Thursday, July 14, 2011

Is ALEC An Action Organization Disguised as a Charity?

From the Los Angeles Times:

The government watchdog group, Common Cause, has asked the Internal Revenue Service to investigate the tax status of the non-profit American Legislative Exchange Council, or ALEC, an association of conservative state legislators and private sector officials that churns out hundreds of bills and resolutions annually to pare back regulation and promote business.
 
Over the last few years, Washington-based ALEC has helped legislators around the country to introduce measures, often taken verbatim from the group's website, that would dismantle regional climate change initiatives, rebuke the Environmental Protection Agency, repeal health care reform and curtail labor's power, among other things.

In a letter to the IRS, Common Cause argued that a review would help determine if ALEC's tax-exempt, 501(c)(3) status should be revoked due to "excess lobbying or, alternatively, because ALEC appears to operate primarily to further private business interests and not to advance a charitable purpose."  ALEC has said more than 1000 bills are introduced annually around the country based on the group's templates. Common Cause contends that such activity violates tax code provisions that bar non-profits from "carrying on propaganda, or other attempting, to influence legislation."

According to Common Cause's complaint letter:

According to ALEC’s own tax returns, its largest program area in terms of expenditures is the  operation of its task forces. In turn, the primary function of these task forces is development and dissemination of model bills, with the intent that they be introduced and passed in as many state legislatures as possible.  The organization’s second largest area of expenditures is for meetings held several times a year.  These are opportunities for “private sector” members (corporate representatives) to interact with legislators and advocate for favored policies. The agendas include discussions of specific legislation and specific legislative proposals supported by the organization. Indeed, in many cases the proposals were developed by ALEC itself as its own model bill.  Under the default statutory test, it seems incontrovertible that ALEC is substantially and indeed primarily engaged in attempting to influence legislation. All of its efforts are geared toward developing and promoting favored state legislation. These proposals are generated in a private process where the business interests of its corporate members are highlighted, then shared only with the organization’s legislator members so they can take the proposals back to their states and introduce them as their own ideas.4 Its governing documents state that promotion of introduction of bills at the Federal and state levels and formulation of legislative action programs are two of the seven means by which ALEC pursues its purposes.

 

There is an informative YouTube Video discussing the issue linked to Common Cause's website.  For its part ALEC has yet to respond to the complaint.

dkj 

July 14, 2011 | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 13, 2011

More on the Separation Between NGO And State: Donors Buy Influence Using NGO's as Middlepeople

Yesterday, I blogged about the OGE's proposed rule allowing federal employees to serve in leadership positions within nonprofit organizations.  My primary complaint was that NGO's were becoming too cozy with government, risking the loss of their identity as a distinct sector of society.  While there was very little thought given before Congress prohibited tax exempt charities from intervening in political campaigns, nor even in the prohibition against "substantial" lobbying, one reason why the prohibitions are nevertheless good policy is that nonprofit organizations ought to exist as alternatives to top down governance in a democratic society.  Nonprofits allow for spontaneous grassroots initiatives and actually better society by showing top downers a better idea.  To the extent nonprofits get involved in the political process, they run the risk of being "captured" by government.  Or more precisely, captured by incumbents.  Today, the online world is abuzz about an Associate Press article describing the new way to purchase influence from incumbents, candidates or government officials, to wit:  make large donations to charities that are the influential target's favored causes.  That phenomenon, coupled with the imminent rule allowing federal employees to serve as officers and board members of nonprofit organizations, and Citizens United seems a recipe for disaster.

"By giving millions to nonprofits and charities that lawmakers have a connection to, lobbyists and special interests have a very discreet way of currying favor with the members of Congress they're trying to influence, one that the public is rarely aware of," said Bill Allison, editorial director of the foundation. "How much more money is contributed to these nonprofits by clients of lobbyists or others with an interest in federal policy is unclear, since only lobbyists have to disclose these contributions."

