Friday, August 12, 2016

McGiverin-Bohan et al.: Local Officials' Support for PILOTs/SILOTs

SPEAKellie McGiverin-Bohan, Kirsten Grønbjerg, Lauren Dula, and Rachel Miller (all affiliated with the Indiana University School of Public and Environmental Affairs) have published Local Officials' Support for PILOTs/SILOTs: Nonprofit Engagement, Economic Stress, and Politics, Public Administration Review (forthcoming 2016). Here is the abstract:

Nonprofit property tax exemption has become a major policy issue as the collapse of the housing market, the Great Recession, and property tax caps have threatened local tax collections. Consequently, many local governments have sought to obtain payments in lieu of taxes (PILOTs) from charities that are formally exempt from property taxes. Using a 2010 survey of local government officials in Indiana, this article examines whether support for PILOT policies is related to officials’ personal involvement with nonprofits, their views on government–nonprofit relationships, the type of position they hold, the level of economic distress in the county, local political conditions, and local nonprofit wealth. The findings support most of these hypotheses but also show that attitudes toward PILOTs appear to be shaped by somewhat different concerns than attitudes toward services in lieu of taxes (SILOTs).

Lloyd Mayer

August 12, 2016 in Publications – Articles | Permalink | Comments (0)

Sugin: Rhetoric and Reality in the Tax Law of Charity

Sugin_Linda_Portrait_2127_smLinda Sugin (Fordham) has published Rhetoric and Reality in the Tax Law of Charity, 84 Fordham L. Rev. 2607 (2016). Here is the abstract (from SSRN):

The rhetoric of public purposes in charity law has created the mistaken impression that charity is public and fulfills public goals, when the reality is that charity is private and cannot be expected to solve the problems that governments can solve. The rhetoric arises from a combination of charity-law history and tax expenditure analysis. The reality follows the money and control of charitable organizations. On account of the mismatch of rhetoric and reality, the tax law of charity endorses an entitlement to pre-tax income and (ironically) creates a bias against taxation. This article reorients the project of defining public and private in the tax law by starting from a normative theory of government responsibility. It challenges the conventional economic justifications for the charitable deduction and exemption, arguing for a more philosophical approach that makes affirmative demands on government to distribute the returns to social cooperation. Under this approach, the appropriate role of private organizations is residual; they must achieve what governments cannot. The article concludes by arguing that current law’s tax benefits for charity are easily justified in this new understanding.

Lloyd Mayer

August 12, 2016 in Publications – Articles | Permalink | Comments (0)

Nonprofit Policy Forum Publishes June 2016 Issue

NPFThe Nonprofit Policy Forum has published its June 2016 issue (Volume 7, Issue 2). Here is the table of contents:

Special Issue on International Comparative Nonprofit Public Policy, Guest Editor: Michal Bar

Articles

Book Review

August 12, 2016 in International, Publications – Articles | Permalink | Comments (0)

Nonprofit and Voluntary Sector Quarterly Publishes August 2016 Issue

NVSQ August 2016The Nonprofit and Voluntary Sector Quarterly has published its August 2016 issue. Here is the table of contents:

Editorial

  • From the Editors’ Desk, Femida HandyJeffrey L. Brudneyand Lucas C. P. M. Meijs 

Articles

  • Managing Identity Conflicts in Organizations: A Case Study of One Welfare Nonprofit OrganizationRobert H. ChenhallMatthew Halland David Smith
  • Volunteer Management: Responding to the Uniqueness of VolunteersSibylle Studer

  • Why So Many Measures of Nonprofit Financial Performance? Analyzing and Improving the Use of Financial Measures in Nonprofit Research, Christopher R. Prentice

  • Exploring Gender Differences in Charitable Giving: The Dutch CaseArjen De Wit and René Bekkers 

