American Democracy Demands Increased Nonprofit and Philanthropic Transparency
Recommendations for Implementing Increased Disclosure and Transparency
Just as McCain-Feingold led to an array of subterfuges of campaign finance disclosure, we have no assurances for suggesting that increased disclosure in charity and philanthropy won’t result in the best and brightest of the legal and accounting professions devising creative means of circumventing the intent of new disclosure regimes. Still, we think it is worth trying, because our nation needs more rather than less disclosure, particularly when it comes to the manipulative control of big money interests. Here are the Cohen Report’s recommendations for a new regime of transparency and disclosure in the nonprofit and philanthropic sectors (in no particular order of priority):
1. Mandate disclosure of all donations above a very small size—by name of donor and amount of donation—to 501(c)(4), 501(c)(5), and 501(c)(6) tax-exempt entities that engage in anything above a de minimus level of partisan political expenditures for or against political candidates. Care will have to be taken to come up with rules to prevent slippery bundlers from dividing up large donations into lots of small donations to circumvent disclosure, as some political fundraisers have tried to do with candidates’ political committees, but this can be done.
2. Mandate full disclosure of all corporate donations to 501(c)(4), (c)(5), (c)(6), and 501(c)(3) entities, regardless of whether they flow through corporate foundations or directly from the CEO, the marketing office, or any other office of the businesses. It doesn’t matter whether their money is going to the Heartland Institute to support strategies to deny climate change or to other entities to oppose, for example, health care reform, but the public has a right to know when General Motors is funding a third party to carry its weight against regulations that would restrict auto emissions, or when the nation’s pharmaceutical and insurance companies are financing the fight against health care reform. There is far too much money in the corporate sector—and too much power in the corporate sector—not to make this happen.
3. Require full IRS tabulation and publication of all of the grants made by private foundations and public grantmaking charities to 501(c)(3) and other tax-exempt entities. Despite the good work of the Foundation Center and its online database, supposedly presenting 2.4 million grants from over 100,000 grantmakers, lots of grants slip through the cracks, so that there is virtually no way for anyone to really know how much money is flowing from which grantmakers to which nonprofits. It’s not the Foundation Center’s fault. We are addressing a problem of public sector responsibility meriting a fuller accounting of charitable grant flows.
4. Require a searchable database, generated by the IRS itself or paid for on a contract basis to and through the auspices of the Foundation Center or Guidestar, of the investments of tax-exempt philanthropy. In our sector’s overemphasis on how foundations use the five percent or less of their assets they distribute as grants and program-related investments, our nation ignores the investment patterns of the remaining 95 percent in foundation endowments. As a result, the public does not know, except by detailed examination of telephone book-sized foundation 990PF filings, how foundations invest their moneys in corporate equities, and even then, the information presented in the 990s is all but impenetrable. Shouldn’t the public know how tax-exempt money is being invested in various corporations the same way it should know whether government-subsidized corporations receiving billions in TARP funds are financing ALEC and Heartland?
5. Mandate that the nonprofit arms of public entities reveal their donors and their expenditures. The creation of nonprofit instruments by state governments, public universities, and local governments should not be the public sector’s escape hatch to avoid public oversight and scrutiny. Maybe the football coach and the university president warrant bigger salaries than the state legislatures are willing to approve, but we should know who is willing to ante up for public university nosebleed-level salaries and whether, through analyzing those patterns, there are any implicit or explicit quid pro quos involved.
6. Mandate disclosure of all donations to 501(c)(3) public charities that are created by, run by, or significantly dominated by politicians and their families. Time and time again, we spot nonprofits created by federal and state politicians that are used as mechanisms to distribute charitable goodies such as scholarships or grants to create a positive public image for elected officials. These nonprofits are also used by donors as a way of signaling support and purchasing behind-the-scenes, unregistered lobbying face time. Efforts to restrict those practices, usually tepid at best, have gone nowhere. Everyone knows that giving lawmakers discretionary “members’ items” to distribute to favored charities—often with their campaign supporters and staff in the mix—tends to result in acts that are often more political than they are charitable.
The Consequence of Inaction
The recommendations above are limited to the role of the nonprofit or tax-exempt sector in American democracy. It is true that the nation must guard against the exploitation of increased disclosure, such as repeats of what Alabama—and several other southern states as well—tried to do to the NAACP during the 1950s to silence the protests of African Americans for basic civil rights. But the secret financing flowing to and through some elements of the nonprofit sector is just as destructive to the American polity, except unlike Alabama’s past ham-handed attempts, it is widespread, secret, pernicious, and increasingly part and parcel of modern American political practice. It is time for the nonprofit sector to stand up and stop being the handmaiden to the special interests that manipulate the U.S. political process through secret financial transactions.