Monday, October 10, 2016
As noted last week, charities that solicit a significant amount of funds from residents of a state are required to register with the state’s attorney general, and provide some financial information. Complying with all of the nuances of the varied state requirements is burdensome, and many organizations fail to follow all of the rules.
Deciphering all of the state laws is hard enough; now add to this complexity the reality that the tens of thousands of cities, counties, and other local governments often can impose their own requirements in addition to those imposed by their states. For example, the City AND County of Los Angeles, for example, have a lengthy set of regulations for charitable solicitors that differ from those of the State of California.
Compliance with all of these city laws is expensive and enforcement spotty, but there are many dutiful organizations that spend tremendous energy on trying to comply, lest they be the next target of a suddenly-energetic Attorney General or City Solicitor.
Below the jump, I’ll profile the uniquely burdensome—and doubtlessly unconstitutional—set of charitable registration requirements that the City of Toledo, Ohio continues to implement.
Tuesday, October 4, 2016
New York AG issues Notice of Violation to Trump Foundation for Failing to Register before Soliciting Donations
Late last week (and widely reported yesterday), New York Attorney General Eric Schneiderman issued an order (with a press release) to the Trump Foundation directing it to cease soliciting donations until it complies with state registration requirements. New York is one of all but a handful of states require that charities planning to ask for donations in their state (under various circumstances) register with the state. Under these laws, charities are typically required to disclose some basic information about the charity, such as the percentage of raised funds that go to fundraising expenses, and the expenses charged by any professional fundraisers hired. For charities that raise funds from multiple states, registration can be an onerous burden, and there has long been a push to streamline multi-state registration to make compliance easier for nonprofits. Yet this is an unusual case, as I'll explain below the break.
Thursday, September 29, 2016
Shlomit Azgad-Tromer has posted The Virtuous Corporation: On Corporate Social Motivation and Law on SSRN with the following abstract:
Above and beyond their traditional financial roles, contemporary corporations are increasingly assuming a normative role, promoting social agendas. The myriad normative roles assumed by the corporation, from profit-centered corporate goodness, to environmental and human rights corporate agendas and to corporate philanthropy, comprise an emerging corporate social identity. This article asks what induces corporations to pursue social agendas and provides an initial taxonomy for corporate social motivation, showing that the incentives to normative corporate conduct are often rooted in the business purpose itself. Central policy challenges are discussed, outlining the promise and the peril of emerging corporate social identities.
Tuesday, September 27, 2016
Luigi Butera and Daniel Houser have posted Delegating Altruism: Toward an Understanding of Agency in Charitable Giving on SSRN with the following abstract:
Philanthropy, and particularly ensuring that one’s giving is effective, can require substantial time and effort. One way to reduce these costs, and thus encourage greater giving, could be to encourage delegation of giving decisions to better-informed others. At the same time, because it involves a loss of agency, delegating these decisions may produce less warm-glow and thus reduce one’s charitable impulse. Unfortunately, the importance of agency in charitable decisions remains largely unexplored. In this paper, using a laboratory experiment with real donations, we shed light on this issue. Our main finding is that agency, while it does correlate with self-reported warm-glow, nevertheless seems to play a small role in encouraging giving. In particular, people do not reduce donations when giving decisions are made by algorithms that guarantee efficient recipients but limit donors’ control over giving allocations. Moreover, we find participating in giving groups − a weaker form of delegation − is also effective in that they are appealing to donors who would not otherwise make informed donations, and thus improves overall effective giving. Our results suggest that one path to promoting effective giving may be to create institutions that facilitate delegated generosity.
Monday, September 26, 2016
Michael J. Rushton (Indiana University Bloomington - School of Public & Environmental Affairs) has posted Should Public and Nonprofit Museums Have Free Admission? on SSRN with the following abstract:
A common pricing structure for American art museums is to offer a choice between an admission fee for a single visit, and the purchase of an annual membership that would allow the member an unlimited number of visits with no additional charge. This paper evaluates this particular method of museum pricing in terms of efficiency and equity. It concludes, drawing from the economic analysis of two-part pricing, that there is a strong rationale for the membership model, and that this is so even in cases where the museum experiences an increase in unrestricted endowment such that “free” membership would be financially sustainable.
