August 20, 2011
UPDATE: NJ Drops Donor Designation Rule Proposal
Yesterday I blogged about a New Jersey proposal to enhance donor designation of charitable contributions, perhaps unconstitutionally. Later yesterday, the NonProfit Times reported that New Jersey Division of Consumer Affairs has dropped the proposal, apparently in response to comments highlighting the cost and difficulty of implementing the proposed rule. For additional coverage, see the update issued by the New Jersey-based Center for Nonprofits, which submitted comments expressing concern about the proposal.
Jenkins on "Who's Afraid of Philanthrocapitalism"
This Article explores the concept of philanthrocapitalism - an emerging model for charitable giving intended to enhance the practice of philanthropy through the application of certain business techniques, particularly envisioned as being deftly carried out by a subset of ultra-rich, experienced business people. During the past fifteen years, but most strikingly in the past five, private foundations influenced by philanthrocapitalism and its forbearers have become increasingly directive, controlling, metric focused, and business oriented with respect to their interactions with grantee public charities in an attempt to demonstrate that the work of the foundations is “strategic” and “accountable.” Combining empirical analysis and theoretical critique, this Article challenges the prevailing wisdom that philanthrocapitalism offers a better, smarter philanthropy, thereby strengthening the entire nonprofit sector. In fact, after observing and documenting the tenets of and rhetoric associated with philanthrocapitalism, there is a serious risk that the shift to business-like, market-driven giving may change the nature of philanthropy in ways we will come to regret. Moreover, this Article links concerns about philanthrocapitalism to a broader disquiet about the blurring lines between the public and the private. I argue that nonprofit scholars and advocates should pay greater attention to this movement and what its “success” might mean for the social sector.
August 19, 2011
NJ Proposes Taking Donor Designation to the Next Level
The NonProfit Times reports that the New Jersey Division of Consumer Affairs is seeking public comments on a proposed rule that would require charities to inform donors that they can direct a soliciting charity to use the donor's contribution to fund a particular program if a solicitation by that charity names multiple programs as an inducement for the donor making the contribution in the first place. The proposed rule would apply to organizations that received contributions of more than $250,000 in the previous fisal year. According to the article, Errol Copilevitz of Copilevitz & Canter, a firm that specializes in charitable solicitation laws, has already objected to the proposal on the grounds that it unconstitutionally compels speech and fails to recognize that realistically some of the funds raised would need to be used to cover fundraising expenses.
August 18, 2011
GOOD/Jumo Merger Raises Interesting Charitable Asset Questions
The NY Times reports that the for-profit company GOOD, a self-described "integrated media platform for people who want to live well and do good," is acquiring nonprofit charity Jumo, a social networking platform that "enables people to find organizations and similarly minded people working on important causes here in the United States and across the world." The deal apparently arose out of Jumo's struggle to find a viable and distinctive role in the growing nonprofit social media space. While the terms of the deal are not known, it is clear that any money paid to Jumo will need to continue to be dedicated to charitable purposes. Such deals of course raise significant valuation issues, as well as the risk of excessive consulting contracts or other payments to charity insiders to facilitate the deal. In this case, the situation may also be complicated by the fact that Jumo was funded to the tune of $3.5 million by several foundations, including the Ford Foundation, the Omidyar Network, and the John S. and James L. Knight Foundation. While the article quotes the last foundation as applauding the deal, it is not clear how the two other named foundations view it.
Witte on "Classification Issues in the Exemption of Churches and Charities from Property Taxation"
John Witte Jr. (Emory) has posted Whether Piety or Charity: Classification Issues in the Exemption of Churches and Charities from Property Taxation, which was previously published in Religion and the Independent Sector in America (1992). Here is the abstract:
The law governing tax exemption of church property illustrates the problem of classifying institutions and activities of the independent sector along religious lines. The “independent sector” is comprised of a variety of institutions, like families, schools, charities, churches, corporations, clubs, and others. Religion assumes a variety of forms and functions within these institutions, ranging from the incidental to the indispensable. The law, however, requires that sharp distinctions be drawn between “religious” and “non-religious” institutions and activities.
Such distinctions are required by state statutory law. Historically, two separate bodies of state law governed tax exemption of church property: (1) a body of common law, which accorded such exemptions to church properties based upon the religious uses to which they were devoted, and (2) a body of equity law, which accorded such exemptions to church properties based upon the charitable uses to which they were devoted. Currently, only one body of state statutory law governs such exemptions, yet exemptions remain based on either the religious uses or the charitable uses of a property. State officials are thus required to distinguish between piety and charity, religion and benevolence, to determine whether and on what basis a petitioner’s property can be exempted from taxation.
