Nonprofit Law Prof Blog

Michigan Legislature Passes Modest Nonprofit Governance Law

Crain's Detroit Business reports that the Michigan State Legislature has passed a bill that requires nonprofit corporations formed in that state to follow certain modest new governance requirements.  HB 5681 amends Michigan's Nonprofit Corporation Law to (1) require nonprofit corporations to have at least three directors on their governing boards (previous law only required a single director), (2) prohibit such corporations from making loans to or loan guarantees for officers or directors, and (3) require "charitable purpose" nonprofit corporations to notify the Michigan Attorney General and not to dispose of any assets without the AG's written approval if they are dissolved by the state's Corporations Division for failure to file annual information returns.  It also makes a number of minor changes, including to the procedures for amending a Michigan nonprofit's articles of incorporation and, in order to implement the third change listed above, creating a definition of "charitable purpose corporation" that includes but is not limited to organizations that are tax-exempt under section 501(c)(3) of the Internal Revenue Code.

The bill is currently awaiting Michigan Governor Jennifer Granholm's signature.  The article does not indicate whether there have been any statements from her office regarding her willingness to sign the bill, although given the relatively modest changes it is difficult to see what about the bill would be objectionable to either her or the nonprofit community.

LHM

NY Legislature Ends Nonprofit Access to Low-Cost Industrial Development Funding

Newsday reports that a dispute between organized labor and industrial development agencies (IDAs) has resulted in nonprofits no longer having access to IDA funding.  Unions objected to IDAs funding nonprofits unless they conditioned that funding on the nonprofits paying union-level wages.  Unable to overcome this objection, the New York State Legislature let the law providing nonprofits access to these funds lapse.  According to the article, the lapsing of the law has put nonprofit plans to build several nursing homes, senior citizen apartments, libraries and schools on hold indefinitely.

LHM

Bill Said to Impose Racial Diversity on Charities Withdrawn by California Legislator

The Sacramento Bee reported yesterday, June 24, that legislation, Assembly Bill 624, introduced by a California Legislator, Joe Coto (D-San Jose), was withdrawn by the legislator after 10 of the largest California foundations agreed to a multimillion-dollar, multiyear investment in minority communities.  According to the Assemblyman's website, the "bill requires large foundations to disclose the racial and gender composition of their boards of directors and the number of grants awarded to organizations serving ethnic minority communities."  The bill was introduced following the release of a study in August 2007, Investing in a Diverse Democracy: Foundation Giving to Minority-Led Nonprofits, prepared and conducted by The Greenlining Institute, a California-based research and advocacy nonprofit, highlighting the failure of California foundations to support minority-led nonprofits.  The organization posted a response to the foundations and others who challenged the need for AB 624 on its website. 

Below is an excerpt of the Sacramento Bee story:

Faced with legislation that would require them to disclose their ethnic composition and detail grants awarded to minority organizations, 10 of California's largest foundations agreed Monday to a multimillion-dollar, multiyear investment in minority communities.

In return, Assemblyman Joe Coto, D-San Jose, dropped a bill that opponents said was an effort to impose racial diversity on charities and threatened to drive donors out of California.

Many foundations enjoy tax-exempt status. But according to a 2006 study by the Berkeley-based Greenlining Institute, which sponsored Coto's legislation, only 3.6 percent of grant dollars from the nation's top 24 private foundations went to minority-led organizations.

"The Greenlining Institute provided us some evidence that the level of investment by these foundations in minority communities was inadequate compared to the level of investment they are making elsewhere," Coto said.

Coto said by asking foundations "to shed some light on their investments," he hoped "they would then be in a position to make greater investments."

"They saw this as an opportunity to do what we were suggesting and we've worked out this agreement that I think will be positive for everyone," he said.

The foundations, including the William and Flora Hewlett Foundation, the Ahmanson Foundation and the California Endowment – said in a joint statement that nonprofits play a critical role in addressing the challenges facing minority and low-income communities.

The foundations reaffirmed their commitment to help minority organizations compete for grants and said they would issue annual reports about their efforts.

For the full story, click here.

The comments to the story posted on the Sacremento Bee's website, for me, are the story within the story.  The comments range from supportive to racially antagonistic.  For me, the comments reflect the deeper divide along racial lines that is being brought to light by the presidential race.  A recent Washington Post Story about the significance race will play in the upcoming presidential election captures this divide.

I encourage you to review the comments, too, and to draw your own conclusions.  Click here for the comments.

AMT

The Moral of the Caine Mutiny: California Diversity Bill Withdrawn

According to an article in yesterday's Sacramento Bee, a California legislator has withdrawn a bill (A.B. 624) that would have imposed diversity requirements on private foundation governance and grant-making procedures in California. 

Faced with legislation that would require them to disclose their ethnic [gender and sexual preference] composition and detail grants awarded to minority organizations, 10 of California's largest foundations agreed Monday to a multimillion-dollar, multiyear investment in minority communities.  In return, Assemblyman Joe Coto, D-San Jose, dropped a bill that opponents said was an effort to impose racial diversity on charities and threatened to drive donors out of California.

