Judge Orders County to Release Health Foundation Documents

Print Share on LinkedIn More


May 20, 2013; San Jose Inside

A state judge ordered the Santa Clara Family Health Foundation (SCFHF) to release information on political expenditures related to a recent sales tax increase ballot initiative it supported. The SCFHF had initially objected to a request for information from Metro and San Jose Inside for the information, and the publications filed suit under the California Public Records Act (CPRA). SCHF maintained that, as a nonprofit corporation, it was not subject to the CPRA.

However, the county disagreed, noting that the foundation’s executive director is a county employee and the requested documents reside on county computers. The article also notes that the foundation uses email addresses owned by Santa Clara Family Health Plan, a governmental entity (public agency), and is provided office space by the Health Plan. The county was prepared to comply with the request when the nonprofit foundation decided to ask for an injunction to block disclosure. The court found that the records are subject to CPRA and that disclosure would not cause material harm to SCFHF.

There are concerns that the nonprofit SCFHF is being used as a way for the governmental Santa Clara Family Health Plan to engage in political activity. The personnel, administrative, office space, and programmatic ties between the two entities lend credence to these concerns. It is expected that Metro and San Jose Inside will review the records and report further on the relationships and activities of the foundation and the health plan.

There is considerable debate on the public vs. private nature of nonprofits. Some argue that the benefits of tax exemption amount to a tax subsidy by government that allows all things to become public. Others believe that nonprofits are, by their nature, nongovernmental, private corporations, created by state statute in much the same way as for-profit corporations. For-profit corporations are private and subject to significant disclosure requirements while still being guaranteed privacy in many areas of internal operations; nonprofits should be treated in the same way. Tax exemption is a benefit, but many activities are exempted from taxation without surrendering all privacy rights.

Many nonprofit organizations are created by governmental entities to provide services indirectly that government finds difficult to provide directly. Difficulties can include access to grants and philanthropic funds, enhanced community involvement and responsiveness, more nimble decision-making and management, and decreased operating costs. This case indicates that, in California at least, the relative advantages of nonprofit status do not liberate an organization from its public disclosure obligations as a governmental unit. Organizations seeking to straddle the nonprofit and governmental worlds may find themselves subject to the regulations applicable to both, with a prejudice in favor of regulations encouraging public knowledge over proprietary operations.—Michael Wyland

  • Mark Bertler

    Having run nonprofits that do work on behalf of governments, I have always found it important to assure that there is clear separation between the nonprofit and the governmental entity. This includes separate facilities, separate staff, etc. Otherwise you risk situations like the one described in the article.

  • el viejo

    Once again, we have confounded the difference between a truly independent nonprofit and a nonprofit that is, in fact, intertwined with a public body. The issue is not whether nonprofits are subject to the same regulations as government agencies but how they are organized and operated so as to maintain independence.

    For too long, many publicly related foundations, which have the sole purpose of supporting a public institution, such as a university or hospital, have tried to claim immunity from government rules and regulations but are organized and operated as if they were part of the public institution, with interlocking boards, shared officers, donated office space and use of publicly provided and paid for services (such as computer services).

    Some time ago, as an officer of a public university and, at that time, the head of the university’s foundation, we were confronted with an open records request from the local newspaper. We fought the request in court and lost. The newspaper gained access to our donor records. After some reflection on the loss, I concluded that the court decision was right. We were organized and operated as a quasi-public body and should have been subject to those regulations.

    The newspaper did us a great favor. Spurred on by the court case, we reorganized the foundation and the new foundation board (with no university members) hired an executive director. The foundation started to pay for all services provided by the university, including rent. All disbursements from the foundation for university support came after a board request from the university followed by board approval by the foundation. Numerous other operational procedures followed.

    The independent character of the foundation was secured and the assets were now clearly private.

    If a nonprofit wants to secure the private character of the organization then they better organize themselves as being independent of the public body. After all, the main reason for having an independent foundation is for the organization’s privately donated assets remain private and the organization is free from the public regulations that hinder vital policies and procedures, such as investment policies.

    The answer is to organize the related foundation as truly independent and, wherever possible, operate as if the foundation were public. This is not as hard as it seems. What is hard is getting the public body to give up the kinds of formal and informal controls they currently exercise over the nonprofit.

    If you care about the future of your publicly related foundation then you better get cracking right now to make the changes that will help secure that future.