  • Does Motivation Matter for Employer Choices? A Discrete-Choice Analysis of Medical Students’ Decisions Among Public, Nonprofit, and For-Profit HospitalsVera Winter and Julia Thaler 
  • Donor Reaction to Salient Disclosures of Nonprofit Executive Pay: A Regression-Discontinuity ApproachBrian Galle and David I. Walker 
  • Nascent Nonprofit Entrepreneurship: Exploring the Formative Stage of Emerging Nonprofit OrganizationsFredrik O. Andersson
  • Modern Portfolio Theory and Nonprofit Arts Organizations: Identifying the Efficient FrontierNathan J. GrasseKayla M. Whaleyand Douglas M. Ihrke 
  • Transparency in Reporting on Charities’ Efficiency: A Framework for AnalysisNoel Hyndman and Danielle McConville 

Book Reviews

  • Book Review: Volunteering in Australia by M. Oppenheimer and J. Warburton (Eds.), Richard Lynch
  • Book Review: Governing Cross-Sector Collaboration by J. Forrer, J. Kee, and E. Boyer, Stuart C. Mendel
     
  • Book Review: Mobilizing Communities: Asset Building as a Community Development Strategy by G. P. Green and A. Goetting (Eds.), Anne Namatsi Lutomia
     
  • Book Review: Giving to Help, Helping to Give: The Context and Politics of African Philanthropy by T. A. Aina, and B. Moyo (Eds.) and The Handbook of Civil Society in Africa by E. Obadare (Ed.), Mary Kay Gugerty

Lloyd Mayer

August 12, 2016 in Publications – Articles | Permalink | Comments (0)

Political Conventions and Charitable Status

2016_democratic_national_convention_logo1One of the odd side stories of this crazy election season was the decision by the IRS to deny the application of the Democratic National Convention host committee for tax-exempt status under section 501(c)(3) even though it had earlier granted the application of the Republican National Convention host committee under the same section. (Coverage: Philadelphia Inquirer.) While according to the news stories the DNC quickly had a workaround available for those donors interested in a charitable contribution deduction, the disparity in treatment was notable, particularly since the denial was apparently based on some committee activities being too political under section 501(c)(3) even though the two host committees reportedly had very similar applications. Apparently the IRS forgot its statement 10 years ago to the Campaign Finance Institute that it would monitor future host committee applications for consistent treatment (see last sentence of last bullet point).

The IRS made that statement in the context of research by the Campaign Finance Institute into the financing of the political party conventions, which focused on the 2004 and 2008 conventions. That research led CFI in 2005 to call on the IRS to revisit the tax status of host committees under either section 501(c)(3) or section 501(c)(6) in light of the apparently pervasive political activity of those committees. Perhaps inadvertently, the IRS appears to have begun that reconsideration.

(Full disclosure: I am on the Board of Academic Advisors for the Campaign Finance Institute.)

Lloyd Mayer

August 12, 2016 in Federal – Executive, In the News | Permalink | Comments (0)

Amateur Athletes and Professional Coaches & Executives

Rio 2016 OlympicsThis week would not be complete without an Olympics-related post. Just before the opening ceremonies, the Washington Post ran a story titled "Olympic executives cash in on a 'Movement" that keeps athletes poor." It draws a sharp contrast between the actual athletes, who absent a rare endorsement deal or a sport with a lucrative professional league are generally scrounging funds from family and friends to support their training, and the employees and "volunteer" board members of the numerous national and international sports federations and Olympic Committees who often make hundreds of thousands of dollars annually or enjoy generous perks such as first-class air travel. This not to say all athletes are uncompensated; the article details the complicated baseline pay and bonus systems in place for many US athletes, but the amounts available to athletes vary enormously depending on the sport and the potential for medalling. 

