March 30, 2012
Exercise Caution when Reading about Recent Ruling on King Street Patriots
One might say that there is some kind of political battle "brewing" in Texas, one involving the Texas Democratic Party and a nonprofit organization known as King Street Patriots, Inc., described in the media as a Tea Party group. As if this dispute needs any more drama, it appears that the press coverage of a recent ruling in the litigation reflects more than a little misunderstanding of the nature of the ruling.
Here is what the Houston Chronicle says, in the opening two sentences of its story, Judge Rules Tea Party Group a PAC, not a Nonprofit:
A Travis County district court judge ruled this week that a Houston-based tea party group is not a nonprofit corporation as it claims, but an unregistered political action committee that illegally aided the Republican Party through its poll-watching efforts during the 2010 elections.
The summary judgment by Judge John Dietz upheld several Texas campaign finance laws that had been challenged on constitutional grounds by King Street Patriots, a tea party organization known for its "True the Vote" effort to uncover voter fraud.
The article also quotes an attorney for the Texas Democratic Party as saying that “the court's ruling meant the King Street Patriots would be ordered to reveal its political activities and to pay the plaintiffs' economic damages equal to twice the amount of the Patriots' expenditures and contributions.”
The puzzler is that, to the best of my knowledge, the ruling does no such thing. I have read it. The first sentence in the story in the Chronicle is unsupported by the summary judgment declarations. (At least the story's second sentence excerpted above correctly reports the essence of the judge's declarations.)
The declarations made by the judge, which uphold the constitutionality of several provisions of the Texas Election Code, do not reach the merits of the underlying causes of action raised against King Street. What’s more, I would expect those merits not to be addressed as long as the constitutional issues are litigated through the appeals process. I further expect a lengthy appeals process.
What should one make of this report? For now, all I will say is, it looks like someone has prematurely crashed a tea party!
Latest EO Update
The Internal Revenue Service has issued its most recent EO update, available here. The Table of Contents consists of the following:
1. Reporting Partnership Interests using Form 1065/Schedule K-1 Optional for Tax Year 2011
2. IRS Releases FY 2011 Data Book
3. IRS Revises Publication 1771
4. IRS Issues Final Regulations on Public Inspection of EO Material
5. Register for Upcoming Workshops for Small and Medium-sized 501(c)(3)s
6. YouTube: Work Opportunity Tax Credit
7. Deducting Charitable Contributions: Eight Essentials
Stanford Law Dean Larry Kramer to Head Hewlett Foundation
Larry Kramer, dean of the Stanford Law School, will be leaving SLS to serve as president of the William and Flora Hewlett Foundation on Sept. 1. Dean Kramer championed interdisciplinary study by students, and under his administration SLS expanded research institutes and programs and encouraged broad participation by students in clinical programs. The charity that Dean Kramer will soon lead is reported to have investments exceeding $7 billion. The full story is here.
Modirzadeh, Lewis and Bruderlein on Humanitarian Engagement Under Counter-Terrorism
Naz K. Modirzadeh, Dustin A. Lewis, and Claude Bruderlein, all with Harvard University’s Program on Humanitarian Policy and Conflict Research, have posted an abstract of their paper, Humanitarian Engagement Under Counter-Terrorism: A Conﬂict of Norms and the Emerging Policy Landscape, on SSRN. Here is the abstract:
This article identifies two countervailing sets of norms – one promoting humanitarian engagement with non-state armed groups (NSAGs) in armed conﬂict in order to protect populations in need, and the other prohibiting such engagement with listed “terrorist” groups in order to protect security – and discusses how this conﬂict of norms might affect the capacity of humanitarian organizations to deliver life-saving assistance in areas under the control of one of these groups. Rooted in international humanitarian law (IHL), the ﬁrst set of norms provides a basis for humanitarian engagement with NSAGs in non-international armed conﬂict for the purpose of assisting populations under their control and promoting compliance with the rules of IHL. The second set of rules attempts to curtail ﬁnancial and other forms of material support, including technical training and co-ordination, to listed “terrorist” organizations, some of which may qualify as NSAGs under IHL. The article highlights counter-terrorism regulations developed by the United States and the United Nations Security Council, though other states and multilateral bodies have similar regulations. The article concludes by sketching ways in which humanitarian organizations might respond to the identiﬁed tensions.
March 29, 2012
Impact of Striking Down Individual Mandate and Other Provisions of Affordable Care Act on Hospitals
In Hospitals Fear Loss of Insurance Payments if Coverage Mandate Is Struck Down, the Chicago Tribune reports that many hospitals, including nonprofits, have already begun to make numerous changes in anticipation of full implementation of the Affordable Care Act (the “Act”). Some healthcare industry participants reportedly have viewed the individual mandate as a helpful method for increasing the pool of future patients who will be able to pay for hospital services. If the United States Supreme Court holds the individual mandate unconstitutional and strikes only that portion of the Act, some observers fear that Congress will nonetheless implement cuts to reimbursements under Medicaid and Medicare programs, with the result that hospitals will be forced to raise charges imposed on others. What if the Court invalidates the law in its entirety? One nonprofit hospital executive is quoted as follows:
Paula M. Noble, chief financial officer at Children's Memorial Hospital in Lincoln Park, said the hospital is concerned that if the court strikes the law in its entirety, some of the hospital's patients would lose benefits that have already been implemented. Specifically, she fears that they would lose their private insurance coverage because of pre-existing conditions or if they exceed lifetime caps on coverage. Instead, she said, those patients would be forced to rely on Medicaid, a chronically underfunded program that is facing "devastating cuts."