--Eric C. Chaffee
Thursday, September 22, 2016
I just wrote this CNN Op Ed comparing the two foundations. It begins:
Journalists and commentators across the political spectrum have subjected both the Bill, Hillary & Chelsea Clinton Foundation and the Donald J. Trump Foundation to a withering barrage of criticisms. Without a doubt, both foundations and their managers, including Ms. Clinton and Mr. Trump, have made mistakes. The critical question, however, is whether those mistakes are illegal.
Fan Fei (Michigan), James R. Hines Jr. (Michigan), and Jill R. Horwitz (UCLA) have published Are PILOTs Property Taxes for Nonprofits?, 94 Journal of Urban Economics 109 (2016). This is a significantly revised version of the paper with the same title that they posted on SSRN last year. Here is the abstract:
Nonprofit charitable organizations are exempt from most taxes, including local property taxes, but U.S. cities and towns increasingly request that nonprofits make payments in lieu of taxes (known as PILOTs). Strictly speaking, PILOTs are voluntary, though nonprofits may feel pressure to make them, particularly in high-tax communities. Evidence from Massachusetts indicates that PILOT rates, measured as ratios of payments to the value of local tax-exempt property, are higher in towns with higher property tax rates: a one percentage point higher property tax rate is associated with a 0.2 percentage point higher PILOT rate. PILOTs appear to discourage nonprofit activity: a one percentage point higher PILOT rate is associated with 0.8% lower real property ownership by local nonprofits, 0.2% lower total assets, and 0.2% lower revenues of local nonprofits. These patterns are consistent with voluntary PILOTs acting in a manner similar to low-rate, compulsory real estate taxes.
Thursday, September 15, 2016
The Chicago-Kent Law Review has posted its Symposium Issue on Nonprofit Oversight Under Siege:
Dana Brakman Reiser, Brooklyn Law School
91 Chi.-Kent. L. Rev. 843 (2016).
Exile to Main Street: The I.R.S.’s Diminished Role in Overseeing Tax-Exempt Organizations
Evelyn Brody, IIT Chicago-Kent College of Law
91 Chi.-Kent. L. Rev. 859 (2016).
Politics, Disclosure, and State Law Solutions for 501(c)(4) Organizations
Linda Sugin, Fordham Law School
91 Chi.-Kent. L. Rev. 895 (2016).
Fragmented Oversight of Nonprofits in the United States: Does it Work? Can it Work?
Lloyd Hitoshi Mayer, Notre Dame Law School
91 Chi.-Kent. L. Rev. 937 (2016).
The Charity Commission for England and Wales: A Fine Example or Another Fine Mess?
Debra Morris, School of Law and Social Justice, Liverpool
91 Chi.-Kent. L. Rev. 965 (2016)
European Non-profit Oversight: The Case for Regulating From the Outside In
Oonagh B. Breen, Sutherland School of Law
91 Chi.-Kent. L. Rev. 991 (2016).
Australia – Two Political Narratives and One Charity Regulator Caught in the Middle
Myles McGregor-Lowndes, Queensland University of Technology
91 Chi.-Kent. L. Rev. 1021 (2016).
Reforming the Regulation of Political Advocacy by Charities: From Charity Under Siege to Charity Under Rescue?
Adam Parachin, Western University
91 Chi.-Kent. L. Rev. 1047 (2016).
Does Work Law Have a Future if the Labor Market Does Not?
Noah D. Zatz, UCLA School of Law
91 Chi.-Kent. L. Rev. 1081 (2016).
Looks like a fascinating set of articles and outstanding group of authors (including our own Lloyd Mayer)!
Wednesday, September 14, 2016
In a CNN interview on Tuesday, Schneiderman said his office had now brought Trump's charitable foundation under scrutiny.
"My interest in this issue really is in my capacity as regulator of nonprofits in New York state. And we have been concerned that the Trump Foundation may have engaged in some impropriety from that point of view," the elected Democratic official said.
He added: "We have been looking into the Trump Foundation to make sure it's complying with the laws that govern charities in New York." He did not elaborate on what wrongdoing Trump's nonprofit might have committed.
Here's hoping that this election season doesn't completely destroy the public's confidence in our sector.
