Policy Report I:
Federal Actions Affecting Nonprofit Groups
MR. SEGERMARK: Ladies and gentlemen, my name is Howard Segermark, Legislative Director of the Free Speech Coalition. We have a very distinguished panel here today.
Mike McCloskey is head of the Sierra Club. His record is rather distinguished in that he has scars from, what would you say, five administrations? At least, five Presidential Administrations.
Mike's story, I think, is one of the first I've heard when the Free Speech was organized about 18 months ago, and one of the reasons for us to be concerned about these things. I'm going to ask to briefly tell us about some of his experiences serving as a lightening rod for reprisals for the federal government. Mike McCloskey.
MR. MCCLOSKEY: This afternoon I want to tell you something about the history of the experiences that we've had with various regulatory agencies. As a high profile organization we've often attracted their attention. Many cases have been brought against us for allegedly violating their rules. Usually, these have been triggered by some new, more aggressive pattern of activity on our part. We've learned through the years that we have to fight these cases or things will get worse.
Let me begin back in the 1960's. At that time, the Sierra Club was a (C)3 organization. Many of the things that we were setup to protect were under assault then from the federal government. At that time, trying to build dams, for instance, in national parks such as the Grand Canyon, we launched a vigorous public advocacy program, at that time, directed at Congress to defeat the dams.
In the end, we succeeded. We ran a series of full-page newspaper advertisements across the country deriving public opinion. Supporters of the dams in the Johnson Administration were outraged by the aggressiveness of our lobbying.
They got the IRS to withdraw our tax deductibility. This happened in a 24-hour period; from the moment the ad ran, within 24 hours, hand-delivered to our door was this notice of intent to revoke our deductibility.
Rarely in times of even war has the U.S. Government worked so well.
Ostensibly, we were spending substantially to influence legislation, they said. But in reality, it was not how much we were spending that bothered them but how open and forthright we were in opposing them. They wanted to send a message to anybody else who might be tempted to do this, that they would risk losing their tax deductibility. We appealed their ruling administratively, but ultimately we switched to becoming a (C)4 organization instead. Earlier, we had the foresight to organize a companion (C)3 foundation and then at that time we activated it. Then we split our revenues between the (C)3 and the (C)4. So this whole experience with the IRS in the '60's has shaped our outlook ever since.
The IRS' decision, also, had an unexpected rebound effect upon the U.S. Postal Service. They decided in the early 1970's that since we were no longer tax-deductible, then we should no longer be entitled to preferential non-profit rates, either. Now, technically, there was no connection between the definitions and rulings of the IRS and those of the postal service. But the postal service must have thought that it also would like to send a message to lie low if you want to keep access to these special rates.
We fought this ruling with administrative appeals. We went into federal courts. We lost. There was just too much deference to agency judgment at that time. However, in 1976, when the Conoble (phonetic) Bill was passed that allowed (C)3 charities to lobby within limits, we launched another effort to get back these special rates. We got a Washington law firm that had contacts with the postal service. Ultimately, we succeeded and did get back our access, at that time, to these rates.
Our lawyer argued that the parallel IRS provisions have now changed. Actually, nothing had changed in the intervening years with respect to the relevance of postal laws. A more friendly administration, however, had come to Washington at that time and that may have helped explain the different result we finally got.
In the early '70's, we did another thing that followed in this pattern. We organized a public interest law firm to represent us and other environmental groups, too. Actually, we had been bringing cases against the government for a few years then, and had begun to annoy the federal government. When our application and those of other new public interest law firms hit the desks of the IRS; they rebelled against the very idea of letting these firms operate in a tax exempt manner.
Who had ever heard of the idea of a public interest approach to law? We then helped, and others helped, rally experts in law schools and elsewhere to bring the word, get the word to the IRS. Eventually the issue was settled, but with the express understanding that such firms could not take money directly from those who benefitted from these cases. And those were other tax exempt organizations.
Somehow, transfers of money from one tax exempt organization to another was not acceptable. The real problem, of course, was that machinery was being set up to sue the government right and left and they didn't like that.
Today, we have hundreds of cases pending at any one time against the government; mainly, the federal government and we win most of them. As the 1980's began, the Sierra Club decided that it needed to get into the business of influencing the outcome of elections. So we organized a political actions committee; Scope, we called it. One of the first of the environmental organizations to get into electoral work in a big way.
