Nonprofit Law Prof Blog

It's Begun . . .

Reuters has posted the first of what I'm sure will be many stories about charities' concerns over the effect of Obama's tax plan on donations, a subject I posted about yesterday. But the more I think about this, the more convinced I am that the effect will not be that great. Obama's plan is simply to limit the tax rate applicable to the deduction (and all other itemized deductions) to 28%, not to cap the deduction (e.g., eliminate it over a certain amount). So donors with over $250,000 in income will still get a substantial deduction, just not as much as before - or put concretely, today a $10,000 contribution really costs a top-bracket contributor only $6500, because a $10,000 deduction at a 35% rate is worth $3500 in tax savings. Under Obama's plan, that $10,000 donation now costs $7200. Of course, the worry is that donors will now give only $9300 or so, in order to "make up" for the extra after-tax cost. But econometric studies don't support a "dollar-for-dollar" negative effect on giving, and as I pointed out yesterday, they vary a lot in their predictive models. Moreover, lessons from psychology and behavioral economics tell us that pure math rarely, if ever, accurately predicts behavior due to a variety of other factors (the prestige associated with big gifts, for example) that impact charitable giving. So Peter Orszag is probably right on this one: the actual effect of the change probably isn't going to be much.

So let's not turn this into a doomsday scenario, folks. The truth is, if Obama can fix our health care system, charities as a whole (and everyone else, from GM to the local barbershop) are going to be much better off in the long run.

JDC

New GAO Report on Federal Funding of Nonprofits

The GAO has published a new report concerning federal funding of nonprofits (federally tax-exempt organizations, for this purpose). Here is their summary:

The federal government uses a variety of funding mechanisms to achieve national priorities through partnerships with nonprofit organizations, and the relationships are sometimes complex and multidirectional. Nonprofit organizations receive federal grant and contract funds both directly and through other entities, such as states, for performing activities or providing services to particular beneficiaries. Federal funds paid to nonprofit organizations as fees for services follow a somewhat more complex path. Credit through loan and loan guarantee mechanisms facilitate nonprofit organizations’ access to capital. Similarly, some tax policies result in benefits to nonprofit organizations by either reducing their costs or increasing their revenues. With direct federal grants and contracts, and with some loans and loan guarantees, federal agencies generally select the nonprofit participant, directly control the amount of funding provided, and monitor nonprofit performance. With other mechanisms, such as tax expenditures and fee-for service programs, the federal government sets criteria for acceptable recipients but does not directly select or monitor nonprofit performance.

Due to limitations and reliability concerns with tracking systems’ data, the data presently collected provide an incomplete, unreliable picture of the federal government’s funds reaching the nonprofit sector through various mechanisms, although they suggest these funds were significant. No central source tracks federal funds passed through an initial recipient, such as a state, and the nonprofit status of recipients was not reliably identified in FPDS-NG or FAADS. Factors contributing to data limitations include the nonprofit status of recipients being self-reported and no consistent definition of nonprofit across data systems. The development of a system to report funding through subawards, currently underway, may enable more complete estimates of funding to the sector in the future. However, until the accuracy of nonprofit status is improved, accurately determining the extent of federal funds reaching the sector is not possible, leaving policy makers without a clear understanding of the extent of funding to, and importance of, key partners in delivering federal programs and services. Funding data sources identified the following as the approximate amounts of federal funds flowing to nonprofits in 2006 under different mechanisms, although most sources did not reliably classify nonprofit status of recipients:

• $135 billion in fee-for-service payments under Medicare;

• $10 billion in other types of fee-for-service payments;

• $25 billion in grants paid directly to nonprofits;

• $10 billion paid directly to nonprofits for contracts; and

In addition, approximately $2.5 billion in loan guarantees and $450 million in loans were issued to nonprofits, and approximately $50 billion in federal tax revenues were foregone due to tax expenditures related to nonprofits.

(Hat Tip to Harvey Dale)

JDC

Nonprofit Mergers and Acquisitions

According to a a new study, reported in the Chronicle of Philanthropy and available in full text here:

Mergers and acquisitions (M&A) are much more common in the nonprofit world than most would think, as our study of 3,300 deals across four states over 11 years shows. But nonprofit mergers often come about through default—due to financial distress or leadership vacuums. At the same time, relatively few nonprofits are using M&A strategically, as a way to strengthen organizations' effectiveness, spread best practices, expand reach, and to do all of this more cost-effectively. Yet the potential for M&A to create real value in the nonprofit sector exists, particularly if more philanthropists take on the mantle of matchmaker and help nonprofits explore and evaluate M&A opportunities. This article discusses research conducted by the Bridgespan Group on nonprofit M&A; explores the Child and Family Services (CFS) field, where "market" conditions are especially favorable to combinations; and profiles two nonprofits making the most of acquisitions. It also issues a call to action to philanthropists to further strategic, social sector M&A.