Sunday, September 11, 2016
Nonprofit Quarterly reports that Wounded Warrior Project, America's largest veterans charity, has lost $90 million to $100 million in donations, or 25 percent of its donations revenue, following reports of extravagant spending on overhead and Senate Judiciary Committee investigation earlier this year.
While the organization’s board was still in denial mode, donors began to express their disappointment, with some declaring that they would not give themselves and that they would no longer organize others to give. It was inevitable that there would be some loss, but $100 million is a lot of donations. It would clearly take a big shift to recapture the trust of donors, and Linnington seems to be all about making radical moves to refocus and rebalance the organization.
Current cost-cutting measures include about 85 people (15 percent of the agency’s workforce) being laid off, including 50 percent of its executive staff, and the closing of nine satellite offices.
The Boston Globe reports the story of a longtime librarian at the University of New Hampshire who lived a frugal lifestyle and left his $4 million estate to the university:
Robert Morin worked nearly 50 years at the University of New Hampshire library and never seemed to spend any money.
He lived alone, rarely bought clothes, had Fritos and soda for breakfast, drove a 1992 Plymouth, and spent spare time reading almost every book — in chronological order — that had been published in the United States from 1930 to 1938.
Now, more than a year after his death at age 77, a lifetime of frugality has become UNH’s unexpected gift: Morin left his alma mater his entire estate of $4 million — a gold-plated nest egg that few people knew he had.
While a gift of this size may have allowed Morin to require that a building or other area on campus bear his name, Morin's restrictions imposed on the use of the gift by the university were as modest as his lifestyle.
The university will use $2.5 million from the estate on an expanded career center and $1 million for a new video scoreboard at the football stadium. An additional $100,000 will go to the university’s Dimond Library, the only gift specified by the will.
[Morin's financial advisor,] Mullen said he spoke with Morin about using some of the money to fund a scholarship related to library science but said his client wanted UNH to spend almost all of the gift in any way it chose.
Thursday, September 8, 2016
Ji Ma (PhD student) and Assistant Professor Sara Konrath, both of Indiana University-Purdue University Indianapolis (IUPUI) - Center on Philanthropy, have posted their research paper, Thirty Years of Nonprofit Research: Scaling the Knowledge of the Field 1986-2015, to SSRN. Below is the abstract for their paper:
This empirical study examines knowledge production between 1986 and 2015 in the research field of nonprofit and philanthropic studies using science mapping and network analysis. This is essential to understand the “Third Sector” better, which along with the business sector and government, forms and underpins the function of society at large.
Results suggest that scholars in this field have been actively generating a considerable amount of literature. The rapidly growing intellectual base suggests a solid backing for continuing development of this field as a new discipline. Knowledge produced in this field is not only growing in number, but also forming several main themes which have been actively developed since the mid-1980s – a signal of knowledge cohesion. Our findings are significant from numerous perspectives. The study provides empirical evidence for this field developing into a new discipline, and its future advancement faces a critical challenge: the lack of geographic and cultural diversity resulting from the domination of research taking place in the “Anglosphere.” This study also emphasizes the importance of new paradigms in mitigating the tension between theory and practice – a challenge commonly faced by academic disciplines.
Methodologically, our paper provides an example of applying network analysis and science mapping in studying the knowledge of a new social science field. Pedagogical implications, limitations, and future directions are also discussed.
Monday, August 29, 2016
Big news from Monongalia County, West Virginia (and I don't mean its party school ranking of number 2... ), but add West Virginia University to the list of charitable institutions making PILOT (payment in lieu of taxes) payments. WVU has done a significant amount of development in downtown Morgantown (yes, we have a downtown...) through private-public partnerships. As a result, a good deal of private property has gone off the tax rolls in this standard issue university town.
Of course, the issue of PILOTs has received a significant amount of discussion as of late (including on this website), as strapped state and local communities look for alternative sources of revenue. For more information, I strongly recommend starting with the Urban Institute website, which has a number of studies on PILOT issues (many of which are authored or co-authored by Evelyn Brody.) In that regard, this really shouldn't be much in the way of new ground... but...
(I am totally dating myself here...)