Of course, our activities in that arena were regulated by the FEC. True to form, early on, we were cited by the FEC for a violation of their rules. Their rules didn't contemplate that all sorts of in-kind contributions, such as donations of labor and mailing lists would be made.
They ruled that we could not donate our mailing lists. Instead, we had to donate money to the candidates and the candidates had to rent the mailing lists from us and use the money we donated to them to rent the mailing lists. We resisted that ruling for quite some time but ultimately, we were forced to comply.
The FEC did not really seem to understand the nature of cause based PACs. We have learned to operate under their rules in the ensuing years and today have a PAC which endorses hundreds of candidates for Congress each election.
Prior to the 1980's, the Sierra Club had interpreted the rules on reporting on lobbying activity in the way the United States Supreme Court ruled in 1954.
Up until that time, we had not solicited money directly to spend on lobbying unless we hadn't registered, nor had any other lobbying entities. However, given the record that we had of attracting regulatory scrutiny, we decided that we had better do it anyway, even though it was a pain.
We then, scrupulously reported every dime we spent on printing bills and so forth. The net result was that we suddenly started being listed as one of the big spending non-profit lobbies in Washington, though we couldn't have been that big. Of course, under the new Lobbying Disclosure Bill things would really have gotten worse and we can all celebrate the demise of that today.
Another case, UBIT; the Sierra Club has published books for over half of its long lifetime. Since the 1960's, we've been a major publisher of calendars. In fact, by the late '80's, we had become author of the best-selling continuing line of calendars in the United States, in the marketplace. We are also the largest publisher of environmental books.
Thus, I suppose we helped attract attention to the UBIT issue which, as you may remember, hit Congress in the late '80's in the Ways and Means Committee; specifically, Mr. Pickles' oversight sub-committee. Under the bill that he tried to move at that time, we would have had to have paid taxes on many of our publications, despite the fact that they -- related to our chartered public purpose. Our outings were similarly threatened.
The sin we seem to be guilty of was that of being big and successful. Fortunately, the non-profit community defended itself vigorously then and defeated that legislative effort. However, as you know, the same forces are now cranking up the battle all over again.
Finally, the latest chapter in this tale concerns a decision of the Sierra Club to lend its name to Affinity Credit Card Operations. We did this in the mid-1980's. We thought these might be a coming thing and, indeed, they proved to be. The IRS must have been worried about these efforts of non-profits to develop new sources of revenue because it pounced on us right away.
In a 1986 audit, it declared that we were actively involved in running the credit card operation and thus they said we could not claim that the monies paid to us by the bank were tax exempt royalties.
By now we had learned our lesson; fight back at every step of the way. We proceeded to spend four years exhausting our administrative remedies. We then went to court and just last month, the U.S. Tax Court finally ruled in our favor. That the monies paid to us for the use of our name are royalties and they are tax exempt. Earlier it had held that the use of our membership list was also -- or the money we got from them was also a royalty.
We are waiting to see whether the IRS will appeal this. It probably will. It will probably take another year to work our way through the Court of Appeals and who knows whether that will be the end of the line.
But this case is likely to be a landmark case and we're not shying away from pressing the issue. It may, when it's all said and done, have taken us a decade to get through the courts on it.
Now, you might conclude from this recitation that we have been foolhardy. However, through all of these incidents we have been represented by competent counsel. We thought we were following the law and sometimes the courts did agree. We were often doing just what other organizations were doing also, but none have consistently drawn the scrutiny that we have. One has to believe that many of these crackdowns have been politically inspired.
Our offense has been that we've been visible, aggressive and successful. We have also been pioneers in new ways of getting things done. The lesson we've learned painfully and slowly is that we can't be shamed by these experiences. We have to defend ourselves of all of our vigor for as long as it takes.
If we allow ourselves to be a punching bag, we'll be pummeled into submission. Our whole non-profit movement should draw the same lesson. Collectively, we have to be resolute in defending ourselves in justifying what we do. The more we do so, the more we will be liberated from fear and the freer we will be to chart our own destinies.
MR. SEGERMARK: Outstanding.
