In a case argued before the Supreme Court this week, the Americans for Prosperity Foundation made its initial volley in a cynical effort to invalidate more than a half century of transparency laws covering the nation’s over 1.3 million charities.
The lawsuit — Americans for Prosperity Foundation v. Bonta — seeks to overturn a California rule that requires charities raising funds in the state to report confidentially the identity of major donors to the state attorney general. But this case is not really about the California law. A main target is the public information reporting requirements Congress enacted in the Tax Reform Act of 1969, which ensured charities operate for the public good and not for the selfish interests of their donors or other private actors.
In terms of driving activity into darkness, this case could be the forerunner to a Citizens United for charities.
At first blush, the Americans for Prosperity Foundation, which was funded by billionaire conservative Charles Koch and his late brother David, makes a sympathetic case by appealing to our native instincts in favor of donor privacy and against state overreach. Why does a state government need to know the identity of major donors? It argues the information does not serve a serious law-enforcement interest and worries that if California mistakenly leaks the information (as has happened in the past), donors could be harassed by the public. It alleges that this discourages donors from making contributions and thus violates the organization’s First Amendment right to free association.
To support its claim, the Americans for Prosperity Foundation relies on the landmark civil-rights decision NAACP v. Alabama. In that case, the Supreme Court struck down Alabama’s demand for the identity of the NAACP’s members — and rightly so. That case took place in the Jim Crow South, when racial terrorism was rampant and the NAACP faced harassment by a state hostile to its existence. The court saw through Alabama’s bureaucratic defense and ruled the demand unconstitutional.
But today’s case is different for a host of reasons.
First, in the historical context, there is no fair comparison between Alabama’s targeting of the NAACP in a climate of long-standing racial hatred and California’s requirement that charities report major donor information as a condition of fundraising in the state.
Second, California’s requirement applies only to major donors. It is not a demand for an organization’s member list. In the Americans for Prosperity Foundation’s case, reporting would be required only for donors who gave more than 2 percent of the organization’s support in that year, or well over $300,000 dollars — hardly the rank-and-file members at issue in the NAACP case. From a law-enforcement perspective, major donors like these are most relevant for detecting insider dealing.
Third, the potential harm from the state’s action to the freedom to associate is categorically different. With the NAACP, there was strong reason to believe that Alabama would share the donor list with people who could do real physical and economic harm to the organization’s members — directly discouraging their involvement. By contrast, claims of harm in today’s case are based on sheer conjecture — what might happen if information is unlawfully made public by California. Even then, the potential harm is merely the possibility of fewer donations. No one is alleging that California is deliberately seeking to harm any charity.
High Stakes
Given these differences, it’s surprising the case even made it to the Supreme Court. The reason may be that lawyers for the Americans for Prosperity Foundation made a strong appeal to core rights of privacy and free association. And the stakes seem low, given that the challenged law involves just one state, and California initially failed to adequately protect the confidential information.
But the stakes are higher than they may appear. If the Supreme Court agrees that California’s rule “significantly burdens” First Amendment rights, this will cast doubt on key federal laws that ensure the transparency of all the nation’s nonprofits. Most immediately, the identical federal requirement to report major donor information to the IRS will be called into question. If the First Amendment harm is the mere reporting of major donor information to the government, then it makes no difference whether it’s a state or federal government that requests the information.
Even more problematic are the implications to public disclosure. Since 1969, Congress has required charities and other nonprofits to report and make public the names of board members and officers, the compensation of top employees, the names of grantees, and, in the case of private foundations, the names of major donors. If confidential reporting imposes a significant First Amendment burden, the harm from public disclosure must be even greater — and even more susceptible to legal challenge.
The Americans for Prosperity Foundation makes clear that a challenge to federal rules is next. When asked by Justice Brett Kavanaugh if “what the IRS is doing is constitutional,” the organization’s lawyer, Derek Shaffer, replied that “you can count on the United States to provide I’m sure a very powerful defense.” When asked whether California could simply enact the same rules as Congress and the same confidentiality protections, Shaffer insisted that the California law would still be unconstitutional on its face. A victory in this case for the Americans for Prosperity Foundation thus has serious implications for federal law.
Reports to the Public Are Crucial
If the Supreme Court rules against California, a narrow ruling based on the state’s past failures to keep the information confidential is therefore critical to avoid casting unnecessary doubt on federal law. The court should be mindful that public information reporting is the cornerstone of transparency for the charitable world, providing in most cases the only access Americans have to how billions of tax-subsidized funds are spent — and whether to trust an organization with their contributions.
What’s more, in deciding whether there is significant First Amendment harm in this case, the court should be aware that the entire charitable field in the United States has developed under rules like California’s. There is simply no evidence of widespread harm to the freedom to associate or a chilling effect from these rules. In fact, the field is booming. More than $400 billion in charitable contributions are made annually, and tens of thousands of new organizations form each year. This is hardly a field encumbered by fearful donors restrained by IRS rules.
The real cause for concern is not California’s law on confidential reporting of major charitable donors, but a broad Supreme Court ruling that would open the door to challenges of the federal law — potentially throwing transparency in charities into darkness and undermining trust in our nation’s vital civic institutions.
Note: Roger Colinvaux joined other tax scholars to submit a friend-of-the-court brief in Americans for Prosperity Foundation v. Bonta.