What I find interesting is that WVU is a public university. I've been searching on the interwebz (to no avail) for more information on how many public institutions - presumably, universities and hospitals - have agreed to PILOTs. (Anyone have any info? I found this helpful article by Langley, Kenyon and Bailin from the Lincoln Institute of Land Policy, circa 2012, that has a number of appendices - a very quick review doesn't seem to show any public institutions.) Part of the rationale for a private nonprofit to enter into a PILOT agreement and voluntarily pay not-taxes is that the alternative could be much, much worse. If a government changes the applicable laws granting nonprofit property tax exemption, the nonprofit will have little control over what happens next, so the devil you know and negotiate is probably better than what is behind Door Number 2.
I would think that with a public university, that calculus would be much, much different. After all, a public university is branch of government, it seems as if it would be much more difficult to muck with the property tax exemption for the University itself - both legally and politically. According to the press release from WVU, its 50 year payment agreement applies only to "private commercial establishments operating on University property for activities that are not a critical part of or integral to serving the academic needs of students." Therefore, while there may be limits on the ability to change the University's tax exemption, query how much play actually exists with attacking the property tax exemption for the University's leased property? (see section 10 versus sections 14 or 17, for example).
Betsy Schmidt publishes second edition of "Nonprofit Law: The Life Cycle of a Charitable Organization"
Betsy Schmidt has published the second edition of her helpful and well-received "Nonprofit Law: The Life Cycle of a Charitable Organization." From the publisher's website . . .
In a concise and readable format, Nonprofit Law, 2nd Edition provides up-to-date information about the legal issues that can arise at every turn—from inception to termination—of a Section 501(c)(3) organization. This second edition continues and builds upon the comprehensive features of the first edition, including:
- A reader-friendly presentation that does not assume earlier background with tax, trusts, or corporations
- A balanced treatment between theory and practical reality
- Cradle-to-grave organization of topics
- Notes, questions, and problems in each chapter that add context to the text
- All relevant statutes and regulations within the text
- Optional exercises for creating a virtual nonprofit, which become the basis for further hypothetical questions.
Highlights of the second edition include:
- Examples of familiar organizations, from Catholic Dioceses to the American Red Cross, grappling with critical issues
- Consideration of for-profit social enterprises as alternatives to nonprofits
- Thorough exploration of the policy implications of nonprofit regulation
- An explanation of the controversies surrounding nonprofits’ entrance into politics and the IRS’ response.
Saturday, August 27, 2016
Anne Choike has posted Examining Gallery-Supported Art Exhibitions on SSRN with the following abstract:
For-profit art galleries are making news for the donations they provide to nonprofit art organizations to support exhibitions of artists represented by such galleries. Yet nonprofit art organizations are committed to advancing art for the public interest, not for private profit. This Article examines whether there are any meaningful limits on gallery donations that support art exhibitions at nonprofit arts organizations, focusing on the legal framework governing federal tax-exempt status, as well as the self-regulatory rules and informal norms of the art industry. Does the existing regime allow gallery-supported art exhibitions or are they activities that do not further nonprofit art organizations’ missions? What short-term and long-term solutions are available and appropriate in light of the causes and context of gallery-supported art exhibitions? These questions are animated by the broader dialogue about equitable access to publicly funded resources, with the answers having important implications for what it means to promote art that is representative of American society.
--Eric C. Chaffee
Wednesday, August 24, 2016
Eduardo M. Penalver, Laura Spitz, Elizabeth Brundige and Lucia Domínguez Cisneros have posted U.S. Nonprofit Activity in Cuba: The Cuban Context on SSRN with the following abstract:
The thaw of U.S.-Cuba relations and the reestablishment of diplomatic ties between the United States and Cuba present an opportunity for nonprofit organizations based in the United States seeking to increase their engagement with Cuba. U.S. regulatory restrictions on nonprofit activity have decreased dramatically over the past two years. As a result, interest in undertaking projects in Cuba among U.S. nonprofits has increased significantly. Although the scope of potential opportunities is as yet unknown, this paper seeks to advance the conversation by answering the following questions: What is the current state of U.S. and non-U.S. nonprofit activity within Cuba? What are the Cuban legal and other constraints that affect nonprofit activity in the country? What recommendations might we offer for U.S. nonprofits that are interested in pursuing work in Cuba, in light of the constraints identified above? And finally, what legal, policy or other measures in Cuba might help address these constraints and facilitate increased nonprofit engagement?