Mr. Keene is our next speaker. David's biography is in your notes. He is a visiting professional scholar with the Freedom Forum's First Amendment Center at Vanderbilt University. David also is an attorney and he is a lobbyist. He has been said to remark that, "Given a chance to identify myself between being a lobbyist and an attorney, he says, I'll pick lobbyist as being the most honorable profession." David has first-hand experiences of political intimidation with an organization he's associated with. David, would you talk about that?
MR. KEENE: Well, many of those attending who know at least the first few chapters of this, I have to begin by saying that it is an inveterate -- much if not all of what you do is (inaudible).
Also, I might say that I think that Mike's experiences at the Sierra Club leading him to the one conclusion that he made at the end of his remarks, and that is, that one thing that he's learned is that you have to fight this every step of the way, is the thing that we all ought to leave this conference with.
Because if it isn't fought every step of the way, it will happen and it will be revisited every time. As Ted Stevens (phonetic) said on the floor of the Senate, invoking the Sierra Club's name as his principal enemy last year when he attempted to get legislation passed that would have had effects on all of us; he said, if I don't get it now, I will get it next year. I'll be back the year after and I'll keep after until I get you.
The fact that a United States Senator can stand on the floor of the Senate and make remarks like that about what he intends to do to groups exercising their legitimate rights under the First Amendment, says something about the Senate.
Do you remember this morning, I referred in passing, to the whole question of the brown envelope that we laughed about here last year? If you read through the materials that the Coalition provided prior to the conference, you read through the section where, in fact, legislation has now been adopted and signed into law that could, indeed, make it a criminal act to use the wrong color envelope.
The language in that legislation was interesting because it goes to -- it sort of intermingles, I think, the various reasons for which these regulations and bills are passed. I think there is a group of motives. In some places it's simply an attempt to get revenue. Some people that were supporting the UBIT thing wanted money. They see in the non-profit sector a lot of money and they think that it would be good to get their hands on it because, after all, then they could spend it.
I think that's probably the primary motivation of a state like Tennessee that requires a $1,000 registration fee. They're not so interested in what you fill out the forms with as much as they are with the check. It may be that that is why Pennsylvania so actively harasses organizations to get the money. That's one motive.
In fact, in some ways, that is a more benign motive than some of the others that are activating people in introducing legislation and regulations. I think the other two -- one, is what's broadly construed as consumer protection. They want to protect the public so that they're not giving to the wrong people, or they're not being defrauded out of their contributions, or joining groups that aren't doing what they think they ought to do.
In reading through some of the discussions of different legislative proposals, it was clear that the Congress has suggested that since non-profit status is, in part, granted so that groups can do things which are a benefit to the public, what better organization than a Congress made up of people like Dan Rostenkowski is there to decide what would be to the benefit of the public? So, there are suggestions now within Congressional committees and elsewhere that Congress ought to decide on the hiring practices of non- profits. Is there enough diversity in the staff; hiring the right kinds of people?
After all, non-profit status is a privilege; not a right, and, therefore, we ought to be doing the right things. Are we spending our money in the right places? Are non-profit groups really doing that which the Congress believes would be to the benefit of the American public?
Who better to make the determination of what would be to the benefit of the American public than the Congress or bureaucrats, at least authorized and funded by the Congress.
The third motive is the one that is the most pernicious; and that's the motive that's best exemplified by Ted Stevens (phonetic) in the case of the Sierra Club and David Pryor, in the case of the American Conservative Union and almost any other group that has at any time criticized Bill Clinton.
I've described David Pryor as Paul Axault (phonetic) with an attitude; a man who considers himself the President's closest friend on the Hill and who sees as his chosen challenge to go after anyone who disagrees with anything that his President has to say.
It was David Pryor at the press conference I referred to this morning who suggested that anyone who criticizes the Clinton health care plans was, in fact, involved in fraudulent discussions because none of these effects were true; and that anybody who criticized it was, in fact, lying and said that he intended to introduce legislation to make it impossible in the future for people to lie about presidential initiatives. A New York Times reporter said we'd like to see that legislation.
MR. KEENE: He said he'd have to get back to them. But the fact of the matter is that he is who I consider as sort of my poster child for government interference in the non-profit community, is in a position to do something, because he chairs the right subcommittee; the postal subcommittee and things of that sort.
