Nonprofit Law Prof Blog

Historical abuses of incorporation and solicitation regulations

Continuing the prior post about Congressional warfare against a gay rights organization, today I highlight some of the other examples in which governments in the United States have abused laws providing for incorporation of nonprofits or regulating charitable solicitation.

In 1974 -- some 10 years after the US House's embarrassing spectacle against the Mattachine Society -- the Ohio Supreme Court ruled that the Cincinnati Gay Society had purposes that conflicted with the public policy of Ohio, and thus not allowed to incorporate as a nonprofit. State ex rel. Grant v. Brown, 39 Ohio St.2d 112 (Ohio 1974). Ohio law provided that "A corporation may be formed for any purpose or purposes for which natural persons lawfully may associate themselves." Yet the Court affirmed the denial of incorporation to the Cincinnati Gay Society because the promotion of "homosexuality as a ‘valid life style’" was contrary to public policy. The Court's reasoning was brief:

Although homosexual acts between consenting adults are no longer statutory offenses since the new Criminal Code came into effect, there is still reason for denying the writ. We agree with the Secretary of State that the promotion of homosexuality as a valid life style is contrary to the public policy of the state.

Ohio was not the first (although it may have been one of the last) to deny incorporation to organizations that those in charge didn't like. Prof. Silber has an entire book that documents many of these examples. (New York was one of the worst offenders, because potential organizations had to apply to a judge. Although nothing in the law obviously bestowed discretion, judges reasoned that they wouldn't have been entrusted with the power to approve if it was simply ministerial.)

Throughout time, cities and states have tried to abuse their power over nonprofits. Here are just a few illustrative examples (many can be found in Silber's book):

• In 1896, the a group of Jewish immigrants were denied a nonprofit charter because the meetings would be on Sunday-- the "Lord's day"--"not laudable" & against "public policy."
• Decades later, a home for "unwed mothers" was denied incorporation because it would "benefit immoral women" and perpetuate a "fraud on prospective husbands"
• After being excluded from the whites-only Elks, a predominantly African-American group attempted to incorporate a racially-integrated Elks, but was rejected because it was too similar to the then-existing Elks organization.
• The National Foundation for Diarrheal Diseases wasn't allowed to incorporate because it was unlikely to gain enough donations to succeed.
• Cities have frequently tried to prohibit religious groups such as the Jehovah's Witnesses from operating in their community. E.g., Cantwell v. State of Connecticut, 310 U.S. 296, 300 (1940). 
• Several cities attempted to ban soliciting donations that took place outside of the community wide fundraising campaign (community chest or united way). For example, Dayton, Ohio, prohibited the American Cancer Society from soliciting donations in town because the cause had already been adequately covered by the local community chest campaign. American Cancer Soc. v. City of Dayton, 114 N.E.2d 219, 223, 160 Ohio St. 114, 121 (Ohio 1963); see also Adams v. City of Park Ridge, 293 F.2d 585, 586 (7th Cir. 1961) (striking down town's ordinance that prohibited Heart Association from soliciting donations in favor of community chest).
• Los Angeles prohibited The Salvation Army from soliciting donations in town unless it first agreed to transfer control of all funds to a board of trustees who lived in the city. Ex parte Dart, 155 P. 63, 64, 172 Cal. 47, 50–51 (Cal. 1916)

To be sure, things have changed. But, surprisingly, some cities still provide extensive discretion to local authorities to decide which charitable causes are worthy before allowing them to solicit donations, although these laws are likely unconstitutional. For example, until challenged and repealed in 2016, Toledo, Ohio had a law that allowed donations to be solicited only if the City was satisfied that the field is not already covered by another charity, the solicitation “will be beneficial to the people of the City, either collectively or individually" and other requirements. Other cities, like Oakland, California, prohibit charities from soliciting donations if they spend more than a certain percent on fundraising expenses -- a law that was struck down decades ago. Or, Barberton, Ohio, was recently challenged for arresting people who were soliciting donations under a law that only allowed a "recognized charitable or religious group" to ask for donation, despite a nearly identical law being struck down by the Supreme Court in 1976. If you have additional thoughts or ideas on this, let me know: I'm currently researching both the history and the current practices on how cities regulate nonprofits, particularly when it comes to charitable solicitation.

