Attorneys General Seek One-Stop Charity Regulation

Just as state charity regulators are getting a better handle on nonprofit compliance through data and technology, nontraditional models of philanthropy are gaining traction, combining elements of the for-profit world and getting on the radar of the regulators.

Those were among the subjects of panel discussions on Monday during “The Evolving World of State Charities Regulation,” the public day of the annual conference of the National Association of Attorneys General (NAAG) and National Association of State Charity Officials (NASCO) at The Westin City Center in Washington, D.C.

There’s a new climate and culture at NAAG where senior staff more and more work closely with one another, which will be enhanced with the Single Portal Initiative, said Connecticut Attorney General George Jepsen, who serves as president of NAAG this year. Via the Single Portal Initiative, regulators aim to streamline inefficiencies in complying with registration requirements of 39 states through one website. The growth of cooperation within attorney general offices will help to address issues of national concern, most recently around the Volkswagen fiasco, he said.

“I think this will be revolutionary,” Jepsen said of the single portal. It’s important in a lot of ways,” he said, including making interstate cooperation easier, and through statistical analysis, finding outliers and possible corruption by nonprofits. For example, the historic, multi-state case against Cancer Fund of America likely would have been a months-long investigation instead of a four-year effort.

The single portal will provide more opportunities for collaboration. “It’s that kind of collaboration that makes these investigations possible,” Jepsen said.

About 70 percent of organizations are filing the Form 990 electronically by May and now are available via Amazon Web Services (AWS), according to Meghan Biss, senior technical advisor to the director of Exempt Organizations at the Internal Revenue Service (IRS). The only way to get this information comprehensively in the past was on DVD but the IRS has taken the paper filed Form 990s and made them machine-readable.

Some philanthropists are turning to new types of organizations. Perhaps most prominent in that arena are Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, who in December announced they would contribute most of their fortune to the Chan Zuckerberg Initiative, a limited liability corporation. That is just the latest in a new string of nonprofit models in recent years, along with Benefit Corporations and L3Cs, said NASCO President Janet Kleinfelter, deputy attorney general of the Public Interest Division in Tennessee’s Office of the Attorney General.

Benefit Corporation (B Corp) legislation has been approved by a majority of states and there also are L3Cs, a Low-profit Limited Liability Company, considered a hybrid that blends a nonprofit and for-profit, with social benefit as its primary mission. Foundations and endowments also have taken to impact investing and mission investing while Social Impact Bonds and Development Impact Bonds, bringing in different sectors to approach a problem.

“There is so much interest in this cross-over, between for-profit and nonprofit sectors,” said Richard Feiner, director of corporate and foundation relations, Weill Cornell Medicine. “The sector is unsure of this whole area. We don’t understand it, the language being used, but we need to know this sector. It’s really a movement … not really a question of the nonprofit sector in response to the financial sector but engaging with the market, because the market is part of the solution,” said Feiner, who teaches a class called “Innovations in Philanthropy” as part of the nonprofit management master of science program at Columbia University in New York.

“There’s a new philosophy that they want to do well and do good. There’s no separation between their giving and their investments,” Feiner said. Others like Zuckerberg are rejecting the dichotomy of making their money first and then doing their philanthropy, he said. These new philanthropists are agnostic in the type of mechanism they pursue, pointing to the Omidyar Network, which had started as a traditional foundation and has since morphed into a hybrid LLC and foundation.

Some people are realizing that they want to take a policy avenue to address change and whether that’s legislatively or via judicial routes, that can be limited if you have a private foundation, according to John Tyler, general counsel and secretary at the Ewing Marion Kauffman Foundation in Kansas City, Mo. “It’s not impossible but harder to engage in policy with a private foundation. It comes with certain strings,” he said.

For-profit motivations and incentives have become a way to engage in certain social problems, Tyler said. “It’s an opportunity to use market incentives and structures, intentionally targeted at these charitable outcomes that might achieve more and attract additional resources,” he said.

“Whatever model you pick, there will be tradeoffs,” Tyler said, whether that’s charitable deductions or lower tax rates. In choosing solutions, he said determine what’s the best way to have impact.

New forms like B-corps and L3Cs are emerging but there’s also this element of using these new tools in traditional ways, Feiner said. Despite giving at record levels in recent years, there’s “no internal propulsion to making giving more effective.”