Nonprofit Law Prof Blog

Local Tax Exemptions at Risk: Boston, Cleveland, Pittsburgh, and British Columbia

Local governments facing financial pressure from shrinking tax revenues because of the economic downturn are with increasing frequency looking to tax-exempt nonprofits for financial support.  Some of the most recent developments include:

Boston:  Boston City Councilor and PILOT Task Force member Steve Murphy is cited in the Jamaica Plain Gazetteas saying he expects a big next year increase from the current $15 million PILOT (payments-in-lieu-of-taxes) from Boston colleges, universities, and other nonprofit organizations.  The Task Force is working both to standardize the amounts of PILOT payments based on not only on property owned but also on community benefits provided as well as to increase the total amount of PILOT paid.  It is not clear, however, how the Task Force will sell its plan given that the city cannot legally require any PILOT deals and so must rely on political pressure and the goodwill of the nonprofits targeted.

Cleveland:  Consultants hired by the City of Cleveland have proposed imposing an annual fee on nonprofit organizations, including hospitals, universities, and museums, according to the Cleveland Plain Dealer.  Cleveland Mayor Frank Jackson appeared wary of the idea, however, saying only that he was open to it but refusing to commit to supporting it.  Not surprisingly, representatives of local nonprofits that provided comments expressed concern about the fairness and wisdom of such a fee given the jobs and other benefits Cleveland's many nonprofits, including the well-known Cleveland Clinic, provide.

Pittsburgh:  Just days after Allegheny County Executive Dan Onorato vetoeda bill that would have imposed county fees on nonprofits other than churches and schools, the Pittsburgh Post-Gazettereports that Pittsburgh Mayor Luke Ravenstahl plans to propose a 1 percent college-education privilege tax.  It is estimated tax would raise approximately $16 million a year and presumably would at least partially replace voluntary payments from the Pittsburgh Service Fund, an umbrella group of tax-exempt institutions.  The Fund donated $14 million to the city from 2005 through 2007, but then only offered %5.5 million for 2008 through 2010, which the city rejected.  The proposal has, however, run into troublewith the Intergovernmental Cooperation Authority that must approve city budgets, which is apparently questioning the ability of the city to collect such a tax in the next budget year given anticipated legal challenges.

British Columbia:  These developments are not limited to the United States.  In British Columbia, the District of Sechelt Council voted to taxhalf of Camp Olave, a property owned by Girl Guides of Canada (Canada's equivalent of the Girl Scouts).  The property had been completely tax-exempt before the vote, which it is estimated will result in a more than C$100,000 tax bill in 2010.  As the camp only has an operating budget of $250,000, the Girl Guides have stated that it will likely have to sell the camp.  The tax bill is so high apparently because the waterfront property on which the camp rests has been assessed at C$26 million.  In supporting the Council's decision, Sechelt Mayor Darren Inkster stated that compared to other, similar-sized municipalities his town has an above-average level of nonprofits with tax exemptions.

LHM

Catholic Archdiocese Seeks Exemption from DC's Proposed Same-Sex Marriage Law

The Catholic Archdiocese of Washington raised concerns last week that as presently worded the District of Columbia's proposed same-sex marriage bill would prevent many religious social service providers, including Catholic Charities, from continuing to provide social services in cooperation with (and funded in large part by) the District's government.  According to the Archdiocese, while the bill would not require religious organizations to hold same-sex marriage ceremonies, it might require such organizations to treat same-sex marriages the same as different-sex marriages for purposes of employee benefits, adoption services, and even use of church facilities for events other than marriage.  The Archdiocese further noted Catholic Charities serves 68,000 in DC annually and Catholic parishes operate another 93 social service programs.  A committee of the DC City Council approved the bill.  To become law, the full council and the mayor must approve the legislation.  Congress has the ability to block the legislation, but only if it passes a joint resolution of disapproval and the President signs that resolution.

Additional coverage:  NY Times, Washington Post.