Such distinctions are also required by federal constitutional law. The Constitution of the United States permits government regulations of various non-religious institutions and activities, provided such regulations comply with generally applicable constitutional values. It permits governmental regulation of religious groups and activities, only if they comply with the specific mandates of the establishment and free exercise clauses of the first amendment. State tax exemptions for religious institutions and religious uses of property, therefore, require separate constitutional treatment.
The religion clauses of the first amendment, as currently interpreted, appear to offer conflicting directives on tax status of church property. The establishment clause has been interpreted to forbid government from imparting special benefits to religious groups. The free exercise clause has been interpreted to forbid government from imposing special burdens on religious groups. The free exercise clause has been interpreted to forbid government from imposing special burdens on religious groups. Neither the exemption nor the taxation of church property appears to satisfy the principles of both clauses. To exempt church property, while taxing that of other non-religious groups, appear to violate the “no special benefit” principle of the establishment clause. To tax church property, while taxing that of other non-religious groups, appears to violate the “no special burden” principle of the free exercise clause. To tax church property, while exempting that of other charitable groups, appears to violate the “no special burden” principle of the free exercise clause. In Walz v. Tax Commission (1970), the United States Supreme Court held that tax exemptions of church property, while neither proscribed by the establishment clause nor prescribed by the free exercise clause, are constitutionally permissible. In more recent cases involving federal income taxation and state sale and use taxation, however, the Court has called this precedent into serious question.
This Article retraces the history of tax exemption of church property in America and analyzes current patterns of tax exemption litigation and legislation in light of this history. Part I analyses the common law and equity law sources of tax exemption law, the challenge posed to these laws by early state constitutional provisions, and the rise of the modern theory and law of tax exemption of church property that emerged in response to these challenges. Part II analyzes briefly new trends in litigation over the tax exemption of church property, particularly in cases raised by new religious groups, which have sought to avail themselves of the same protections enjoyed by traditional religious groups. Part III poses an alternative to the current reforms of tax exemption law now being debated and analyzes this alternative provisionally in light of historical exemption laws and current constitutional interpretations.
Atkinson Comments on Galle: "Keeping Republics Republican"
Rob Atkinson (Florida State) has posted Keeping Republics Republican (Texas Law Review), a comment on Brian Galle's (Boston College) article Keep Charity Charitable (also Texas Law Review). Here is the abstract:
Several months ago I told Brian Galle I had accepted the offer of Texas Law Review See Also to comment on his article, Keep Charity Charitable. He remarked, with his typically casual candor, “I’d have asked someone I disagree with more.” The title of Professor Galle’s article nicely identifies our common ground: he now believes, very much as I once believed, in the wisdom of keeping charity charitable and meeting a wide range of basic social needs through nonprofit or “third sector” organizations, as opposed to for-profit firms on the one hand and government agencies on the other. Professor Galle’s article addresses a position with which he and I both disagree: one that would cede a more-or-less large portion of the traditional field of charity to for-profit firms – in this particular dustup, those who favor “for-profit charity” over “charitable charity.”
August 17, 2011
LA Times: "Los Angeles to Hand Over Animal Shelter to Nonprofit Group"
While perhaps more commonly seen in the health care area in recent years (see previously blog posts about Grady Memorial Hospital in Atlanta and Martin Luther King Jr. Hospital in Los Angeles), today brings a L.A. Times report about the transfer of another kind of service from a local government to a nonprofit group. According to the article, the Los Angeles City Council voted yesterday to turn over management of the Northeast Valley Animal Care Center to the Best Friends Animal Society. While the Center is only three years old, it has never been fully staffed because of government budget constraints. Best Friends will not be receiving any payment for its services and said it will be spending up to $1 million to improve the facility, which originally cost $19 million. The City of Los Angeles estimated that it would have cost it $3.3 million annually to run the shelter. This may be only part of a wave of such transfers, as the city is also considering whether to turn over to nonprofits or other private entities the management of several arts facilities, the Los Angeles Convention Center, and the Los Angeles Zoo and Botanical Gardens.