It looked as though the bill had the votes despite being universally opposed by respectable foundations and prominent nonprofit stakeholders.  For previous coverage see here and here and here.  In the meantime, the Cleveland Plain Dealer reports that many nonprofits continue to practice tokenism (whether by benign neglect or otherwise) when it comes to minority representation on nonprofit boards:

Randell McShepard, vice president of public affairs at RPM International, found himself in high demand last year as 22 nonprofit organizations asked him to serve on their board of directors. McShepard has a high-profile position at his company and much experi ence serving on nonprofit boards, includ ing the United Way of Greater Cleveland and Business Vol unteers Unlim ited, an organization that links businesses and nonprofits and trains nonprofit boards. But McShepard, who is black, said the 22 invitations really underscore how nonprofits are not digging deep enough to tap into the wealth of talented minority professionals in the community.  In the end, when the nonprofits repeatedly go to McShepard and a select group of other minority candidates for their boards, some of them come up empty-handed. "I am the poster child for that," McShepard said of being repeatedly asked to join nonprofit boards. "There is no honor in that for me. It saddened me to see so many organizations so limited to me that they can't see the many talented people who are out there."

The Cleveland Plain Dealer story is familiar to those of us who are relatively small, average or even slightly above average potatoes; once majority groups or organizations percieve a willingness to serve by one or two minority individuals perceived as "exceptional" (i.e., clean, articulate and "talks like us" -- safe, in other words), they continue to ask that same person over and over again to serve in multiple capacities.  "Exceptional" by the way is often just normal or slightly above average with darker pigment.  On the other hand, if the position to be filled is perceived as really significant, even truely exceptional people with a darker pigment are often perceived, for one reason or another, as insufficient for the particular role.     But I digress.  The few who are designated as "exceptional" (i.e., the average, or even slightly above average educated minority) can't be everywhere at once and that fact becomes an excuse for boards (law schools, and law firms, too, for that matter) who claim, "we can't find qualified minority applicants."  Only the rarely exceptional, the designated "super-minority" will do, though the average and sometimes below average non-minority will do nicely as well, thank you.

In the midst of all this, nonprofit boards still tend to be insular and exclusionary by race in 2008:

Last year the Urban Institute, a nonpartisan research group, released a survey that found the nation's nonprofit boards are overwhelmingly white and that just over half are entirely white. The survey of more than 5,000 public charities across the country found that 86 percent of nonprofit board members are white, 7 percent are black and 3.5 percent are Hispanic. Nonprofit boards wield enormous power in the communities they serve, dealing with issues ranging from education and health to homelessness, hunger and the arts. And the boards need to be diverse to guide them effectively because in many cases the stakeholders that the organizations serve represent diverse races, ethnicities, cultures and socioeconomic backgrounds, said Elizabeth Hosler Voudouris, executive vice president of Business Volunteers Unlimited.

"So they stabbed it with their steely knives."  The death of the admittedly flawed diversity bill in California is cause for relief, but somehow it reminds me of that last scene in The Caine Mutiny, the movie version.  The scene where the anglo-saxon defendant and his buddies raise their champagne glasses to celebrate the flawed skipper's downfall.  The Jewish defense attorney who brilliantly saved their skins is having no part of it though.  He reminds them, even as they celebrate the downfall of someone whose psychosis made him a flawed weapon in the fight against violent Nazi anti-semitism, that the flawed antagonist was nevertheless fighting against an undeniable injustice while everyone else was content to congratulate themselves for their uncontroversial going along to get along.  We might also celebrate the death of a flawed weapon -- the California bill -- in the fight against racism; we ought to recognize at the same time that the statistics suggest racism (exclusion, benign neglect, whatever you want to call it) exists and persists even in the world of do-gooders.  Let's not celebrate too loudly.

dkj

School Vouchers in Louisiana?

On Wednesday, the Louisiana Senate voted 25 to 12 for a bill that would let up to 1,500 low- to middle-income students in New Orleans attend private schools at taxpayer expense.

The bill, which has already been approved by the House, now needs one more routine vote in that body on the Senate language changes before it goes to Governor Bobby Jindal for his signature.

The bill's supporters say it will help some New Orleans children escape a struggling school system that has for years been known for corruption, bad management and poor student performance.

Opponents point to improvements in the New Orleans public schools since the state and various charter organizations began running them after Hurricane Katrina in 2005. They say the money would be better spent on public schools.

To read the entire article, see "Louisiana Senate Passes School Plan" in the June 13, 2008, New York Times.