LHM

New Law Lets Non-Profits Tap Into Their Endowments' Original Principal

Wisconsin State Governor Jim Doyle signed Senate Bill 31 into law on Monday and opened the door for non-profits to access funds that have previously been off limits.  The Milwaukee Journal Sentinel reports the Bill adopts new national standards for the prudent investment and management of institutional funds and allows charitable organizations that manage endowments to withdraw from, and therefore reduce, an endowment's original principal. 

Until now, organizations in Wisconsin typically  have been barred from spending from an endowment fund when the value of the fund dipped below the amount of the fund's original principal.  However, the historical losses incurred in the current economic downturn have led organizations and the legislature to look for more flexibility in the use of endowment funds.

The change was backed by institutions such as the University of Wisconsin Foundation and Marquette University, among others.  Although there is concern about over spending and severe drops in foundation levels, the Bill will permit groups to access  endowments funds during a recession, when the need is greatest and the earnings from such funds' investments  are  severely reduced. 

Variations on the measure have been passed in 41 states in the past three years.

SS

Elected Officials: Perhaps Not the Best Founders for A Non-Profit

With the many recent investigations and court cases relating to fraudulent non-profits and elected officials, perhaps it is time to legislate to prevent those in control of tax-payer dollars from starting tax-exempt organizations.  This was Glyn Vincent’s suggestion in response to a recent incident in New York involving Councilman Miguel Martinez pleading guilty to three federal charges of kick-backs and an additional charge of stealing $40,000 from a now shuttered non-profit, the Upper Manhattan Council Assisting Neighbors. 

In his article, Vincent reports having spoken with his Councilwoman, Gale A. Brewer, prior to her learning Martinez pled guilty.  Brewer indicated that she didn’t think there was anything wrong with a Councilman having a sister on the board of a non-profit, but added that Martinez had clearly acted illegally in siphoning off funds.  In discussing what has been dubbed the slush-fund scandal, she said there are plenty of rules and regulations governing Councilmens' ethical parameters that are well understood and easy to obey.  Simply put, you always have to declare what you’re getting and giving.

Despite the slush fund scandal and the ongoing investigation into the relationship between multiple officials and non-profits, Brewer did not think the Council needed more oversight or regulation.  Recently enacted Council ethical guidelines regulate even small gifts given by neighborhood groups and lobbyists.  Brewer mentioned, however, that perhaps elected officials should not organize or start new non-profits while they are in office.

Vincent, commenting on the wisdom of Brewer's proposition, suggested that it should be the law.  Given that the number of cases of elected officials tied to fraudulent non-profits is rising, it may not be long before a bill creating such restrictions materializes.  

SS

Providence Considering Taxing Private Colleges and Nonprofit Hospitals

A new wrinkle is emerging in the state law trend to impose PILOTS on tax exempt instituions in a quest to make up budgetary shortfalls.  Now, local municipalities are getting into the act.  According to the Providence Journal, the Providence City Council is initiating a study on how to squeeze money from local nonprofits:

 The City Council on Thursday agreed to establish a commission to study tax-exempt institutions. Councilman John J. Lombardi, D-Ward 13, who sponsored the resolution, says the goal is to come up with a uniform plan for collecting compensation for city services. Lombardi says the new panel is modeled on a 2003 council commission to study tax-exempt institutions. Shortly after the formation of that commission, Mayor David N. Cicilline signed a landmark compensation agreement with the city’s four private universities that gives the city $48 million over 20 years. Local hospitals were not parties to the agreement.

