March 5, 2020; City & State New York
New York State Governor Andrew Cuomo (D) is again proposing a law that would require nonprofits and political advocacy organizations to publicly disclose their donors. Gov. Cuomo had proposed a similar law in 2016 that was struck down by Federal Judge Denise Cote of the Southern District of New York, who stated the law was too broad and threatened free speech. Opponents representing nonprofits claim the current iteration of the law would depress charitable giving and also continue to infringe on free speech rights.
Cuomo’s proposal would apply to a number of tax-exempt groups, including 501c3 charities, 501c6 business associations, and 501c4 political advocacy organizations. Charities would be required to publicize the names of donors who contribute $5,000 and up, and New York State would then list major donors online for the public to see. This would be a new requirement, for while charities currently do need to disclose major donors on tax forms to the Internal Revenue Service (IRS) and state attorney general’s office, these documents are confidential. Rules like this have been proposed and instituted in other states as well, in the context of both confidential and public disclosure. In response to these proposed rules, conservative groups, such as the Institute for Free Speech and Tea Party Patriots Action, have pushed on the IRS to drop donor disclosure requirements. It is indeed expected that the IRS will put forth regulations that will allow 501c6 and 501c4 organizations to leave out identifying donor information on tax forms.
New York and other states have opposed these proposed IRS regulations; they state that leaving out this information makes overseeing these classes of organizations more difficult. Governor Jay Inslee of Washington recently signed a law requiring any nonprofit expecting to spend $25,000 or more on state election campaigns or ballot initiatives to disclose their top 10 donors that contribute over $10,000 in a year. NPQ has also covered these issues in the past, including a case in California covered by San Jose Inside where misuse of nonprofit status has been documented by CalMatters. Additionally, in 2018, NPQ reported on the George Mason University Foundation in Virginia, formed to raise money for George Mason University. The Foundation had claimed independence, which was challenged in court. The Washington Post revealed that Transparent GMU, a student group at GMU, requested the court subject the Foundation to open records requirements, particularly in relation to the Foundation’s use of funds from strongly conservative donors like Charles Koch and the Mercatus Foundation. It turned out that the Foundation had allowed the Charles Koch Foundation to be involved in hiring and reviewing faculty as part of their gift agreements. In fact, since the opinion issued by the Supreme Court on Citizens United v. Federal Election Commission in 2010, there has been quite an inflow of “dark money” into political campaigns and elections. “Dark money” is money that can be given to political organizations and campaigns without donor disclosure. In our current age of “fake news” and election interference, it becomes apparent how much is at stake with regard to dark money and the inability of the public to trace its origins.
In response to these concerns, Chai Jindasurat, policy director at Nonprofit New York, stated, “Donors have legitimate and personal reasons for why they wouldn’t want to be disclosed or labeled (and) why they would want to give anonymously.” Nonprofits also claim that public donor disclosure would thus discourage giving and that donors may be harassed for giving to controversial issues or organizations. Donors may also not want to be solicited as a result of other nonprofits seeing their giving. Jason Conwall, a spokesman for Gov. Cuomo, wrote a response to these concerns, stating, “The public has a right to know who is backing these organizations so voters can better understand the sources for their positions and make decisions with full knowledge of the facts. Everyone supports transparency until it shows up at their own front door.”
In 2016, the same year that Cuomo proposed the initial donor disclosure law, New York lawmakers did approve an ethics bill which was designed to ensure money given to charities was not used for political campaigning or advocacy. This bill required public donor disclosure from charities that contributed over $2,500 to 501c4 political advocacy groups who lobby, or political advocacy organizations that spend over $10,000 on political communications. Additionally, restrictions are in place on the relationships between charities and their affiliated political advocacy group or organization. In the current version of the donor disclosure bill, Cuomo is pushing for provisions that require charities to submit a separate donor disclosure if they are contributing over $10,000 to political advocacy organizations.
Also in 2016, Nonprofit New York and Citizens Union both sued New York over the proposed donor disclosure law, which was subsequently struck down by Judge Cote. Since the current law is similarly broad to the 2016 proposed law, it is likely that the law will again be struck down in court. In response to this potential threat from the courts, Conwell wrote, “The proposal advanced in the Executive Budget is more narrowly tailored and we are confident it will withstand judicial scrutiny.”
Despite this claim, the governor’s office has stated only one provision is narrower, regarding disclosures for political communications; these disclosures will only apply to gifts and donations restricted to specific purposes. In regard to this distinction, Mr. Freeman Klopott, a spokesman for the NYS Division of the Budget, responded in email, stating, “There is a clearer connection between the electioneering type conduct and the donor which cure any infirmities identified by the court in the Citizens Union case.”
In the United States, money is now treated as speech and corporations are treated as citizens. An alarming result of this is the application of the “personal freedom” ideology that is rampant in this country. As conservative groups such as Institute for Free Speech have made clear, they are supportive of maximum freedom for these nonprofit groups with minimum oversight by governmental agencies, such as the IRS. But a recent Government Accountability Office report showed that as mentioned above, the IRS has had a difficult time policing political activities of these groups. And while we are on the subject, 501c groups are tax-exempt, meaning they enjoy certain benefits that individuals do not; therefore, they get the best of both worlds—the privacy individuals receive, but without having to pay taxes.
At the very least, major donors should be transparent to the public, since public taxpayer funds do many times to go support of tax-exempt organizations, particularly charities in the form of federal and state grants. Taxpayers have a right to know who is bankrolling these groups, as well as politically motivated groups who target elections. Laws such as the one proposed by Gov. Cuomo seek to address this issue; however, the problem appears to be the broadness of the language. Perhaps with more tailored efforts, New York State can strike a balance and provide some regulation of donor disclosure by these organizations.—Kristen Munnelly