Vol. II, No. 5November 1994

The New Powers That Be: The Congress
The election of November 8, 1994 dramatically changed the Congress, the state legislatures, and the political challenges facing nonprofit organizations. Republican majorities in both houses of Congress will bring new chairs to every committee, and many committees will have their jurisdiction modified. In view of anticipated committee restructuring, it is far too early to know how the 104th Congress will shape up, but since everyone is speculating, we will too. For those committees which currently have jurisdiction over matters of importance to nonprofits, we set out some thoughts on the outgoing Democrat, and the incoming Republican, congressional leadership.

Committee: Senate Government Affairs Subcommittee on Federal Services, Post Office and Civil Service

Chair: Ted Stevens (AK) in; David Pryor (AR) out

Comments: Senator Stevens has, in one very important way, threatened the ability of nonprofits to communicate with their members through the mails. He has, in the past, proposed barring advocacy organizations from using third-class nonprofit mail. There is nothing to indicate he has had a change of mind on this issue. However, considering Senator Pryor's attitude toward nonprofits which use the mail, this is probably a net gain.

Committee: Senate Governmental Affairs Subcommittee on Oversight of Government Management

Likely Chair: Bill Cohen (ME) in; Carl Levin (MI) out

Comments: This Subcommittee produced the Senate's version of the Lobby Disclosure Act, and Senator Cohen supported the bill with the list disclosure and double bookkeeping provisions.

Committee: Senate Appropriations Subcommittee on Treasury, Postal Service and General Government

Likely Chair: Kit Bond (MO) in; Dennis DeConcini (AZ) out

Comments: This panel has cooperated with the Authorizing Post Office subcommittee to impose various restrictions on third-class mail, and may likely do so in the future.

Committee: House Ways and Means Committee

Likely Chair: Bill Archer (TX) in; Dan Rostenkowski (IL) out

Comments: Congressman Archer will likely focus on mega-tax issues, but he may support limitations on IRS regulations, which would be of benefit to nonprofits. The Oversight Subcommittee will get a new chair (with former chairman J. J. Pickle (TX) having resigned), but the current ranking Republican (Amory Houghton (NY)) is relatively junior, and he may be "bumped" by a more senior member for that important panel.

Committee: House Judiciary Subcommittee on Administrative Law

Likely Chair: George Gekas (PA) in; John Bryant (TX) out

Comments: This Committee produced the House version of the Lobby Disclosure Act of 1993. Congressman Gekas has been an important ally in the fight to trim the burdens that bill imposed on nonprofit organizations.

Committee: House Committee on House Administration

Likely Chair: Bill Thomas (CA) in; Charlie Rose (NC) out

Comments: In November 1993, the committee reported out a bill that would have required all nonprofits which took a public policy position to disclose their donors to the Federal Election Commission in the full manner and extent as political committees. Nevertheless, there is reason to believe the trend here will be toward deregulation.

Committee: House Post Office and Civil Service Committee

Likely Chair: John Myers (IN) in; William Clay (MO) out

Comments: If this committee is not abolished, the important Subcommittee on Postal Operations and Services may be taken over by Don Young (AK), replacing Barbara Rose Collins (MI).

Committee: House Appropriations Subcommittee on Treasury and Postal Service

Likely Chair: Jim Lightfoot (IA) in; Steny Hoyer (MD) out

Comments: If Bob Livingston (LA) becomes chairman of the committee, advocacy organizations will have a powerful ally who understands the excesses of government power.

The most senior, and thus the most knowledgeable, Democrat staffers will likely stay on key committee staff rolls. Many committees have a large number of "professional" staff members who are considered (by some) to be nonpartisan. New committee chairs and Congressional leaders will rely on those staff members, at least in the short term. This is particularly true of the hundred-plus staffers of the Joint Committee on Taxation. Even the House Ways and Means Committee's subcommittees theoretically had no "partisan" staff. This may not work to the benefit of nonprofits, however, given the recent legislative agenda proposed by a predominantly Democrat Congress.