Such disparities are also not unique to the Olympics. Many have pointed to the college sports system, particularly FBS football and Division 1 basketball programs, as exhibiting the same disparities between the (student) athletes, few of whom make it to the lucrative professional level, and coaches & administrators. Such disparities also exist even in youth sports, where, for example, the President & CEO of Little League Baseball Incorporated received compensation of close to $500,000 from all related entities according to the group's 2014 Form 990, although that amount seems relatively reasonable once it is acknowledged that he is responsible for running an almost $30 million a year organization (including over $8 million in broadcasting rights payments) that has over 400 employees and involves millions of children. And, as John Colombo (Illinois) has discussed in this space, both the college programs and the U.S. Olympic Committee continue to enjoy favorable tax treatment despite the increasing commerciality of their activities because of "analytical inertia" that has let the law of charities stagnant while the world moved on.

Lloyd Mayer

August 12, 2016 in In the News, International | Permalink | Comments (0)

Thursday, August 11, 2016

The IRS Continues to Take a Beating Even as It Implements the New 501(c)(4) Notice Requirement

IRSThe "Tea Party" application controversy continues to take a toll on the IRS, even as the Service implements the congressionally enacted notice requirement for section 501(c)(4) social welfare organizations. First, the IRS suffered setbacks in two of the cases pending against it that grew out of the controversy:

  • In Freedom Path, Inc. v. Lerner, the U.S. District Court for the Northern District of Texas rejected the government's motion to dismiss a First Amendment claim against the IRS, finding that the plaintiff's concerns regarding future curtailment of speech was sufficient to establish injury and that the case still presented a live controversy despite changes in the Service's processing of applications. Coverage: Bloomberg BNA Daily Tax Report.
  • In True the Vote, Inc. v. IRS and Linchpins of Liberty v. United States, decided together although argued separately, the U.S. Court of Appeals for the District of Columbia Circuit reversed the lower court's dismissal of actions for injunctive and declaratory relief as against the government, concluding that those claims were not moot. (The appellate court did, however, affirm the lower court's dismissal of Bivens actions and statutory claims against individual government officials and the Service.) Coverage: Wall Street Journal. For blog posts discussing the opinion, see The Surly Subgroup (Philip Hackney) and The Volokh Conspiracy (Eugene Volokh).

Second, many Republicans in the House of Representatives continue to call for the impeachment of IRS Commissioner John Koskinen, not satisfied with his earlier censure by the House Oversight and Government Reform Committee on a party-line vote. (Coverage: The HillPoliticoRoll Call.) Third, new documents relating to the controversy continue to trickle out from various sources, at a minimum providing an excuse to reassert claims against the Service and its (mostly now gone) officials. For example, see this Judicial Watch press release in the wake of it gaining access to approximately 300 pages of FBI documents relating to the FBI's investigation of the controversy.

And yet life still goes on, which in this instance means implementation of the new section 506 notice requirement for section 501(c)(4) organizations. That implementation has taken the form of Revenue Procedure 2016-41 and related final and temporary regulations (T.D. 9775). These documents detail how the notice requirement applies both to new section 501(c)(4) organizations formed after December 18, 2015 (the date of enactment for section 506) and to previously existing section 501(c)(4) organizations that had not yet either filed an application for recognition of exemption or an annual return. The required form is Form 8976, which can be submitted electronically here.

Lloyd Mayer

August 11, 2016 in Federal – Executive, Federal – Judicial, Federal – Legislative, In the News | Permalink | Comments (0)

Charities & the Risk of Supporting Terrorism: One Step Forward, One Step Back

FATFSince 9/11 the relationships between charities and government anti-terrorism agencies have been strained, with government officials wary that the cross-border movements of money and people that many charities facilitate were vulnerable to being used as vehicles for the support of terrorist activity. Charities have responded with efforts to both tighten controls over such movements and to educate government officials regarding how charities can and do minimize the risk of such diversions. Earlier this summer those efforts bore fruit with the decision by the global Financial Action Task Force to change its guidance regarding charities (known as Recommendation Eight) to clarify that they are not inherently at risk of terrorist abuse, as reported by Third Sector (UK). The revised Recommendation Eight now reads:

Countries should review the adequacy of laws and regulations that relate to non-profit organisations which the country has identified as being vulnerable to terrorist financing abuse. Countries should apply focused and proportionate measures, in line with the risk-based approach, to such non-profit organisations to protect them from terrorist financing abuse, including:

    (a) by terrorist organisations posing as legitimate entities;

    (b) by exploiting legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and

    (c) by concealing or obscuring the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.