Last year when we met, it was shortly after I had received a letter from the good Senator suggesting that I, within six days of receipt of the letter, get myself up to his office to explain my felonious activities on behalf of my organization. He suggested in his letter to me that an Arkansas constituent had gotten a letter signed by Senator Dole asking for funds on behalf of the American -- Union and that at the bottom of the letter it said, not to be printed or mailed at tax-payer expense.
Since we were a non-profit group it was at taxpayer expense. There were laws against fraud and that I violated those laws; and that he expected me in his office by a date certain. I, of course, told him to stick it in his ear and didn't go there.
I did not hear much for awhile but finally, Bill Olson and the other attorneys from the Coalition received a call from his chief of staff suggesting that while, of course, the Senator wouldn't have anything to do with this; they should know that I'm a criminal and that I shouldn't be surprised if criminal investigators show up to look into my activities. It sounds like something that might happen to you.
At 9:30 the next morning, criminal investigators from the Postal Service showed up; not at my office but at the office of the Republican leader of the United States Senate desiring all of the information he could give them about this criminal mailing that he had signed. As we know, he has an attitude, too.
MR. KEENE: That was the end of that phase of the prior investigation. Since then, he has held a press conference that I described earlier at which he suggested that the American Conservative Union, and any other group that doesn't get all of its money from the federal government is, in fact, involved in consumer fraud and that something ought to be done about us.
Following that, I sent him a copy of the Constitution and suggested that he might want to read it because he had, no doubt, forgotten the First Amendment since he became sworn into office and having sworn to uphold it.
The fact is, though that it is David Pryor who exemplifies the mixture of these two elements. In addition to being the chief defender of the President of the United States; Senator Pryor labels himself as the chief defender of the elderly. He suggests that since people who contribute to all of these groups tend to be older than other Americans, that he, therefore, has a duty to protect their interests. It was he and his staff people who suggested that we shouldn't mail things in brown envelopes because the elderly would think that such mailings were from the government, and therefore, they should be proscribed.
It's interesting to note that the Chief of Staff who suggested that perhaps I belong in a cell; is now the Chairman of the Postal Rate Commission and has taken the position, prior to appointment to that job, that non-profits should not have the right to mail at preferred rates. So, even though he's changed his job he has, in fact, increased his influence over our futures.
But I want to go back to this thing that passed, just because it tells you a little bit about what's going on. I asked Anthony at lunch about these slap suits. In many ways, that's what these things are. If we really fought many of these things as you have done, you eventually do prevail.
But the people who initiated the action against you also won, because they cost you tremendous amounts of resources; both in terms of time and in terms of money. It's the inhibition of non- profit advocacy activity that these people are after. It's not so much that they want to put Mike McCloskey in jail, or me in jail, or anyone else in jail. They want us to shut up. To the extent that they can even force the fight to go on and on, and they have more resources than we ever will have, they always win, to some extent.
But if you looked at the mailing you got from the Free Speech Coalition about the legislation that the President signed into law this year, it prohibits -- and this is just a sample -- because this can extend to other areas. When I asked Anthony at lunch about HUD, that doesn't have to be restricted to HUD.
Presumably, if it's legitimate for HUD to go after people because they're saying things against what they see as the law, other agencies can do the same thing and for all we know, are doing the same thing and it just hasn't come to our attention, because those sorts of things went on for a long time before they were brought to public attention.
But, consider this legislation, and I'm quoting from it. It "prohibits advocacy organizations from going into the mails with what they `know or should know' would convey the false impression that the item mailed was approved, endorsed, or authorized by the Social Security Administration, HHS, the Administration, Medicaid, SSA, SSI, EHHS, to the Department of the Treasury, or prohibits the use of the name of any bureau, office or subdivision of the Department, or the Secretary of the Treasury, or Treasurer of the United States, or the title or name of any other employee with the Department of Treasury, or the name of any obligation issued by the Department of the Treasury, or any colorable imitation of any set words, titles, abbreviations, initials, symbols, or emblems in any way that might `reasonably' could be interpreted or construed as conveying any official authorization or status."