@JosephWMead

 

 

 

 

 

New Slate Series on the Largest Nonprofits

Slate has started a new series -- Slate 90 -- that "examines the multibillion-dollar nonprofit sector" by scrutinizing the behavior of the largest nonprofits. As the introductory article explains:

The Slate 90 represents the top 10 American nonprofits by revenue in nine categories: arts, culture, and humanities; education; environment and animals; health; human services; international, foreign affairs; mutual/membership benefit; public, societal benefit; and religion-related...

Some of these organizations are good and worthy; others aren’t. But they’re all equally tax-exempt under the law, answerable in practice to almost no one except overstretched state attorneys general. Every single organization on this list represents a significant tax expenditure; collectively, they represent a massive pot of uncollected taxes that, ultimately, need to be made up by the rest of us. Is that a bargain worth making? Take a look ..., and decide for yourself.

Scroll through available stories here.

Nonprofit Law Flashback: US House Votes to Outlaw Gay Rights Organizations

Yesterday I wrote about the discretion New Zealand gives to administrators to assess the benefit of policy views, and I mentioned that this is not usually the approach we follow in the United States. But this has not always been the case. Indeed, governments in the US have a long history of abusively denying incorporation or the right to solicit donations to unpopular causes. Perhaps the best known/most egregious example is the outlawing of the NAACP in southern states in the 1950s. But there are many examples, including several that attempted to exclude organizations advocating for the decriminalization of LGBT people such as a bill that outlawed gay rights organizations that passed the US House. [Note: this post quotes materials that are offensive.]

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New Zealand Denies Greenpeace Charitable Status because its Views on Environment Wouldn't Benefit the Public

Earlier this year, New Zealand denied charity status to Greenpeace because it found its policy positions to be contrary to the public interest. Under New Zealand law, charitable activities may involve seeking policy changes, but the purpose must be in furtherance of the public benefit. (For thorough coverage of New Zealand charity law, see this book by Poirier.) The registration board rejected Greenpeace's application on two grounds:

1. Greenpeace promotes its points of view on the environment and other issues in ways that cannot be found to be for the benefit of the public.
2. Greenpeace and its members’ involvement in illegal activities amounts to an illegal purpose which disqualifies it from registration.

On the first point, the Charities Registration Board reasoned:

Although the Supreme Court in Greenpeace held that advocacy can be charitable, it indicated that promoting a cause or advocating a particular viewpoint will not often be charitable. This is because it is not possible to say whether the views promoted are for the public benefit in the way the law recognises as charitable.

The Board considers that Greenpeace’s focus is on advocating its point of view on environmental issues such fossil fuel exploration and the expansion of intensive dairy farming.  Most of Greenpeace’s environmental advocacy cannot be determined to be in the public benefit when all the potential consequences of adopting its views are taken into account.

The Board noted that advocacy for protection of the environment could be considered charitable, but Greenpeace's positions were simply too extreme to be considered in the public benefit. For example, the Board acknowledged that "in general" advocacy for sustainability is charitable, Greenpeace's concern about climate change and advocacy for specific policies such as the role of fossil fuels "is a complex issue that requires in-depth consideration of the potential consequences of New Zealand's international obligations and interests, environmental risks, the importance of fossil fuels in New Zealand's economy, the competing interests of industries, economic costs, and New Zealand's dealings with other nations." Finding Greenpeace's position on policy to not consider the other criteria, the Board couldn't find that "the views promoted by Greenpeace on climate change are of a benefit in the way that the law recognises as charitable."