The trend is interesting because of its use of euphemisms and the implications for the independent sector if things really get out of hand.  A euphemism, it should be remembered, is an "inoffensive or indirect expression that is substituted for one that is considered offensive or too harsh."  Its like urinating out of a high rise window and telling the people below that its raining.  Some local governments call the velvet gloved fisted requests "payments in lieu of taxes," others call them "impact fees."  But, with apologies to Shakespeare, a tax by any other name is still a tax.  The trend therefore ought to be called what it is, a creeping repeal of tax exemptions spurred on by expediency rather than reasoned consideration.  A tax on "tax exempt organizations!  Why hide that fact?  Probably because legislators don't want to just admit that they are taxing charities.  The issue, by the way, is much more than that some charities are sitting on large endowments.  It is more akin, I think, to the government taking over the press.  Hyperbole?  Maybe.  But charities comprise the "independent sector" because they offer criticism, implicit or explicit, to orthodoxy.  A different solution, usually bottom-up rather than top-down.  Of course, there is nothing that says government has to allow for tax exemption.  But tax exemption has been in the federal tax code since its inception most probably because of an implicit recognition of the value of bottom up, grass roots problem solving.  I don't mean to sound Reaganesque.  Even Obama agrees that it is good to nurture grass roots movements alongside "big government."  But if we keep taxing nonprofits, by some other name or not, we will soon have only the latter (top-down problem solving) and none of the former (bottom-up solving). 

dkj

Providence RI to Study Nonprofits, Possible PILOTs

Another example of the push by local governments to "tax" tax-exempt nonprofits comes from Rhode Island.  The Providence Journal reports that the city council of Providence agreed Thursday to establish a commission to study the potential for getting revenue from local tax-exempt entities.  Apparently, the Rhode Island state legislature is considering measures to give cities the ability to tax nonprofit hospitals and colleges that currently are tax-exempt. 

A proposal to assess a “student impact fee” on private colleges and universities is currently before the full state House of Representatives, and another proposal is pending before a House committee.  Another bill would authorize municipalities to collect a fee in lieu of taxes from nonprofit entities that own properties assessed at $20 million or more. That proposed fee has not yet been voted on by the House Finance Committee.

One wonders whether, particularly in cities on the east coast (Boston is another leader in this area), we are reaching some sort of "tipping point" where nonprofits will no longer be exempt, or perhaps only partially exempt, from local property taxes.

JDC

Brown University Fights Back: $50 Million in PILOT Payments Over Twenty Years is Enough

The June 4, 2009, issue of Chronicle of Higher Education reports that Brown University is objecting to the prospect of paying more than its "fair share" for local government services in the form of either higher taxes on nonprofits or a per student fee.  Here is an excerpt from the article:

Ms. [Ruth J.] Simmons [(Brown's president)], in her letter yesterday to Brown students, alumni, and faculty and staff members, said university officials understood “the city’s need to make tough decisions to balance its budget.” But the university has also had to make sacrifices and difficult choices, she said, including budget reductions, layoffs, and salary and hiring freezes. Brown’s leaders “would be loath to ask the university community to shoulder even greater sacrifices,” she wrote, “particularly not our students and their families, who work hard to plan and save for higher education.”

For the full article, see "Brown U. Already Pays Its 'Fair Share,' Its President Says as City Asks for More"in the June 4, 2009, issue of the Chronicle of Higher Education.  Also, for the full text of Brown's president's letter to the city of Providence, go here: http://www.brown.edu/Administration/President/letters/2008-2009/2009-06-legislation.html

DAB

 

Minnesota Governor Signs Law Changing Property Tax Exemption Standard

The Chronicle of Philanthropy reports that Minnesota Governor Tim Pawlenty has signed a bill that changed the statutory criteria required for property tax exemption based on being an "institution of public charity."  The legislation comes in the wake of a December 2007 Minnesota Supreme Court decision that found an organization cannot be considered an "institution of purely public charity" as that term is used in the Minnesota State Constitution unless it provides free or reduced cost goods or services.  While the decision did not affect the property tax exemption of churches, hospitals, and schools, as exemption for such institutions is provided separately, it did affect other charities such as the day care center that was the subject of the decision.  The new law provides that otherwise qualified organizations that charge fees for their goods or services can still qualify as an institution of purely public charity if either "a material number of the recipients of the charity receive benefits or services at reduced or no cost" or if "the organization provides services to the public that alleviate burdens or responsibilities that would otherwise be borne by the government."  The Minnesota Council of Nonprofits, which led the campaign for the legislation, has announced it will work with the state Department of Revenue and local Assessors on implementing this new law.