The legislation that was signed instructs the courts in such cases to ignore the presence of any disclaimer. And proof under the way in which the Postal Service is operated on these sorts of things, can be as simple as finding two or three people out of a million who received a letter who are willing to stand up and swear that they thought that it came from an official agency, or they thought it implied official authorization.
The fact that 999,997 didn't come to that conclusion is irrelevant. And it includes fines of $10,000 per piece of mail, and up to a year in jail for each violation which is per piece mailed. When Senator Pryor came after us, it was before the passage of this letter and I don't think we made any attacks implicit or in any other way, on former Senator Vincent.
But he did suggest that, in his view, having a United States Senator sign a fundraising letter for a non-profit advocacy group was, in essence, conveying to the public the impression that, that group had the support of the United States Senate, a government official Senator and that, therefore, it was actionable, even under existing law, and that we shouldn't be using public officials to sign our letters.
So, these kinds of things extend far beyond where they begin and are a real threat. I think all we're trying to do here is give you the sense, regardless of where you're coming from, that these kinds of things are going on and will continue to go on. Lobby disclosure will be back and so will many of these other things.
There will be 16 other suggestions of what might be done about the "illegitimate activities of public interest groups." But I would just conclude by echoing what Mike said earlier, and that is that we have to be vigilant to spot each of these things and to fight each of them as they come along. Thank you.
MR. SEGERMARK: Thank you, David.
Tom Schatz is Executive Director of Citizens Against Government Waste. I should have insisted on a conference ahead of time because I hope David didn't take too much of your thunder.
MR. SCHATZ: Oh, no.
MR. SEGERMARK: Tom has actually done some research and talked with some of the people who will be in charge of administering this social security law provision affecting prohibited mailing practices. Let's go to that and then we'll get into some conversation.
MR. SCHATZ: I think Anthony Griffin at lunch today probably said it all when he said maybe we should all be a little paranoid. We've been relatively lucky with some of this stuff. Certainly the trail-blazing activities of the Sierra Club, ACU and others who have been out there really fighting tooth and nail, have I think benefitted every single one of us.
A year ago, when I first heard about this group, I kind of felt, maybe it's not going to happen to us. In part, because had some experiences with the Postal Service and with Social Security; both of which have resulted in some modifications to letters, which ultimately didn't affect our bottom line.
But clearly, we're dealing with a much broader issue. I have a legal background as well. The fact is that it's very encouraging to see this kind of group get together for something like this. Because we really should make them a lot more worried about us than we are about them. I think that's part of what we're trying to do here.
We did have a mailing back in 1986. It was the first year we had done any significant mailings -- '88, excuse me. In this case, it was one of those packages, which in those days seemed to work. Maybe they're not as good any more. It had a big picture of the White House on the cover and mentioned the Grace Commission which, of course, was the predecessor to the Citizens Against Government Waste.
Peter Grace and Jack Anderson were, of course, the co- chairmen and have been of our group many years. We were just reproducing the cover of the Grace Commission Report, fairly innocently, but in a very, very large document and got a call from the Postal Service to come on down and talk. They didn't file a suit. They didn't threaten our tax status. They said, come on down and talk.
We, ultimately, ended up modifying that package and maybe the fact that it didn't do all that well in the first place was another reason to do so. I guess, success would have enabled us to do a little more with it.
But it ended up, in a sense saying, to make a point that Citizens Against Government Waste if a private non-profit organization and that the Grace Commission, of course, was a governmental entity, which was true and not true. At least it didn't get its money from the government, but it got its authority from there.
So, we took a little slap on the wrist and moved forward. Then, in 1990, we started to mail on social security; on the deficit problem and the trust fund. The fact that it's going to run out of money some day; and maybe the fact that we do not immediately say to, as we call them, the senior citizens, you know, your lives or your social security is being threatened. Let the Social Security Administration -- not again immediately go and sue us. They wrote a little letter and gave us a phone call and we talked.
This is the actual letter and it says: "Special Report, Social Security Crisis Update." A diversion of funds from Social Security Trust Fund defines the federal deficit which we all know is true. This special report has been prepared by Citizens Against Government Waste, a private, non-profit organization.
If you look at the size of a private, non-profit organization it's fairly small, but if you read a lot of the statutes it's supposed to be over here, and big, and everything else. I don't know what is going to happen under the new statute because this may or may not be good any more.