Behind the new committee and subcommittee heads and members are dozens of staffers. FSC has worked with many of them already, and some will take on more important roles. Due to pledged reductions in overall congressional employment, the number of Democrat staffers forced out will be high. Still other new staffers will be hired. In the House of Representatives alone, an estimated 2,400 new GOP staffers will be added. These new staffers will have a very steep learning curve, and the opportunity to educate them in the issues facing FSC is upon us.

Our goal in communicating with the new Congress and its staff is simple: to make sure that the rapid legislative changes that have been promised do not overlook the rights and needs of the nonprofit community, particularly the needs of nonprofits engaged in advocacy.

The New Powers That Be: The States
Nonprofits also face new challenges and opportunities at the state level. The new governors, attorneys general, and legislatures need to be made aware of the importance of nonprofit organizations and their legitimate concerns.

Republicans gained control in the following 17 state chambers which were previously controlled by Democrats or controlled evenly by the two parties:

Alaska Senate, 12-8 (previously 10-10)
Alaska House, 22-17 (previously 18-21)
Connecticut Senate, 19-17 (previously 17-19)
Florida Senate, 21-19 (previously 20-20)
Illinois House, 64-54 (previously 51-67)
Indiana House, 56-44 (previously 45-55)
Michigan House, 56-54 (previously 55-55)
Montana Senate, 31-19 (previously 20-30)
North Carolina House, 67-53 (previously 42-78)
North Dakota Senate, 29-20 (previously 24-25)
Ohio House, 55-43-1 (previously 46-53)
Oregon Senate, 19-11 (previously 14-16)
Pennsylvania House, 102-101 (previously 98-105)
South Carolina House, 61-60-3 (previously 52-71-1)
South Dakota Senate, 19-16 (previously 15-20)
Washington House, 58-38 (previously 33-63)
Wisconsin Assembly, 51-48 (previously 47-52)

In the following chambers, the Republicans gained split control:

California Assembly, 40-40 (previously 33-47)
Maine Senate, 17-17-1 (previously 15-20)
Nevada Assembly, 21-21 (previously 12-26 and 4 vacancies)

As compiled by the National Conference of State Legislatures, the Republicans now control 48 state legislative chambers (previously 31), and they control both chambers in 19 states. The Democrats, who controlled 64 chambers prior to November 8, now control 47, and they control both chambers in 18 states. In 12 states, control of the legislature is split.

In the state gubernatorial elections, the Republicans also won 24 races, compared with 11 for the Democrats, one going to an independent, and one still in dispute.

FSC 1994 Leadership Conference
The 1994 FSC Leadership Conference was held on October 6, 1994 at the Freedom Forum in Rosslyn, Virginia. At nine-thirty, a.m. on October 6th, The Freedom Forum's Vice-President for Public Affairs, Jerry Friedheim, formally opened the Free Speech Coalition's Second Annual Leadership Conference and welcomed the approximately eighty attendees who arrived for the opening sessions. Over 125 people attended at least one session. Senator Paul Coverdell (R-GA) was to give the opening address at the conference, but we learned late the previous evening that the Senate would convene not at noon, but at 9:00 a.m., and vote on a motion relating to the Lobby Disclosure Act.

FSC leaders Eleanor Smeal (President, Feminist Majority and FSC Co-Chair), Dick Dingman (Vice President, Free Congress Foundation), and David Keene (Resident Fellow, First Amendment Center of the Freedom Forum at Vanderbilt University, and Chairman, American Conservative Union) combined to stand in for Senator Coverdell, giving outstanding overviews of the problems affecting nonprofits and the goals of the conference. At the conclusion of their remarks, we were pleased to announce that our scheduled speaker, Senator Coverdell, had, that morning, successfully voted to effectively kill the Lobby Disclosure Act for this Congress.