LHM

Nonprofit Sues Arizona Claiming New State Law Emptied Government Fund Benefiting the Nonprofit

Faced with budget problems, Arizona swiped $22.5 million from its 21st Century Competitive Initiative Fund, leaving Science Foundation Arizona with $18.4 million in unpaid reimbursements, the nonprofit claims in Maricopa County Court. The nonprofit, which uses research and development to diversify the state's economy, says Arizona Senate Bill 1001, signed into law on Jan. 31, emptied the fund of $22.5 million and dumped it into the general fund. The plaintiff argues that Arizona failed to make payments of $6.2 million and $10.7 million in November and December 2008, noting that the state had a cash flow problem,  forcing the plaintiff to advance "the private portion of grant payments to pay for the research work needed early." 

Science Foundation Arizona seeks a writ of mandamus ordering the state to pay it $18.4 million. The Arizona 21st Century Competitive Initiative Fund was established in 2006 to create "a partnership between Arizona and the business community to fund various research and development programs in partnership with private entities throughout the state, in an effort to diversify the state's economy and create higher paying jobs," according to the complaint. The contract between the Arizona Commerce and Economic Development Commission and Science Foundation Arizona outlined what would happen if the state "needed to either suspend or terminate the contract because of a lack of funding or if the State wanted to terminate for convenience," according to the lawsuit. The contract allowed the state to terminate "for convenience" upon 30 days written notice, but provided that the contractor "[would] be entitled to receive just and equitable compensation for that work completed prior to the effective date of termination." The foundation had $7.6 million from grants that were awarded in 2007 and continued in 2008 and 2009. The foundation says it spent the money but was not reimbursed by the state.

SS

More Pressure for PILOTS?

This story in The Daily Princetonian discusses efforts of a local citizens' group to pressure Princeton University to contribute more money to the local government.  Over the past decade or so, many municipalities have cut deals with large nonprofits for "payments in lieu of taxes" (PILOTs) to offset at least some of the lost revenue from tax exemption.  The article in the Princetonian notes that Princeton contributed over $1 million to the Princeton local government under a PILOT agreement, and choose to pay another $8.9 million in taxes on property that they could have requested exemption for.

The article is a very nice summary of the debate over PILOTs and tax exemption for large nonprofits in urban communities.  On the one hand, Princeton would pay as much as $35 million in taxes if it were not exempt.  Exemption pushes up taxes on non-exempt property, making homes less affordable and potentially driving out older and working-class residents.  On the other hand, Princeton claims, probably correctly, that it brings a huge amount of economic activity to the area - and, after all, it is an educational organization, which have traditionally been exempt from taxes.

With the economy in the shape it's in, the debates over PILOTs and what contributions large, exempt nonprofit institutions should and/or do make to their local communities will likely rage on, and I suspect we'll see a lot more arguments over PILOTs, as well as possibly some narrowing in the grounds for exemption under state laws.

JDC

Nonprofit Low-Income Housing Losing Exemptions in Wisconsin

This story in the Wisconsin State Journal details how low-income housing organizations are facing the loss of property tax exemption in Wisconsin due to an interpretation of state law by the Wisonsin Supreme Court.  The issues involved apparently started in 2003, when the Wisconsin Supreme Court decided Columbus Park Housing Corporation v. City of Kenosha.  At the time, Wisconsin state law provided that rental property would be exempt only if two requirements were met: (1) the property would be exempt in the hands of the lessee if the lessee owned it and (2) all rental income had to be reinvested in the property or used for debt reduction.  Obviously, low-income housing did not meet requirement (1), since the renters were individuals, not tax-exemption charities. And the case in question affirmed that these requirements applied to low-income housing units, which accordingly failed the exemption test.  The Wisconsin legislature then passed a law clarifying that requirement (1) did not apply to low income housing.    But the law did not address requirement (2), and in fact many low income housing organizations use rental funds for other purposes, such as to subsidize care provided to others served by those organizations, to refinance debt, to offset Medicaid losses and to purchase new properties for low-income housing development (see this article for an excellent discussion of the background to this issue).