VEJ

Pennsylvania Charitable Nonprofit Caucus

The Chronicle on Philanthropy reports that a group of Pennsylvania legislators have formed a caucus to focus on nonprofit issues.  The Pennsylvania Alliance of Nonprofit Organizations (PANO) and the United Way of Pennsylvania worked with the General Assembly to create the caucus.  The legislative caucus, composed of both Republicans and Democrats, will begin its work on June 17.  A group of 30 charities and private foundations will serve as an advisory board to the caucus.  Topics that could be discussed include charitable tax exemptions, sales taxes on services, lobbying, volunteerism, and government money for human services and the arts.  The charities sought the creation of the caucus as a way to help legislators by providing helpful feedback that could improve bills considered by the legislature.

sng

California's Foundation Diversity and Transparency Act

The California State Assembly is considering legislation that would require foundations to diversify their nonprofit governing boards.  The bill, entitled the Foundation Diversity and Transparency Act (AB 624), requires that California foundations collect information on the composition of their boards and report this information to the public.  Here is the legislative counsel summary of the bill:

Existing law regulates the administration of nonprofit corporations and trusts that are deemed to be private foundations, as defined under federal tax law, and requires these private foundations to distribute their income for each taxable year so as not to subject the private foundation or its property to specified federal tax requirements. Existing law requires these entities to prepare specified annual reports.

This bill would require a private, corporate, or public operating foundation that is incorporated in this state with assets over $250,000,000 to collect specified data pertaining to its governance and domestic grantmaking. The bill would require this information to include the racial and gender composition of the board of directors and staff of the foundation; if applicable, the number of grants and grant dollars awarded to organizations specifically serving specified ethnic minority  communities, lesbian, gay, bisexual, and transgender communities, disabled communities, and other underrepresented communities; the number of grants and grant dollars awarded to organizations where 50% or more of the board members or staff are ethnic minorities; and the number of grants and grant dollars awarded to predominantly low-income communities. The bill would require a foundation to disclose this information via its Internet Web site, if available, and to include this information in its annual report, as specified.

For the text of the entire bill, go here or download here: Download ab_624_bill_20080507_amended_sen_v95.pdf.  For commentary on this bill see the May 30, 2008, Wall Street Journal and May 11, 2008, Washington Times.

DAB

UPMIFA Update

Twenty-three states have now adopted UPMIFA, the Uniform Prudent Management of Institutional Funds Act, and eleven of those enactments happened this session.  The Act has passed both Houses in New Hampshire and awaits the Governor's signature there, and a few state legislatures, including California, are still considering UPMIFA this session.  For bill tracking and a legislature fact sheet see the NCCUSL website.  And for a description of the Act on this blog, go here.

sng

Blaine Amendments Under Attack: Should State Tax Dollars Be Used to Fund Religious Education?

As we just blogged, in addition to the tax swap proposal, Florida voters will consider in November a constitutional amendment that will eliminate its so-called "Blaine Amendment" law.  According to an article in the May 15, 2008, issue of the Washington Post, 37 states across the country enacted Blaine Amendments about one hundred years ago when the "Protestant majority" wanted "to block government support for catholic schools."  It appears that the stakes in Florida are huge considering the potential loss of funding for a myriad of social service activities that many consider critical.  here is an excerpt from the article:

Patricia Levesque, the commission member who pushed to add the measure, said she acted because a 2004 appeals court decision cited the Blaine Amendment while striking down then-Gov. Jeb Bush's effort to allow students in failing schools to enroll in parochial and other private schools at public expense.

Levesque said the 2004 decision, as well as a lawsuit recently filed against state prison chaplains, could endanger millions of dollars in state contracts that go to faith-based organizations running substance abuse programs, HIV education services, foster care programs and pre-kindergarten programs.

* * *

Opponents of the measure say that Levesque, Jeb Bush's former education policy chief and the current head of Bush's independent education organization, Foundation for Florida's Future, is using alarmist language as a way to revive his voucher program.

The warnings are a "scare tactic" said Mark Pudlow, spokesman for the Florida Education Association. "It's Governor Bush's attempt to get vouchers for all." A coalition of education organizations has combined with Americans United for Separation of Church and State and the Anti-Defamation League to contest the measure.

For the entire article, "Fla. to Consider Key Church-State Question: Funds Ban for Religious Groups at Issue," in the May 15, 2008, issue of the Washington Post.

DAB

Florida Voters Poised to Consider Tax Swap Proposal and Religious School Funding Ban in November

Two months ago we blogged about Florida's tax swap proposal which is aimed at eliminating a significant portion of the school portion of state property tax and replacing it with a sales tax revenue and other sources.  The May 14, 2008, issue of the Orlando Sentinel reports that Florida citizens are poised to vote in November on three proposed constitutional amendments - one would approve the tax swap (Amendment 5) and the other two would essentially authorize the state to use tax dollars to fund private sectarian elementary and high school education (Amendments 7 and 9).  Here is an excerpt from the article:

Amendment 7 would remove Florida's century-old ban on state dollars going to religious or "sectarian" institutions. Amendment 9 would spell out that the constitutional requirement to fund "public" schools couldn't prevent tax dollars from going to private schools. Both amendments were pushed by former Bush staffers on the tax and budget panel, which last month put them on the ballot.

