September 30, 2015

Don't Let the States Trample on the Right to Donor Anonymity

Karen Bleier, AFP, Getty Images

The resignation this month of Ronald Perelman as the chairman of Carnegie Hall raised an issue that doesn’t get nearly as much attention from regulators as it should: whether board members and other insiders are getting sweetheart deals from their involvement in nonprofits.

It’s impossible from the outside to know whether Mr. Perelman was right in charging that the venerable arts association made a deal that helped the company of a prominent trustee. Other board members deny that that was the case.

The possibility of self-dealing and conflict of interest on any nonprofit’s board is a classic reason for regulators to investigate. Whether such concerns surround Carnegie Hall or any other group, regulators should seek to learn more when there is reason for suspicion.

But two of the most prominent state regulators are taking a different and wrong-headed approach to transparency. They are demanding information about the donors of any and all nonprofits, whether there is reason for suspicion or not. Their approach should worry any organization that wants to protect the identities of donors. The attorneys general in California and New York, ostensibly concerned about the influence of political money on nonprofits, have set the groundwork for a battle over donor anonymity that may well be headed to the Supreme Court for consideration in the term that starts on Monday.

Kamala Harris, California’s top regulator, and Eric Schneiderman, New York’s chief, are requiring nonprofits that work in their states to file information about donors that once was submitted only to the IRS. That means any charity that raises money in those states — essentially, any national group — is affected.

In 2014, Ms. Harris began asking nonprofits in California not just for IRS Form 990, the informational return available to the public, but also for Form 990B, which includes much more information. Charities are required to use that longer form to tell the IRS about all donors who have given an organization more than $5,000 or who contribute at least 2.5 percent of all donations. Traditionally, that form has gone only to the IRS and has not been public information.

Concern about the policy change in California prompted the Center for Competitive Politics to take Ms. Harris to court.

The center, in effect representing the interests of political donors (yes, that could include the Koch brothers), fears that donor information will not be kept confidential by state officials and that the state policy threatens free-speech rights.

The Philanthropy Roundtable, representing the interests of traditional, nonpolitical nonprofits, has joined the lawsuit out of concern about the precedent set by Ms. Harris’s actions.

Both organizations are rightly concerned that state governments may not be able to ensure confidentiality, whether because of data breaches, freedom-of-information requests, or sheer bureaucratic incompetence. It’s not a small matter.

Although many people refer ominously to anonymous donors to advocacy groups as providers of "dark money," it was not long ago, as the center’s lawsuit points out, that it was defenders of Jim Crow who wanted the names of NAACP supporters — a dangerous request at a time when physical violence was routinely directed at those seeking racial justice. More recently, we’ve seen supporters of California’s Proposition 8 (which, at the time, banned gay marriage), whose donations were tracked in public records, suffer harm to their careers.

Neither Attorney General Harris nor her New York counterpart, Mr. Schneiderman, who’s asking for the same kind of records, would want to be thought as an opponent of the First Amendment rights that protect the rights of charity and donors to free speech. That’s why it’s important to consider Ms. Harris’s rationale for asking for the full 990.

That rationale — accepted by the federal Ninth Circuit Court of Appeals — focuses on an attorney general’s need to ensure that a tax-exempt group is acting within its mission and has not become a cover for donors interested in advancing their own purposes.

That’s the issue Ronald Perelman raised through his resignation as the chairman of Carnegie Hall. There is no doubt that this is historically part of the job description of a state’s attorney general.

But does that mean that any and all groups must let state government know who its significant donors are?

That’s why the Philanthropy Roundtable and others hope the Supreme Court will find reason for concern and decide to review the appeals-court ruling.

Should state officials, as the Center for Competitive Politics puts it, be permitted to "demand donor information based upon ‘generalized law-enforcement interests’ without making any specific showing of need"?

Put another way, it is one thing for state officials, having been alerted to the possibility of wrongdoing, to request otherwise confidential records. It’s quite another to maintain files of all donors just in case some reason for suspicion might, at some point, arise.

One hopes that everything at Carnegie Hall has been above board, but it’s easy to understand why New York officials might request related but otherwise confidential records.

A chairman’s resignation and statement of concern is a pretty strong signal, after all. But maintaining voluminous files for all tax-exempt organizations — when there will never be reason to investigate the overwhelming majority — should give us pause.

This situation reminds me of the controversy over the National Security Agency’s collection of phone records. The fact that both Ms. Harris and Mr. Schneiderman are partisan figures at a time when the "dark money" charge has political currency adds to that concern.

Because no donor’s name has been wrongly made public yet, the Supreme Court might decide it’s not worth considering the case. It might not be until a clear abuse occurs that the courts will stop attorneys general from demanding donor names. But that’s too long to wait. California and New York should just stop asking for these names now.

Howard Husock, a regular Chronicle contributor, is vice president for policy research at the Manhattan Institute, where he also directs its Social Entrepreneurship Initiative.