There must be all sorts of "cultural" and tax issues that must be worked out with regard to nonprofit mergers and acquisitions.  This report suggests that economic conditions will increase nonprofit M&A activity over the next few years, and thus the need to carefully plan for the hidden issues.

dkj

Thoughts On Google's Shift in Philanthropy Approach and the Private Benefit Doctrine

A few days ago we blogged on Google shifting philanthropy purposes.  According to a Wall Street Journal article, Google intends to "better leverage its technology strength" through its philanthropic efforts.  Take a look at the following cut and paste from a New York Times article on the topic:

Larry Brilliant, the executive director of Google.org, said late Monday that he would step down from managing Google’s philanthropic unit and signaled that Google.org might curtail its financing of nonprofit groups unless they are closely aligned with Google projects . . . . Megan Smith, a longtime Google executive with experience in engineering and business development, will manage Google.org, while retaining her job as vice president for new business development at Google. The announcement represents a shift in Google’s approach to philanthropy. Dr. Brilliant wrote on a Google blog that he and others at Google had been reviewing Google.org’s progress in its three years of operation.  Dr. Brilliant highlighted a handful of projects that DotOrg, as the group is known inside Google, has developed with Google engineers as models of success. They include Flu Trends, a service that uses search data to track outbreaks of the flu, and PowerMeter, a embryonic project that would allow homeowners to track their energy use. “During our review it became clear that while we have been able to support some remarkable nonprofit organizations over the past three years, our greatest impact has come when we’ve attacked problems in ways that make the most of Google’s strengths in technology and information,” Dr. Brilliant wrote.  “By aligning Google.org more closely with Google as a whole, Megan will ensure that we’re better able to build innovative, scalable technology and information solutions,” he wrote.

Here's my problem with this otherwise innocuous sounding tidbit.  I have long tthought that the amorphous "private benefit" doctrine means that a charity ought not to operate so as to intentionally benefit non-charitable third parties.  Unintended private benefit is a fact of life but intended secondary benefits ought to preclude tax exemption (that is, according to conventional wisdom).  In KJ's Fundraisers, Inc. 74 CCH Tax Ct. Mem. 669 (1997), for example, the Tax Court affirmed the revocation of tax exempt status for a nonprofit that operated so closely with its for profit organizers as to convey an impermissable private benefit on those organizations.  Put another way, the organization unnecessarily directed its secondary benefits to a select and identifiable portion of the population.  The language used to described Google's restructuring of its charitable activities suggests an intention to do the same -- that is, align its tax exempt nonprofit  activities in a manner that causes some bottom line benefits to its profit seeking endeavors.  The opening line in the linked article says that Google will indulge its charitable impulses only when they are "closely aligned with Google [profit-making] projects" and that Google intends to "align Google.org more closely with Google as a whole."  Tellingly, the new CEO of Google.org is simultaneously the "vice president for new business development at Google."

Certainly, the law ought to encourage the charitable impulses of big business -- that is, after all what social entrepreneurship is about -- and there is necessary "incidental" private benefit arising from just the name "Google.org."  But I get nervous when a charity, even one hatched in the board room of a profit maker, publicly announces that its nonprofit arm will be restructured to make sure its tax subsidized activities inevitably generate profit for its profit-seeking founders.  My conception is that the profit seekers, once they give birth to a tax exempt nonprofit, ought to step away and let the tax exempt nonprofit set its agenda without regard to the effect on its founders' private fortunes.  To mandate that Google.org operate so as to benefit Google.com seems to me to necessarily run afoul of the private benefit doctrine.  Maybe Google.com should think about that before talking more about the restructuring of Google.org.

I should add, incidentally, that I'm not sure that Google.org is a 501(c)(3).  I could not find it on Guidestar.  The google.org website describes its structure thusly:

In 2004, when Google founders Larry Page and Sergey Brin wrote to prospective shareholders about their vision for the company, they outlined a commitment to contribute significant resources, including 1% of Google's equity and profits in some form, as well as employee time, to address some of the world's most urgent problems. That commitment became Google.org. 

Google.org is a hybrid philanthropy that uses a range of approaches to help advance solutions within our five initiatives. We operate in a traditional manner by supporting our partners’ work with targeted grants. But we can also invest in for-profit endeavors, such as efforts by companies to develop breakthrough renewable energy technologies. Our structure also allows us to lobby for policies that support our philanthropic goals. Additionally, we can tap Google’s innovative technology and, most importantly, its inspired workforce. We’ve already begun to donate and invest Google.org’s funds, and we expect to continue to do so in the future. 

Google also established the Google Foundation in 2005, which is a separate 501(c)(3) private foundation.  The Google Foundation is managed by Google.org and supports our mission and core initiatives as one of our sources of funds for grant making. As of May 2008, Google.org has committed over $85 million in grants and investments to further our five initiatives.

