House Hearing: Good Hitters vs Weak Pitchers

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It was slow-pitch baseball at the House of Representatives Ways and Means Subcommittee on Oversight’s Hearing on Tax-Exempt Charitable Organizations chaired by Democrat John Lewis of Georgia on July 23, and the witnesses in the heart of the batting order belted the ball around the infield. Steve Gunderson of the Council on Foundations and Diana Aviv of Independent Sector pitched, batted, and fielded easy grounders like the pros that they are.

What was surprising was that the members of the subcommittee who deigned to show up—a scattering of Democrats and only Jim Ramstad of Minnesota, the ranking member on the Republican side—asked Gunderson, Aviv, and the other witnesses (two members of the Government Accountability Office and Steve Miller from the Tax Exempt & Government Entities division of the IRS) banal, ill-informed questions, revealing all too clearly how little they understand the nonprofit sector and the legislation they vote on concerning tax-exempt entities.

The highlights and the lowlights (you can do the categorizing) of the 90-minute session included the following:

  • Gunderson pitched a rollback of provisions of the Pension Protection Act of 2006 that prevent charitable contributions from independent retirement accounts (IRAs)—also known as the “IRA charitable rollover”—from going to donor-advised funds (DAFs) and supporting organizations. He declared that DAFs, which donors can open for amounts as small as $10,000 or even less, are opportunities for the “democratization” of philanthropy, as distinct from having donors set up private foundations which take, according to unnamed experts he cited, an initial capitalization of $5 million. When one questioner noted that the IRA rollover prohibition against DAFs did not prevent donors from contributing to the general funds of community foundations, Gunderson noted the importance of donors’ ability to target their giving instead of contributing to the discretionary grantmaking pools addressing the high-priority community needs identified by community foundations. 

  • Both Gunderson and Aviv made clear their commitments to self-regulation and their sense that little or no new laws were needed to enhance oversight of the sector. Aviv described the impending fall release of self-governance standards by Independent Sector’s Panel on the Nonprofit Sector. Aviv intimated that IS’s standards were quite close to the expert recommendations made to clean up the Smithsonian Institution. It is worth noting that the experts involved in the Smithsonian include Aviv herself.

  • Even when witnesses from the IRS and the Government Accountability Office (GAO) testified about government oversight—including a GAO report of 55,000 charities that owe the government $1 billion in unpaid back taxes—they argued that new laws to address the problem weren’t necessary and instead advocated better enforcement of existing statutes. Of course, the fact that federal agencies continued to award billions in government grants to these nonprofit tax scofflaws, which self-report their tax compliance, reveals a “trust but do not verify” system that needs fixing.

In addition to Gunderson’s proposed rollback of portions of the Pension Protection Act, if there was any fix to suggest, it was Aviv’s call for a new federal agency. She suggested a “small nonprofit administration” of sorts, a counterpart to the Small Business Administration, to provide training and technical assistance to nonprofit employees and board members so that they could avoid problems of mismanagement and violation of the law. Within virtual milliseconds of the hearing, IS issued a press release on Aviv’s testimony, describing the small nonprofit administration as “an agency [that] would work to nurture and support the training of nonprofit leaders in the areas of administration, governance, fundraising, and planning.” A second release on the hearing by IS suggested that “(s)ince many current nonprofit leaders are baby boomers who will be retiring soon, this agency would work to nurture and train a new generation of (nonprofit) executives.” This notion of dedicating federal money to training as an alternative to federal regulation has been floated for some time.  

Baseball does explain much of the world. One would have thought that the only-a-few bad-apples description of nonprofit ethical and accountability problems had been retired long ago, but it got as many mentions in this brief hearing as Bud Selig’s descriptions of baseball’s steroid users and gamblers as exceptions to the rule in major league baseball. In fact, one committee member became somewhat apoplectic with a GAO witness, rising out of her seat at one point, because the witness led with the fact that 55,000 nonprofits haven’t paid their taxes rather noting the 1.8 million nonprofits that do. The GAO witness countered that the 55,000 was probably an underestimate and that the number of all nonprofits with tax liability is much less than 1.8 million.

Remember when the original purpose of this hearing was to explore what the nonprofit sector does to address critical societal issues? One member of the committee raised the question, and Aviv noted that charitable contributions addressing poverty issues, for example, are decreasing and in any case were less than the amounts of charity and philanthropy going to higher education and the arts.

Otherwise, the hearing paid little attention to the substance of charity other than Gunderson’s contention that as a matter of course “most” foundations assess community needs “very carefully and very strategically” with advisory committees in tow to determine how to make their grants. Maybe good foundations do, many community foundations and community-based public foundations do, but the notion that most foundations open themselves up to external advisory boards would not comport with most people’s experience of philanthropy.

And the committee and the witnesses altogether failed to comment on Miller’s IRS conclusions that charities are often established to benefit the donor rather than the public and the increasingly blurred line between nonprofit and for-profits in some arenas.  That should have made all of the subcommittee members rise out of their chairs.

The Nonprofit Quarterly is based in Boston, Massachusetts, where the Red Sox play in the friendly confines of Fenway Park. Good hitters facing weak pitchers can loft fly balls to bounce off the Green Monster for singles all day long. Facing some easy softballs, the witnesses in this hearing lifted their batting averages with lots of easy singles. But the failure to ask hard questions about the frequent negligence of philanthropy in addressing social inequities constitutes an error in the box score.