The Wisconsin legislature apparently has considered fixes for this problem, but has not yet enacted them into law.  And given the current economic/budget situation at the state and local level, one wonders whether fixing this issue is going to be a political problem . . .

JDC

Underwater Funds and Endowment Spending

The press has been reporting about underwater endowment funds and the problems for charities that cannot spend endowment money due to state laws.  The information often is not quite right.

UMIFA, still the law in fewer than 20 states, provides a default rule that governs endowment spending.  If a charity and a donor did not agree otherwise when the donor made the gift, then UMIFA says that the charity can spend from the endowment the amount of appreciation (the amount above the original gift value - termed historic dollar value in UMIFA) that the charity determines to be prudent.  UMIFA does not address the spending of income, and the assumption is (without case law but with guidance posted on the NY AG's website supporting this understanding) that a charity can continue to spend "income" (interest and dividends but not capital gains) even if the fund is underwater.  Thus, the statements in the press that a charity cannot spend from an underwater fund are wrong.  In most cases the charity would not spend in those circumstances, but the legal rule is not quite the way it is usually described.

Thirty states plus the District of Columbia have adopted UPMIFA, and that new statute is effective in some states and will become effective in others this year or next.  In addition to the 31 enactments, bills are still pending in a number of states.  UPMIFA permits a charity to spend from an endowment fund the amount it determines to be prudent, keeping in mind the long-term nature of the fund.  Historic dollar value no longer provides a sort of guidance, but the absence of historic dollar value from the law may not mean that charities will be eager to spend if funds drop too far below their recent values.

The difficulty from the charity's standpoint is a practical one as well as a legal one.  What amount can a board prudently authorize for spending when a fund is down 30% - or more?  Some charities may find it prudent to increase spending, so that important programs and services will not be cut.  Others may curtail spending until the funds' values rebound.  Spending now means that getting the fund back to a value that it had as recently as last year will take longer.  But deciding not to spend may mean that scholarships are not paid or programs are cut.  The choice is not an easy one for charities, and each charity must examine its own needs and make its own prudent decision.

sng

Texas Representative Proposes Law to Exempt Private, Nonprofits from Coordinating Texas Education Board Rules

In response to the Texas Higher Education Coordinating Board denying the Institute for Creation Research's proposal to offer an online master's degree in science education, Rep. Leo Berman, R-Tyler, has proposed legislation to exempt private, nonprofit educational institutions that do not accept state funding and state-administered federal funding from the board rules.

Members of the coordinating board, who are gubernatorial appointees, voted 8-0 in April to reject the proposal by the Dallas-based institute. Higher Education Commissioner Raymund Paredes said at the time that the institute's program, based on a literal interpretation of biblical creation, falls outside the realm of science and therefore could not be designated "science" or "science education." De Juana Lozada, a spokeswoman for the coordinating board, said Friday that the agency could not comment because the Institute for Creation Research has appealed the board's decision and the proposed legislation could have ramifications for the case.

Lawrence Ford, a spokesman for the institute, said in an e-mail that Berman's measure "is not limited to a particular viewpoint, either creationist or evolutionist, theist or atheist, Jewish or Muslim or Christian or Buddhist or Hindu, rich or poor, or any other viewpoint."

Steven Schafersman, president of Texas Citizens for Science, said the measure promotes a right-wing religious agenda. "It would make Texas a magnet for unscrupulous private 'educational' companies that will want to offer students the opportunity to pay for bogus advanced degrees," Schafersman wrote on his group's Web site. "If H.B. 2800 became law, it would be a gold mine to every fly-by-night, degree-granting outfit in the country."

SS

Nonprofits Give to NY State Campaigns, Despite Law

The New York Times reports that a review of campaign-finance and federal tax records shows that at least 81 New York tax-exempt charities have given contributions to legislative candidates since 2005, with some organizations giving more than once to multiple candidates. While the amounts were not eye-popping, the contributions often flowed to lawmakers who helped the charities secure state money.