* * *

Amendment 5 would eliminate $9.5 billion in required school-tax levies and require the Legislature to replace the revenue from higher sales taxes or other sources. Business groups including Associated Industries of Florida and the Florida Retail Federation argue that this will lead to taxes on services such as lawyer fees, haircuts or pet manicures.

For the entire article, see "Teachers union poised to fight amendments: Group will challenge voucher revival, also may battle tax swap," in the May 14, 2008, issue of the Orlando Sentinel.

DAB

Massachusetts Legislature Considers Plan To Tax Well-Endowed Colleges

The Boston Globe reports today that the Massachusetts Legislature has asked state finance officials to study a plan that would impose a 2.5% annual assessment  on colleges with endowments over $1 billion, an amount now exceeded by nine Massachusetts institutions.  Not surprisingly, the plan is generating a great deal of controversy.  If adopted, it would raise significant implications for the sanctity of the tax-exempt status of non-profits.

ss

Proposal to Compel Foundations To Disclose Data on Diversity

P. Eisenberg of the Chronicle of Philanthropy reports that the California State Senate is considering a bill that would require all foundations with more than $250 million in assets to disclose information about the race and gender of people on their governing board and the boards of their grantees.

ss

Unintended Consequences for Charities from State Smoking Bans

Yesterday I blogged about Minnesota's limits on charity raffle prizes.  A few days earlier, the New York Times reported on state laws that may have had a much more significant effect on charity gambling - indoor smoking bans that reach charity bingo games.  According to the article, in Minnesota alone charities saw revenues drop 13 percent in the fourth quarter of 2007, as compared to the same quarter of 2006, and half of the drop is estimated to be attributable to a new, statewide indoor smoking ban that took effect in October 2007.  On an annual basis that amounts to approximately $100 million in less revenue for charities that rely on charity bingos for a portion of their revenues.  The article cites evidence of similar drops for charity bingo participation in California, New Jersey, New York, and Washington State when statewide smoking bans went into place.

LHM

Massachusetts Bill to Cap Salaries at Charities

Massachusetts will consider a bill, Senate, No. 2559, to cap salaries of nonprofit executives.  The bill will impose a cap of $500,000 on compensation paid to any director, trustee, officer or senior manager of any charity with annual gross revenues of $1 million. The bill defines compensation to include salary, bonuses, deferred compensation, below-market rate loans, vehicle rental, and other sorts of compensation.

The Boston Herald reports that a reason behind this bill is a concern over executive compensation at Bay State hospitals.  Fourteen executives at Bay State hospitals now earn more than $1 million each, and that number has increased significantly in the past few years (the number was one in 2004).  The increase in the amount of compensation has also been significant, with CEOS at Boston hospitals receiving increases of between 13 and 46 percent between 2004 and 2006.

A hearing on Senate, No. 2559 is scheduled for tomorrow.

sng

Financial Accounting under UPMIFA

Time is running out to comment on the FASB's draft FSP on 117-a.  The draft FSP provides guidance on how charities will report their endowment funds on financial statements.  The FASB will accept comments until April 18.  As written, the guidance will apply to financial statements for years ending after June 15, 2008.  Given that lots of charities, including many (maybe most) universities and colleges operate on a June 30 fiscal year, the new guidance will affect a whole lot of endowments.  The guidance provides direction for reporting endowment funds under UPMIFA, but it also directs charities to provide disclosures for endowment funds, regardless of whether a state has enacted UPMIFA. 

We lawyers tend to find accounting rules puzzling.  The financial statements are supposed to reflect legal restrictions imposed on funds, so in theory the legal rules are applied first and the accounting rules follow.  Under UMIFA (the older version of UPMIFA) the accounting rules seemed (to this lawyer) to go their own way.  The more conversation between lawyers and accountants on this topic, the better.  The FASB is interested in getting lots of feedback, so it's important for some of us to step up and provide that feedback.  Jack Siegel has already posted a particularly helpful comment, and five other comments appear on the FASB website.  More will likely arrive in the next week.

sng

UPMIFA Update: More states adopting the uniform act

On Feb. 7 we blogged about UPMIFA, a new uniform act being adopted by state legislatures across the U.S.  Thirteen enactments took place the first year, four jurisdictions - District of Columbia, Kansas, Virginia, and West Virginia - have adopted UPMIFA already this session, and this week UPMIFA bills moved to the governors' desks in Colorado, Georgia, and Iowa.  Bills remain in the legislatures in ten states.  The Uniform Law Commission has set up a website for UPMIFA, with up-to-date information on bill adoptions, a copy of the act, explanationory articles, and more.