Even if we assume that Google.org is not a 501(c)(3), the private benefit concerns expressed above are still worth exploring.  Maybe the conclusion ought to be that private benefit should not be fatal or even relevant to tax exemption.  One would think that if private benefit is categorically inconsistent with tax exemption Congress would have said so.  Instead, as scholars know, private benefit is a sort of Frankenstein's monster hatched by a mad IRS scientist.  I've even written that its application to essentially preclude tax exempt HMO's and whole hospital joint ventures is counterproductive. If KJ's Fundraisers's Inc. caused more customers to come to the profit-seeking bar owned by the fundraisers, so what?  There was still a net charitable benefit and maybe that is all we should be concerned with.   

dkj

Could Obama's Tax Plan Hurt Charitable Contributions?

According to the New York Times and other sources, part of Obama's plan to pay for his health care initiative involves limiting the availability of itemized deductions for taxpayers with over $250,000 in income (probably we mean adjusted gross income for this purpose, though that detail is still murky). This means that the value of itemized deductions will go down for these taxpayers, and one of those deductions is the charitable contributions deduction.

Many academic studies have concluded that there is considerable elasticity of demand for charitable contributions by the wealthy - or in English, that means that the wealthy in fact respond to tax incentives for donations. If the after-tax cost of charitable giving goes down, the wealthy give more; if it goes up, they give less. Admittedly, these studies vary in predicting the effect of tax changes on charitable giving, and they are all based on statistical analysis and computer modeling from trends observed at times when the economy differed from what we have now. But I think most economists and academics who study the matter would agree that increasing the after-tax cost of donations will have some negative effect on charitable giving, and given the state of our economy and the pressures on charities already, any negative effect may be a bad idea. (Note that there is a counter-argument: some would argue that the tax benefits we give to the wealthy for charitable contributions gives them a disproportionate advantage in shaping the policies of charitable organizations and that in fact tax policy should reduce the tax incentives for giving by the wealthy to avoid having the wealthy monopolize charities).

On a broader note, many tax policy folks (me included) have serious qualms about targeting itemized deductions en masse as a method of raising taxes. At its simplest, I prefer more transparency - if we want to raise taxes on the wealthy (which, by the way, I happen to think is a splendid idea, given that the wealthy have literally made out like bandits from the tax policies of the past 8 years or more and that the distributional inequality of our societal wealth has grown exponentially over that time), then let's just raise the marginal rate, which affects everyone in that tax bracket relatively equally, instead of attacking itemized deductions, which will result in a varied effect depending on how big a given taxpayer's itemized deductions are. For example, if I have $500,000 in adjusted gross income and make a charitable contribution of $100,000, my taxable income after the deduction is $400,000 and I would presumably pay the same amount of tax as someone making $400,000 and making no charitable contributions. If we raise the marginal rate, both of us end up paying more. If we disallow the charitable contributions deduction, then I end up paying more (because my taxable income now rises to $500,000), but the guy making no charitable contributions pays the same. In effect, what we've done is raise the tax rate on just charitable contributions with this strategy. Now if we really think a deduction for charitable contributions is bad public policy to begin with, well, OK . . . then let's just end it. For example, a number of tax policy experts feel that the deduction for home mortgage interest causes us as a society to over-invest in housing (particularly really-big houses), and should be ended. I agree. So fine. Let's end it. But let's not sneak tax increases through the back door without examining the underlying policies for the deductions in the first place. Better to just raise marginal rates.

(Hat Tip to Harvey Dale)

JDC

UPDATE: Politico.com reports that Peter Orszag was asked specifically about the effect of the budget on charitable contributions at today's press briefing, and he opined that people contribute to charities "out of benevolence," not out of desire for a tax write-off. I think this is a bit disingenuous - as I noted above, it may be true that the tax proposals won't have a huge effect on charitable contributions, but to argue that people don't respond to tax incentives on this issue is against the manifest weight of the academic literature.

Campaign Finance Institute Study Shows Increased Political Spending by 501(c)'s

A report issued by the Campaign Finance Institute shows that "soft money" contributions to political campaigns by 501(c)(4), (c)(5) and (c)(6) organizations has tripled since 2004, and total spending by these groups now at least equals (probably exceeds) that spent by 527 campaign organizations (note that 501(c)(3) charitable organizations are not included in this study because they are prohibited by law from "intervening in any political campaign"). Another interesting observation by the report is the following:

If Democratic-oriented 527s dominated the soft money system in 2004, the rise of the 501(c)s in 2008 has evened the partisan balance. Democratic-leaning 527s, largely financed by labor unions and wealthy individuals, held more than a 2-1 advantage over Republican-oriented ones. But among 501(c)s, Republican-inclined groups -- mainly backed by businesses and wealthy individuals -- maintained the same edge over their pro-Democratic rivals.

These findings pose a challenge to campaign finance reform groups who want the Democratic-controlled Congress to bring the predominantly Democratic-leaning 527s under essentially the same “hard money” contribution limits as Political Action Committees (PACs). Such legislation could however leave predominantly Republican-oriented 501cs -- who pursue essentially the same campaign activities as 527s -- an open field. (This is especially the case because tax laws give the predominantly labor union funders of 527s strong financial incentives to use 527s rather than 501cs for their political operations).

