private school, is trying a new approach to education. Students attending a satellite campus in Salem or Nashua pay just $10,000 in annual tuition, in contrast with $25,000 to attend the university's main campus in Manchester. The differences are the amenities. The satellite "campus" consists of one floor in an office building, with a small student lounge and vending machines. The school focuses on classes: small classes of 10 or so students, professors who also o teach at the Manchester campus, and a solid, two-year curriculum. After two years, the students can transfer to the Manchester campus, having saved $30,000, plus savings from living at home and not in a dorm. The students miss not only the residential experience, but also the school activities, clubs, cafeteria, gym, and the chance to interact outside the classroom with fellow students. Much of education can occur outside the classroom and some of those experiences will be lost at the commuter campus. But for some students, the cost savings makes a college education possible and for those who might spend more time partying than attending classes, the classes-only focus may be helpful. As Paul LeBlanc, president of Southern New Hampshire says about the new buildings - food court, gym, and residential facilities - that colleges must provide to stay competitive: "I'm not sure that improves education. It just drives the price up. Not everyone needs it, and frankly, not everyone can afford it."
The Globe article notes that the public university system in Pennsylvania is considering creating four-year colleges on this model.
Monday, February 2, 2009
Brandeis students held a multimedia exhibit last Friday, Jan. 30, on the Brandeis campus, using images from the Rose Art Museum and discussing how the closing will affect students. The student organizers described the show as "the beginning of a conversation on the nature of visual imagery and authenticity, the future of art at Brandeis, and how this weak decision can strengthen us as a community." The students have established a Facebook group: comeseeart. See the story in the Waltham paper, the Daily News Tribune.
Last week's edition of the student newspaper, Brandeis Justice, contains several articles and editorials on the closure of the Rose Museum. Most articles in the online edition generate one or two posted comments. The Rose closure had 54 comments posted when I checked. Most expressed sadness or anger or shock. One writer thought it was April Fool's Day.
Today's New York Times includes an editorial decrying the decision by Brandeis to close its museum and sell some 6,000 works of art. (See the Jan. 29 post by David Brennan about the proposed sale.) The NYT says the decision to sell the art "has made hard times worse" and notes that the market for art has dropped as precipitously as the stock market. The editorial says the sale "would create a gaping hole in Brandeis' mission and its reputation." The editorial also notes that the donors of the art or or money that made the purchases possible "almost certainly did not think of them as temporary gifts to be cashed in during hard times."
Keep watching for more on this story - given the outcry over the announced sale, there will be more to read soon.
According to his January 30, 2009, Senate Finance Committee statement available on the Wall Street Journal website, it appears that among the "outstanding" tax issues for Senator Daschle is Daschle's apparent failure to obtain written acknowledgments for charitable contributions in excess of $250. Here is an excerpt from the report:
In response to Committee staff inquiries, the senator provided additional documentation for the Daschles’ charitable contributions for 2005, 2006, 2007. Staff notes that while copies of checks were provided, the proper donee acknowledgement for contributions over $250 was not provided for many of the charitable contributions as required for deductibility. The returns were not amended for these amounts.
For the entire Senate Finance Committee statement, see "Senate Finance Committee Statement Concerning the Nomination of Thomas A. Daschle" available on the Wall Street Journal website.
The Philadelphia Inquirer reports about an ongoing FBI investigation of Safe and Sound, a Philadelphia social-service charity with ties to former Mayor Street. Street's wife ran the nonprofit from its creation in 1998 until she left the organization in 2002, after criticism that as Mayor's wife she shouldn't be running an organization that received most of its funding from the city. Her sister has run programs that received funding from Safe and Sound for at least five years. The FBI investigation began last spring, after the Board of Safe and Sound announced that it would close in June. One question the FBI investigators are asking is whether the mayor and his wife tried to influence spending decisions after she left the organization. The mayor certainly continued to influence distributions from the city to the organization as long as he could. The Inquirer reports that shortly before he left office in 2007 Street gave the organization a no-bid contract of $75 million, even though the city council had authorized only $54 million. Safe and Sound began distributing money to providers, and then the providers learned, after Street's successor took office, that they shouldn't spend the money. Just one more mess Street left behind.
