News and analysis
October 29, 2010

Election Will Bring Changes to Congressional Oversight of Nonprofits

Richard White/Chronicle of Philanthropy

As voters prepare to head to the polls Tuesday, philanthropy experts are looking ahead to a new Congress that will probably shift the way it approaches legislation that is important to the nonprofit world.

With Sen. Charles E. Grassley, the body’s leading nonprofit watchdog, expected to take on a new role, they predict a less aggressive approach to charity regulation in the Senate. But with Republicans projected to win a majority in the House, charities could nonetheless face heightened scrutiny in some areas.

And, in an aggressive effort to close the country’s ballooning budget deficit, a Republican-led House could take aim at pet projects of the Obama administration that affect nonprofit groups or the tax exemption of nonprofit hospitals.

If, as the latest public-opinion polls suggest, Republicans do win control of the House, new people, with new priorities, will be heading the committees that deal with nonprofit issues.

The Senate, while expected to gain more Republicans, is not as likely to change hands, but the nonprofit world will see a big change, nevertheless: Senator Grassley, who has led a steady stream of investigations into alleged nonprofit abuses as chairman and then senior Republican on the Senate Finance Committee, is expected to move to the top Republican post on the Senate Judiciary Committee.

Sen. Orrin Hatch of Utah is expected to assume Senator Grassley’s role on the Finance Committee, gaining a powerful stake in the oversight of tax-exempt organizations. The Iowa senator would presumably pay less attention to those issues, although exactly how much less is a matter of speculation.

Senator Grassley would remain on the Finance Committee and would be able to influence the committee’s work, but he would lack the budget and the staff to investigate tax-related questions to the same degree that he does now. At the same time, he could find a way to pursue matters that interest him from his new perch.

“It’s fair to expect that he’ll remain interested in and involved in many of the issues he’s been invested in, including nonprofit work,” says Jill Gerber, Senator Grassley’s spokeswoman. “And he’s willing to take on issues that aren’t strictly in a particular committee jurisdiction if he sees a need.”

Amicable Approach

The pending musical chairs has prompted some nonprofit advocates to pay new attention to Senator Hatch, whom they expect to take a less confrontational approach to nonprofit regulation than Senator Grassley­—who has investigated nonprofit hospitals, university endowments, highly paid charity executives, and churches with lavish expenses.

Given that he represents Utah, a predominantly Mormon state, Senator Hatch “is going to be very careful, at least about churches,” says Marcus S. Owens, a lawyer in Washington who used to lead the Internal Revenue Service’s nonprofit branch. “I don’t know whether he’ll be as interested in the investigative efforts that Grassley has taken.”

A spokeswoman for Senator Hatch declined to comment on the senator’s plans, noting that the expected switch must be formally approved by Republican leaders after the elections.

In a display of interest in the nonprofit world—and one of the few bipartisan efforts in Congress since President Obama’s election­—Senator Hatch worked with Sen. Edward Kennedy, the late Democratic Massachusetts senator, to get a law passed last year to greatly expand AmeriCorps, the national service program, and create the Social Innovation Fund, a new federal grant program for effective nonprofits.

Some nonprofit experts wonder, however, if Senator Hatch will have the same close relationship with Sen. Max Baucus, the Montana Democrat who chairs the Senate Finance Committee, as Senator Grassley does. They note that the Utah senator recently co-wrote a letter that criticized an effort by Senator Baucus to persuade the Internal Revenue Service to investigate election-related activities by tax-exempt groups, saying it “could chill the legitimate exercise of First Amendment rights.” Senators Baucus and Grassley have generally both signed letters that were issued by the Finance Committee, notes Perry Wasserman, a nonprofit legislative consultant in Washington. In this case, he says, “If I were the IRS commissioner, I’d have no idea what to do.”

Steve Gunderson, president of the Council on Foundations, is thinking about ways to raise the profile of foundations in Senator Hatch’s state, perhaps by encouraging local grant makers to create an association there. Because the Mormon church dominates philanthropy there, “we’ve not done a good job of creating key contacts in the state of Utah,” he says. “There was not a reason to do that in the past. We now need to do that.”

Mixed Expectations

On the House side, if Republicans win a majority, the chairmanship of the Ways and Means Committee, which oversees nonprofits through its responsibility for tax issues, is expected to move from Sander M. Levin, a Michigan Democrat, to Dave Camp, a Republican who is also from Michigan. Some philanthropy experts say that is good news because Representative Camp has a history of working well with the nonprofit world in his state.

“Dave Camp and his team have been fabulous supporters,” says Robert Collier, president of the Council of Michigan Foundations. He says the lawmaker was instrumental in getting the Pension Protection Act of 2006 to include a provision to allow older people to donate money from their individual retirement accounts to charity without being taxed­—and has pushed to get the provision renewed this year (legislation to do that is lingering in the Senate).

On the other hand, with the Ways and Means subcommittee on oversight in Republican hands, controversies like the one that arose last year over Acorn­—which came under fire from Congress, especially Republicans, after videos surfaced that appeared to show staff members offering advice on illegal activities­—could gain an even higher profile, says Mr. Owens.

“If the Acorn business were to arise under a fairly aggressive chairman, there would be hearings, there wouldn’t be just demands [for action],” he says.

In fact, Charles Boustany Jr., of Louisiana—who is expected to become the subcommittee’s chairman if the Republicans win a majority, taking over from John Lewis of Georgia—called for such a hearing last year.

Dean Zerbe, who was responsible for nonprofit issues as a former aide to Senator Grassley, notes that the last time the Ways and Means Committee was led by a Republican, Bill Thomas of California, it conducted an investigation into whether nonprofit hospitals deserved their tax exemption, echoing Senator Grassley’s concerns.

A Republican-led House could re-examine those tax breaks as part of its planned effort to “repeal and replace” the health-care-overhaul bill that was adopted last year, he adds.

Some experts worry about the fate of the Social Innovation Fund, the new grant program to help effective charities expand social projects, as well as many social programs that benefit nonprofit clients, as Republicans look for ways to slash spending.

At the same time, with more Republican seats, the new Congress would be even less likely than the current one to support President Obama’s proposal to limit tax breaks for charitable gifts of wealthy people as a way to raise revenue, says Matthew J. Dolan, a tax consultant in Washington. “In dollar terms, that’s probably the biggest single interest facing the philanthropic community,” he says.

Key Democrats

Two Democratic members of Congress who have taken a special interest in the nonprofit world are expected to be re-elected­—Xavier Becerra of California, who regularly questions whether enough philanthropic dollars are going to help the poor; and Betty McCollum of Minnesota, author of the Nonprofit Sector and Community Solutions Act, which would create two new bodies to make recommendations about federal policy affecting charities and require more data to be collected about the nonprofit world.

Representative Becerra’s influence in the House could be diluted with a Republican majority, but his star is rising in the Democratic Party because he is smart and, as a Latino, represents an increasingly influential bloc of voters, says Sandra Swirski, executive director of the Alliance for Charitable Reform, a group in Washington that represents grant makers.

Ms. McCollum plans to reintroduce her legislation in the new Congress, but if the Democrats lose their majority, Ms. Swirski says, “they’re going to have to find a strong [Republican] co-lead on the bill.”