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