On Jan. 16 Sophie Smith blogged about Pennsylvania State Senator Fumo's trial, the revelations about the Citizens' Alliance for Better Neighborhoods, and the resulting lack of confidence in Philadelphia nonprofits. It seems Fumo is not the only politician taking advantage of nonprofits in Philly. there.
Sunday, February 1, 2009
The cover story for this Sunday's Atlanta Journal Constitution is entitled, "The State of Nonprofits: Gifts Don't Meet Demand". There is not much new to the recognition that nonprofits are being hit just as hard by the economic decline as are profit seekers and the article contains little in the way of possible solutions. Still, the AJC article is available as an audio file that can be used in class to discuss the extent to which federal and state laws are efficient, inefficient, or neutral with respect to the needs of the independent sector. The open-endedness of the article could provide for some useful fodder for classroom discussion, for example, of the extent to which the tax code is currently equipped to rescue the nonprofit sector.
Last week, the New York Times published an interesting op-ed piece regarding the notions that print media's remaining hopes of survival are found in the sector's reorganization as endowed nonprofit institutions. Professor Colombo discussed this idea in a blog post last November. Whether the idea is a good one or not may soon become a question overcome by events; the declining patronage of print media will eventually remove the profit motive and make the transformation necessary as a matter of basic economics. Here is a brief excerpt from the op-ed piece.
By endowing our most valued sources of news we would free them from the strictures of an obsolete business model and offer them a permanent place in society, like that of America’s colleges and universities. Endowments would transform newspapers into unshakable fixtures of American life, with greater stability and enhanced independence that would allow them to serve the public good more effectively. As educational and literary organizations devoted to the “promotion of social welfare,” endowed newspapers would benefit from Section 501(c)(3) of the I.R.S. code, which provides exemption from taxes on income and allows tax deductions for people who make contributions to eligible organizations. One constraint on an endowed institution is the prohibition in the same law against trying to “influence legislation” or “participate in any campaign activity for or against political candidates.” While endowed newspapers would need to refrain from endorsing candidates for public office, they would still be free to participate forcefully in the debate over issues of public importance. The loss of endorsements seems minor in the context of the opinion-heavy Web. Aside from providing stability, an endowment would promote journalistic independence. The best-run news organizations insulate reporters from pressures to produce profits or to placate advertisers. But endowed news organizations would be in an ideal situation — with no pressure from stockholders or advertisers at all.
In his earlier post, Professor Colombo stated "while we may not soon see the New York Times, Chicago Tribune, Washington Post or L.A. Times adopt nonprofit form, it is clear that this is becoming a significant trend in the news-gathering and reporting world. The trend, moreover, lends some credence to the "market failure" theories of nonprofits and tax-exemption espoused by Henry Hansmann and yours truly: as the market becomes incapable of providing a service, nonprofits funded by donations step in to fill the hole." That the op-ed piece appeared in one of the very newspapers thought most immune to the idea suggests that the "trend" may be more of a tidal wave, for the move centered in the middle of a vast [information] ocean but soon to be unmistakably felt by coastal dwellers and after that even those residing more inland [like the New York Times, the Washington Post] and other continents of media.
If indeed the emerging trend becomes the norm, it will no doubt provoke a reaxamination of the unexplained notion that charity and politics don't mix. The excerpt above notes that nonprofit newspapers would have to forego campaign endorsements under present law. On the other hand, the prohibition on campaign intervention and the less drastic discouragement of lobbying activities really has no logical relationship to the market failure theories the legal economist view as the sort of "creationist" explanation for nonprofit organizations. Nor does the theory have any relevance to the altruistic notions explaining nonprofit organizations.