The remainder of the morning was given to two sessions: The first "Where Are the Battles Being Fought," was moderated by Edythe Ledbetter (Vice President for Administration, Center for Marine Conservation). Speakers included Henry Suhrke (Editor, Philanthropy Monthly) and John McIlquham (President, Nonprofit Times). Laura Murphy Lee (Washington Office Director of the American Civil Liberties Union) spoke forcefully about the dangers of the Lobby Disclosure Act and the restrictions it would impose on the exercise of First Amendment freedoms. Dr. Thomas DiLorenzo, co-author of Unhealthy Charities, spoke about the uses of regulation as a competitive device against small nonprofits.

The last morning session was moderated by Harriet Trudell (Feminist Majority) on public perceptions of nonprofits as "special interest groups." John McLaughlin (partner in the polling firm of Fabrizio-McLaughlin) joined Dr. Frank Luntz (Luntz Research) in analyzing certain public opinion trends. Charles Orasin (Vice President of Craver, Mathews, Smith and Company and past President of Handgun Control, Inc.) shared observations on the problems facing nonprofit advocacy groups.

The Luncheon was moderated by Larry Pratt (Executive Director of Gun Owners of America, and FSC Co-Chair). Ralph Reed (Executive Director of the Christian Coalition) outlined his organization's methods of mobilizing grassroots to fight for their issues and to fight against the Lobby Disclosure Act. Anthony P. Griffin, Esquire (Adjunct Professor at the University of Houston Law Center) talked about defending the rights of the unpopular in society and the crucial importance of making sure that the rights of these groups and individuals are preserved.

The afternoon sessions were divided into three "policy report" panels. At the first, Sierra Club Chairman Mike McCloskey spoke about the attacks an unpopular organization might suffer from government. David Keene described the attempt to use the Postal Service to intimidate the organization which he chairs. Tom Schatz (Executive Director of Citizens Against Government Waste) talked about what he learned from FSC regarding the provisions of the new Social Security law amendments which established a list of "prohibited practices" restricting the ability of citizens to mail items that, to any extent, may resemble federal documents. Howard Segermark (FSC Legislative Director) moderated that session.

Michael Beard (Executive Director of the Coalition to Stop Gun Violence) moderated the session on state actions. Attorney Thomas Hart spoke on the jurisdiction of states to regulate out-of-state nonprofits, and Attorney Mack Canter talked on current tests of the constitutionality of various states' regulations. Professor Richard Steinberg, Ph.D. (Indiana University's Center on Philanthropy) detailed the underlying economics of nonprofits which depend on federal grants to hold down apparent fundraising costs.

The final afternoon policy panel on federal regulations was chaired by Attorney William J. Olson (FSC Co-Counsel) who outlined efforts of the American Institute of Certified Public Accountants and the Council of the Better Business Bureaus to regulate nonprofit organizations. Attorney Mark Weinberg (FSC Co-Counsel) discussed the latest IRS regulations affecting nonprofits. U. S. Chamber of Commerce Assistant General Counsel, Judy Richmond, announced a new suit about to be filed by the Chamber against the Federal Election Commission because of its regulation narrowing the definition of "members." Attorney James Bopp Jr. spoke on advocacy groups' right to make independent campaign expenditures. Finally, Dick Larkins (Technical Director, Price Waterhouse) defended the AICPA's role in setting standards.

The conference was concluded with comments by Richard Viguerie (Chairman, American Target Advertising), who addressed the issue of the successes of the Free Speech Coalition, and Joe Levin (President of the Southern Poverty Law Center), who talked about the work ahead facing nonprofits and the need for nonprofit groups to mobilize to meet the threats facing them.

Typical of a conference with over thirty speakers and moderators, there were last-minute crises and substitutions. Until the day before the conference, staff was busy speaking with attendees, faxing materials, and reconfirming arrangements. There were press contacts as well. FSC's role in defeating the Lobby Disclosure Act was discussed in articles in the New York Times and in Human Events. In addition, FSC member David Keene was interviewed on NET cable television, and FSC Legislative Director Howard Segermark spoke on over ten radio call-in talk shows.

FSC Amicus Brief Accepted by Second Circuit
FSC's Amicus Curiae (friend of the court) Brief was filed and accepted by the United States Court of Appeals for the Second Circuit in the case of National Awareness Foundation, et al v. Abrams, et al. Attorneys for New York State defendants had opposed the Court's consideration of FSC's Brief.