--Eric C. Chaffee
Monday, August 22, 2016
Xue Tan, Yingda Lu and Yong Tan have posted Why Should I Donate? Examining the Effects of Reputation, Peer Influence, and Popularity on Charitable Giving Over Social Media Platforms on SSRN with the following abstract:
With the growing popularity of social media, social networking sites have become an important channel for online donor engagement and charitable fundraising. Many crowd-based donation platforms have integrated social functions to encourage donors to announce their donations in social media. Some social networking sites, like Facebook, initiate their own charitable campaigns by collaborating with nonprofit organizations. Despite the great theoretical and practical values, social media users’ motivations for charitable giving are underexplored. Using individual-level data from a microblogging platform where a donation service is embedded, we investigate how individual donation decisions are influenced by reputation incentive design, peer effects, and popularity effects. We find that despite the platform designer’s desire to improve fundraising performance, higher visibility of donors’ contributions may have negative impact on fundraising. Peer effects are found to be positive and, hence, provide a potential solution to the free-rider problem. Finally, it is observed that while most users crowd to popular projects, a group of users who exhibit leadership features crowd out from popular projects. Investing more fundraising effort on this crowding-out group may alleviate the rich-get-richer problem.
-- Eric C. Chaffee
Thursday, August 18, 2016
Yesterday's NonProfitTimes reported that the OneOrlando Fund has begun accepting claims from victims and families of victims of the June 12 Pulse nightclub shooting that left 49 dead and dozens more injured. According to fund administrator, Kenneth Feinberg, the entirety of the fund -- estimated at $23 million -- will be disbursed. According to the OneOrlando website, to be eligible, claims must be postmarked by September 12. Claim forms can be found on the site.
Vaughn E. James
Wednesday, August 17, 2016
In 2003, four men came together to form Wounded Warrior Project, a nonprofit 501(c) organization that offers a variety of programs, services and events for wounded veterans of the military actions following September 11, 2001. The organization's website boasts that this charity and veteran service organization "provides free programs and services focused on the physical, mental, and long-term financial well-being of this generation of injured veterans, their families and caregivers." The charity urges its supporters to donate to its causes, assuring them that their tax deductible donations enable the organization to "help thousands of injured warriors returning home from the current conflicts and to provide assistance to their families." The website goes on to state that "[a]s the number of wounded [veterans] steadily increases, it is easy to see how the needs of these brave individuals also increase."
In March, CBS News reported that while Americans were donating hundreds of millions of dollars each year to the charity, Wounded Warrior Project was spending 40 to 50 percent of these donations on overhead, including extravagant parties. By comparison, CBS News reported, other veterans charities have overhead costs of only 10 to 15 percent.
Shortly afterwards, the organization's Board of Directors fired Chief Executive Officer, Steven Nardizzi, and Chief Operating Officer, Al Giordano.
Yesterday's NonProfitTimes reported on the next step for the organization: a restructuring plan, According to the Times, details of the restructuring plan are expected to be announced next month. But some details can already be gleaned from the organization's recently-released IRS Form 990 and consolidated financial statements for the fiscal year ended September 30, 2015. In notes to the consolidated financial statements, the organization states:
Negative media stories in January 2016 regarding the Organization prompted inquiries and requests for documents from Senator Grassley on behalf of the Committee on the Judiciary and from other parties. The Organization responded to these inquiries and requests, and management does not believe they will have a material adverse effect on the organization’s financial position, results of operations or cash flows.
The Organization is in the process of evaluating programs and services to ensure that they are delivered with even greater efficiency, as well as assessing its organizational structure to ensure that it maximizes all resources available. Management anticipates that certain roles will be eliminated as a result of this assessment and details of the restructuring will be announced in September 2016. Management does not believe the restructuring will have a material adverse impact on the accompanying consolidated financial statements.
The Times also reports that in recent weeks, new CEO Michael Linnington, has made reference during interviews to anticipated pay and staff cuts.
September will soon be here; we shall discover then just what Wounded Warriors Project will do to recover its image, stature and standing.
Vaughn E. James