The AP report comes after the Sunlight Foundation blog reported that:

Last year, four of the country’s biggest military contractors paid $100,000 or more to become top sponsors of a black tie charity gala that honored the influential former chair of the House Armed Services Committee, Rep. Ike Skelton, D-Mo.  In exchange for that gift, some of the company's top executives were placed at Skelton's table and all were given the chance to address the V.I.P. crowd that included many top military officials. The event benefited a charity for families of fallen soldiers.  This kind of lavish corporate spending on galas bestowing awards on executive or legislative officials is common practice in Washington, D.C., and unlike other forms of giving—such as donations from companies’ political action committees—it is unlimited.

The gist of the problem, it seems, is that individuals or corporations seeking to curry favor with incumbents or candidates are subject to limits on the amount they can donate and cannot get an explicit endorsement from a charity because of the prohibition stated in 501(c)(3).  Instead, they can make significant  unlimited charitable contributions to that same charity which then turns around and "honors" the incumbent, candidate, or government officer (the latter of which is not necessarily in violation of 501(c)(3).

Of the over $50 million in these reports, firms employing lobbyists spent $36.3 million honoring members of Congress and $11 million honoring executive branch officials in 2009 and 2010, according to Sunlight’s analysis. In addition, nearly $645,000 went to legislative branch employees—mostly congressional staffers—the reports showed.

The entire Sunlight Foundation report is available online here.

dkj

 

July 13, 2011 in In the News | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 12, 2011

Separation of NGO and State: A Comment on The Office of Government Ethics' Proposed Rule Allowing Government Employees to Serve on Nonprofit Boards

According to the Preamble to Proposed Rule 5 CFR 2640.203(M) (May 3, 2011)(relating to ethics in government),

a number of [federal] agencies had a practice of assigning employees to participate on the boards of directors of certain outside nonprofit organizations, where such service was deemed to further the statutory mission and/or personnel development interests of the agency . . .   However, in 1996, the Office of Legal Counsel (OLC) at the Department of Justice issued an opinion concluding that section 208 generally prohibits an employee from serving, in an official capacity, as an officer, director or trustee of a private nonprofit organization . . . This conclusion was premised in large part on the fact that officers, directors and trustees of an outside organization owe certain fiduciary duties to the organization under state law, which may conflict with the primary duty of loyalty that all Federal employees owe to the United States.

The Preamble continues by articulating a list of negative consequences arising from what I will call the "separation between NGO and State," including the following:

Since the 1996 OLC opinion, some agencies have continued to assign employees to serve on  such outside boards by granting the employees individual waivers under 18 U.S.C. 208(b)(1). Other agencies have declined to issue individual waivers (or have done so rarely), often because of discomfort about waiving the application of a criminal statute. OGE has fielded numerous inquiries and has held many meetings with agencies and nonprofit organizations, mostly professional and scientific societies, concerning the application of section 208 to prevent official participation on outside boards.  Several of the agencies and nonprofit organizations have argued that the application of section 208 has created unfortunate barriers to professional development and meaningful exchange between Federal and non-Federal experts in certain professions and areas of expertise.  Moreover, some of the organizations have pointed out that there is a lack of uniformity within the Executive Branch, owing to the willingness of some agencies to grant waivers and the unwillingness of other agencies to do so, often with respect to participation in the same organization.  Additionally, the Office of Government Ethics has noted the potential for confusion in some instances when employees are permitted to serve only in a private, rather than official, capacity.  Especially where the agency has policy interests that overlap with those of the nonprofit organization, it can be very difficult for the employee to avoid the mistaken impression that he or she is acting in an official capacity when participating in the organization. Employees may be uncertain about the extent to which they are permitted to make reference to their official position or to use official time or agency resources.