The FSC litigation committee may also file another amicus brief, this one in support of a petition for certiorari to the U. S. Supreme Court in the case of Center for Auto Safety v. Maryland. The Center for Auto Safety argues that registration fees are set so high by Maryland as to constitute a tax, and are unconstitutional. It had presented its case in Federal District Court and to the United States Court of Appeals for the Fourth Circuit. Both courts ruled in favor of the State of Maryland and the Center seems determined to seek review in the U. S. Supreme Court.

FSC Shares its Views with Virginia
On October 3, 1994, the Virginia Department on Agriculture and Consumer Services ("DACS") notified its "Patrons" that the agencies of the state government were reviewing their regulations. Included under this review is VR 115-06-01, Rules governing the Solicitation of Contributions, which implements Virginia's state charitable solicitation laws.

FSC faxed its members and friends a heads-up on this and asked them to voice their opinions on this subject. An opportunity such as this comes along infrequently and it is important that we take advantage of it when it does. FSC wrote the DACS to add its voice to yours. In addition to specific points on the regulations, we made the following policy arguments attacking the very concept of state charitable solicitation statutes:

• Most nonprofits are well run, in compliance with the law, and use their funds for the stated purpose of the nonprofit's mission. The states are over-regulating a large industry in order to punish a very small number of abusers.

• The nonprofits which are most likely to abuse the public trust are least likely to comply with the registration requirements.

• Other statutes and regulations provide sufficient police and punishment powers to the appropriate authorities. Among them are the fraud statutes of the various states, the non-profit regulations of the IRS, the Postal Reorganization Act, and the regulations of the Federal Communications Commission.

• The accumulations of current regulations of the various states and counties, and the potential for regulation from over 6,000 political jurisdictions in the United States, has the effect of placing an undue burden on the nonprofits. As this burden increases, the resources devoted to maintaining valid registration increase, and the resources available to accomplish the nonprofit's mission decrease. This erodes the public trust and creates a climate in which public giving to important, useful nonprofits is likely to decline.

It is important to realize that the nonprofits most affected by these regulations are those which can least afford the additional burden: new and small organizations which rely on direct mail and telemarketing as their primary means of fundraising. Older, established groups which receive government grants, have endowments, or receive private foundation money are not as significantly harmed. It is important to continue to have new groups, particularly advocacy groups, come into the public domain so that new messages are presented and new constituencies are represented.

NAAG/NASCO's Foot-in-Mouth Disease
The National Association of Attorneys General (NAAG) and the National Association of State Charitable Officers (NASCO) held their "Charitable Trust and Solicitation Seminar" in Savannah, Georgia the weekend of October 29 - 31, 1994. Many nonprofits and their vendors were represented, including several members of FSC. While the conference was intended primarily to update the status of current and pending legislation and for discussion of those issues, it also provided some unique insights into the agendas of regulators who enforce state charitable fundraising laws.

Steve Arter, of the Pennsylvania Attorney General's office and the President of NASCO, was asked how he responds to citizens' questions about charities. Arter responded that he answers that generally people should not give donations to nonprofits that use direct mail or telemarketing appeals. Members of the audience were stunned by this statement. Incredible as it seems, the President of NASCO was saying that the use of proven and legitimate fundraising approaches is inherently suspect.

Participants pointed out that most out-of-state nonprofits cannot effectively use personal or door-to-door solicitations, methods which apparently still meet Mr. Arter's standards, and therefore they are effectively limited to contact with Pennsylvania residents by mail or telephone.

Such representations by state officials, said one participant, do a "great disservice to the members of the public who wish to give, as well as the nonprofits that expend the thousands of dollars and hundreds of hours annually to comply with the state registration laws. The regulators have gone too far."