Florida's Tax Swap Proposal - Eliminate School Portion of Local Property Tax in Exchange for Higher Sales Tax Rates, Fewer Exemptions and a Broader Base

On March 18, 2008, the Miami Herald reported that  Florida's Taxation and Budget Reform Commission has agreed to place before Florida voters a proposal to lessen local real property taxes in that state by 1/4 to 1/3 of present amounts (a total of about $9.3 billion).  The reduction occurs by eliminating the portion of the property designated by the state as being for public schools.  Florida legislators say that they can only pay for this size of a property tax reduction by increasing sales tax revenues.  The only way to increase sales tax revenues is by increasing the rate (Florida plans a 1 penny sales tax increase which will raise about $4 billion), reducing exemptions or expanding the base.  This last issue (expanding the sales tax base) indicates that Florida will likely have a big "tax on services" fight - yet again.  Here is an excerpt from the article:

''We think this proposal will force the Legislature to adopt services taxes because the numbers just aren't there,'' said Allan Douglas of the National Federation of Independent Business.

Commissioner Randy Miller, a member of the Florida Retail Federation, was one of four members voting against the proposal.

''We're not doing anything here except changing who pays the bill,'' he said. If legislators were to eliminate all tax exemptions on businesses, he said, they will raise only $2.13 billion a year and will have nowhere else to go except to tax services.

Proponents of the plan argue that the elimination of one-fourth to one-third of all property taxes will spur the economy, stimulate housing sales and business growth and revive Florida's economy. That, in turn, would increase collections of other taxes such as the documentary stamp tax on real-estate transactions and the sales tax, they said.

For the entire story, see "Property-tax proposal could give South Florida big savings" in the March 18, 2008, edition of the Miami Herald.

DAB

Pennsylvania Poised to Take More Money, in the Form of Fees and Taxes, from Nonprofit Coffers?

On March 10, 2008, we blogged about the growing wealth of nonprofit institutions in Pittsburgh.  Well, on March 15, 2008, the Pittsburgh Tribune-Review published an article suggesting one way in which Pennsylvania and its local governments might reap a share of the increasing nonprofit wealth.  The article speaks of a combination of service fees charged to tax-exempt owners of buildings in excess of 5,000 square feet and a special property tax of 10% of assessed value for the first five years that a nonprofit owns newly-acquired real property in the state.  For the full story, see "Charges on nonprofits proposed as alternative to drink tax" in the March 15, 2008, issue of the Pittsburgh Tribune-Review.  For additional coverage of this story, see "State to weigh nonprofit service fees Legislation would allow county to levy charges on tax-exempt properties" in the March 15, 2008, issue of the Pittsburgh Post-Gazette.

DAB

University of Miami's Frances Hill Comments on Improper Use of Charity By California Legislature

University of Miami Law School's Professor Frances Hill is quoted in the March 16, 2008 Los Angeles Times about the propriety of the California State Legislature's alleged improper benefits to charity donors.  According to the story, "The California Senate offers special interests that give money to its charity the opportunity to travel with state lawmakers to Rio de Janeiro, Buenos Aires, Jerusalem, Tokyo and other foreign locales."  The story explains how the Senate uses its staff to assist in travel arrangements and that the donors are mostly corporate interests with business  before the Legislature.  After quoting a government ethics expert who says that this arrangement is "inappropriate," the article then quotes Professor Hill as one of several experts on nonprofit law as saying:

Frances R. Hill, a University of Miami law professor and expert on nonprofits, said the federal tax code forbids tax-exempt charities from bestowing "excess" benefits exclusively on board members. Such organizations are also bound by the "private inurement" doctrine that aims to ensure that a nonprofit's benefits are public, not private.

Hill said the structure of the Senate's international relations foundation essentially allows board members -- who get their position by donating -- to purchase access to California legislators on foreign trips. Average Californians and officials in industries that have not donated to the foundation have not been granted such access, Hill noted.

"You just can't sell a board membership like this," she said.

For the entire story, see "Senate travel perks for sale? Contributors to lawmakers' charity, including lobbyists, are invited to go overseas with legislators" in the March 16, 2008, Los Angeles Times.

DAB

Vermont House of Representatives Passes "Low Profit, Limited Liability Company" or "L3C" Act

What is a "low profit, limited liability company"?  According to Americans for Community Development (ACD):

The L3C is a new form of limited liability company (LLC) that combines the best features of the LLC with the socially beneficial focus of a nonprofit.  It uses the concept of Program Related Investment to bring together foundations, businesses and other investors to make important investments that otherwise would not occur. 