NYT: "Funds Restored to Aid Groups in Gaza"
I previously blogged about the U.S. State Department's threat to withhold funds for international aid in Gaza because of a Hamas decision to audit the groups receiving those funds. The N.Y. Times has published an AP report that Hamas dropped its audit demand after the State Department made good on its threat by "pausing" its financial support until Hamas backed down.
August 16, 2011
Illinois Department of Revenue Denies Property Tax Exemption to Three More Hospitals
On the heels of the 2010 decision by the Illinois Supreme Court in the Provena Covenant hospital tax exemption case (see prior posts here and here), today the Illinois Department of Revenue denied exempt status to three Illinois hospitals: Northwestern Memorial Hospital (Prentice Women's Hospital), a newly-constructed hospital in the wealthier Chicago suburbs; Edward Hospital in Naperville; and Decatur Memorial Hospital in Decatur. The reported charity care amounts ranged from 1.85% of patient revenues in the case of Prentice Women's Hospital to .96% in the case of Decatur Memorial - all in excess of the .07% determined by the court in Provena to be "de minimis," but not strikingly larger than the Provena number. And in each case, the hospitals in question reported substantial net patient revenue (from $1.18 billion in the case of Northwestern's overall system to $252 million for Decatur) and had for-profit entities in the ownership chain.
So what does this mean? Well, first it is clear that, to its credit, the Department of Revenue has ignored the tired "community benefit" arguments made by Illinois hospitals even after the Provena decision made clear that "community benefit" wasn't going to carry the day in Illinois. But at least at this particular time, I have no information on the internal metrics being applied or developed by the Department in order to reach these decisions. Has the Department settled on a "number" for charity care? The cases denied today indicate that 1.85% of patient revenues won't be enough when the hospital is part of system that generates over a billion dollars in profit. But what if the hospital barely breaks even? What if the charity care percentage at Prentice Women's Hospital had been 5% instead of 1.85%? Is 5% "de minimis" (some federal tax precedents would argue not).
Until we get specific official guidance from the Department of Revenue, these questions are still just that - questions. But, in the mode of Johnny Carson's "The Great Karnak," I will go out on a limb here and make a prophecy:
More litigation is coming in Illinois on the issue of property tax exemptions for nonprofit hospitals.
August 15, 2011
NYT: "California Scrutinizes Nonprofits, Sometimes Ending a Tax Exemption"
The New York Times reports that California nonprofit groups are being increasingly scrutinized with respect to the benefits they provide to state residents, with groups that are deemed not to be benefiting state residents sufficiently losing their property tax exemptions. The denials by county assessors are apparently based on the requirement (see Q&A13) that exempt property be used in way that "primarily benefits persons within the geographical boundaries of the State of California." The article notes, however, that this requirement appears to be have been applied inconsistently and therefore may be constitutionally vulnerable as a result. It is also not clear how such a requirement is consistent with the Commerce Clause of the U.S. Constitution, given the Supreme Court's decision in Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564 (1997).
Politico: Millions Flow Anonymously Into 501(c)s on Both Sides
Politico reports early indications that many millions of dollars are flowing anonymously into new and old non-charitable, tax-exempt section 501(c) organizations on both sides of the political aisle, as well as into the infamous SuperPACs that are required to publicly disclosure the identities of their significant donors. On the left are the recently created American Bridge 21st Century Foundation, Patriot Majority, and Priorities USA, each with an affiliated SuperPAC (Priorities USA Action, American Bridge 21st Century, and Patriot Majority PAC). On the right are the slightly more established (existed at least as early as 2010) Americans for Prosperity and Crossroads Grassroots Policy Strategies (i.e., Crossroads GPS), with the latter also having an affiliated SuperPAC (American Crossroads). They join longstanding, politically active tax-exempt organizations, including labor unions such as the Service Employees Union International, the U.S. Chamber of Commerce, and the 60 Plus Association. Information about the 2011 revenue and expenditures of the section 501(c) organizations is based on voluntarily released information and required reporting of certain election-related spending and so is necessarily incomplete. Information about SuperPAC revenue and spending, or as it is more formally known Independent Expenditure-Only Committee spending, can be found on the FEC website for such organizations that are involved in federal elections. For those who have not been following Stephen Colbert's SuperPAC, the great advantage of such entities is their ability to raise unlimited contributions from individuals, unions, and corporations as long as they operate independently of candidates and political parties. Their great disadvantage as compared to section 501(c) organizations, at least for some potential donors, is they must publicly disclose the identities of all significant contributors.