Paul Luehr, an attorney representing the Federal Trade Commission (FTC) at the seminar, told conference attendees that the FTC has jurisdiction over nonprofit fundraising activities which employ for-profit professional fundraisers. However, smaller charities must use professional fundraisers because hiring in-house fundraisers is prohibitively expensive, as one small nonprofit's representative later pointed out. The FTC, which has very little experience dealing with nonprofits, is expanding its enforcement activities to deal with the nonprofits. FSC will take advantage of every opportunity to voice its objection to this latest incursion into unnecessary and arbitrary regulation. There can be no logical explanation for indirectly bringing the non-profit community under the FTC's jurisdiction, simply on the basis of whether or not a particular nonprofit employs an outside fundraiser.

The chance of state regulators recognizing the rights of nonprofits, or adopting a cooperative spirit towards them, unfortunately appears unlikely. Pamela Mann, Assistant Attorney General of New York, and the President-Elect of NASCO, said that state officers are "not accountable to the nonprofits that they regulate." Nonprofit representatives tried to explain that the cost of compliance with these onerous state laws is borne by the donors -- citizens of the state the regulators are serving. One person attending the conference pointed out that the U. S. Supreme Court ruled that if states plan to regulate charitable solicitation at all, the state must use the least restrictive means because the regulations restrict First Amendment rights.

The good news is that not all of the state regulators ignored the pleas of the nonprofits. One state official asked to receive the recommendations of the nonprofits, and FSC has had contact with a few states which seem prepared to take such input seriously.

Cumulative and Compounded: The Problem of Over-Regulation
Each of these statutes, requirements, and regulations, taken by itself, may not be overly burdensome to the nonprofit, but the cumulative effect is overwhelming. Beyond that, each action required by one statute has a secondary adverse impact on the status of the nonprofit under one or more of the other statutes. Here is how it works.

As the states impose even more registration and reporting requirements, require bonds, require background checks, and dictate contractual language, fundraisers and solicitors will pass those costs on to nonprofits either directly or through increased fees. As costs and fundraiser and solicitor fees increase, the percentage of money available for a nonprofit's program decreases.

The increase in fundraiser and solicitor fees, and the declining funds available for programs, alter fundraising/general/administrative expense ratios dramatically. However, many nonprofits, especially new and small groups, can only afford to raise funds through direct mail, and they do not have the expertise in-house to conduct effective direct mail campaigns. Those small and new organizations are the most susceptible to being rated poorly by the watchdogs and are finding it ever more difficult to reach donors.

As the nonprofits attempt to comply with the multitude of charitable regulations and their ratios worsen with every new burden imposed, their ability to find new or exploit existing sources of funds disappears. The Combined Federal Campaign (CFC), through which thousands of federal employees make charitable contributions by payroll deduction, has arbitrary standards for fundraising ratios similar to those used by the National Charities Information Board (NCIB) and the Council of Better Business Bureaus (CBBB). When a charity exceeds the CFC limits, it is usually removed from the CFC list. Here, the impact is most dramatic. As the CFC funds, which have minimal associated costs, are eliminated, the percentage of money available for a nonprofit's program decreases and its fundraising expense ratios increase even more.

What does all of this mean? It means that every nonprofit is operating in an ever-increasing climate of mistrust and suspicion, not due to the work that it performs, not due to the way that it raises funds to perform that work, and not due to any fraudulent practices. That hostile climate is created by elected officials and various watchdog organizations attempting to justify their own existence, by suppressing, inhibiting, and smothering the right of all Americans to be able to freely associate, discuss ideas and issues, and then be able to freely petition their government for the redress of grievances. This is a dangerous trend that we all should be aware of. It is inherently un-American and we should speak out against it while we still have the right.

Each nonprofit and its advisors should take every opportunity available to let the regulators know that the burden they create is unacceptable. Many of the watchdog agencies circulate drafts of their proposals before they implement them. It is important that they hear from the groups they are trying to control during this exposure period. Take the opportunity to write to Congress and to state legislators and regulators to explain effects of these laws and regulations on nonprofits. Let's hope someone will listen.

(Our thanks to Bill Cook and Philanthropy Monthly for the use of this updated version of an article previously published there.)