Unfortunately, just last week the news broke that Israel has charged the manager of World Vision's Gaza branch with infiltrating the charity on behalf of Hamas and diverting tens of millions of dollars to Hamas' military wing. (Coverage: NPRNY Times; Washington Post/AP.) While Israeli officials emphasized that there was no evidence that World Vision was aware of the diversion, and World Vision is still reviewing the charges and the evidence supporting them and has expressed skepticism about the alleged amount at issue, the situation casts a cloud over the international work of the well-known charity.

Lloyd Mayer

August 11, 2016 in In the News, International | Permalink | Comments (0)

Wednesday, August 10, 2016

Election 2016: Nonprofit Spending to Date; and Clinton, Trump, and the Perils of Personal Philanthropy for Politicians

Clinton FoundationTrump FoundationLost a bit in the continual "he/she said what?!?" news stories is the continued steady spending by nonprofits to influence this year's elections. The Center for Responsive Politics reports that spending by outside groups (groups other than candidates or party committees) reported to the Federal Election Commission is already approaching $600 million and so is on pace to more than double the level of such spending in the 2011-12 cycle. While the overall amounts are still relatively modest compared to aggregate candidate and party spending, at least for federal offices, that spending is more significant than the proportion of total spending suggests for several reasons.

One reason is that unlike candidates and to some degree political parties, nonprofits can concentrate their spending on a relatively few, close races, sometimes even allowing them to spend more in those races than the candidates and parties. Another reason is a small portion of those reported funds - about $50 million to date - are from groups that do not disclose their donors and so the public cannot learn the original sources of those funds (this is the so-called "dark money"). A third reason is that this figures reflect only spending that groups are required by law to report to the FEC; there are many expenditures that relate to federal elections but are not reached by federal election law, as well as of course much spending aimed at state and local races (see the National Institute on Money in State Politics for data on the latter). It is therefore clear that absent some significant legal changes political spending by nonprofits is not going away anytime soon, although some states are enhancing state-level required disclosure of political spending. See, for example, the recent Delawareonline report on a federal appellate court decision upholding Delaware's expansive Elections Disclosure Act against constitutional challenge, the expansive New York lobbying bill awaiting the governor's signature (see TimesUnion article), and the recent paper by Linda Sugin (Fordham) titled "Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations," 91 Chicago-Kent Law Review (forthcoming 2016).

But lest nonprofit legal practitioners and scholars become bored with this "just more of the same political spending," this year's election has also given us a host of allegations of wrongdoing relating to the philanthropic activities of both Hillary Clinton and Donald Trump. For those trying to keep score, here is a brief summary of where things stand (for previous recent coverage, see previous posts relating to charitable "gifts," possible private benefit, and possible support of the presidential campaign):

  • Clinton Foundation:  Alleged conflicts of interest while Clinton was Secretary of State (see this week's NY Times story for the latest); a (almost certainly routine) IRS referral of GOP lawmaker allegations of public corruption to an audit group (see this Politico story); and a possible FBI probe (according to The Hill). For a detailed consideration under federal tax law of the accusations raised by the GOP lawmaker, see the July and August blog posts by Philip Hackney (LSU) (spoiler alert: he concludes that even if the alleged facts are taken as true they simply do not rise to a level that could plausibly threaten the Foundation's tax-exempt status).

It remains to be seen how these various allegations shake out, but they underline the fact that politicians and potential politicians who engage in personal philanthropy risk having those philanthropic activities haunt them on the campaign trail.