What the study does not speculate on is why this has happened. 501(c)(4)-(c)(6)'s cannot receive tax-deductible contributions (at least in theory) so there would not appear to be a huge tax advantage to employing these groups for political purposes. On the other hand, it is possible for a 501(c)(3) to form an associated 501(c)(4) for political purposes. Although the finances of the two organizations are supposed to be kept separate so that tax-deductible contributions do not fund the political activities of the (c)(4), I am certain that as in other areas of tax law, there is enough "slop" in the accounting systems that some money filters across the divide (for example, if the (c)(4) is using office space owned by the (c)(3), in theory they should be paying the (c)(3) "fair market value" rent for that space. Yeah, right. Wonder how often the IRS checks up on that??). It may also be the case that the different regulatory regimes between the (c)(4)-(c)(6)'s and 527's are affecting this (less regulation of the (c)'s), though if that is true, one wonders why only the Republicans seem to have figured it out. There has been a fair amount of academic writing on 527's; I guess I need to go back and check those sources to see if there is a potential explanation.

(Hat Tip to Ellen Aprill).

JDC

Army Emergency Relief Responds to AP REport

Army Emergency Relief, a 501(c)(3) recently in the news for allegedly "hording cash" and cutting staff, and for receiving a failing grade from the American Institute of Philanthropy, has issued a response to the news reports disputing the accuracy of the report and defending its history of supporting soldiers in times of fianancial distress.  I should point out, that I am an Army veteran and my experiences with AER were all positive.  Acccording to AER's response:

The recent Associated Press article on AER incorrectly infers that Army Emergency Relief withheld financial assistance from Soldiers and Families during a time of need. The article focused on the following:

“Between 2003 and 2007- as many military Families dealt with long war deployments and increased numbers of home foreclosures – Army Emergency Relief grew into a $345 million behemoth. During those years the charity packed away $117 million into its own reserves while spending just $64 million on direct aid according to an

AP analysis of its tax records”

The facts are as follows:

a. Between 2003 and 2007, Army Emergency Relief distributed a quarter of a billion dollars in financial assistance to 258,000 Soldiers and Families.

b. AER does not hold any funds in reserve. All of our assets less $9 million in restricted accounts and the receivables from interest free loans are available at all times to meet the needs of our Soldiers and their Families.

c. Investment capital available for support to Soldiers and Families today is $190 million. This is fully invested at all times to insure a fair rate of return. Our investment portfolio provides interest and dividends which increases the level of funds available and is a ready resource in borrowing funds to meet requirements for loans and grants in support of emergency financial assistance and scholarships.

d. AER has always met the need for financial assistance. No Soldier or Family member has ever been denied financial assistance for a valid need due to a lack of funds. There is no limit on the amount a Soldier may request and no limit on the number of times a Soldier or Family member can request assistance.

e. To meet the financial needs of those we serve, AER spent every dollar in donations received during that time period plus $51.5 million of investment capital to meet the increased demands of assistance from Soldiers and Their Families.

f. In 2008, AER provided $83 million to 72,000 Soldiers and Families. 24% of that amount was in the form of tax free grants and 76% was for interest free loans. Soldier repayment of interest free loans account for 65% of available funds and provides a cash-flow that is used to respond to future needs by Soldiers and Families.

g. In 2003, children and spouses of Soldiers on active duty and retirees received $3.6 million in scholarships (all grants). In 2008, Army Emergency Relief scholarships increased to $13 million. From 2003 to 2008 the total amount of assistance has steadily grown.

The response also invites readers to download AER's 2007 Annual Report. 

dkj

Google Shifts Philanthropy Focus

A number of sources today have commented on the departure of Larry Brilliant from Google.org, Google's philanthropy arm, and what this might mean for Google's approach to philanthropic projects. The Wall Street Journal's take is that Google will be spending more carefully, trying to better leverage its technology strengths. Forbes notes that engineer Megan Smith will be taking over the operations of Google.org, a sign that Google wants to better align the goals of the parent company and its philanthropic arm, as well as streamline management. Similar commentary comes from PC Magazine, The San Francisco Chronicle and CNET.

JDC

Closed Churches Face Loss of Property Tax Exemption

A report in the Morning Call notes that property tax officials in Pennsylvania are moving to withdraw property tax exemption for churches that have been closed by the Roman Catholic Diocese of Allentown. According to the story,

Carbon County has notified the diocese that it will add eight closed churches to the tax rolls. That will bring about $105,000 a year in new taxes to the county, the Weatherly and Panther Valley school districts and five municipalities.