"This would create further challenges for Children's Memorial, other hospitals and the state of Illinois," she said.
But all may not be lost. The article also quotes Mark Newton, president and chief executive officer of Swedish Covenant Hospital, who states that the Act helped motivate hospitals to enhance efficiency by coordinating patient care and automating health care records. Says Newton,
"Even if (the court) throws the whole thing out, there are some residual positives that came out of this, and, if nothing else, it gives Congress a chance to go back and really look at what's working and what's not."
The latter point is important. Whatever decision the Supreme Court reaches on the constitutionality of the Act (in whole or in part), meaningful health care reform can still occur if this country musters the political will to accomplish it.
Charities Benefit from Settlement over Astor Estate
The New York Times reports that a settlement over the distribution of the estate of Brooke Astor has been reached and ratified by the Westchester County Surrogate Court. Under the settlement, negotiated in part by New York State Attorney General Eric T. Schneiderman, Mrs. Astor’s son reportedly will receive about one-half of the amount to which he would have been entitled under a will (as later amended) that was contested on the grounds of the late Mrs. Astor’s absence of mental capacity. The settlement controls the disposition of Mrs. Astor’s estate, reported at approximately $100 million. The story reports that $30 million will be used to create a Brooke Astor Fund for New York City Education, and millions more will be transferred to Prospect Park, Central Park, city playgrounds and several cultural institutions.
This is big news for the New York AG, as indicated by the posting of a story about the settlement on the AG’s website.
March 28, 2012
Association of Tax-Exempt Schools Fails Exemption on Grounds of Providing Commercial-Type Insurance
Tax Notes Today reports that the United States District Court for the District of Columbia has just handed down Florida Independent Colleges and Universities Risk Management Association, Inc. v. United States, which holds that an association of secondary schools and universities is not entitled to federal income tax exemption because it “provides commercial-type insurance" within the meaning of section 501(m)(1) of the Internal Revenue Code. The association purchases group insurance policies for the benefit of its member institutions and self-insures a certain amount of risk. Relying on Paratransit Insurance Corp. v. Commissioner, 102 T.C. 745 (1994), the court reasoned as follows, in relevant part:
The Court cannot imagine a factual scenario much more similar to Paratransit as the one at issue in this case. [The association], like Paratransit, is a risk pool comprised of section 501(c)(3) exempt organizations that all provide a common service. Both self-insure a baseline amount of risk and purchase reinsurance for excess risk. Both determine member contributions on the basis of each member's unique risk profile. And the arguments made by the non-profit in Paratransit and [the association] here are nearly identical. [The association] does not even try to distinguish Paratransit, merely noting that [it] raises an additional constitutional argument that Paratransit did not. If Paratransit was unable to obtain tax-exempt status, then [the association] must be similarly precluded.
Further finding that the association failed to meet the terms of Code section 501(n), which effectively trumps the exemption-negating effect of section 501(m) in the case of organizations described in Code section 501(n), and rejecting the association's constitutional argument, the court concluded that the association fails to qualify as a tax-exempt organization described in Code section 501(c)(3).
The opinion is available at 2012 TNT 60-16.
ARNOVA Call for Presentations
The Association for Research on Nonprofit Organizations and Volunteer Action (ARNOVA) has issued a call for proposals for presentations, panels, and colloquia for its annual conference on November 15 - 17, 2012, in Indianapolis. The title is RE-EXAMINING PHILANTHROPY: EXPLORING ROOT CONCEPTS FOR OUR FIELD(S). The full program description is here. By way of illustrating presentations appropriate for the Public Policy & Law track, the announcement states that presentations can explore the changing roles of and relationships between governments, NGOs and the voluntary sector at all levels – local and state as well as national and international – and a broad spectrum of legal or policy issues for nonprofits. The deadline for submissions is 2:00 a.m. (EDT) April 4. Inquiries may be directed to Robert A. Katz at Indiana University Robert H. McKinney School of Law by emailing him at firstname.lastname@example.org.
March 27, 2012
Illinois Hospitals Feeling Crunch from Law and Possible Loss of Funds
In Medicaid Cuts, Property Tax Battle a Stress Test for Many Hospitals, the Chicago Tribune reports that the combination of proposed cuts to the state's Medicaid program and the possibility that some hospitals may lose property tax exemptions for failure to provide sufficient charity care under state law “has Illinois hospitals on their heels.” Children's Memorial Hospital, for example, is said to be facing a $37 million to $50 million budget deficit.