I have suggested and I will send social security another sample and we'll see what they say because this is how we might do it the first time, in terms of modifying and explaining who we were and what we were up to. Maybe we'll be lucky or maybe we won't, but I certainly feel a little more emboldened by the presence of people here to fight it a little harder this time, if they come back and say, sorry, you can't do this.
Now, none of the prohibitive words in the statute are in here. You are allowed to use social security. You are not allowed to use Social Security Administration, or supplemental security income, or HHS, or -- from what I have read of the statute. They also don't prohibit you from using social security trust funds, to the best of my knowledge.
Now, we'll, as I said, see what they do here. But, this is really an ongoing battle. This issue is important, I think to the future of everybody in this country. I think certainly something that anybody who is in the baby boomer generation, or in generation X, or even those who haven't been born yet should know about this.
Basically, all we're saying is that they are taking social security money, diverting it, and there won't be any left in the future.
Now, what is untrue about that, except that you get some actuary from social security who will argue otherwise; oh, yes, the money will be here. Okay, well, let's see. That's why I'm putting money aside in other places. There are Members of Congress who are very concerned about the impact of these mailings on senior citizens.
In the 1989 Deceptive Mailing Practices Act, which was not specifically related to social security; there was an '88 law and, of course, this '94 law. They had a series of hearings on just deceptive mailing practices, period; which arose, in part, out of Congressman Tom Sawyer, who is the Chairman of the Subcommittee on the Census, being concerned about mailings being sent out being called environmental census, complete with a Census household number, -- was that one of yours, Frank?
MR. SCHATZ: Anyway, he was concerned that they looked like the Census. Of course, the response to the Census was much lower than it had been in the past; and why not blame the non- profit sector? Many people just didn't feel like answering.
So, he took that as an excuse to go out and pass the Deceptive Mailing Practices Act of 1989. That designates as non-mailable anything, any solicitation which could reasonably be construed as a bill, invoice or statement of account due; or any solicitation which is offered in terms implying any federal government connection or endorsement, unless there is an appropriate disclaimer.
Now, of course, they have said in relation to social security and treasury, it doesn't matter if you have a disclaimer. So, it will be interesting to see if you can still use a disclaimer on other kinds of mailings; if you want to take this a step further in terms of analysis.
Olympia Snow, who is otherwise I think a wonderful representative, is very protective of senior citizens in her state. Her major concern is social security. She pointed out that in 1986 a constituent brought to her attention a mailing which offered to obtain a child's social security card for a $10 fee; which is something else that this statute was after.
The time of the mailing and the name implied that the mailing was from the federal government urging compliance with a requirement of the Social Security Administration. For the '88 social security amendments to the '89 Act on Deceptive Mailing Practices, they did hold a series of hearings. At least there was some opportunity to know what's going on. In 1994, even if people were looking, they probably didn't even know about the changes that were being made on the Social Security Bill which we filed for two reasons.
That is, make the Social Security Administration independent because they were making changes in the supplements of security income, which were proposals that our organization had supported. But until we got the material from the Free Speech Coalition, fully justifying our membership I might add, if not more, I don't think anybody really knew about this.
That's perhaps the most dangerous thing of all. The reason that we need a group like this and people looking at this, so that the next time we get one of these, we can get in there and stop it before it happens.
At this point what we're talking about is hacking it if after the fact. But I think given the mobilization we've seen on things like lobbying and other activities that are affecting grassroots operations, and I'm in full agreement with Ralph Reed, that this is the wave of the future. As you can see, members are getting at least as responsive, if not more to groups like ours and yours that have membership and not necessarily PACs as they are to the people who have PACs.
When you go in and tell them that you've got a bunch of people demonstrating outside their office next Saturday, which we have at about 170 sites around the country, they pay a little bit more attention than they used to because they realize there's a lot more -- communications behind that group of people.
Now, I don't know who is going to be the one to challenge this. Maybe it will end up being since we got the letter. We're going to send it over to social security and we'll see what happens.
But there is some other really kind of damaging aspects to this. David mentioned one, which is the fact that it's per letter as opposed to per mailing; which, of course, makes the penalties greater. They eliminate the $100,000 annual cap on penalties. There used to be the cap on what social security could go after.
