Remember when the Atlanta Journal–Constitution published a pathbreaking series on racial discrimination in awarding home mortgages? The Color of Money won a Pulitzer1 and put juice into community-based organizations, academics, and newspapers uncovering patterns of racial discrimination—or redlining—in bank mortgage and home improvement lending practices. Just as the Home Mortgage Disclosure Act (HMDA) requires banks to report on their mortgages and loans, should philanthropic redlining in U.S. philanthropy be remedied by a mandatory reporting regime?

A California-based advocacy organization has prompted the California state legislature to pass a bill designed to compel large private foundations, much like HMDA does for banks, to report on their grantmaking to nonprofits that are governed by predominantly racial and ethnic boards and executive leadership. As of this writing, the bill has passed only in the House, not in the Senate.

Known as AB 624,2 the bill has energized foundations in the state and nationally to come down hard on the notion of compulsory reporting on racial and ethnic grantmaking. Here we examine the bill’s pros and cons and the positions of the opposing parties and suggest that the lessons learned from this as-yet unfinished legislative battle may be useful to promote more racial and ethnic equity in future foundation grantmaking.

While there may be shortcomings in the legislation as drafted, AB 624 raises important issues that foundations have addressed largely through soft-soap discussions of diversity and caring, but with relatively little substantive progress. The California legislation challenges foundations at their core. Whom do foundations serve? How does philanthropy address racial and social inequities for the billions of dollars currently in foundation coffers and the future trillions likely to flow in? AB 624 will ultimately be signed or vetoed by the governor, but the underlying questions about foundations and racial and ethnic equity remain unanswered.

Based in Berkeley, California, the Greenlining Institute has a 15-year history of supporting efforts to increase investment in low-income and minority neighborhoods. Nationally known for its work in challenging banks on redlining practices, Greenlining has crafted Community Reinvestment Act (CRA) agreements with major financial institutions such as Wachovia and Merrill Lynch. It has similarly challenged corporations and government agencies on their attentiveness to racial and ethnic diversity, generating “diversity scorecards” for bank boards, University of California medical school faculty, and the partners of California’s 20 largest law firms.

In 2005, Greenlining generated a diversity report card of sorts for foundations. Fairness in Philanthropy examined the grantmaking to minority-led organizations by 49 foundations. Minority-led organizations are defined by the following: “whose staff is 50 percent or more minority; whose board of directors is 50 percent or more minority; and whose mission statement and charitable programs aim to predominantly serve and empower minority communities or populations.”

Fairness in Philanthropy3 caught the attention of California assemblyman Joe Coto, under whose leadership the state’s black, Latino, and Asian/Pacific Islander legislative caucuses convened a hearing on the topic.

Investing in a Diverse Democracy, a 2006 follow-up report by Greenlining, concluded that in 2004 a sample of “national independent foundations” gave only 14.7 percent of grant dollars and 7.7 percent of grants to minority-led organizations. California foundations awarded 4 percent of grant dollars and 11.7 percent of grants. Some funders in the Greenlining sample supposedly made no grants to minority-led organizations, and overall totals would have been greatly reduced were it not for the $535 million grant of the Bill and Melinda Gates Foundation to the United Negro College Fund.4 Subsequently, and much to the consternation of California and national foundations, Coto introduced the legislation calling for mandatory racial and ethnic reporting on foundation grants.

There is little debate that racial and ethnic minorities have not garnered significant proportions of foundation grantmaking. The Applied Research Center’s Short Changed report described the increasing gap between the growth of overall U.S. foundation giving and the proportion targeted to racial and ethnic minorities.5 It noted that among “organizations that promote justice and equity for immigrants and established communities of color . . . funding streams for many such organizations have been reduced to a trickle in recent years.” Over the past few decades, racial and ethnic “affinity groups” of foundations have decried shortfalls in grantmaking to their constituencies, such as the recent report from Asian Americans/Pacific Islanders in Philanthropy (AAPIP), which underscored the disparity between an AAPIP population that accounts for 4.5 percent of the U.S. population but only 0.4 percent of foundation grantmaking.6

The issue is not whether there should be concern about philanthropic attention and commitment to racial equity in foundations’ grantmaking and operations. It is whether AB 624 will bring progress to the sector in terms of increased racial equity or whether it instead sidetracks philanthropy into unproductive metrics and onerous reporting requirements.

The proposed legislation would apply to private foundations (as defined by federal tax law), including corporate foundations and perhaps community foundations (if they fit under the undefined term “public operating foundations”) if they have assets of more than $250 million and are located in California. As of 2005, the list of covered foundations would number approximately two dozen.7

Despite the focus on foundation grantmaking to racial and ethnic minorities, the inclusion of large-asset operating foundations that make few grants leaves out many large foundations making grants to California organizations. Despite the state’s large foundation sector, 17 of the top 50 (and three of the top ten) grantmakers to California nonprofits are not located in California, notably the Bill and Melinda Gates Foundation and the Ford Foundation, among others.8 Were the statute to pass, many of the large private and corporate foundations likely to be mandated to comply with the statute operate nationally rather than simply within the state. So a particular foundation might make substantial grants to minority-led organizations outside the state but almost none within it.

The requirements for reporting also exclude foundations’ non-U.S. grantmaking. Following September 11, the Iraq war, and international disasters like the tsunami in Southeast Asia, philanthropic grantmakers and all charitable givers have been encouraged to see beyond national boundaries. Beyond the exclusion of international grantmaking per se, what actually constitutes “international” in the twenty-first century? Would grants to entities such as the Save the Children Federation (located in Connecticut) or the United Nations Fund for UNICEF (in New York) count as domestic (because they are located in the United States) and therefore within AB 624’s purview, or are they international because they either regrant the funds to non-U.S. entities or use the monies to operate overseas? As drafted, the bill is thus caught in a geographic no-man’s land, focused on grantmaking to racial and ethnic communities and organizations, but potentially excluding major categories of grantmakers inside and outside the state as well as certain kinds of international grantmaking.

In its journey through the California legislature, the scope of AB 624 has been whittled down. But as of February 2008, the bill called for foundations to report information in three categories:

•    “The number of grants and percentage of grant dollars awarded to organizations serving ethnic minority communities and lesbian, gay, bisexual, and transgender communities”;

•    “the number of grants and percentage of grant dollars awarded to organizations where 50 percent or more of the board members or staff are ethnic minorities or are lesbian, gay, bisexual, or transgender”; and

•   &