November 12, 2009

Philanthropy Must Change Culture and Rules in World of Money and Politics

In a nation where large financial interests already dominate public policy, the Supreme Court will probably soon issue a ruling that moves toward allowing businesses and labor unions to spend unlimited funds on partisan political activity.

That action would widen a gulf between nonprofit groups and businesses and could further seriously diminish charities' and foundations' influence, relevance, and clout in shaping solutions to the nation's problems.

To close this gap — and better advance their missions — nonprofit organizations will need the courage to change both the culture and the rules that have held them back from strategic advocacy for far too long.

That will be difficult, because events of the last few decades have undermined public-interest advocacy and created a damaging divide between groups that carry out services and those that seek policy changes.

Increased reliance by charities on government support, professionalization of the nonprofit world, and both public and private efforts to intimidate charities that seek to promote social change have all done much to keep nonprofit groups away from important public-policy debates.

In the business world, the situation is almost exactly the opposite.

With a fiduciary duty to maximize profit for shareholders, large corporate interests increasingly understand that they stand to gain a significant financial rate of return from spending on lobbying and elections.

Indeed, the rates of return for corporations can be staggering. A recently released University of Kansas study shows how large, blue-chip companies successfully spent hundreds of millions of dollars to obtain a 2004 tax holiday that yielded them an average 22,000-percent return on investment on their lobbying and advocacy.

The current disparity between corporate and nonprofit spending in the public-policy arena is so large as to represent a difference in kind, not degree. For example, according to a preliminary analysis by the Center for Responsive Politics, corporations spent roughly $3-billion in 2008 on federal lobbying while charitable and social-welfare organizations spent an estimated $300-million, a ratio of 10 to 1.

Neither corporations nor nonprofit groups maintain a monolithic view on policy issues. But when it comes to money and politics there is no semblance of a level playing field.

This situation is likely to grow even worse given the Supreme Court's expected ruling in Citizens United v. Federal Election Commission.

In that case, a majority of the court has signaled its intent to move toward allowing corporations and unions to make unlimited partisan expenditures to elect or defeat specific candidates or political parties. Charities are prohibited not only from making political contributions but also from any partisan political activities.

In a friend-of-the-court brief in Citizens United, Independent Sector explains why nonprofit groups should care.

"The influence of money in politics jeopardizes the integrity of the electoral process, impairs the ability of citizens and charitable organizations to exercise their advocacy rights, and discourages participation by individuals and charities," Independent Sector wrote.

Regardless of how the Supreme Court rules, it is time for charities and foundations to make policy and civic engagement a priority. That means putting time and money into advancing the following ideas.

Foundations must step up their grants for advocacy. Charities want to strengthen their ability to influence public policy, a 2008 survey from the Center for Civil Society Studies at the Johns Hopkins University found. They said money for staff members dedicated to that purpose — as well as increased general operating support from foundations — would best enable them to do so.

But too many foundations are unwilling to make such grants.

According to a new Foundation Center report on grant making from 2002 to 2006, private and community foundations gave approximately 12 percent of their grants to organizations that promote structural changes in how society works. Despite some signs of hope, that 12-percent figure was essentially unchanged from a similar study to examine grant making from 1998 to 2002.

Foundation money is crucial to advocacy. Most government agencies prohibit charities from using any of their money for advocacy, so nonprofit groups must turn to private sources for this work. Some leading organizations have suggested that grant makers earmark as much as 25 percent to 50 percent of their grant dollars to financing advocacy and citizen-involvement efforts.

Simplify the rules. Lack of knowledge, confusion, and fear still dominate the nonprofit world when it comes to advocacy. For example, a study by the Center for Lobbying in the Public Interest, OMB Watch, and Tufts University called "Seen but Not Heard" found that more than one-fourth of charities did not know that they could legally support or oppose federal legislation under current IRS rules. In addition, the study found that charities are often reluctant to use the word "lobbying" even when clearly describing lobbying activities.

It is not surprising this is the case, given the tangle of federal rules that nonprofit groups are expected to follow when they seek to influence public policies.

Currently, the IRS has two sets of lobbying rules rather than one for most charities; the set that outlines what nonprofit groups can do safely without worrying has not been updated in 30 years.

Several government officials, scholars, and nonprofit leaders have suggested moving to a single system for at least all nonreligious charities, and updating the rules for inflation and how lobbying works.

Nonprofit leaders also are exploring ways to create a bright-line test for charities to use to determine whether they are operating within legal bounds when they run nonpartisan efforts to educate Americans on voting issues and encourage them to vote.

Currently, all the IRS offers is a vague "facts and circumstances" test for such activities that chills nonprofit involvement and undermines the tax agency's work to prevent fraud and abuse in nonprofit politicking.

In addition, charities face another stumbling block because of an executive order on ethics issued by President Obama. While the president's order was appropriately aimed at promoting government integrity and the public interest, it instead imposed overly broad and ineffective restrictions on public service by all registered federal lobbyists, including those at charities.

Promote open government. The nonprofit world has a vital stake in promoting democracy and making government effective, responsive, open, and accountable to the broader public.

Common Cause and Public Campaign are leading efforts to change the way Congressional campaigns are financed. Under legislation now pending in Congress, the federal government would match the money candidates raise through small donations, with the goal of allowing people of moderate means and the public at large to have more influence of the type now enjoyed by wealthy private donors.

Similarly, nonprofit groups would benefit from other efforts to strengthen democracy, including passage of universal voter registration rules and support for a robust and independent news media that can educate the public and play a watchdog role.

Second, nonprofit organizations as a whole have a shared interest in tax fairness. What's more, they need adequate budgets to fill in the gaps that occur because commercial markets don't have a profit motive to deal with certain issues.

In a political system in which money dominates public policy, wealth inequality leads to political inequality in a reinforcing cycle. As United States Supreme Court Justice Louis Brandeis remarked, "We can either have democracy in this country or we can have great wealth concentrated in the hands of a few. But we can't have both." Thus, for charities and foundations, reducing poverty is not just about caring for people in need; it is about promoting democracy.

Turn the nonprofit umbrella into a formidable public force. To make involvement in civic affairs an ordinary part of what all organizations do, foundations and charities must forge a stronger nonprofit identity. The legal and moral duty to work for a public purpose defines and differentiates nonprofit groups from for-profit corporations that seek to maximize private gain.

Nevertheless, nonprofit organizations do not identify themselves under one umbrella defined by a commitment to the common good.

Instead, charities are primarily organized by substantive issues such as health, education, or housing or by the city or geographic region where they work.

Some organizations are working to overcome the problems caused by the isolated approaches charities take to political action. The National Council of Nonprofits has coordinated coalitions of charities to fight state budget moves that would hurt charities and the people they serve; Independent Sector has lobbied lawmakers to help them understand that tax credits offered in health-overhaul proposals to help small businesses will not do anything to help nonprofit groups provide health care to their millions of employees because they are tax-exempt organizations; and United Way Worldwide includes the word "advocate" in its slogan as it pursues its 10-year goals to improve health, education, and financial stability throughout the nation.

With the current social and economic crises, and diminished resources, foundations and charities must increasingly influence public policy if we expect to achieve our missions. It is time for the nonprofit world to finally bridge the service and advocacy gap, and to fully recognize that broad participation in civic life is the foundation of our democracy and of social progress.

Larry Ottinger is president of the Center for Lobbying in the Public Interest, in Washington.