The rejection of Greenpeace's application on the first ground may seem surprising to those in the US. Although there was once a time when governments in the US weighed whether an organization's policy viewpoints were in the public interest (and while some who dislike the NRA, the ACLU, or other advocacy grounds have urged a return to the discretionary denial of yesteryear), those days have largely passed, in no small part to Constitutional/First Amendment concerns.

Back to New Zealand, Greenpeace appealed an earlier board decision against it, so it will be interesting to see if this is heading up the courts again.

Sixth Circuit: Volunteers are not entitled to a minimum wage

When is a volunteer an "employee"? The question is a complicated one, but the Sixth Circuit recently rejected the Department of Labor's attempt to require a church-owned enterprise to pay all volunteers a minimum wage. 

A church run by controversial televangelist Ernest Angley owns a for-profit restaurant buffet. Angley would recruit church members to serve as volunteers for the restaurant. The Department of Labor sued alleging that the workers were "employees," arguing 1) that there was no such thing as a "volunteer" for a for-profit entity, and that 2) the workers were coerced by their pastor and thus were not truly volunteers. The District Court agreed, finding "The Buffet’s constant solicitation of volunteer labor, Reverend Angley’s admissions that the use of volunteer labor was intended to save money, and the volunteers’ feelings of pressure and coercion to provide the labor all demonstrate that the volunteers were actually employees.” (Previously covered on this blog.) Facing a judgment of $388k, the restaurant closed during the litigation.

In an interesting and important decision, the Sixth Circuit strongly disagreed, and held that the volunteers were not employees. 

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Bertrand et al.: Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence

Marianne Bertrand (Chicago Booth School of Business), Matilde Bombardini (Vancouver School of Economics), Raymond Fisman (Boston University), and Francesco Trebbi (Vancouver School of Economics) have posted Tax Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence. Here is the abstract:

We explore the role of charitable giving as a means of political influence, a channel that has been heretofore unexplored in the political economy literature. For philanthropic foundations associated with Fortune 500 and S&P500 corporations, we show that grants given to charitable organizations located in a congressional district increase when its representative obtains seats on committees that are of policy relevance to the firm associated with the foundation. This pattern parallels that of publicly disclosed Political Action Committee (PAC) spending. As further evidence on firms’ political motivations for charitable giving, we show that a member of Congress’s departure leads to a short-term decline in charitable giving to his district, and we again observe similar patterns in PAC spending. Charities directly linked to politicians through personal financial disclosure forms filed in accordance to Ethics in Government Act requirements exhibit similar patterns of political dependence. Our analysis suggests that firms deploy their charitable foundations as a form of tax-exempt influence seeking. Based on a straightforward model of political influence, our estimates imply that 7.1 percent of total U.S. corporate charitable giving is politically motivated, an amount that is economically significant: it is 280 percent larger than annual PAC contributions and about 40 percent of total federal lobbying expenditures. Given the lack of formal electoral or regulatory disclosure requirements, charitable giving may be a form of political influence that goes mostly undetected by voters and shareholders

Lloyd Mayer

Brunson: God and the IRS

Samuel D. Brunson (Loyola University Chicago) has published God and the IRS: Accomodating Religious Practice in United States Tax Law. Here is a brief description:

Seventy-five percent of Americans claim religious affiliation, which can impact their taxpaying responsibilities. In this illuminating book, Samuel D. Brunson describes the many problems and breakdowns that can occur when tax meets religion in the United States, and shows how the US government has too often responded to these issues in an unprincipled, ad hoc manner. God and the IRS offers a better framework to understand tax and religion. It should be read by scholars of religion and the law, policymakers, and individuals interested in understanding the implications of taxation on their religious practices.

Lloyd Mayer

Hauser Institute, Global Philanthropy Report

The Hauser Institute for Civil Society (Harvard) has published The Global Philanthropy Report: Perspectives on the Global Foundation Sector. From the introduction:

Global philanthropy holds immense promise in the 21st century. Global giving is growing, gaining visibility, and creating much-needed change around the world.