ACD's home page (linked to above) has a lot more stuff about L3C's.  The group has been successful in getting legislation passed in Vermont recognizing L3C's.  The legislation requires that the L3C be organized primarily for charitable or educational purposes and not have as a "significant purpose" the pursuit of profit.  According to a March 12, 2008 article in the Chronicle of Philanthropy, an L3C would allow private foundations to immediately recognize entities, investments in which would automatically qualify as "program related investments" as that term is used in IRC 4944(c).  It looks to me as though an L3C is essentially a joint venture between a private foundation and for profit investors for a specific charitable purpose.  Thus, the L3C would be tax exempt if it elected partnership status, see IRC 701, but profits would be taxed to the partners (though presumably not to the private foundation, since any profit would be derived from a program related investment -- i.e., not an unrelated activity).  Under 512(c), the LLC's activities would be attributable to the private foundation.  ACD has an interesting powerpoint presentation online touting the benefits of L3C's.

dkj

Wall Street Journal Predicts Passage of California Private Foundation Diversity Bill

We have previously reported on a California Bill that would not only require large foundations to divulge the race, gender, and sexual preferences of both their boards and their charitable recipients.   In at least one report, we agreed that Diversity would not be an issue but for the continuing existence of its evil stepbrother, Discrimination.  We also agreed though with a L.A. Times Op-Ed that suggested that perhaps the problem could be addressed a little better (to put it mildly) thinking.  For other previous posts see here.  A recent Wall Street Op-Ed piece -- perhaps flaming the hysteria fires -- predicts that not only will the bill pass and be signed by the Terminator, it will also be introduced on a national level in Congress:

Lest you think this idea is too wacky to go anywhere, it is also expected to pass the California Senate and could soon land on Governor Arnold Schwarzenegger's desk. The Greenlining staff is already lobbying House Ways and Means Chairman Charlie Rangel for Congressional hearings. Foundations and charities that don't want to start apportioning their donations by skin color, or between gays and heterosexuals, had better start describing this idea as the political shakedown it is.

Will wonders never cease?  I must say, these types of "white guilt" enactments (it will take more than votes of the few people of color in the legislature to get this passed -- assuming people of color even vote for this bill -- (see the comments of the former NAACP Counsel against it in the Wall Street Journal link above) -- do more harm than good.  Anyway, all of the links above contain all the information you will need to completely inform yourselves of the Bill's progress through the California legislature on its way to the Govenor's desk. 

dkj

Nonprofits and State Government Fight Over Gambling Proceeds

The Washington Post reports that the Maryland legislature is considering a ban on electronic gambling machines throughout the state.  Some counties currently allow the machines if they are operated by nonprofit organizations.  These has led to some nonprofits relying on the machines as significant sources of revenues.  For example, Alternatives for Youth and Families, a charity that provides mental health services, received about $25,000 in two months from a machine it operates in a local liquor store in exchange for paying the store $50 per day.  The charity Center for Children, which also provides mental health services, reported similar revenues.

Supporters of the ban argue that the nonprofit operators do not receive enough of the proceeds from the machines, plus the availability of the machines has sharply cut into state lottery revenue.  They cite the fact that while state lottery revenue rose about 9 percent statewide over the past two months, it decreased by 5.39 percent in one county where the machines recently appeared in significant numbers, and decreased by 19 percent in establishments that feature the lottery but then added the machines.

lhm

California Bill Pending to Force Disclosure of Large Foundation Staff, Board and Grantee Demographics

Inside Bay Area reports on the continuing battle over the bill (Assembly Bill 624, as amended in the Senate) originally introduced by California Assemblyman Joe Coto, D-San Jose that would require California's largest foundations to post the composition of their staffs and boards on their Web sites.  The postings would be required to include racial, gender, and sexual orientation demographics.  If enacted, the new requirement would only apply to foundations with assets of more than $250 million, but this group would include such well known foundations as the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, and the Gordon and Betty Moore Foundation. Covered foundations would also have to provide information about the number of grants and percentage of grant dollars awarded to organizations with members of minority groups on their boards or staffs.  The article credits the nonprofit Greenlining Institute with sponsoring and writing the first draft of the bill in response to research that found less than 4 percent of grant dollars from the nation's top 24 private foundations went to minority-led organizations in 2006.  The bill passed the California Assembly and is now pending in a California Senate committee after being amended last month.  For more information, see the complete legislative history to date.

lhm

Iowa Legislature Considering "Audit Fee" For Public Charities

According to the The Daily Iowan, the Iowa legislature is considering a bill that would impose an annual fee on state nonprofits. 

In an effort to increase oversight of nonprofit organizations, the Iowa Senate is discussing a bill that would take an estimated $150,000 away from nonprofit organizations. The attorney general would use this funding to hire another attorney and support staff to focus on problems nonprofit groups may run into - such as conflicts of interest, executive compensation, and their use of authority.UI law Professor Willard "Sandy" Boyd said general feelings are that the state has not been as active as it should be.

"To have no staff to carry out the basic responsibility of the attorney general for oversight of nonprofits organizations is a great deficiency," he said. "Sort of like if we had a university but no funds to hire faculty."

If passed, the extra money would come in the form of a $25 to $30 fee every two years from local nonprofits, excluding those considered mutual-enefit organizations - such as credit unions, co-ops, and trade associations.