The story also notes that the cases almost certainly will end up in court. The main legal argument will deal with "charitable use." Most state property tax laws exempt property only if two conditions are met: (1) the property is owned by an exempt organization (e.g., a religious organization or other charity) and (2) the property is actually used primarily for charitable purposes. For example, Illinois courts once ruled that the thrift stores operated by the Salvation Army were not tax-exempt because they were commercial businesses, and thus not used for charitable purposes (a decision later overturned by statute). The argument that the tax authorities will make concerning closed churches is that the property in question is no longer used primarily for charitable/religious purposes.

There is precedent for the Pennsylvania action. In 2004, the Roman Catholic Diocese of Manchester, New Hampshire, closed two parish churches and the city of Nashua put the now-unused buildings and land back on the property tax rolls. The Diocese appealed, and won its case before the Board of Tax and Land Appeals, but the New Hampshire Supreme Court reversed (from Findlaw - free registration required) and held that the property was no longer tax exempt because it was not being "used" for religious purposes. The Diocese had argued that the empty churches were being used to store religious items, but that didn't sway the court, which essentially held that storage was not a "religious use" within the meaning of New Hampshire law.

Major religious denominations are closing facilities all over the country, so it will be interesting to see if a state law trend develops here.

JDC

Now Here's A Special Exemption . . .

The Hindu News reports that Slumdog Millionaire has been exempted from the entertainment tax in India so that more people can watch the film. According to the story:

Maharashtra Chief Minister Ashok Chavan said the film would be exempted from tax from Tuesday. He said the film has done India proud and raised the bar for Indian film industry. Announcing tax-free status for the movie, Delhi Chief Minister Sheila Dikshit said it has "created history in the field of Indian cinema".

Not so odd when you think about it. In the U.S., we grant special exemptions all the time for specific economic reasons. The most widespread of these practices (and controversial, from a policy standpoint) is for states and local communities to provide property and other tax exemptions in order to lure businesses. Sales taxes are often abated on specific items such as food and drugs in order to make them less expensive for the poor. So why not exempt a cultural icon so that more people can experience it? On the other hand, let's not extend the principle to the NBA . . .

JDC

So Did Anything GOOD Come Out of the IRS Hospital Study?

A few days ago I posted a pretty severe critique of the community benefit portion of the recent final IRS nonprofit hospital study. But given that the study is 200 pages long, didn’t SOMETHING worthwhile come from it?

Well, OK. Yes, there were some useful things in the study – mostly confirmation of things we already knew (or thought we knew), such as that hospitals have in the past reported community benefit expenditures in a variety of different ways using a variety of different methodologies, and that smaller hospitals are more often financially on the brink.

But I’d like to pick up on one suggestion for future data-gathering at the very end of the report (later followed up on by Senator Chuck Grassley, IA, the ranking minority member of the Senate Finance Committee, in a press release on the Report) that I think is central to the whole nonprofit hospital debate. That suggestion is that the IRS needs to collect data from for-profit hospitals to compare to nonprofit hospitals.

Amen and Hallelujah! One of the things that has most annoyed me about the political discussion of tax-exemption for nonprofit hospitals is the complete lack of comparison to what for-profit hospitals do as a baseline to measure what we’re “getting” for tax-exemption (this is not true in the academic world by the way, where hundreds of empirical studies compare nonprofit to for-profit hospitals). Nonprofit hospitals talk about what they spend on community benefit; but they never talk about what they spend in comparison to for-profit hospitals. For example, a study done some years ago on uncompensated care found that nonprofit hospitals as a whole did not have much more uncompensated care than for-profits (of course, for-profits refer to all uncompensated care as “bad debt” while nonprofits refer to all or most of it as “charity care” – it’s only recently that the nonprofit community has started to separate charity care from bad debt, and the methodology for doing so is still a work-in-progress). It’s not what nonprofits do in an absolute sense that should justify tax-exemption – rather, it’s what they do that is different from for-profits. If for-profits as a group report 4.0% of revenues as “uncompensated care” and nonprofits report 4.5%, then as a practical matter all tax-exemption is getting us is a .5% increase - or, put more bluntly, not much.

And that brings me to my final point. I know it’s not going to happen during my lifetime, but I really wish we could bury the “community benefit” concept once and for all and focus on what REALLY should motivate our grant of tax exemption for nonprofit hospitals: whether they provide in some substantial way access to health services not provided by the for-profit market. That is why in my earlier post I suggested that the hospitals most deserving of exempt status were not necessarily the ones the IRS found reported the most community benefit. For example, critical access hospitals (CAH’s) and rural hospitals all reported less community benefit spending (as a percentage of revenues) than urban hospitals. But CAH’s and rural are often the only source of health care for their geographic area and carry heavy Medicaid patient loads – in short, these hospitals provide critical access to health services not provided to their communities by the for-profit sector.