Over time and across geographies the world has witnessed a near-universal charitable instinct to help others. Recent years, however, have seen a marked and promising change in charitable giving - wealthy individuals, families, and corporations are looking to give more, to give more strategically, and to increase the impact of their social investments. A growing number of philanthropists are establishing foundations and other giving structures to focus, practice, and amplify their social investments. There appears to be a growing belief that institutional philanthropy can encourage more strategic investment approaches; facilitate collaboration; serve as a role model for others; and, in sum, have greater impact on the economic and social challenges being addressed.

Despite the growing significance and scale of institutionally-based philanthropy, remarkably little is known about the related resources and their deployment at the national, regional, and global levels. In much of the world, publicly available philanthropic data and knowledge are scarce. In most countries, neither governments nor private organizations collect and/or make available important data on social investing. Cultural traditions understandably inhibit the sharing of information about giving, often a very personal act. What information does exist is often anecdotal, incomplete, and sometimes inconsistent. In addition, given the varied definitions and research frameworks employed in existing studies, data are generally not comparable within or across countries; information has not been aggregated or analyzed through a global lens. Until the launch of this effort there has been no ongoing and globally coordinated undertaking to quantify the volume of global giving, classify its purposes, or seek to understand its current and potential impact.

Researchers at the Harvard Kennedy School, in collaboration with colleagues around the world, are beginning to address this knowledge gap. The Global Philanthropy Report: Perspectives on the global foundation sector seeks to develop a knowledge base to address the size, scope, and practice of institutional philanthropy across the globe. This inaugural report represents a first step in an attempt to understand worldwide philanthropic practices and trends; provide comparative analysis across countries and regions; begin to develop a picture of the magnitude of global philanthropic investment; and help create an evidence-based discussion on global philanthropy. We hope to publish the report biennially, adding additional countries and reporting increasingly comprehensive data within countries in future editions. Importantly, national collaborators are publishing more in-depth reports on philanthropy in their individual countries.

Lloyd Mayer

Breen: A Historical and Comparative Look at Charity Regulation

Oonagh B. Breen (Dublin) has posted Redefining the Measure of Success: A Historical and Comparative Look at Charity Regulation, forthcoming in Matthew Harding (ed.), The Research Handbook on Not-for-Profit Law (Edward Elgar, 2018). Here is the abstract:

This chapter focuses on three questions in its quest to better understand the historical and comparative perspectives of charity regulation. Accepting the traditional rationales for such regulation, it first explores the question of ‘how we regulate’ followed by the interrelated question of the associated cost of such regulation. Finally, the chapter examines the important issues concerning how we currently (or could better) measure the success of charity regulatory efforts. The paper draws upon the experiences of charity regulators in a range of common law countries across the UK, Ireland, Australia, New Zealand and Singapore.

Lloyd Mayer

CIVICUS: 2018 State of Civil Society Report 2018

CIVICUS has published its annual State of Civil Society Report for 2018. Here is a brief description:

Each year the CIVICUS State of Civil Society Report examines the major events that involve and affect civil society around the world. Our report is of, from and for civil society, drawing from a wide range of interviews with people close to the major stories of the day, CIVICUS’ ongoing programme of research and analysis, and findings from the CIVICUS Monitor online platform tracking the space for civil society around the world. We will follow the report with a series of dialogues and conversations on the theme of 'reimagining democracy’ in the coming months.