The State Board of Elections said it did not have the jurisdiction to screen contributions by nonprofit groups, calling it a matter for the IRS. The IRS would not comment on the activities of specific charities. Attorney General Andrew M. Cuomo’s office oversees charities on the state level, and a spokesman said the office can take action when there is evidence of systemic abuse of charitable money. Federal law prohibits nonprofits classified as 501 (c) 3 organizations from making political donations or participating in campaigns. Those that do risk losing their tax-exempt status.

Asked about the contributions last week, legislators and charity officials offered several responses, including apologies, suggestions of clerical errors, and defiance. Some of the contributions were given as the cost of admission to political fund-raisers, which some donors said they did not realize counted as campaign contributions. Some politicians insisted it was legal to accept the money even if the charities were barred from giving it. Since 2005, 55 legislative candidates — a vast majority of them incumbents — received at least one contribution from charities. Legislators insist there is no connection between their acceptance of these donations and any actions they might take to support the charities’ interests. The charities say they are supporting legislators who do good work, without regard to any assistance they may have provided.

Blair Horner, legislative director for New York Public Interest Research Group, said the Board of Elections should be required to monitor such contributions and that state law should be changed to make it explicitly illegal for politicians to accept them. Currently, the responsibility of avoiding such donations appears to fall solely on the nonprofit organizations.

“All I can say is, ‘Mea culpa, mea culpa, mea culpa,’ “ said Fred W. McPhilliamy, president of Helen Keller Services for the Blind, which donated $2,000 in February 2008 to State Senator Carl L. Marcellino, a Long Island Republican who helped win $55,000 in state aid for the group last year. “We goofed.” He said that representatives of his group bought tickets to a campaign fund-raiser for Senator Marcellino in Albany at the urging of a lobbyist but “never thought of it as a political contribution.” Senator Marcellino, who the records showed also accepted money from other nonprofit groups, said, “It was a dumb mistake on our part, and they shouldn’t have done it either.”

There have been periodic efforts to overhaul Albany’s campaign finance system, which is considered among the nation’s weakest, including a push by Gov. Eliot Spitzer in 2007. But little momentum has been generated, despite the pleas of government watchdog groups, and the issue of charities giving to lawmakers’ campaign accounts has not received broad attention. At least one national campaign finance watchdog said the situation in New York appeared unique. “I’m not aware of any situation where 501 (c) 3 groups have made contributions because it so obviously does not comply with campaign finance laws,” said Fred Wertheimer, founder of Democracy 21, a government watchdog group.

SS

New Colorado Law Allows Nonprofits to Save as Much as 40% When Buying Supplies

The Denver Business Journal reports that Colorado Governor Bill Ritter signed a bill into law on Friday afternoon allowing nonprofits to save as much as 40% on their supplies — enough to possibly keep some afloat that otherwise might drown.  House Bill 1088 will allow nonprofits that receive federal, state or local government funding to buy goods at the same price negotiated by the State Purchasing Office. Because the state buys so many supplies, it receives bulk-purchasing prices that small businesses are not likely to get.

The measure sponsored by Rep. David Balmer, R-Centennial, came through the Joint Select Committee on Job Creation and Economic Growth, where backers contended that lowering the cost of goods will allow non-profits to keep or add workers.  Though some Republicans contended that the measure will hurt for-profit suppliers that also are trying to keep their heads above water during this recession, HB 1088 received heavy bipartisan support in the General Assembly.

“The nonprofits in this state have operated across so many different sectors and are so important and so vital to Colorado,” Governor Ritter said. “You’re making personal sacrifices for something you believe in, and again I say to you: ‘Thank you.’”  Ritter, who formerly served on several non-profit boards, noted too that the boost for the groups should help especially at a time when they are bringing in less money but are finding their services more in need.

More than 19,000 nonprofits operate in Colorado;  many of them receive some sort of government money.

