Lawmakers Should Ask Tough Questions About Charity

The first major Congressional hearing on nonprofit organizations held by the House of Representatives since the Democrats took control was supposed to be about asking nonprofit organizations to justify the reasons for their tax-exempt status, especially in terms of what they do to “help the poor and elderly.”

At least that is what aides to the chairman of the House Ways and Means Committee, Rep. Charles Rangel, Democrat of New York, originally promised.

What a disappointment, then, that the Ways and Means Subcommittee on Oversight hearing last month, chaired by Rep. John Lewis, Democrat of Georgia, dropped that investigative theme in favor of generally lightweight discussion topics.

In place of hard questions, the half-dozen subcommittee members who showed up for the 90-minute session tossed softball questions and virtually competed to offer flowery statements of tribute toward the nonprofit world.

How could Congress fail to seriously examine whether and how tax-exempt institutions and charitable contributions measure up against critical societal needs, especially with the backdrop of the devastation of the Gulf Coast, the roiling immigration problem, the poor quality of elementary and secondary education, the persistence and deepening of the nation’s low-cost housing crisis, and so many other challenges?

Two of the witnesses at the hearing tried to voice concerns about nonprofit groups that are flouting the law, but lawmakers never seized on those points to ask the tough questions that need to be answered.

Steven T. Miller, commissioner of the Internal Revenue Service’s tax-exempt and government-entities division, said he worried that some charities have been set up more for the benefit of the donors than for the public. He also expressed concern about nonprofit groups that operate indistinguishably from for-profit businesses that offer the same services, such as hospitals. The blurring of the lines between business and philanthropy is hardly a way to ensure that charities are serving critical societal needs.

And when an official from the Government Accountability Office, Congress’s watchdog unit, announced results from a new study showing that 55,000 charities had failed to pay at least $1-billion in employment taxes and other fees, Ohio’s Stephanie Tubbs Jones chastised him for failing to start his presentation by noting that most of the nation’s nonprofit organizations follow the law.

Ms. Tubbs Jones, a Democrat who is co-chair of the relatively new Congressional Philanthropy Caucus, and her colleagues gave short shrift to the GAO official’s contention that the 55,000 might be an undercount and the behavior of some of the more egregious nonprofit tax scofflaws could be linked to other disreputable practices, like excessive compensation and highly inappropriate and indulgent expenditures.

Even with such clear indications of wrongdoing in the nonprofit world, both lawmakers and witnesses seemed to suggest that no new legislation was needed and that self-regulation was the best way to hold organizations accountable.

Diana Aviv, president of Independent Sector, noted that this fall her organization will release a proposal on standards that groups can use to determine whether they are following the law, and said that similar guidelines have been used to help clean up the Smithsonian Institution after its governance meltdown.

Ms. Aviv urged Congress to create the equivalent of the federal Small Business Administration for nonprofit groups, ostensibly to train and prepare nonprofit staff and board members.

It is ironic that Ms. Aviv’s group, which largely represents big foundation and nonprofit groups and fought so strenuously against charity regulation in recent years because it said the proposals would allow Congress to stick its politicized nose into nonprofit operations, would now be pitching for a new federal agency subject to the political whims of the party in power.

But it is even more alarming that the notion that nonprofit groups can be relied on to regulate themselves continues to draw so little question from lawmakers who are supposed to be protecting the public’s interest.

Another topic at the hearing centered on financial incentives for charity donors, and again the lack of skeptical thinking was apparent.

Steve Gunderson, president of the Council on Foundations and himself a former congressman, urged lawmakers to expand a benefit that now allows donors to steer money from their individual retirement accounts to charity without paying any penalties.

The law, set to expire at the end of this year, doesn’t allow donors to give that money to donor-advised funds — which are offered by many of the community foundations his groups represents — or to supporting organizations, a limitation Mr. Gunderson said was unfair.

Donor-advised funds, he said, were instruments for the democratization of philanthropy, allowing people to spend $10,000 or even less to set up mini-foundations of a sort as opposed to the $5-million minimum threshold that is typically recommended for setting up private foundations.

When asked whether it wouldn’t be equally useful for people to steer money from their retirement accounts into the discretionary grant-making pools of community foundations, as is allowed by law, Mr. Gunderson argued that donor-advised funds allow people to “target” and direct their charitable giving for what they viewed as important.

No lawmaker thought to suggest that perhaps it was more important to steer IRA money into the hands of resource-strapped operating charities than letting such funds sit in foundationlike funds and endowments.

If the subcommittee had held true to the original purpose of the hearings offered by Representative Rangel, what might have the assembled legislators asked? They might have asked exactly how much charities and donors do to help the poor, the disadvantaged, and the disenfranchised in our society. Among the questions they could have asked:

• Why in recent years have the nation’s wealthiest foundations decreased the proportion of grant dollars for the “economically disadvantaged” and “poor and indigent” populations?
• Given the problems exposed by Hurricane Katrina, questionable domestic antiterrorism surveillance, and so many other recent issues, why has grant making to civil-rights organizations plummeted in both proportional and absolute terms?
• Despite the Council on Foundations’ recent attention to the issue of improving the skills and job prospects of low-wage workers, why did grant-making for employment and work-force development issues by the country’s major foundations drop by one-fifth from 2001 and 2005?
• Why is the governance of major foundations less racially and ethnically diverse than the boards of Fortune 500 corporations?
• With all the recent attention to rural philanthropy, how is it that rural grant making to “philanthropic divide” states has decreased in recent years, according to data from the Big Sky Institute?

Only Rep. Xavier Becerra, Democrat of California, briefly touched on the potential mismatch of philanthropic grant making, nonprofit services, and the nation’s underserved populations. Only Ms. Aviv reminded everyone that the proportion of charitable giving focused on the issue of poverty, for example, was smaller than that given to education and the arts and falling behind.

Her statement elicited no follow-up. Representative Lewis opened the hearing with the encomium about how nonprofit groups “touch every corner of life in our communities.” He then suggested that charities and foundations had to fill the gap of “important unmet needs” left by the inadequacies of government aid.

The hearing could have fruitfully examined how to better deploy foundation grant making and nonprofit services to deal with critical needs and to promote greater social, economic, and racial equity in the United States, supplementing rather than supplanting government programs.

Unfortunately, the subcommittee sacrificed the promise of a tough-minded inquiry on social justice in charity and philanthropy in favor of a relatively superficial nonprofit good-news briefing.

That’s not what the nonprofit world or the nation deserves.

Rick Cohen, former executive director of the National Committee for Responsive Philanthropy, is a national correspondent for Nonprofit Quarterly magazine.