And here are 10 key trends discussed in the report:

“What is perhaps unusual about this year’s report is the focus on the resistance and the fact that the fightback is on, ” is one of the key findings of the State of Civil Society Report 2018. The report identifies 10 key trends that impacted on civil society in 2017 and are continuing in 2018, including:

• Globalised neoliberalism is failing people all around the world;
• Polarising politics are dividing our societies;
• Personal rule by political leaders is undermining democratic institutions;
• Attacks are increasing on journalists reporting on corruption and public protests;
• Growing surveillance and manipulation of opinion is betraying the promise of social media;
• Uncivil society is claiming civil society space;
• Multilateralism is in the firing line;
• The private sector's growing role in governance demands more scrutiny;
• Patriarchy is now firmly under the spotlight;
• Civil society is fighting back and building resolute resistance.

Lloyd Mayer

Giving USA & IU Lilly Family School of Philanthropy: The Data on Donor-Advised Funds

Giving USA and the Indiana University Lilly Family School of Philanthropy have published a The Data on Donor-Advised Funds: New Insights You Need to Know. Here is a description:

Donor-advised funds are frequently identified as one of the fastest-growing vehicles for charitable giving, but the question of where those donor-advised fund grant dollars go has remained largely unanswered until now. A new report is the first to uncover these answers. Among other findings, it identifies education, religion and public-society benefit organizations as the types of nonprofits that attracted the most donor-advised fund grant dollars, based on a sample of donor-advised fund sponsoring organizations from 2012 to 2015.

And here is a critique by Alex Cantor, published in The Chronicle of Philanthropy.

Lloyd Mayer

Lott et al.: Bifurcation of State Regulation of Charities

Cindy M. Lott (Columbia University School of Professional Studies), Mary L. Shelly, Nathan Dietz (Urban Institute), and Marcus Gaddy (Urban institute) have published Bifurcation of State Regulation of Charities: Divided Regulatory Authority Over Charities and Its Impact on Charitable Solicitation Laws (Urban Institute). Here is the abstract:

In 27 United States jurisdictions, the attorney general is the sole state-level regulator of charitable organizations and charitable solicitation. In the other 24 jurisdictions, state-level charity regulation is split between two entities: the state attorney general and another state agency, most commonly the secretary of state. This division of regulatory authority is called “bifurcation.” This paper provides background information and data on bifurcated structures for state charities regulation and illustrates the potential utility of considering bifurcation in research on other state-level areas of charitable regulation. We explore several areas of state-level regulation of charitable solicitation (fundraising) through the lens of bifurcation and identify how bifurcation may affect regulatory patterns using our Index of Charitable Solicitation Regulatory Breadth. These approaches to understanding the regulatory context at the state level may have broad applications for research on charities and for jurisdictions considering different models of oversight.

Lloyd Mayer

Newman: Conspicuous Philanthropy: A Response

Joel S. Newman (Wake Forest) has posted Conspicuous Philanthropy: A Response, reacting to an earlier article by William A. Drennan (Southern Illinois). Here is the abstract:

In his Article, Professor Drennan notes that naming rights often have significant value. Therefore, he reasons that, when charitable contributions are made, the value of such naming rights should be subtracted from the amount of the contribution. Only the excess should be a tax-deductible contribution, and the burden should be on the donor to show that such an excess exists. To make this proposal work, there must be a way to determine (1) which categories of naming rights might be significant benefits; and (2) how such benefits can be valued. As to the first, Professor Drennan has given us some examples of some rights that are clearly significant, and some rights that are clearly not. However, there are a lot of rights in between that should be addressed. As to the second, in the noncommercial context, valuation is impossible. Therefore, donors will fail to meet their burden, and their contributions will be nondeductible. To solve this problem, as Professor Drennan suggests, donors and donees will agree at the outset on the value of the naming rights. However, such agreed valuations will also serve as liquidated damages, making it easier for donees to renege. As a result, donors will probably limit the duration of their naming rights in the first place. This result would be a step forward.