The effort seems motivated by sensational stories of large salaries and lack of tuition assistance for college students.  Tax Exempt wonks know that IRC 4946 already imposes such an oversight fee on private foundations at the federal level.  I've read anecdotal reports that the money collected via that provision has never really been earmarked for federal oversight of private foundations but has instead but diverted to general purposes.  If Iowa does pass such a bill there ought to be a specific requirement that it be forever used to fund its intended purpose.

dkj

UPMIFA: It's All about Prudence

In the summer of 2006, the Uniform Law Commission approved the Uniform Prudent Management of Institutional Funds Act (UPMIFA).  This act replaces (or will, when states enact it) UMIFA, the Rodney Dangerfield of charitable law.  (Really, how many of you even know about UMIFA - or new about it before work began on UPMIFA).  Although UPMIFA is old news by blogging standards, it seems useful to post some baseline information, so that as the legislative season progresses, we can blog about enactments and nonuniform amendments to the act.

UPMIFA does three things:

• Provides a standard for investing and managing charitable funds.  The standard is prudence and the act draws language from the Revised Model Nonprofit Corporation Act (the good faith, ordinarily prudent person standard) and from the Uniform Prudent Investor Act (guidelines as to what constitutes prudent behavior in an investment context).
• Provides a spending rule for endowment funds, if a donor hasn't specified (very specifically) a rule contrary to the rule of prudence in the act.
• Applies the rules of cy pres and equitable deviation to restrictions on funds held by nonprofit corporations, and creates a new rule that permits a charity to apply cy pres to an old (more than 20 years) and small (less than $25,000) fund without going to court (but after notifying the Attorney General).

So far, 14 jurisdications have adopted UPMIFA: Connecticut, Delaware, District of Columbia, Idaho, Indiana, Montana, Nebraska, Nevada, Oklahoma, Oregon, South Dakota, Tennessee, Texas, and Utah.

Twelve states have bills introduced already this session, and more introductions are likely.  The twelve are Alabama, Arizona, Colorado, Georgia, Kansas, Michigan, New Hampshire, New Mexico, South Carolina, Vermont, Virginia, and West Virginia.

The Uniform Law Commission's website provides information about the act, including a copy of the act.  The ULC updates the list of enactments and introductions weekly.

sng

California Bill - Private Foundations and Diversity Reporting

A California bill captioned "Foundations: Diversity" passed out of the House on Jan. 29 and is now being considered by the Senate.  Assembly Bill 624 as introduced applied to private foundations and has been amended to apply to "private, corporate, or private operating foundations." 

The legislative counsel's digest describes the bill as follows:

• This bill would require a private, corporate, or public operating foundation with assets over $250,000,000 to collect specified ethnic, gender, and sexual orientation data pertaining to its governance and grantmaking.  The bill would require this information to include, but not be limited to, the following: the racial, gender, and sexual orientation composition of the board of directors or trustees and members of the foundation, the number of grants awarded to specified organizations serving serving ethnic minority communities and lesbian, gay, bisexual, and transgender communities, and the percentage of grant dollars awarded to specified organizations where 50% or more of the board members are ethnic minorities or are lesbian, gay, bisexual, or transgender.

The information collected is to be reported on the foundation's website, if available, under the heading "Diversity."

The purpose behind the bill is unclear, although making information about diversity public suggests that someone will review this information and draw conclusions from it.  One type of information refers to the grants made to organizations serving ethnic minority communities and LGBT communities.  That type of information seems useful if the goal is to learn about the amount of grantmaking to organizations that fit that definition.

The other types of information being gathered seems odd, not very useful, and intrusive.

One type of diversity being tracked is gender diversity.  Is the goal to have an equal number of men and women on boards?  Is the goal to increase the number of women on foundation boards?  The number of transgendered persons on boards?  In terms of grants, should a foundation give a preference to grantees run by women?  Should a charity with lots of women members on the board get a preference over a charity with a majority of men?  What if the charity with female board members runs an after-school program directed at boys and the charity with male board members runs an after-school program that targets girls?  Why does the gender of board composition matter?

What about racial information?  The bill itself states that information should be collected based on the following categories:  African-American, Asian-American, Pacific Islander, Caucasian, Latino, Native American, and Alaskan Native.  Is the goal to increase the representation of people of color on boards?  To balance the racial composition of boards among various racial and ethnic groups?  Will a board with all African-American members be treated in one way and a board with a mix of Latino, Asian, and African-American members be treated another?  What about a board with Latino, American Indian, and Caucasian members?

The requirement to provide information about sexual orientation seems intrusive.  Presumably private foundations will require that grant requests include information about the sexual orientation of each board member of the requesting organization?  What if board members do not wish to make that information public?  Will boards ask for that information when recruiting new board members?

This bill is troubling in many respects.  It would be interesting to know more about its origins and purposes.

sng

Guess Who's Coming to Dinner: California Set to Demand Diversity Disclosures from Foundations

The Chronicle of Philanthropy reports that:

The California Assembly on Tuesday approved legislation to require big foundations to disclose the composition of their boards and employees by race, gender, and sexual orientation, as well as information about the grants and business contracts they award to organizations that help specific minority groups.