It no longer requires social security to go to the Department of Justice first and find out if the Justice Department will take the suit. SSA could just come right out and sue you. They don't have to waste any time, and the money goes into the "trust fund" instead of the general treasury, a nice little touch. And, if you want to reproduce any social security form or publication you have to ask the Administrator of Social Security for that.
Again, most important, as we talked about a few times, is the determination of whether there is a violation is made without regard to any disclaimer. I spoke to Jim Bunning's staffer on the House Ways and Means Committee the other day. She claims, that "we are going after the bad guys," and back to your paranoia discussion.
Well, who are the bad guys?
MR. SCHATZ: Yeah, it could be anybody. We haven't been out there. They didn't say us. They, actually -- I would prefer not to name the organization, but she mentioned a specific organization. She said, well, you know, they're still out there scaring the old folks, and in 1990, we thought that what we did would be enough to stop them.
That's why we're really going after these mailings that are out there to scare the old folks into sending everybody money, which she also said was just despicable, period, but she, so far, couldn't do much about that. Meaning that I guess she couldn't stop or they couldn't stop every single mailing, as I guess Senator Pryor is trying to do, but they were trying specifically to stop a group of people that were going after the seniors.
So, you've got David Prior on one side. You've got Jim Bunning, and I'm sure others on the House Ways and Means Committee on the other side all saying that this kind of thing just can't happen in the United States. Clearly, there are several instances that they are going to go way too far. Let's hope that the kinds of activities that we've seen in terms of the protection of our civil liberties and First Amendment rights continue.
We're happy to be part of this organization, the Free Speech Coalition. I hope that we will continue to go out and fight for these things; because it's really honestly not a matter of whether this organization or others survive. It's whether are rights survive. I think that's what we're really talking about.
MR. SEGERMARK: Thank you, Tom.
Let me throw out the first question, that is something that I think our civil libertarian friends would be concerned about. It sounds like you are going to the Social Security Administration to pre-clear your mail?
MR. SCHATZ: Well, we -- no, we did it -- they came to us first. They wrote to us and said, we want to see your mailing and we want to talk to you about it. We figured it would be easier to do that. Since we had an ongoing relationship in this instance, I said, look, we're using the same mailing that we've used for four years. But I'm concerned about what this new statute is going to do. I'm just curious to see what you think about it.
In a way, in a sense, it's an easy test. If they say no, well, then we know what we're up against. If they say yes, then at least in this one particular case, which may or may not do anyone else any good -- no, I wouldn't call it pre-clearance. We've already mailed them.
They can come after us now because it's out in the mail if they wanted to. There's no difference.
PARTICIPANT: That relates to something I was going to ask Mike. As I looked over all of these things that they're doing, one of the things that's been proposed last year and is being proposed again that strikes me as the most potentially dangerous in terms of controlling the activities of advocacy groups; and that's what is happening here. It is the proposal for intermediate sanctions by the IRS; so that every couple of years they can evaluate you like you were a radio station and see if you're doing the right thing. Then, either fine you or then pull your tax-exemption.
They claim that now the burden on them to yank your tax- exemption or your non-profit status is so great, that they really need intermediate sanctions so they can go after you --
PARTICIPANT: Let's just talk about that for a second, if we may. In the health bill that was approved by the House Ways and Means Committee, but never taken to the floor; Congressman Pickle put a provision in which would set up a number of intermediate sanctions against non-profit organizations; and would impose taxes on them which would double in volume or repeated offenses.
One of the offenses was a fascinating one, called disqualified persons. This would mean that if, in fact, an officer, or a board member, or a relative of an officer or a board member did contract services for one of those officers or board members, the organization could be taxed the equivalent amount of that contract. In other words, this may be fine and dandy for again the larger non-profits; but think of your Mom and Pop booster club or something, they can't print their own stuff for pay, because these are disqualified persons you're going to deal with; another whole layer of bureaucracy.
Congressman Pickle has said that he was committed to seeing to it that this would be applied to all non-profits. You might want to refer to that House bill to see that provision. It's a scary one.
PARTICIPANT: But his staff is not retiring, and you know who wrote that provision.