And one last question: what will happen to their respective foundations if either candidate is elected President? To date, neither campaign has said, although Bill Clinton has publicly acknowledged the issue.

Lloyd Mayer

August 10, 2016 in In the News | Permalink | Comments (0)

Think Tanks and Their Donors, or How to Get Unbiased Public Policy Research

Think TanksThe NY Times is running a series of articles on the influence donors, particularly large corporations, appear to have over research conducted by some prominent think tanks. As its front page articles on August 8th and August 9th detail, many researchers associated with think tanks are paid consultants or lobbyists for corporate clients, and many think tanks also receive contributions directly from corporations that have an interest in the research the think tank is conducting. Some of the think tanks identified have either admitted to lapses in oversight or adopted more stringent conflict of interest and disclosure policies, but it is not clear how widespread such admissions or changes are within the think tank community.

While in theory reaching research conclusions that are helpful to donors or clients could constitute providing prohibited private benefit on the part of the think tanks, which are generally tax-exempt under Internal Revenue Code section 501(c)(3), the connections detailed in the articles seem too tenuous to support such a claim. This is especially true given both that proving a solid link between a donation and research results is difficult and that the think tanks identified generally engage in a broad range of research projects, only a small portion of which may be tainted by donor influence. Similarly, while some think tanks then arrange for meetings or conferences centering on their research and attended by government policy makers that might constitute lobbying for federal tax purposes, most such events likely fall outside of the technical definition of lobbying and the few that may not are almost certainly within the limited amount of lobbying permitted for tax-exempt charitable organizations such as think tanks.

Nevertheless, the stories are troubling because they throw into question the ability of government policymakers to rely on such research, as noted by Senator Elizabeth Warren in a video the NY Times posted with these stories. In its regular Room for the Debate feature, the NY Times therefore invited a number of commentators to suggest possible ways to address the concerns raised in its stories. Suggestions ranged from greater transparency about possible conflicts (including a certification process), better internal procedures to ensure unbiased research results, greater skepticism regarding those results on the part of journalists and others who report or rely on those results, and a diversification of funding sources (including ensuring various governmental funding sources) to support such research. I frankly am skeptical of transparency, certification, and internal procedure improvement if only because it may be too difficult for busy lawmakers, much less journalists and other members of the public, to shift through various disclosures or to determine what certification schemes or particular think tanks are reliable. I believe the diversification of funding sources idea has more promise, particularly if there are (nonpartisan) ways for government agencies to provide such funding conditioned on accurate, unbiased results. Bottom line, this strikes me as not a narrow federal tax issue but a larger issue about how to incentivize truth telling in public policy research.

Lloyd Mayer

 

August 10, 2016 in Federal – Executive, Federal – Legislative, In the News, State – Executive, State – Legislative | Permalink | Comments (0)

Massachusetts Rejects imposing Property Taxes on Property Acquired by Nonprofits

Mass State SEalFollowing up on David Brennan's previous blog post and thanks to a comment from a reader, I can now report that a conference committee of the Massachusetts legislature removed the provision in a pending economic development bill that would have kept property acquired by nonprofits on the property tax rolls for four years if the property had been taxable before the nonprofit's acquisition. The provision at issue in what was then Bill H.4483 read as follows:

SECTION 127. Chapter 59 of the General Laws is hereby amended by inserting after section 2D the following section:-

2E. Any charitable organization or educational institution otherwise exempt from the payment of property taxes pursuant to section 5 of chapter 59, or any nonprofit charitable corporation or public charity otherwise exempt from the payment of property taxes, that purchases real property that was subject to taxation under said chapter 59 at the time of the purchase, shall pay property taxes on the assessed value of said property for a period of 4 years after the purchase, the amount of said property taxes paid to be phased out as follows: in the first year, 100 per cent of the property tax; in the second year, 75 per cent of the property tax; in the third year, 50 per cent of the property tax; and in the fourth year, 25 per cent of the property tax.