If we abandoned the concept of “community benefit,” which has been completely bastardized by the practices of nonprofit hospitals identified in the Report and previous studies done by the CBO (2006) and GAO (2005, 2008), we could get both hospitals and policy makers to focus on what should be the core issue for tax-exemption: what a particular nonprofit hospital provides that is not being provided by the for-profit market. We don’t need nonprofits to duplicate services already provided by the market; we need them to fill the holes and push the boundaries. But that’s not going to happen so long as we keep talking about community benefit without forcing a comparison between nonprofits and for-profit hospitals. In some cases, merely existing may be the critical difference (e.g., the CAH, serving populations no one else wants to serve) and that should be enough for us in the tax-exemption world even if the CAH didn’t spend a dime on so-called “community benefit”; in other cases, plenty of for-profits also serve the population served by the nonprofit, so the nonprofit needs to explain what it does differently (and if the empirical work done by Jill Horwitz at Michigan, Bradford Gray at the Urban Institute and Mark Schelsinger at Yale is any indication, many nonprofits could tell a compelling story on this issue).

A side benefit of approach is that it would not only focus our policy lens, but it would also focus nonprofit managers on their nonprofit mission, which should be different than a for-profit manager’s business plan. A reporter once asked me why Provena Covenant hospital in Urbana, IL got into tax-exemption trouble. The answer I gave was that the group of managers of Provena at the time forgot they were supposed to be a charity; no one ever woke up in the morning and said “We can’t be suing poor people and throwing them in jail for not paying bills; we’re a CHARITY for cryin’ out loud.” If we forced charities to defend their exempt status by comparing what they do to for-profits, I’ll bet this kind of thing wouldn’t happen.

JDC

More on Charities and Same Sex Marriages

Thanks to a reader response to an earlier post regarding charities and same sex marriages, we have been pointed to a New Jersey Civil Rights Division ruling finding probable cause to believe that a religiously owned nonprofit organization illegally discriminated against a lesbian couple who where denied the opportunity to rent the nonprofit's publicly available space for a civil union ceremony.  The case is Bernstein v. OGCMA.  In a separate case, Moore v. OGCMA, the Commission found no probable cause.  From a federal tax exemption standpoint, does the ruling mean that the organization operated for an illegal purpose and is therefore not deserving of federal tax exemption?  Anyway, according to the Division's December 29, 2008 press release:

The Division on Civil Rights announced today that it had issued a Finding of Probable Cause against the Ocean Grove Camp Meeting Association for allegedly discriminating against a lesbian couple who had sought permission to hold their civil union ceremony at the Boardwalk Pavilion.

The finding, issued by Division on Civil Rights Director J. Frank Vespa-Papaleo, said an investigation had determined there was reason to pursue anti-discrimination charges against the Ocean Grove Camp Meeting Association for denying Harriet Bernstein and Luisa Paster permission to rent its Boardwalk Pavilion for their civil union ceremony. Vespa-Papaleo also intervened as a complainant in the case.

Separately, Vespa-Papaleo found no finding of probable cause in a second case involving Janice Moore and Emily Sonnessa because the Ocean Grove Camp Meeting Association had changed its policy about renting the pavilion for any weddings at the time of their application.

The Division’s jurisdiction in the case, which began in 2007, has been upheld in U.S. District Court, but the Ocean Grove Camp Meeting Association has appealed to the 3rd Circuit Court of Appeals.

Bernstein and Paster, who live in Ocean Grove, had applied for permission to rent the Boardwalk Pavilion for their civil union ceremony in March 2007, but the Ocean Grove Camp Meeting Association denied their request because it said the civil union ceremony conflicted with the religious beliefs of the United Methodist Church. The Association said it was not required to permit civil union ceremonies in its Boardwalk Pavilion based on First Amendment rights.

However, an investigation found that the refusal to permit the civil union ceremony violated the public accommodation provisions of the state’s Law Against Discrimination and did not violate First Amendment Rights. The Division investigation found that the Camp Meeting Association had been permitting the public to use the Boardwalk Pavilion for weddings and secular events and that the Association had gained a Green Acres tax exemption from the state Department of Environmental Protection nearly 20 years ago after a finding that the Pavilion will be open to the public “on an equal basis.” (Following filing of the civil rights complaint, the DEP rejected a renewal of the Green Acres tax exemption for the Boardwalk Pavilion in September 2007.)

The Finding of Probable Cause states in part, “When it invites the public at large to use it, the Association is subject to the Law Against Discrimination, and enforcement of that law in this context does not affect the Association’s constitutionally protected right to free exercise of religion.”

The application from Bernstein and Paster to hold their civil union ceremony prompted a swift change in policy by the Association. By April 1, it was decided by the Association president that it would cease permitting the public to reserve the use of the Boardwalk Pavilion for any wedding and other events.

Therefore, Vespa-Papaleo found no probable cause in the complaint filed by Moore and Sonnessa, who also live in Ocean Grove, because they had applied for permission to use the Pavilion after the Association had ceased permitting any of the public to use the Pavilion for weddings.

