January 25, 2007 | Read Time: 7 minutes
Charities and foundations, which have devoted much energy in recent years to defending their organizations from charges of wrongdoing, and
to trying to persuade Congress not to impose onerous new regulations, are hoping for a friendlier climate now that Democrats are in charge on Capitol Hill.
They are likely to find that on the House side, where Rep. Charles Rangel of New York is the new chairman of the House Ways and Means Committee, which has jurisdiction over taxes. He replaces Bill Thomas, a California Republican who held hearings on whether some types of charities, such as hospital and college sports associations, continue to deserve their tax-exempt status. He has now retired.
“I don’t expect the adversarial relationship you’ve seen,” a Democratic committee staff member says. “That’s not the way [Mr. Rangel] operates.”
“Chairman Rangel and his staff are very interested in this whole idea of engaging philanthropy to address society’s needs,” says Steve Gunderson, president of the Council on Foundations, who has met with Democratic committee staff members.
Mr. Rangel will be a key player in the debate over whether to permanently repeal the tax on estates of wealthy individuals — something many charities fear would eliminate a powerful incentive for charitable giving. Mr. Rangel has said he opposes the repeal, which is set for 2010, because it would benefit only “the wealthiest of the wealthy.”
On the Senate side, however, Sen. Max Baucus of Montana, the new chairman of the Senate Finance Committee, worked so well with his Republican predecessor, Sen. Charles E. Grassley of Iowa, that the committee’s agenda may not change much.
Some nonprofit leaders have said they expect Mr. Baucus to give less priority to regulating charities than Mr. Grassley, who took a tough line on charitable abuses, starting numerous investigations and proposing tough rules to deter wrongdoing by donors, trustees, and nonprofit organizations.
But, an aide to Senator Baucus says, “I don’t think [such opinions] reflect the reality that Senator Grassley and Senator Baucus have worked very closely in this whole area and will continue to.”
He says Mr. Baucus plans to follow up on several issues that the Finance Committee started exploring under Republican leadership, including hearings on whether the federal government should require nonprofit hospitals to justify their tax-exempt status by providing a minimum level of free health care and other services and on whether tax-exempt colleges and universities are doing enough to help low-income students.
Mr. Baucus favors self-regulation when possible, however, and is happy that nonprofit groups are working to promote standards for charities and foundations, the aide says. “Baucus has been pleased with the industry’s self-examination and the proposals they have put forth and encouraging everyone to do not only what’s legal but what’s right.”
The main driver behind self-regulation is the Panel on the Nonprofit Sector, a group of nonprofit experts organized by Independent Sector, a coalition of charities and foundations. The panel, which earlier proposed a package of proposed laws to fix problems at charities and foundations, has now proposed 29 principles of self-regulation in the areas of legal compliance, effective governance, financial oversight, and responsible fund raising.
Retirement Benefit
On the tax side of the legislative agenda, the aide says, Mr. Baucus “strongly supports” a provision that allows people age 70 or older to channel money from their individual retirement accounts to charity tax free, and will advocate extending it when it expires at the end of this year.
However, because Democratic leaders have adopted a “pay as you go,” or “pay-go,” approach to the budget — requiring tax cuts or spending increases on programs such as Social Security and Medicare to be offset by equivalent spending cuts or tax increases — the committee has an additional incentive to look for ways to raise revenue, he says. “Pay-go will force us to be very vigilant that any abuses in the tax code, any loopholes that develop, we shut them down and close them.”
Promoting Giving
Mr. Gunderson of the Council on Foundations is among those who expect a warmer reception on Capitol Hill. He says his group is changing its legislative strategy because it has gotten signals from Democratic leaders that they are more interested in efforts to promote philanthropy, especially during a time of federal budget constraints, than in regulating it.
“It’s frankly a new day and the potential for a partnership — and I think that’s going to become the key word — with the Democrats is going to be pretty positive,” he says.
The council is now drafting what it calls the Philanthropy Growth Act of 2007, proposed legislation that would promote charitable giving by introducing a package of tax benefits for donors and foundations.
Earlier versions of the text also included proposals to tighten regulation of foundations in areas such as executive compensation, board structure, and financial audits that were included in the Nonprofit Panel report. But Mr. Gunderson says he expects those will now be dropped, at least from this text, given the new political atmosphere.
Mr. Gunderson, who was a Republican congressman from Wisconsin from 1981 to 1997, cites the council’s relationship with Mr. Baucus as an example of the new relationships he expects to forge with Congress. After Mr. Baucus, at the council’s annual conference last spring, urged foundations to step up their grant making in rural areas, the organization agreed to co-sponsor a Forum on Rural Philanthropy next August in Mr. Baucus’s home state of Montana.
It also agreed to examine ways that philanthropy could help spur rural development by urging foundations to use their endowments to purchase or upgrade factories, for example, Mr. Gunderson says.
“We’re not just asking for state and federal appropriations, what we’re asking for is federal and state law to enable philanthropy to do what government can’t afford to do for budget reasons,” he says.
Nonprofit organizations are also eyeing proposals that Congress is making to clean up ethical abuses that were uncovered during the scandal involving Jack Abramoff — the Washington lobbyist who was sentenced to prison on fraud charges.
As part of a broader effort to bolster ethical standards, the House this month adopted rules that prohibit representatives or staff members from accepting paid travel from lobbyists or from organizations that employ them — and the Senate is expected to follow suit.
After Independent Sector and other advocacy groups expressed concern that a blanket ban would prevent nonprofit organizations from educating members of Congress about their projects, the House agreed to allow groups to reimburse travel to a one-day event such as a conference or meeting.
The Senate has also introduced legislation that would require organizations to disclose their “grass roots” lobbying activities — that is, detail the money they spend to get the public to lobby for or against legislation or policies.
The proposal is aimed at exposing sham grass-roots campaigns, for example, those that are actually paid for by businesses or trade groups.
Nonprofit groups are divided over the proposal.
Some conservative Christian groups, such as Focus on the Family, in Colorado Springs, Colo., have criticized the proposal as a violation of their First Amendment rights.
But the Center for Lobbying in the Public Interest, in Washington, which represents advocacy groups, backs the law, saying it would not be unduly burdensome as it applies only to groups that already spend enough money on lobbying to file reports under the Lobbying Disclosure Act.
The Senate Finance Committee will also be considering proposals included in a report that committee Democrats issued last October criticizing five nonprofit organizations for acting as fronts for Mr. Abramoff.
Some of the report’s proposals have alarmed nonprofit groups — for example, one that would require charities to tell donors that a certain portion of their contributions would not be tax-deductible because the funds supported lobbying activities.
Small groups, in particular, could decided it’s not worth the trouble to lobby, say some experts. The Democrats’ proposal, says Perry Wasserman, managing director of 501(c) Strategies, a Washington lobbying group for nonprofit organizations, “would be a nightmare.”
