Funding Opportunity In Senate Finance Committees White Paper

February 1, 2005       Jeff Jones      

Nonprofit leaders, some of whom are involved with Independent Sector’s nonprofit sector panel, could benefit from funding opportunities discussed in the Senate Finance Committee’s white paper.

There’s roughly $65 million of proposed funding for improved sector accountability wrapped into the Finance Committee’s discussion draft released June 2004. Specifically, the discussion draft calls for:

  • $25 million to states for state enforcement and charity oversight;
  • $25 million for nonprofits that educate tax-exempt groups on best practices. Funding would go to national and state organizations. Priority would be given to organizations that assist small charities in meeting proper standards and accreditation;
  • $10 million to the Internal Revenue Service (IRS) to support accreditation of charities. The IRS can initiate its own process and solicit requests. IRS could contract with tax exempt organizations to create and manage an accreditation program. Nonprofits could require membership dues to pay costs;
  • $5 million for public access of Form 990s and other information for all tax exempt organizations.

The discussion draft suggests the funding could be paid for by reinstating the appropriation of an excise tax on non-operating private foundation’s net investment income toward the IRS’s Exempt Organizations division, or requiring that charities pay a Form 990 filing fee based on gross receipts.

Senate Finance staffers have warned nonprofit leaders that it is unlikely re-appropriation of the foundation excise tax is a viable option, sources familiar with the discussions said.

The likelihood of getting funding for increased accountability into legislation and passing it is far from certain, several nonprofit officials said.

The white paper is very “idealistic” in providing funding, said Jon Pratt, executive director, Minnesota Council of Nonprofits. But, “they haven’t shown much eagerness to actually come through with it.”

Still, a few nonprofits would seem to be well positioned to bolster revenues as a result of potential legislation.

Dean Zerbe, a Senate Finance Committee staffer, declined to say what organizations would be a good fit for the potential funding, adding that it would be “an open competition” and that he wouldn’t want to suggest organizations to the IRS.

One organization on the tip of many nonprofit leaders’ tongues was GuideStar. GuideStar, a nonprofit that posts charities’ Form 990s on its Web site (www.guidestar.org), would be a good fit for public access funding, and funding for state oversight because of its NASCONet system, which is functioning in some 31 states. NASCONet is a joint project between GuideStar and the National Association of State Charity Officials to create a common repository of information collected by state charity regulators, according to GuideStar.

Dan Moore, vice president of public affairs at GuideStar, acknowledged that his group sees a tremendous business opportunity in the accountability area and in the Finance Committee white paper, but isn’t “betting the ranch” this is going to go through.

“The fact is since 1999 GuideStar has been the de facto place for people to go for public disclosure,” Moore said.

The IRS sells GuideStar-scanned images of 501(c)(3) organization’s tax forms, which GuideStar converts and posts online. The posting and maintaining of those files costs roughly $2.5 million, Moore said.

GuideStar stands to gain financially if the IRS received additional funding and expanded the types of tax-exempt groups it scans information. GuideStar has pushed for additional scanning, but limited IRS resources have kept it from happening, Moore said.

GuideStar also sells data back to the IRS. Indeed, Moore said, the IRS is one of its top 10 users. He didn’t have specific numbers for what the IRS pays. GuideStar made roughly $2 million in earned income last year, and a large portion of that came from data sales, he said. GuideStar’s operating budget was $6 million last year.

Other charity leaders might have their eyes on the potential funding, too. But one group said it wouldn’t take government money under any circumstances, and another group said it would have to hold serious, board-level discussion before accepting funding.

“I think we would be positioned to receive government funding if it were available to us,” said Art Taylor, president and CEO of BBB Wise Giving Alliance (WGA), a watchdog group. WGA’s board would have to have “significant conversations about how we could make sure any government funding we received did not influence decision-making regarding how we evaluate charities on the standards we set,” he said.

Gary Bass, executive director of Washington, D.C.-based OMB Watch, called potential accountability funding, “a win for everybody.” Bass said he didn’t know if organizations were jockeying for potential funding at this early stage. He added that some groups, such as his, would not take government money.

In principle, having more resources for state charity officials, public access, accountability, and for nonprofit watchdog groups is the right thing to do, he said. “The trick is to make sure you’re not bleeding nonprofits to pay for that,” Bass said.

A filing fee makes sense in some cases, Bass said. For example, if a foundation trustee is receiving money, maybe that would be disclosed and every disclosure would incur a fee, he said.

Diana Aviv, president and CEO of Independent Sector (IS), said that funding suggested in the discussion draft is so “far away” from being enacted and appropriated that it would be “manna from heaven” if IS received any additional funding. She added that the potential funding windfall is “not in my plans.”

Aviv said it’s too early to ask which organizations are well positioned for funding partly because it’s unclear what form of money would be included in potential legislation. Part of the panel’s work is to frame out what funding is needed, Aviv said.

IS has contracted with Harvey Dale, University Professor of Philanthropy and Law at New York University (NYU), to conduct a qualitative and quantitative study of sector oversight groups. Dale said he will not be paid for his efforts, but $65,000 will go to the National Center on Philanthropy and Law at NYU School of Law to pay for student research and other associated costs.

The oversight study would review how colleges and universities are accredited and examine the National Association of Securities Dealers’ model of self-regulation, among others, Dale said. The goal is to learn enough about the different forms of regulation to determine how effective or ineffective they may be to develop recommendations, Dale said.

IS recently changed its bylaws to accept state and local organizations as members. Previously, organizations had to have national interests and impact to join IS.

IS wants to increase its operating revenue from $6.7 million to $9.9 million during the next five years with the hope that the figure could be achieved within three, Aviv said. The umbrella organization is pursuing foundations for initial funding, and wants to expand public policy, advocacy and grassroots programs to attract a more robust membership of 1,000 during the next five years. Some funders that supported the nonprofit sector panel “will be receptive to our efforts to move Independent Sector in the direction that membership has asked us to move,” Aviv said.

Several nonprofit leaders whose organizations could benefit from increased funding are also contributors to the IS-convened panel. Nonprofit officials downplayed the potential of self-interest influencing the panel’s recommendations.

Moore said the layers of advisers to the IS-convened panel would wash out any self-interest.

Aviv said steps have been taken to avoid the issue. “We’ve made sure that the members of the work groups include both folks who may have a particular interest in it heading in a particular direction as well as those who don’t have any particular vested interest,” Aviv said, “so that it doesn’t become a vehicle for including some and closing out others.”