Coalition Backs Smaller Charity Bill as Broad Measure Falters in Congress

Concerned that broad charity legislation will fail to pass Congress for a fourth consecutive session, a coalition of nonprofit organizations announced here at a meeting of the American Council on Gift Annuities that it plans to back a bill that seeks to accomplish far less than the charity measure that won wide support in both houses of Congress last year.

Independent Sector, the Association of Fundraising Professionals, the Council for Advancement and Support of Education, the National Committee on Planned Giving, and the American Council on Gift Annuities plan to support a Senate bill aimed at allowing people 70 1/2 and older to remove money from their individual retirement accounts and donate it directly to charity without being subject to income tax.

“We haven’t given up on moving a larger charity bill through Congress, but it appears right now to be stuck,” said Patricia Read, vice president for public affairs at Independent Sector, in Washington, which represents more than 700 nonprofit groups.

The Senate bill that the groups intend to support — S. 283 — was introduced in February 2003 by Sen. Byron L. Dorgan, Democrat of North Dakota. Similar legislation has not been introduced in the House of Representatives, but Ms. Read said her group and the others are working with two members of the Committee on Ways and Means to get a bill introduced in the House.

Time is short, however, as party conventions in July and August, and campaigning for November elections, often suspend legislative activity for the session.

Last year, the climate for charity legislation appeared more favorable. The Senate approved the Charity Aid, Recovery, and Empowerment (Care) Act, by a vote of 95 to 5, while the House passed a similar bill, called the Charitable Giving Act, by a vote of 408 to 13.

Those bills include provisions encouraging older people to give money from their individual retirement accounts to charity, allowing people who do not itemize on their income-tax returns to write off some of their charitable gifts, and authorizing $1.4-billion in social-services block grants.

Lawmakers have failed to reconcile the broader charity bills, with each side blaming the other for the impasse.

Some charity leaders think that a simpler, less expensive charity bill — the one proposed by Sen. Dorgan would cost the Treasury Department an estimated $3-billion, compared with $14-billion for the full Care Act — might interest members of Congress. But others think that some lawmakers — including Sen. Joseph I. Lieberman, Democrat of Connecticut, and Sen. Rick Santorum, Republican of Pennsylvania — would oppose a charity bill that didn’t include many charitable-giving incentives.

“Senators Lieberman and Santorum have been really strong supporters of the full Care Act, and we’ve had a tacit agreement with them that everyone would hold together to try to get the whole package through,” said Walter Sczudlo, executive vice president and general counsel at the Association of Fundraising Professionals, in Alexandria, Va. “But I don’t know anyone who is opposed to the IRA rollover.”

After filing for Chapter 11 bankruptcy protection in February, the National Benevolent Association, in St. Louis, which operates more than 90 retirement homes and children’s facilities in 20 states and has $13-million in charitable-gift-annuity assets, worried that creditors might prevent it from making payments to donors who set up gift annuities.

But this month, a judge at the U.S. Bankruptcy Court for the Western District of Texas, in San Antonio, ruled that National Benevolent could continue to make payments to its 700 gift annuitants because the organization set aside its gift-annuity assets in a fund that is separate from the rest of the group’s money.

The judgment reverberated through the hallways of the planned-giving conference, as some groups said they do not keep their gift-annuity money separate from other income they receive.

Frank Minton, president of Planned Giving Services, a Seattle company that provides planned-giving advice, said that charities might want to start setting up segregated reserve funds for their gift-annuity assets even if states don’t require them to do so.

“Charities have a moral and financial obligation to fulfill the commitment they make to annuitants,” said Mr. Minton, who is also president of the American Council on Gift Annuities, which provides educational services to organizations with planned-giving programs. “A segregated fund would keep their assets more immune from creditors should the charity get in trouble.”

Gift annuities allow donors to contribute cash or other assets to a charity in exchange for fixed annual payments. The percentage of a gift paid back to a donor varies with the donor’s age. Younger donors receive smaller payments because they are expected to live longer than older ones.

The National Benevolent Association, which is affiliated with the Christian Church (Disciples of Christ), raised about $12-million in donations of all kinds during its 2003 fiscal year, and between $12-million and $15-million a year the three previous years, according to Bob McCarty, a spokesman for the group. It filed for bankruptcy protection in February, in part because deep losses in its investment assets caused it to default on bonds it had issued for capital projects.

In April, a bankruptcy judge denied National Benevolent Association’s request to borrow up to $50-million, saying the organization has nearly $103-million in cash and other assets, including an endowment — and it must draw from those sources to pay creditors more than $200-million it owes them.

National Benevolent, which established its first charitable gift annuities more than 100 years ago, has not set up any new gift annuities since filing for bankruptcy protection.

Many of the 700 charity officials who attended the American Council on Gift Annuities meeting said they expected the council to tell them to trim the rates they pay donors who set up gift annuities.

Most charities use the council’s recommended rates, although they are not required to do so. The assumption behind the council’s calculations is that charities will receive half the value of the gift.

While the council did not propose a rate change, as it did twice last year, it did suggest that charities should alter how they invest their gift-annuity assets. The council said that charitable groups should put up to 40 percent of their gift-annuity assets in the stock market — up from its previous suggestion of 35 percent — because, it said, few states now impose investment restrictions on gift-annuity reserves.

Only California and Wisconsin prevent charities from investing as much of their gift-annuity assets in the stock market as they want to put there, the council said. But California legislators are considering a new bill that would allow charities to invest up to 50 percent of their gift-annuity assets in the stock market.