Lloyd Mayer

Sugin: Competitive Philanthropy: Charitable Naming Rights, Inequality, and Social Norms

Linda Sugin (Fordham) has posted Competitive Philanthropy: Charitable Naming Rights, Inequality, and Social Norms, 79 Ohio State Law Journal (forthcoming 2018). Here is the abstract:

Income inequality today is at a high not seen since the 1920s, and one way the very richest display their wealth is through charitable giving. Gifts in excess of $100 million are no longer rare, and in return for their mega-gifts, the biggest donors get their names on buildings, an astonishingly valuable benefit that the tax law ignores. The law makes no distinction between a gift of $100 and a gift of $100 million. 

This Article argues that the tax law of charity should focus on the very rich and harness the culture of philanthropy among the elite. The law should encourage and celebrate what this Article calls “competitive philanthropy,” which defines philanthropic success as inspiring others to exceed your generosity. To promote competitive philanthropy, this Article proposes a legal regime that includes both more and less generous elements for donors than current law. It introduces a hierarchy of gift restrictions that calibrates the charitable deduction to reflect the burdens that restrictions impose on charities, disfavoring perpetuity and mission-diverting restrictions. It recommends eschewing the standard donor-centered perspective of the tax law to consider the perspective of charities. 

While scholars have traditionally analyzed the charitable deduction in terms of economic incentives, this Article contends that the deduction may be more important in creating expectations and reinforcing social norms. By focusing on the largest gifts, this Article breaks new ground by integrating concerns about increasing inequality with tax benefits for charities. Policy makers can better design the tax law to address inequality while furthering the dual goals of distributing away from the very rich and protecting charities.

Lloyd Mayer

Zelinsky: Section 4968 and Taxing All Charitable Endowments

Edward A. Zelinsky (Cardozo) has posted Section 4968 and Taxing All Charitable Endowments: A Critique and Proposal, 38 Virginia Tax Review (forthcoming). Here is the abstract:

Section 4968, recently added to the Internal Revenue Code,imposes a tax on the investment incomes of some college and university endowments. Critics of Section 4968 disparage this new tax as selectively targeting what are widely perceived as wealthy, politically liberal institutions such as Harvard, Yale, Princeton, M.I.T. and Stanford.

There is a strong tax policy argument for taxing the net investment incomes of all charitable endowments including donor-advised funds, community foundations, all educational endowments, and foundations supporting hospitals, museums and other eleemosynary institutions. Like corporations and private foundations that currently pay revenue-generating income taxes,charitable endowments use public services and have capacity to pay tax. Such traditional tax policy criteria as equity and economic neutrality counsel that similar entities and persons should be taxed similarly. Just as corporations and private foundations pay income taxes to support federally-provided social overhead, by analogy, all charitable endowments, as similar entities, should pay similar taxes as well.

Section 4968 falls far short of the goal of a comprehensive, revenue-generating tax on the universe of charitable endowments. Section 4968 is poorly designed to boot. Most anomalously, Section 4968 taxes some relatively small educational endowments while leaving other, much larger endowments untaxed.

Important voices (most prominently, Senate majority leader Mitch McConnell) defend Section 4968 as a regulation of university tuition policies. However, this defense of Section 4968 as a regulatory tax fails since Section 4968 does not regulate tuition or anything else. When it crafted Section 4968, Congress had before it the examples of the Code’s many taxes governing private foundations and other eleemosynary institutions. Had Congress sought to impose on college and university endowments a regulatory tax along these lines, it could have emulated these examples in the design of Section 4968. Congress did not.

Section 4968 is best defended in political terms as an incremental step towards the kind of comprehensive tax on all charitable endowments suggested by conventional tax policy criteria. But, standing on its own, Section 4968 falls well short of this goal and is deeply flawed in its design.

Section 4968 does not create a broad-based tax on eleemosynary endowments. It should be the harbinger of one.

