Monday, November 08, 2010

Citizens United and new rules for Nonprofits

(Cross posted on the Stanford Social Innovation Review)

The most important task for the social sector in the United States in 2011 will be to understand the effects of the Supreme Court’s decision in Citizens United vs. the FEC.

This decision removed prior restrictions on independent spending by corporations and unions on election campaigns. The immediate result of the January decision was to unleash a flood of money to advertising in support of or opposition to ballot measures or candidates. Most of this money was channeled through certain types of nonprofits.

Much has been written about the political and financial impact of Citizens United on election campaigns. Immediately following the elections on November 2, 2010 estimates the independent expenditures totaled at least $450 million, more than twice as much as was spent in 2006, the last midterm election.(Data from Sunlight Foundation) This includes at least $126 million from nonprofit organizations that do not have to disclose their donors.

There is some very important work being done, by groups such as the Center for Political Accountability, Voter Action, and Democracy 21 to address the questions raised by these undisclosed donors. Strategies for dealing with the flood of corporate money to politics that is being "laundered" through these nonprofits include:

  • Encourage corporations to disclose their contributions as a sign of good governance - there is great work being done on this front by Center for Political Accountability through lists and standards of best practice
  • Use shareholder resolutions to encourage corporations to disclose their contributions - these give individual and institutional shareholders the opportunity to guide the corporations toward good governance
  • Support efforts to pass the DISCLOSE ACT, which failed in the Senate in March 2010
Citizens United has shifted the legal landscape for nonprofit political advocacy. The years to come will be shaped by legal battles to define new practice within these bounds, continued legal battles which might further extend the Citizens United precedent, and many new actions within the world of voter rights and campaign finance reform.

The aftershocks of Citizens United include the start of a period of testing, trial by error, and new case law to determine what rules now apply to 501(c)(3) nonprofit organizations. This may please some and anger others, but there will be period of confusion for everyone.

I'm interested in the impact of the decision on nonprofits as a class of organization and on the public perception of them, their reputational risk, if you will. This topic has received far less attention than the "money into politics" part of the equation.

First, as I mentioned in this earlier post, the subsection tax code
legal distinction that separate 501 c 3, c 4 and c6 nonprofits means little to the general public. According to The Washington Post, eighty percent of all Americans (regardless of political party affiliation) opposed the Citizens United decision by the Court. The confusion about the role of these organizations in the political process is important for charitable nonprofits to the extent that the public conflates political activity (which they may or may not approve of) with charitable activities.

Second, while Citizens United clearly removed limits on political expenditures it also raised the need for a new look at disclosure requirements for donors. Donors to political parties and political action committees must be disclosed by name within a reasonable amount of time. Donors to the 501 (c) (4) and (c) (6) groups do not need to be disclosed. Changing these disclosure requirements is of great interest to many activists.

The unintended consequences of changing disclosure laws need to be carefully considered. Some legal scholars believe that increasing the disclosure requirements on all donations will result in the Court eventually removing all restrictions on political spending. Others raise the problem of relying on “analog” disclosure requirements in a “digital” age and suggest that donor disclosure needs to be more frequent and timely where political contributions are concerned.

Finally, if new donor disclosure rules triggered by political giving are applied to all charitable giving, the shift would likely have a dampening effect on long-held traditions of anonymous philanthropy.

Donors may find themselves being asked to support an organization that does not do direct political work but that has an affiliate organization that does. As of 2010, tax deductibility and anonymity are still options for non-political contributions
- clarity of purpose and intention for the funds given will be key.

How is your nonprofit addressing these changes? How are your donor outreach activities affected by the news reports of "hundreds of millions of dollars flowing to election campaigns through nonprofits?" It may be soon to have full answers to these questions, but the nonprofit sector needs to be seriously considering the implications of these rule changes. As Abby Levine, legal director of Alliance for Justice put it:
"There are some organizations that recognize the ground has changed. We may never be able to compete with big business, but we need to be at the table. If we're not in the game, we're definitely going to lose."

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