February 10, 2000 | Read Time: 5 minutes
Twenty-five years ago, the Commission on Private Philanthropy and Public Needs issued its historic report — which, among many other positive things, firmly established the importance of non-profit organizations in helping to sustain America’s democracy.
The panel — known as the Filer Commission, after its chairman, the insurance-company executive John Filer — was created at a time when serious questions about the appropriate role of charities, and their relationship to government and businesses, were being raised by lawmakers and the public. Many of the distinguished panel’s recommendations — based on two years of research and extensive consultations with charity, business, and government leaders — had a lasting influence. But much has changed in American society and the non-profit world since 1975. Indeed, the time has come to establish another such commission.
Today, institutions of higher education and hospitals have become so large that it is difficult to find similarities between them and smaller social-service and community organizations — yet both are governed by the same set of regulations. The growing commercialization of non-profit activities — and the blurring of the boundaries between non-profit, government, and the commercial activity — raises serious questions about the appropriateness of certain tax-exempt practices.
What’s more, the financial scandals and incidents of poor management in recent years call out for more-effective standards of accountability and public transparency. The inability of the financially and politically beleaguered Internal Revenue Service to oversee and police the charitable world adds to the problem. The non-profit world clearly needs to study how it can strengthen itself, adapt to the many changes that have taken place in the social and economic landscape, and meet the new demands for its services and products.
In many ways the enormous changes over the past decade are far greater — and, perhaps, more threatening to the health of non-profit organizations — than those that led to the creation of the Filer Commission. The financial scandals — far broader than many defenders of the non-profit world will admit — seriously undermine the integrity of charities and, therefore, their ability to attract tax-exempt contributions. Excessive compensation packages pose a similar problem.
Yet the I.R.S. can’t even muster the resources it needs to adequately review the informational tax returns that charities are required to submit each year. Indeed, so complex and incongruous has the non-profit world become that there is an urgent need to rethink and redefine its parameters, structure, functions, and rules.
The new panel, like the Filer Commission, should be composed of outstanding people from various parts of our society, including government, business, the news media, and non-profit organizations. It should operate for two to three years with sufficient funds, staff, and logistical support to carry out a thorough inquiry. And its members should be representative of the great diversity that characterizes both charities and philanthropy today.
The cost of such an undertaking might amount to about $10-million — a small price to pay in view of what is at stake — and compared to the trillions of dollars in assets held by foundations and charities. Such an effort should be financed by foundations and could be sponsored by leading non-profit organizations like the National Council of Nonprofit Associations, Independent Sector, the National Committee for Responsive Philanthropy, the Council on Foundations, and a few others.
Among other things, the new panel should study and make recommendations on the following issues:
Accountability. Is the current charity-reporting system adequate? How can the I.R.S. be strengthened? Would additional staff members, for example, resolve the current problem? If not, should we replace the organization with another institution — something akin to the Securities and Exchange Commission or the quasi-governmental British Charities Commission?
Tax exemptions. As charities increasingly walk a tightrope between two worlds, which of their enterprises should be considered business-related and which should not? At what point should a charity lose its tax-exempt status because of a surfeit of commercial activity?
Foundation size. With the huge wealth amassed in recent years, we can now foresee the formation of foundations worth $50-billion or $100-billion — larger than the budgets of a good many countries in the world. How big is too big? Should government invoke antitrust measures and break them up into smaller institutions? And what, if anything, should be done to broaden representation on the boards of these mega-entities?
Advocacy. The continuing attempts by some lawmakers to curtail the advocacy voice of charities, while repugnant, have shown that our lobbying laws are complex, involve a lot of paperwork, are poorly understood, and should be updated. The commission should explore whether the laws on lobbying should just be tinkered with, or whether most of the restrictions against it should be eliminated to create a much simpler system.
Those and many other issues deserve serious and immediate attention. To be sure, a few researchers and some umbrella charity organizations have already done some thinking about these concerns, and a few conferences and strategy groups have commissioned papers, held meetings, and issued reports. But there has been no broadly organized attempt to study and tackle these issues as a whole — or in any significant depth.
A commission along the lines of the Filer Commission would fill that need. By recommending appropriate action, it could ensure that problems are dealt with before they spin out of control.
The non-profit sector may not be broke, but it is increasingly in a state of disarray and ambiguity. Like all evolving systems, it requires periodic inspection and renewal.
We need a clearer definition of the values, nature, and structure of the non-profit world; updated regulations to govern non-profit activity; and accountability mechanisms that will preserve the integrity of the sector. Those will enable charities and foundations to meet the demanding challenges of the coming century. A new commission should be created soon — or it may be too late.
Pablo Eisenberg is senior fellow at the Georgetown University Public Policy Institute and vice chair of the National Committee for Responsive Philanthropy. He is a regular contributor to these pages.