PARTICIPANT: Well, on the intermediate sanction question, very frankly, some of the non-profit sector, particularly those groups organized in the independent sector, have been the source of some of those ideas. I'm on the board of the Independent Sector and the Government Relations Committee. So, I've been part of the decision-making process that has led them to do that.
I think it's sort of the feeling you are in a Catch 22 situation here. That the present situation either leads, on one hand, to lax enforcement where abuses do occur; or when there is enforcement, the penalties are so that it's overkill. The potential for overkill leads to the hesitation to enforce; and then we have United Way scandals and other things.
My understanding is that the Intermediate Sanction Bill deals principally with the question of inurement.
PARTICIPANT: At present.
PARTICIPANT: Present. Oh, yes, it could lead to an unfolding chamber of horrors and get out of control, but anything could.
PARTICIPANT: That raises a question. In the United Way Case there are laws as -- discovered on the books to deal with that. In the case of the fraudulent mailing on social security, you know, saying we'll do this for $10 part of the government, there are laws, fraud laws, to deal with those kinds of things.
The laws that we're talking go way beyond that and allow, really, and I think they're designed really as a prior restraint on both speech and petition activities. It's the prior restraint that's the worst part of it. I mean, going after it at any stage is bad.
But it's clear to me that when you look at these things and if you just go with his discussion of a staff member on all this language -- what this staff member was saying.
We didn't like what these people said. They haven't done illegal. So, we're going to pass a law that, by God, will get them. Now, that strikes me as not a healthy kind of motivation for legislation.
MR. SEGERMARK: Comments and questions from the audience, too, of course. Mike, you first and then the gentleman back here.
MR. MCCLOSKEY: I think there is much to what you are saying. While there may be some abuses, bad situations that often the remedy is worse than the problem. Once, particularly they start dealing with so-called loopholes, they start casting the net more and more widely. They're not able to anticipate all of the things they're going to do as a result; and all sorts of problems are being created.
But, you know, the fact is they are regulating in the field right now. It's not working adequately. So they're trying to do some sort of a fix on it.
MR. SEGERMARK: Henry.
MR. SUHRKE: With respect to the intermediate sanctions; isn't it true that the State Attorneys General already have power to surcharge trustees and to do all sorts of intermediate things; which if they were doing their job properly, would deal with these questions in a much more equitable way, rather than giving new powers to the federal government which, really aren't necessary; if they were being exercised at a point where the intermediate steps are already taken into consideration?
Notice the powers of the Attorney General have great gradation; is that right?
PARTICIPANT: Well, that's my understanding. I think you're basically right. As I understand one of the motivations of the independent sector, among those non-profits, is that the climate is getting so bad here that unless we sort of pre-empt worse solutions, they're going to come along the way.
We need to get something of a remedial nature out there ourselves to -- basically, what they're doing is restating the existing law in inurement and providing intermediate sanctions to deal with it at the federal level. Now, that may or may not be the best strategy and it's not without its risks, but there are also risks of allowing the Philadelphia Enquirer and others to keep going on a tear that we're all bad; and the field and the community are totally corrupt.
PARTICIPANT: But they're not the government.
MR. SUHRKE: No, but they're creating a climate which is having an adverse effect on donations.
MR. SEGERMARK: Rich.
MR. STEINBERG: I, too, feel that the independent sector made a bad judgment in deciding where to stand on intermediate sanctions. A couple of things I wanted to point out here.
One, in the past, the independent sector has called for precision in regulation. When they supported the various fundraising cases, the state argued, oh, we're only going after the bad guys. There are provisions for administrative waiver, et cetera, which the independent sector didn't recognize.
In this case the legislation proposed outlaws self-dealing, which is not same thing as inurement, except in charitable trusts. They are trying to extend the law of trusts to 501(C)3's with no debate.
That's a minor point compared to the other point which is, that the law provides penalties to any board member that approves excess compensation, regardless of whether it was a simple mistake in judgment by an amateur on the board. It also prohibits any liability insurance from covering these board members.
Now, this is not the kind of restating the law. This is feel good. Let's get some PR out there to make it look like we're against the bad guys, too, instead of precision. It's going to hurt the independent sector in the future when it goes against one of their members. That's my opinion.
MR. SEGERMARK: I want to continue this
argument, if we can, in the next session.