Later, the Preamble makes the point that the current prohibition discourages scientist and other professionals from accepting federal employment.  The Preamble suggests that federal employees become isolated from the "exchange of ideas" amongst their peers as a result of the prohibition and then concludes that the conflicting duties to the nonprofit and the government are more "theoretical than real."  The isolation argument actually seems more theoretical than real since scientists and professionals need not be in a leadership position to participate in a nonprofit organization's discussion of ideas.  Anyway, for these reasons, the Office of Government Ethics proposes to allow federal employees to participate in leadership positions on behalf of nonprofit organizations:

§ 2640.203 Miscellaneous exemptions.

* * * * *

(m) Official participation in nonprofitorganizations. An employee may participate in any  particular matter where the disqualifying financial interest is that of a nonprofit organization in which the employee serves, solely in an official capacity, as an officer, director or trustee.

All the reasons given for the proposed rule seem sensible but I have one or two concerns.  As a general matter, I am in favor of a clear clean delineation between the independent sector and government.  Yes, I know that as a tax policy matter the independent sector is justified in part because it relieves the government of some of its burdens and therefore it might be inevitable that there be some coordination.  But it is deeper than that, it seems to me.  The independent sector also exists to offer alternative means and ideas to government.  I worry when government and the independent sector get too cozy, as, for example, when the independent sector becomes too dependent on government for financial capital.  Under the proposed rule we might very well have government officials also directing nonprofit organizations active in the same area of social betterment.  This might be a small issue but I am not so sure.  The other issue conspicuously absent from the Preamble discussion involves political activity.  It seems to me that there is an emerging consensus, particularly after Citizens United that tax exempt nonprofit organizations have a right to participate in the political process.  It seems certain that if the matter were decided today or in the next two years, the High Court might even say so clearly if it hasn't already.  The proposal was made only last May so the Office of Government Ethics should have been aware of Citizens United and should have addressed it.  Suppose a high ranking federal employee in EPA, for example, also serves on the board of an organization actively concerned with global warming; or an FCC official serves on the board of an organization concerned with some media regulatory issue that happens to be supported or opposed by the current administration?  I haven't thought it through enough to have a firm opinion but I wonder if the issue is being discussed as the rule moves to final stages -- the comment period closed, by the way, on July 5, 2011.

dkj

July 12, 2011 in Federal – Executive | Permalink | Comments (0) | TrackBack (0)

Monday, July 11, 2011

Adam Chodorow Proposes "Charitable Flexible Spending Accounts"

In a forthcoming article, Professor Adam Chodorow proposes allowing taxpayers to donate unsed FSA amounts to charity:

This article considers two unrelated tax provisions – healthcare Flexible Spending Accounts (FSAs) and the charitable deduction. FSAs permit eligible taxpayers to set income aside tax-free to use for medical expenses. However, these accounts have a “use-it-or-lose-it” feature that discourages participation and creates incentives for unnecessary spending at year-end. The charitable deduction is available only to those who itemize their deductions, thus negating the incentive to give for the 65% of taxpayers who take the standard deduction. Prior attempts to fix these provisions separately – by allowing taxpayers to rollover unused FSA amounts to the next year and moving some or all of the charitable deduction “above the line” – have failed.

I propose combining the two provisions by allowing taxpayers to donate unused FSA amounts to charity. Doing so would lower a key impediment to participation in FSAs while giving a functional above the line deduction (and relief from payroll taxes) to those who donate through this mechanism. Not only would this reform increase the efficacy of both provisions, but it should also avoid many of the pitfalls of prior stand-alone reform efforts.

dkj

July 11, 2011 | Permalink | Comments (0) | TrackBack (0)

Massachusettes Bill Regulating Nonprofit Officer and Board Member Compensation Dies

We reported last week that the Massachusettes Senate passed a bill requiring state approval of compensation paid to nonprofit officers and board members.  According to the Chronicle of Philanthropy, the bill was "rejected" last week, though the Massachusettes AG indicates she will seek to have the bill reintroduced this fall.

dkj

July 11, 2011 in State – Legislative | Permalink | Comments (0) | TrackBack (0)