SS

Connecticut Bill to Change Catholic Church Governance Dies But Supporters Not Deterred

The Hartford Courant reports that members of the Catholic Church in Connecticut sought state legislation that would have given lay councils control over parish finances, relegating Catholic priests and bishops to advisory roles.  Not surprisingly, the chairman of the legislature's judiciary committee pulled the bill earlier this week because of constitutional concerns, but its supporters vowed to continue to push the measure even as thousands of opponents to the bill held a rally at the state capital.  While serious constitutional issues are raised by such legislation, this effort does raise the interesting possibility that stakeholders in charities could try to use state laws to force governance changes including by, for example, conditioning benefits such as property tax exemption on meeting certain governance requirements. 

LHM

New Mexico Bill Seeks to Require Nonprofit Disclosures of Political Campaign Donors

Last weekend we posted a report on nonprofit soft money spending in the last presidential election.  Campaign finance and nonprofits is an annual issue of course.  Yesterday, the New Mexico Hosue Voters and Elections Committee unanimously approved HB808 yesterday.  The bill requires that any federally tax exempt organization that engages in an "electioneering communication" during a primary or general election disclose the following information:

A. if the electioneering communication occurs during the primary election, the entity shall file a report of activity listing:

(1) all expenditures related to the electioneering communication, the purpose of the expenditure and the name and address of the person or entity to whom an expenditure was made;

(2) each donation, grant or allocation received by the entity in excess of two hundred fifty dollars ($250) and not previously reported, regardless of whether it is related to the electioneering communication;

(3) the name and address of the person or entity from whom the donation, grant or allocation was received; and

(4) the date the expenditure was made;

The bill contains similar requirements for "electioneering communications" made during a general election.  Here is the official legislative summary of the bill:

Synopsis of Bill

HB 808 enacts and amends statutory sections in the Campaign Reporting Act, Section 1-19-25 et. seq. NMSA 1978, to require a tax-exempt organization that engages in an electioneering communication regarding a candidate for state office during a primary or general election to file a disclosure report for that election with the secretary of state disclosing contributions and expenditures as specified. The bill provides monetary penalties to be paid to the SOS for false or incomplete information, late filing, and failure to file.  HB 808 defines “electioneering communication” to mean any radio, TV, cable or satellite broadcast, and any print advertisement that: refers to a clearly identified candidate for state office; is made during a primary or general election for the office sought by the candidate; and is targeted to the relevant electorate. The term does not include communications appearing in a news story, commentary or editorial distributed through print or broadcast, unless such print media or broadcasting facilities are owned or controlled by any political party, political committee or candidate.

The bill seems to have broad support, according to an article in yesterday's New Mexico Indpendent despite staunch nonprofit sector opposition, acknowledged constitutional issues and Supreme Court case law against similar efforts in other states:

Nonprofits have vocally opposed the bill for several reasons, including a concern that such a measure would abridge their right to free speech if they were required to list donors.  Some representatives of the nonprofits also have said the requirements set out in the legislation could cost them donors seeking privacy.  At the heart of the proposal is the notion that a nonprofit, as a recipient of tax-exempt status, ostensibly gets a public subsidy, Assistant Attorney General Phil Baca told the Independent last week. That assumption allows the state to set conditions on nonprofits, said Baca, who had drafted the Martinez-Sanchez legislation.  Baca said much the same thing before the House Voters and Elections Committee on Tuesday morning.  “We’re sovereign so we can craft our tax code any way we want to,” he told lawmakers. Baca admitted last week that the U.S. Supreme Court has struck down several states’ attempts to place conditions on nonprofits and that the proposed legislation would likely go to court if it were to become law.

I am no expert on the intersection of election and tax law -- I know what 501(c)(3) and related tax provisions say but I have never really dived into the whole Federal Elections Commission laws and regulations on the topic.  So my views might be described as those of a better informed layperson at best.  But I'll spout them anyway.  First, I think many of these laws are motivated by incumbents' efforts to protect their own jobs and not necessarily by any theoretical position that donors ought to know who is funding a "swift boat" campaign.  The New Mexico Independent article suggests that the bill "is part of a larger standoff between state lawmakers [who presumably want to shut up any opposition voices] and the nonprofit community."  I do think the lies and  half truths of the swift boat campaign -- whether told against John Kerry or John McCain -- were deplorable, but I'm not so sure that forcing disclosure does anything to address the substantive lies, if lies they be.  Remember, too, that Lyndon Johnson's insertion of a prohibition against campaign intervention was entirely motivated by his desire to shut his opponents up.  Ultimately, allowing incumbents to protect or enforce their views by shutting opponents up has to be the most un-American concept of all.