In the final bill, renumbered as Bill H.4569 and currently pending before the governor, this section has been deleted.

Lloyd Mayer

August 10, 2016 in In the News, State – Legislative | Permalink | Comments (0)

Tuesday, August 9, 2016

NAAG/NASCO Annual Meeting October 17-19, 2016 in Washington, DC

NAAGFor those interested in state oversight of nonprofits, the National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) will be holding their annual meeting focused on such oversight on October 17 thru 19 in Washington, DC. While for two days the conference is only open to state regulators, the first day is open to the public. Here are the topics for the public session agenda:

Welcome and Introductions

Non-Traditional Models of Philanthropy

Donor Advised Funds, Endowments and Donor Restrictions

Corporate Governance

Board Education: Top 10 Ways to Get Investigated and How Board Education Can Help Prevent It

New Tools for the Nonprofit Setor

CyberSecurity/Data Privacy Issues

Multistate Litigation: Cancer Fund of America

NAAG Charities Committee: Meet the AGs

The full public session agenda, including the names of moderators and panel members, is available here.

Lloyd Mayer 

August 9, 2016 in Conferences | Permalink | Comments (0)

IRS Issues Charitable Remainder Annuity Trust Guidance

IRSAs reported by Accounting Today and Bloomberg BNA Daily Tax Report (subscription required), the IRS yesterday issued Revenue Procedure 2016-42 (available through Bloomberg BNA) to provide some relief for donors desiring to create a charitable remainder annuity trust (CRAT) but frustrated because low interest rates make it difficulty to do so. The articles explain that CRATs are subject to a "probability of exhaustion" test (described in Revenue Rulings 70-452 and 77-374)  that requires there be no more than a 5 percent chance that there is no remainder to go to the designated charity or charities. When interest rates are low, as they are now, it can be difficult to satisfy this requirement and also the requirement under Internal Revenue Code section 664(d) that a CRAT pay out a minimum 5 percent annuity to the trust beneficiary. The Revenue Procedure permits CRATs to include an early termination provision that ends the CRAT and causes the distribution of the remainder to the designated charity or charities when the trust corpus minus the annual payment and multiplied by a discount factor falls below 10 percent of the initial trust corpus; if the sample provision is included in a CRAT, then the probability of exhaustion test will not apply.

The Revenue Procedure will be published in Internal Revenue Bulletin 2016-34, which will be dated August 22nd.

Lloyd Mayer

August 9, 2016 in Federal – Executive | Permalink | Comments (0)

Monday, August 8, 2016

Breen: Charitable Trust Supervision Practice and Procedure in the Common Law World

Oonagh BreenOonagh B. Breen (University College Dublin) has posted "Guardians of the Charitable Realm: Charitable Trust Supervision Practice and Procedure in the Common Law World" on SSRN (European Review of Private Law, forthcoming). Here is the abstract:

This article examines the control framework for the supervision and oversight of charitable trusts in the common law world. It outlines the fundamental differences between private and public trusts that necessitate a separate enforcement regime for charitable trusts and explores the historical and political powers and duties of the Attorney General as parens patriae of charities. In light of the limitations of the Attorney General’s effective scrutiny, Part II considers the emergence of alternative charity regulators - from tax authorities to independent charity commissions - comparing the relative regulatory achievements of these agencies with that of the AG. Part III turns its attention to the role of the courts and tribunals in the enforcement of the interests of donors, beneficiaries and charitable entities. The article concludes in Part IV with a discussion of the merits and demerits of the charitable trust vis-à-vis the public benefit foundation.

Lloyd Mayer

August 8, 2016 in International, Publications – Articles | Permalink | Comments (0)

Bethke: Charity Law Reform in Hong Kong: Taming the Asian Dragon?