A Finding of Probable Cause does not resolve a civil rights complaint. Rather, it means the state has concluded its preliminary investigation and determined there is sufficient evidence to support a reasonable suspicion the New Jersey Law Against Discrimination (LAD) has been violated.

dkj

Charities and Same Sex Unions

An interesting NY Times op-ed piece discussed (only in passing) the obligations charities have to comply with anti-discrimination laws.  The writers stated the following:

Further sharpening the conflict is the potential interaction of same-sex marriage with antidiscrimination laws. The First Amendment may make it unlikely that a church, say, would ever be coerced by law into performing same-sex wedding rites in its sanctuary. But religious organizations are also involved in many activities outside the sanctuary. What if a church auxiliary or charity is told it must grant spousal benefits to a secretary who marries her same-sex partner or else face legal penalties for discrimination based on sexual orientation or marital status? What if a faith-based nonprofit is told it will lose its tax-exempt status if it refuses to allow a same-sex wedding on its property?

Hmmmmm.  The op-ed piece goes on to state that "cases of this sort are already arising in the courts, and religious organizations that oppose same-sex marriage are alarmed."  Where are these cases, about which the writers speak?  Has anybody seen a case or are the writers engaging in hyperbole?

dkj

Med School Profs and Coaches Pulling Down Big Bucks on College Campuses

According to a study conducted by the Chronicle of Higher Education and reported about in the Wall Street Journal, medical school professors and administrators comprise the highest earners on college campuses:

A new study of 600 private colleges found that presidents accounted for only 11 of 88 employees earning $1 million or more and only 31 percent of those earning $500,000 or more. The survey was conducted by the Chronicle of Higher Education, a trade publication.  In contrast, 30% of the 293 employees earning $500,000 or more were medical school professors or administrators, and 13% were athletic coaches or directors. Others earning high salaries included investment managers, chief academic officers and chief financial officers.  The study covered pay and benefits for the fiscal year ended June 31, 2007, the latest for which data was available. Although that was before the current economic crisis, the study comes as tuition costs become a growing burden for many families and college finances face mounting scrutiny.

And from the looks of things, coaches get pretty testy when asked about their salaries.  Take a look at this video of UConn's coach Jim Calhoun ripping into a reporter for daring to ask about his million plus salary. 

dkj

NGOs and Human Rights

Peter Spiro has posted "NGOs and human Rights:  Channels of Power."  Here is the abstract:

This essay, a revised version of which will appear in the Research Handbook on Human Rights (Edward Elgar, forthcoming 2009), attempts to systematize NGO activity relating to human rights. It first describes why human rights supplies fertile ground for the study of non-governmental organizations. As human rights obligations cannot be explained in terms of reciprocal state interest, non-state actors are a probable causal agent in the entrenchment of human rights regimes. The chapter confronts NGOs as agents of material power. The chapter then describes four primary pathways for the exercise of NGO power: through and against states, international organizations, corporations, and each other. Only by situating NGO power relative to state and non-state entities does the breadth and novelty of NGO participation in today's global decision-making come into full relief. Given the fact of that broad power, the chapter concludes by addressing the question of NGO accountability, suggesting that institutionalization of NGO power holds the most promise for appropriately constraining its exercise.

dkj

Brennen Speaks on Diverging Perspectives of "Charitable" Today at Hamline Health Law Institute

I will be speaking today at the Hamline Health Law institute in St. Paul, Minnesota, on the topic: Diverging Perspectives of "Charitable": Federal Income Tax Versus State Property Tax Exemptions for Hospitals and Homes for the Elderly.  Here is the description:

Many states are challenging property tax exemptions for charitable hospitals and elderly housing under the guise of preventing superfluous flows of tax benefits to the rich or middle class. State tax officials resort to "quid pro quo" or similar notions to justify claims that the financially well-off are not entitled to this government largess. Federal law recognizes, though, that "charitable" includes benefits to the poor, in addition to hospital care to all and elderly housing. Using these examples (hospitals and elderly housing), this presentation will explore the impact on state exemption law of two perspectives of "charitable" - the narrow alms giving view of many states versus the broader societal view of federal law.

Nonprofit Law Prof Blog contributing editor, John Colombo, has spoken to this issue on many occasions(here, here and here) and is quoted quite extensively in the Provena case.

One of the points I intend to bring out is that the diverging views of what is "charitable" from the federal law perspective and from the state law perspective is at odds with the goal of charity to create contextual diversity.  For example, in the Provena case in Illinois, the court states explicitly: "In this respect, the Illinois standard for exemption from property taxes is different from the more diffuse "community benefit" standard for exemption from the federal income tax."  Astonishingly, the court interprets the law in Illinois in a way that completely ignores the benefits to society of the many non-charity care activities of a hospital - medical education, crisis nursery services, behavioral health benefits, and Medicaid and Medicare subsidies, for example.  True, many of these non-charity care community benefits are not directly linked to notions of "free care" or "gifts" to the poor, but they are valuable in their own right.  The real likelihood is that the many states that have this narrow view of charity will, inevitably, adversely affect the ability of nonprofits in general to use creativity, innovation and a myriad of other ideas as a way to advance the marketplace and make society all the better.