The story explains that the Illinois General Assembly is considering Governor Pat Quinn's plan to reduce the state’s $14 billion Medicaid program by as much as $2.7 billion this coming fiscal year. One proposal is to cut 6 to 9 percent of the amount that the state reimburses hospitals and other health care providers for Medicaid patients. This comes at a time when, as previously blogged (see, e.g., this entry), Illinois is requiring hospitals to provide more charity care in order to claim property tax exemptions. The story explains how the two issues are linked financially and legally, as illustrated in the case of Children's Memorial Hospital:
Children's Memorial doled out $1.2 million in charity care in 2011, as measured by the state. That represents a tiny fraction of its total patient revenue.
The hospital says it has little opportunity to provide free care because nearly all children in Illinois are eligible for Medicaid, a joint federal-state program whose payments don't cover the cost of services. The state's definition of charity care does not include losses incurred from Medicaid, which comprises more than half of the hospital's revenue.
That, in turn, could make it harder for Children's to qualify for a property tax exemption.
"What we're trying to do is make certain everyone understands this isn't apples and oranges when you compare us to (other Illinois hospitals)," [hospital CEO Patrick] Magoon said. "This is like apples and giraffes. We're totally different than anyone else because of who we serve, how the patients are financed and because everyone else feeds those children to us."
Magoon, along with other hospital executives, argues that hospitals should get credit for the losses they incur to provide services to Medicaid patients, as well as money spent on community outreach, research and other activities that he believes advance public health.
The article reports that the region's safety-net hospitals operating in impoverished communities are also concerned. Although few of them are thought to risk losing their property tax exemptions, some apparently might have to close their doors if the legislature carries through with the proposed Medicaid cuts.
A “Charitable Fine” in Politics – Not What You Might Think
The place of charities in the political process seems to be a perennial – or at least biennial – topic of conversation. Right now, charities are serving an unusual role in the Massachusetts race for United States Senate – and the candidates’ efforts to democratize the election as much as possible. In Brown to Pay Fine after Group Violates Ad Pact, it is reported that Senator Scott Brown will pay a “charitable fine” after the campaign of Harvard Law Professor Elizabeth Warren objected to political advertisements funded not by the Brown campaign but by the American Petroleum Institute. The ads reportedly encouraged people to call Brown's office to urge him to oppose increased federal taxation of energy companies (legislation to which Brown is already opposed). What has this to do with charity? As the story recounts, Warren and Brown signed an agreement in January that requires the candidates to notify outsiders that they do not desire advertising on their behalf in certain public media; if such advertising occurs, the candidate promoted by the ad must donate one-half of the value of the advertisement to a charity chosen by the opponent. Says the story, quoting a Brown campaign spokesman,
“Scott Brown is committed to honoring this historic agreement and for that reason his campaign will donate to charity the sums called for in the pledge as a result of the American Petroleum Institute's ad campaign ….''
The story further reports that this “charitable fine” is the second that the Brown campaign has agreed to pay.
March 26, 2012
More Interest in PILOTS
Another revenue-pinched city is exploring the PILOT (payment in lieu of taxes) option for raising funds from charities with property exempt from taxation, according to Lowell Seeks Annual Fees from Nonprofits to Pay for Services. The story explains that the Lowell City Council has crafted a plan under which at least some tax-exempt entities that own property would be charged a PILOT of 25 percent of the equivalent residential property tax assessment. Religious institutions and government entities would be exempt from the PILOT. City Manager Bernard Lynch is reported to estimate that Lowell would receive an additional $500,000 to $1 million in annual revenue from the plan – revenue that is all the more critical because of reductions in state and federal aid. Current efforts to receive voluntary PILOTS are reported to yield only approximately $25,000 annually.
Donors to Boston City Charity Disclosed
Donors to politically active organizations described in Internal Revenue Code Section 501(c)(4) apparently are not the only ones whose identities are being sought these days. In Menino Discloses Donors to Boston-Run Charity, the Boston Globe reports that Boston Mayor Thomas M. Menino has released a list of donors and an accounting of expenditures of a charity controlled by the City of Boston that has accepted money from many conducting city business. Established by a former mayor, the fund reportedly has been used to fund concerts, parades, and other neighborhood events. Watchdog groups have called for heightened transparency of the fund’s operations:
“This is an area that cries out for full transparency,’’ said Pamela Wilmot, executive director of Common Cause Massachusetts, a government watchdog. “All donors should be disclosed. This is an entity that is controlled by the city, and by having secret donors, there is a potential for using a contribution as a way of gaining access and influence.’’
Mayor Menino’s administration, reports the story, rejects the notion that donations to the charity could influence government action on city contracts or development projects because of strict state procurement and bidding laws. However, it does appear that the scrutiny of the charity has prompted a few changes. The article observes that the fund itself “will no longer collect payments for events and promotions on City Hall Plaza and other public property,” and that, for the first time, rates for using City Hall Plaza will be uniformly set in advance, rather than privately negotiated.