Damian BethkeDamian Bethke has published "Charity Law Reform in Hong Kong: Taming the Asian Dragon?" in the International Journal of Not-for-Profit Law. Here is the abstract:

The number of charitable organizations in Hong Kong has increased significantly despite unclear and lax regulation. A legislator has identified flaws in the present law and recommended changes. The proposed recommendations, however, do not consider the unique characteristics of Hong Kong. If implemented, they would not address the existing problems adequately. In order to tame the Asian Dragon, this article proposes an alternative model: self-regulation, which relies on the work of charity watchdogs.

Lloyd Mayer

August 8, 2016 in International, Publications – Articles | Permalink | Comments (0)

Gary: Values and Value: University Endowments, Fiduciary Duties, and ESG Investing

Gary-SusanBlog contributing editor Susan N. Gary (Oregon) has published "Values and Value: University Endowments, Fiduciary Duties, and ESG Investing" at 42 Journal of College and University Law 247 (2016). While the JCUL published version is not readily available online, here is the SSRN posting of the article. Here also is the abstract:

The trustees managing university endowment funds must comply with fiduciary duties that require the trustees to act in the best interests of the university and to act as prudent investors when managing the funds. This article shows that these fiduciaries may adopt investment policies that consider material environmental, social, and governance (ESG) factors as part of an overall investment strategy. The article explains why older arguments that fiduciaries should avoid “social investing” are no longer relevant and how the prudent investor standard has evolved to include ESG investing. The article discusses the changes in socially responsible investing since the anti-apartheid era and reviews a significant number of empirical studies that show that ESG investing has had a neutral or positive effect on financial return. Based on the empirical work, evidence of the financial industry’s growing use of extra-financial factors in investment analysis, and recent guidance from the Department of Labor, the article concludes that a trustee responsible for a university endowment will not breach the duty of loyalty or the duty to act as a prudent investor by directing the endowment’s use of ESG investing as part of an overall financial investment strategy.

Lloyd Mayer

August 8, 2016 in Publications – Articles | Permalink | Comments (0)

Plerhoples: Nonprofit Displacement and the Pursuit of Charity Through Public Benefit Corporations

Alicia PlerhoplesAlicia Plerhoples (Georgetown) has posted "Nonprofit Displacement and the Pursuit of Charity Through Public Benefit Corporations" on SSRN. Here is the abstract:

Nonprofits dominate the charitable sector. Until recently, this statement was tautological. Charity is increasingly being conducted through for-profit entities, raising concerns about the marketization of the charitable sector. This article examines for-profit charity conducted through the public benefit corporation, a new corporate form that allows its owners to blend mission and profit in a single entity. Proponents of public benefit corporations intended it as an alternative to a for-profit corporation and largely ignored its impact on the charitable sector. While public benefit corporations are ripe for conducting charity because they can pursue dual missions, they lack the transparency and accountability mechanisms of charitable organizations.

This article chronicles the supply and demand for public benefit corporations that conduct charity (i.e., “charitable public benefit corporations”) and hypothesizes the micro and macro level harms caused by them. At the micro level, the harm is fraud or “greenwashing”, i.e., deceiving unwitting stockholders, customers, or other stakeholders into investing or spending their time and money in the negligent or fraudulent enterprise. At the macro level, the more pernicious harm is that “market-based charity” injects individualistic and autocratic business values and methods into charitable work. To mitigate these harms, this article proposes that charitable public benefit corporations be required to grant or sell shares to a group of stakeholders sufficient to give such stakeholder-stockholders standing to bring a derivative suit against the public benefit corporation should it fail to pursue its charitable public benefit. These stakeholder-stockholders are akin to impact investors, or investors who value charitable returns above, or concomitantly with, financial returns. The derivative suit offers the rare stick to guard against greenwashing. More importantly, stakeholder-stockholders can (i) guide the founders and boards of a charitable public benefit corporation in pursuing charity as an ordinary business decision, and (ii) import the participatory and democratic values of the charitable sector to public benefit corporations.