Ultimately, our system of governance is built on the rights of all to hear information from whatever source.  To bad we cannot pass a law that mandates that listeners take responsibility to personally determine the truth of the information (like the truth of the definition in the picture above).  That many of us fail in that responsibility, though, is not sufficient justification, in my view, to allow the government to protect us from our own ignorance by forcing some speakers to shut up.  I am aware, and do not necessarily disagree with the argument that conditioning tax exemption qua subsidy on refraining from certain speech is not an infringement of free speech.  It is legitimate to think that government [i.e., the people] ought not be forced to subsidize any speech at all.  My observations above are not meant to address that argument but the broader point that we should all join the "thinking" party rather than the Republican or Democratic party.

dkj

NJ Considers Allowing Nonprofits to Spend Below Endowment Original Values

Newsday reports that the New Jersey state legislature is considering relaxing restrictions on nonprofit endowment spending.  As is the case in many states, New Jersey law generally prohibits nonprofits from spending donated endowment funds if doing so would reduce a particular fund below the dollar amount originally contributed by the donor or donors to that fund.  While not usually a concern in times of growing endowments, the recent market downturns means that many endowment funds are below that original amount and so must cease spending until such time as they recover.  While not stated in the article, it appears that the state legislature is considering replacing the "historic dollar value" restriction found in section 2 of the Uniform Management of Institutional Funds Act (UMIFA) and adopted by almost every state with the more flexible standard provided by section 4 of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) proposed in 2006 and adopted by many states since then.

LHM

WSJ: states' adoption of UPMIFA reflects the dire straits of endowed charities

In an article entitled "Battered Nonprofits Seek to Tap Nest Eggs," the WSJ reports that the current crisis has added urgency to state adoption of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). "Universities, museums and other nonprofits battered by investment losses are pushing states to ease legal limits on spending so they can tap their endowments to avoid imminent layoffs and deep cuts to programs." But the real story here is the prescience of the Uniform Law Commissioners (ULC), which completed UPMIFA in 2006, to replace the Uniform Management of Institutional Funds Act of 1972 (UMIFA).  A majority of states adopted UPMIFA before the current crisis. UPMIFA, explains its drafters, permits the "prudent expenditure of both appreciation and income and replac[es] the old trust law concept that only income (e.g., interest and dividends) could be spent," and also eliminates "the rule that a fund could not be spent below `historic dollar value.'”   UPMIFA permits institutions to spend "so much of an endowment fund as the institution determines to be prudent for the uses, benefits, purposes and duration for which the endowment fund is established.”   Criteria for setting spending include "general economic conditions," "expected total return from income and the appreciation of investments, and "other resources of the institution." 
   
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UPMIFA in the Legislatures

After reading the student editorial advocating adoption of UPMIFA in Massachusetts, it seemed a good time to give an UPMIFA update.

Twenty-seven jurisdictions have adopted UPMIFA (26 states plus DC), with Ohio being the most recent adoption. Several legislatures are considering UPMIFA this session. UPMIFA has been introduced in Arkansas (SB 254), Hawaii (SB 121), North Dakota (1076), Maryland (HB 200), Mississippi (HB419/SB2335), Rhode Island (H 5244), Washington (HB 1119), Wisconsin (SB 31), Wyoming (HB 118). Workgroups are considering UPMIFA proposals in Maine, Massachusetts, New York, and probably a few other states. UPMIFA explanatory materials, as well as a copy of the Uniform Act with comments, can be found at www.upmifa.org. Some additional information is available on the NCCUSL website, although the list of bill introductions needs to be updated (many of these introductions have happened in the last couple of weeks).

sng