Lloyd Mayer

N.Y. Times Magazine: "How Liberty University Built a Billion-Dollar Empire Online"

While much public and governmental attention has been paid to colleges and universities with growing endowments (and increasing tuition costs) and to for-profit schools,  another important trend that has received less attention recently is the expansion into online education by nonprofit institutions. Perhaps surprisingly, the biggest player in this area is Liberty University, which has more online students than any other nonprofit at up to 95,000 students annually, second only to the for-profit University of Phoenix. Its online activities are the focus of a detailed N.Y. Times Magazine article. The article is too lengthy to summarize completely here, but suffice to say it raises questions about student recruiting methods, admissions standards, and the quality of the online education provided, among other issues. For the response of the University's President, Jerry Falwell Jr., to these and other points from the story, see this Townhall Opinion piece.

Lloyd Mayer

Nathan Cummings Foundation All-In on Impact Investing

The Nathan Cummings Foundation recently announced that it will move 100 percent of its nearly half-billion dollar endowment into investments that align with its stated mission, which is:

The Nathan Cummings Foundation is rooted in the Jewish tradition and committed to democratic values and social justice, including fairness, diversity, and community. We seek to build a socially and economically just society that values nature and protects the ecological balance for future generations; promotes humane health care; and fosters arts and culture that enriches communities.

The Foundation's approach to grantmaking embodies some basic themes in all of its programs:

• concern for the poor, disadvantaged, and underserved;
• respect for diversity;
• promotion of understanding across cultures;
• and empowerment of communities in need.

This move expands upon the Foundation's previous, more limited impact investing, and shareholder activism. The Foundation plans to provide an update on this effort by the end of 2018.

Lloyd Mayer

Big Donors Sometimes Mean Big Headaches: George Mason University, University of Chicago, and More

Every charity leader knows that big donations came come with big strings attached. But some recent disputes between donors and charities highlight how problematic those strings can become.

George Mason University, a state university, is struggling to address a controversy that has erupted over the influence that sizeable donations to its affiliated foundation by the Charles Koch Foundation and others may have given over academic decisions. According to a Washington Post report, a student group, Transparent GMU, has sued in state court seeking access to agreements between the foundation and these donors, arguing that they are covered by Virginia's open records laws. While the group filed the lawsuit over a year ago, it appears to only have received limited coverage (see, e.g., Huffington Post, Fairfax Times) before a recent court hearing.

The Charles Koch Foundation donations at issue include $10 million gift relating to the renaming of the law school for deceased Supreme Court Justice Antonin Scalia and $5 million gift to the economics department to create three new faculty positions. According to a follow-up Washington Post story, the University's president has now stated that some gift agreements "fall short of the standards of academic independence."  For example, some of the agreements included terms granting donors a right participate in faculty selection and evaluation for some economics department positions. While the lawsuit is proceeding, the University has already released some of the agreements at issue and, according to a N.Y. Times story, launched an internal inquiry. The University has also noted that those agreements, with one exception, have expired.

Additional Coverage: The Chronicle of Higher Education; Inside Higher Ed.

The University of Chicago, a private university, is facing a different but related situation. Thomas L. Pearson and twin brother Timothy R. Pearson pledged to give $100 million to the University through their family foundation to create a research institute to advance the cause of world peace. As reported by Bloomberg and student newspaper The Chicago Maroon, the foundation has now filed a lawsuit in federal court (U.S. District Court, Northern District of Oklahoma) alleging numerous breaches of the grant agreement by the University and demanding the return of the $22.9 million it has paid so far. The University is seeking to dismiss the suit, according to a Chicago Tribune report, asserting that the foundation cannot prove that it violated any of the grant agreement's terms. Additional coverage: The Chronicle of Philanthropy (subscription required); The Nonprofit Times.

While these two stories are the most prominent recent ones, there have been recent developments in two other major disputes with donors. The Legal Intelligencer (law.com) reports that last month a federal judge in Pennsylvania ruled that Foremost Industries had to fulfill its $4 million pledge to Appalachian Bible College. The College had sued to enforce its gift agreement with the company, and the court considered the College's motion for summary judgment unopposed after the company failed to file its opposition brief by the deadline set by the court. The company is now closed, which may indicate that it will be difficult for the College to collect on its judgment.