Lloyd Mayer

August 8, 2016 in Publications – Articles | Permalink | Comments (0)

Friday, August 5, 2016

Critics Want Wealthy Schools to Stop Hording Endowments.

Twin Cities Pioneer Press reports that two private colleges alone in Minnesota have combined endowments of over $1.5 billion. This seems wonderful in a time where education budgets are on the chopping block. However, critics of the colleges and universities contend the institutions need to be less scrooge-like and spread the wealth to meet the financial needs of their students. “Private foundations with nonprofit status must spend five percent of their fund’s value each year under federal law.” But, this requirement does not apply to colleges and universities.

As of 2013, there were 138 educational institutions with over $500 million in endowment. A study of 67 private schools revealed that just over half of those schools did not meet the 5 percent mark required by other nonprofits. With an estimated 40 percent of college students receiving Pell grants, it is clear that there remains unmet financial needs for students.

An official from one of the colleges studied said “it’s unfair to expect colleges to spend their endowments at the same rate as charitable nonprofits. If a college’s endowment earns 7 percent but they spend 5 percent, it won’t grow fast enough to keep up with inflation.”

Time will tell if the Legislature will require colleges and universities to meet the five percent mark as their nonprofit peers must. With the rising cost of education, one can assume debate will arise sooner than later.

David Brennen

August 5, 2016 in Current Affairs, Federal – Legislative, In the News, State – Legislative | Permalink | Comments (0)

Thursday, August 4, 2016

D.C. Debating Property Tax Laws

A recent post on Non Profit Quarterly by Ruth McCambridge explains tensions between nonprofits in big cities (Such as D.C. in this article) and the legislature. In Washington D.C., nonprofits occupy over $10 billion worth of real estate, which could generate over $111 million per year in tax revenue. Instead, the district collects nothing from them.

Two universities in the district alone account for $48 million in uncollectable property tax revenue. The District is considering the idea of making a change requiring payments in PILOT form, but has been pondering this idea for nearly fifty years.

Undoubtedly, these institutions bring an immense amount of revenue to the District, through research, attracted talent, and general expenditures by students and faculty. However, it is not clear if these benefits outweigh the costs of not receiving property taxes.

It is estimated that currently 28 different states have municipalities that collect PILOT payments; however these payments amount to far less than what the property taxes would have been worth.

It will be interesting to see if the legislature changes the current set up. Between the federally owned tax-exempt buildings, and those occupied by nonprofits, the district is missing out on over one billion dollars of tax revenue.

David Brennen

August 4, 2016 in Current Affairs, Federal – Legislative, In the News, State – Legislative | Permalink | Comments (0)

Tuesday, August 2, 2016

California Blood Bank Faces Uncertainties

A recent development in California leaves the status of a local non-profit blood bank in question. However, Hemopet is not your typical blood bank, it is a blood bank for animals. Founded in 1986, Hemopet was the nation’s first 501(c)(3) non-profit blood bank and quickly grew to national scale. Currently, Hemopet supplies 40% of the nation’s emergency canine blood, and saves the lives of thousands of dogs each year.

In 1965, a law was enacted that exempted blood banks from taxation. Unfortunately, animal blood banks were not around at the time. A recent audit by state officials led to the conclusion that Hemopet should not be considered tax exempt, and that they owed over $80,000 in unpaid taxes. A bill is set to be presented to the California Assembly Committee on Appropriations on August 3rd that will clear up the status of the non-profit. Dr. Jean Dodds, president and founder of Hemopet, believes that if the bill passes requiring Hemopet to pay the $80,000 they will be forced to shut down. In addition to the potential shortage on emergency canine blood, closing Hemopet would leave over 200 Greyhounds homeless and 45 people would lose their jobs.

Hemopet officials are encouraging Californians to contact the Assembly Committee on Appropriations to voice their support for the organization.

 

David Brennen

August 2, 2016 in Current Affairs, In the News, State – Legislative | Permalink | Comments (1)