The bill was supported by the Greenlining Insitute, an interesting nonprofit out of San Francisco whose goals, according to their website, is to "increase low-income and minority participation in civic participation and policy-making that result in equitable policies that improve the quality of life for all communities."  The history and full text of the bill is available here.  In the meantime, an op-ed in the Los Angeles Times has condemned the bill as simply too much:

Imagine if the Bush administration proposed that the Internal Revenue Code be amended to require that nonprofit foundations disclose the makeup -- including gender, race, ethnicity and sexual orientation -- of their boards of directors, their trustees, their employees and of all the organizations that receive grants.

The criticism would be swift and unambiguous: This is absurdly intrusive and a violation of privacy. Foundations would organize to oppose any such legislation. The ACLU would not be far behind.

Yet in California, an equally intrusive measure, AB 624, sailed through the Assembly on Tuesday with barely a whisper of protest. The bill, introduced by Assemblyman Joe Coto (D-San Jose) at the behest of the Greenlining Institute, aims to remedy what the institute describes as the lack of diversity in the world of foundations.

Yeah, this may very well be a case of overreaching, particularly since it is applied to a people who, by and large, can be charitably described as a buncha do-gooders.  My head says the bill will likely divert sources from good causes to a foundation's overhead.  And the objections raised by the LA Times are, as an intellectual matter, indisputable.  But, as my father used to say whenever people perjoritively refer to efforts at increasing diversity as "quotas," . . . "when the quota was zero, nobody complained!"  It may be a good idea to ensure that Private Foundations not run afoul of Bob Jones University but this bill probably needs some serious retrofitting. 

By the way, thanks to Dien Yuen (a picture of humility) for bringing this to my attention.  Check out her blog on Asian  American Philanthropy.  There is a really good post today entitled "5 Challenges Advisors and Gift Planners Face When Working With Asian Donors".

dkj

Indiana Bill Would Impose PILOTS on Nonprofit Organizations

PILOTS, or payments in lieu of taxes , are generally considered "semi-voluntary" payments made by nonoprofit organizations in hopes of forestalling legislative or judicial scrutiny of a nonprofit organization's property tax exemption.  When cities become strapped for cash and begin looking at large nonprofits the way Wyle E. Coyote used to look at the roadrunner (longlingly, as if he had stumbled upon a turkey dinner with all the fixin's), nonprofits would "voluntarily" offer some sort of payment to make the cash-strapped city administrators go away.  A bill in the Indiana House, though, would remove whatever semblance of voluntariness" from PILOTS.  According to today's Indianapolis Star:

Hospitals, museums, fraternal clubs and many other nonprofit organizations now exempt from property taxes could have to chip in under a bill in the Indiana House.  Nonprofit groups that want to avoid the "payment in lieu of tax," or PILOT, would have to show the state they truly serve a charitable purpose, defined as providing "relief from human want."

The sponsors of a bill (summarized in a sidebar to the article) to make PILOTS mandatory -- essentially repealing the property tax exemption in Indiana -- argue  that "senior citizens struggling to pay property taxes should not have to subsidize nonprofit hospitals that generate millions in annual revenues, or organizations that essentially operate as social clubs, such as Elks clubs or college fraternities."

This bill and the recent decision by the Minnesota Supreme Court suggests that state and local governments -- wary of raising property taxes on voters -- are beginning to look upon nonprofit organizations as politically easy sources of revenue.

dkj

Donor Anonymity and State Universities

The Wall Street Journal reports that there is a growing trend of large donors seeking to remain anonymous according to analysis by the Center on Philanthropy at Indiana University, but that it is often a difficult wish for receiving organizations to honor, especially public universities.  It cites, among other examples, the case of University of California at Irvine, which revealed the source of a $20 million donation for its new law school after public criticism for not disclosing the donor's identity.  Concerned that such disclosures could reduce charitable giving, the article reports that both Colorado and Georgia recently passed laws to allow publicly funded schools to keep anonymous donors' names private - presumably to avoid any claims that state freedom of information laws could require disclosure.  The article also reports that a similar law in Kentucky is currently being challenged before that state's Supreme Court. 

Further inquiry determined that this case is University of Louisville Foundation, Inc. v. Cape Publications, Inc. (Case No. 2005-SC-000454).  The University of Louisville Foundation raises funds for the University of Louisville.  Cape Publications, which publishes the Louisville Courier-Journal, sought access to the Foundation's donor records under Kentucky's Open Records Act.  The Foundation, relying on the above-mentioned statutory exception for donor information, refused.  The appellate court, in an unreported opinion available the Kentucky Supreme Court's website (search for the 2003 Court of Appeals opinion involving the "University of Louisville Foundation"), ruled in the Foundation's favor, finding that the exception protected all donor information from public release.  Cape Publications appealed, and the Kentucky Supreme Court heard oral arguments in March 2007 but has yet to issue an opinion.

LHM