And the The Inquirer (Philadelphia) reports that the Abington School District board of directors has voted to accept a $25 million gift from billionaire Stephen Schwarzman, after rejecting an earlier gift agreement with the donor after gift stirred local controversy because of concerns about its terms and the structure of the nonprofit the board is creating to administer the donation. The controversy erupted when the board initially voted to accept the gift and its then terms, including renaming the high school for the donor, without almost no advance warning to the public and without making the gift agreement public.

Lloyd Mayer

Will We Finally Have a Single System for State Registration & Reporting by Charities?

The National Association of State Charity Officials (NASCO), the Multistate Registration and Filing Portal, Inc. (MRFP), GuideStar, and CityBase (a technology firm) have announced that they are moving ahead with a longstanding plan to develop a single, online portal for charities to use to satisfy the registration and reporting requirements they face in most states. The data collected will not only be available to state regulators, but also (with private information removed) to researchers, policy makers, and the public through GuideStar. CityBase and GuideStar plan to launch an initial prototype this summer, with registration for a few states, with a full launch planned for later in 2018. The hope is to eventually make the portal work for registrations in all 39 states that currently require charities and professional fundraisers to register before raising funds in those states.

Lloyd Mayer

California: AG Rejects Requests to Reduce Hospital Charity Care Obligations, Targets Overvaluation of Pharmaceutical Donations

California Attorney General Xavier Becerra's office recently addressed two different types of activities relating to charities: the charity care obligations of certain California hospitals, and the valuation of pharmaceutical donations to certain charities.

The charity care issue arose when three California hospitals asked for permission to reduce their existing obligations to provide charity care under agreements entered into with the AG's office when they were participants in a merger or acquisition. The requests were based on changes in the healthcare market, particularly in light of Obamacare. Two of the hospitals are former nonprofit entities that for-profits purchased and now own. Emanuel Medical Center's $3,312,360 charity care obligation (for fiscal year 2016) arose out of a 2014 agreement with the AG relating to its purchase by Doctors Medical Center of Modesto, Inc. See its denial letter. The Mission Community Hospital's $2,424,236 charity care obligation (for fiscal year 2016) arose out of a 2010 agreement with the AG relating to its purchase by Deanco Healthcare LLC. See its denial letter. More details regarding the requests and the AG's consideration of them can be found in reports prepared for the AG's office relating to each request. See EMC Report; MCH Report.

The third hospital is the nonprofit USC Verdugo Hills Hospital, which had a $2,073,564 charity care obligation (for fiscal year 2017) arising out of a 2013 agreement with the AG relating to its purchase by a limited liability company wholly owned by the University of Southern California. See its denial letter. Its situation underlines the fact that such agreements do not only apply to acquisitions by for-profit entities. For more details, see the report prepared for the AG's office.

To make up for missing their required charity care obligations in the fiscal year listed for each of them, the AG is requiring each hospital to make donations to local nonprofits that provide health care services.

Additional coverage: California Healthline, L.A. Times, Modern Healthcare.

The pharmaceutical valuation issue relates to cease and desist orders sent by the AG to three charities: Catholic Medical Mission; Food for the Poor; and MAP International. For each charity, the order alleges that the charity reported inaccurately high valuations for contributed pharmaceuticals, leading both to overstating program to administration/fundraising expense ratios in charitable solicitation materials and, for the latter two charities, inaccurate statements in their federal tax (Form 990) and California  (Form RRF-1) filings. The orders direct all three charities to stop including such ratios in their solicitations to California donors, threaten revocation of their charity registration in California, and assess hundreds of thousands of dollars in penalties. A fourth charity, the National Cancer Coalition, dissolved after the AG sought a permanent injunction based on similar issues, according to a report from The Nonprofit Times. The same report notes that the first three charities have issued statements contesting the AG's allegations.

Lloyd Mayer