DAB

Army Charity Behaving Badly?

An investigative report by Associated Press finds that Army Emergency Relief, a separate tax-exempt nonprofit founded in 1942 to ease cash emergencies of active-duty soldiers and retirees and provide college scholarships for their families, is hoarding cash and cutting services. AER's cash hoarding earned it an "F" rating from the American Institute of Philanthropy. In addition to hoarding cash, the AP found several questionable practices stemming from AER's relationship with the army, including

• Superior officers come calling when AER loans aren't repaid on time. Soldiers can be fined or demoted for missing loan payments. They must clear their loans before transferring or leaving the service.

• Promotions can be delayed or canceled if loans are not repaid.

• Despite strict rules against coercion, the Army uses pushy tactics to extract supposedly voluntary contributions, with superiors using language like: "How much can we count on from you?"

• The Army sometimes offers rewards for contributions, though incentives are banned by program rules. It sometimes excuses contributors from physical training — another clear violation.

• AER screens every request for aid, peering into the personal finances of its troops, essentially making the Army a soldier's boss and loan officer.

JDC

A Discussion Case for Illegality and Public Policy Doctrines

The Deseret News (Salt Lake City, Utah) has an interesting article that may provide useful context for a class discussion of the illegality and against public policy doctrines.  That tax exemption may be denied because an organization is devoted to an illegal purpose or a purpose against public policy is unremarkable in the abstract but, as Professor Brennen has written about, difficult to apply in particular cases.  The Deseret News story talks about a group (Helping, Encouraging, and Loving Polygamists) organized to assist people in polygamist communities:

Polygamists, ex-polygamists, activists, lawyers and government officials were all in the same room Saturday night, supporting the newest organization to reach out to offer help to people in Utah's cloistered polygamous communities. A fundraiser gala at Gardner Village drew nearly 200 people for the debut of Holding Out HELP (Helping, Encouraging and Loving Polygamists).  "People from all walks of life are here," said executive director Tonia Tewell, as she stood in a crowded room where a debate for or against polygamy would be conspicuously absent from the evening's festivities.

Tewell launched the group after sheltering a couple of women and four children who were leaving a bad situation in polygamy. Speaking to the crowd, one of those women (who asked her name not be used) said everyone's situation is different.  "In the midst of my own crisis, my own heart went out to those from other polygamous communities who are struggling," she said. "Maybe they just need a listening ear or a nonjudgmental heart. Maybe they wish to leave but can't for a variety of reasons. As I see the faces of the people I left behind in my polygamous community, I have no desire to hurt them. I just wish that I am able to help them in any way I am able to. I don't resent them."

Should the fact that polygamy is illegal or, at the very least, contrary to public policy, make a group that supports people living in those communities (without taking a stand on whether polygamy is good, bad, or indifferent) preclude the group from tax exemption.  The question is worth exploring because the illegality and public policy doctrines have been used to the serious detriment, for example, of organizations formed to support displaced persons whose circumstances arose from the interminable conflict between Jewish and Palestinian peoples.  On a deeper level, the doctrine forces us to think about whether the term "Independent Sector" is accurately descriptive.  When does a grassroots organization's purpose stray so far from the "party line" that it ought to be denied tax exemption?  Is this a relevant question in any event?  What if the group's name was "Helping, Encouraging, and Loving relatives of Freedom Fighters" and simply donated money to rebuild houses torn down by the Israeli government after a family member participated in terrorist activity?  I'm pretty sure there would be loud objections to granting such a group tax exemption.  We need to better understand and articulate the illegality and public policy doctrines, not necessarily for an organization devoted to helping people who live in polygamist communities, but to address the larger issue of the extent to which government should be allowed to influence or determine the goals pursued by members of the "independent" sector.

dkj

Teaching Philanthropy to the Next Generation

Three months ago Children's Hospital Boston launched an innovative web site for children called Generation Cures. According to this story,

Generation Cures teaches kids about the importance of caring and giving through free, original digital content including interactive games, animated cartoons and kid-directed videos. At the same time, the site raises vital pediatric research funds to find cures for sick kids worldwide.

In the three months it has operated, Generation Cures has won 8 different awards from philanthropic and web-design organizations. I took a look, and I've got to agree that the site is pretty darn cool.

JDC

Charity Governance Fight Brewing in Oklahoma

This story in the Oklahoman details a fight brewing over the governance of Feed the Children, an Oklahoma City-based charity known for the emotional fundraising appeals of its founder, Larry Jones. According to the story, in December the charity replaced five long-time board members, who have now filed a lawsuit asking for a ruling that their dismissal violated the charity's bylaws.

Maybe they shouldn't be so upset: the story also reports that the American Institute of Philanthropy, a nonprofit watchdog group, has routinely given the charity an "F" grade, in part because Feed the Children spends only 18% of its cash budget on program services, as opposed to 60% on fundraising appeals and has repeatedly refused to disclose more detail on its activities.

JDC