News and analysis
July 06, 2011

Lawmakers in 2 States Strike Down High-Profile Bills to Regulate Nonprofits

Massachusetts Attorney General Martha Coakley

Efforts in Massachusetts and Oregon to place new financial restrictions on nonprofits have failed to become law.

In Massachusetts, lawmakers last week rejected a proposal that would have prohibited nonprofits from paying their boards of directors.

Oregon lawmakers, meanwhile, have failed to approve a measure that would have required charities to spend at least 30 percent of their expenses on programs or else be unable to allow donors to get a charitable deduction.

Both measures had won significant support and national attention before they withered: In Massachusetts, Sen. Mark Montigny was able to get his measure on board pay attached to a budget bill passed by the state Senate in May. In Oregon, the bill designed to punish bad charities passed the Senate a few months after it was introduced.

Nonprofits 'Fight Back’

Behind the legislation in both Massachusetts and Oregon were attorneys general who asked lawmakers to help crack down on nonprofits they felt were operating inappropriately.

In Massachusetts, Attorney General Martha Coakely conducted a review of nonprofit board pay that found that several health insurers were paying tens of thousands of dollars to their trustees annually.

In Oregon, Attorney General John Kroger was the first in the nation to suggest denying deductions to taxpayers who support groups with high fund-raising costs.

Their failures may indicate the challenges of introducing legislation that could affect just as many legitimate charity efforts as ones that attorneys general considered abusive.

“As much as the attorneys general are aggressively pursuing these things, the sector will also aggressively fight back,” says Tracy Boak, a lawyer in New York. “That puts legislators on the side of: Do I choose to support this position at this time?”

Renewed Attempts

But while the proposals in Massachusetts and Oregon did not succeed, their proponents are not giving up.

Mr. Montigny's spokesman said the senator would continue to push the board-compensation measure this fall as part of a stand-alone bill. A similar bill has been introduced in a Massachusetts House committee.

And in Oregon, Mr. Kroger plans to continue moving forward with his effort to crack down on charities that spend a large portion of their revenue on fund raising.

"We are disappointed that the bill did not get a vote in the House. It is not a controversial bill," said Tony Green, a spokesman for Mr. Kroger, in an e-mail message. "We intend to bring the bill back at some point."