Are Private Foundations and Charities “Public”?

Last Friday the Hudson Institute’s Bradley Center held a symposium on a new monograph entitled “How Public is Private Philanthropy?” issued under the auspices of the Philanthropy Roundtable. The symposium addressed what might at first seem to be a legalistic or semantic question concerning the status of nonprofit organizations. In fact, the issue is decidedly political. It concerns who is entitled to decide what organizations will receive donors’ money?

Leftwing activists argue that private foundations and charities are really “public.”  After all, they say, if the IRS rules that a nonprofit is a “public charity” serving a “public” purpose it will then exempt the organization from taxation and it will allow contributions to it to be treated as tax-deductible. Moreover, foundations and charities are chartered by government, which lays down strict rules under which they are permitted to operate. For instance, nonprofits may not undertake activities that principally benefit their trustees, they must not engage in for-profit business activities, and they must payout 5% of their assets annually to qualified charitable recipients. According to the activists, this means nonprofits are “public” not “private.”

Liberal foundation-watchers say the argument is just a matter of semantics, but conservatives suspect that radical activists are making the claim in order to prepare the way for more government regulation of the nonprofit sector. Conservatives point to efforts by California’s Greenlining Institute to promote AB 624, a bill introduced in the state legislature that would have required large California foundations to report on the extent of their efforts to assist charities designated as minority-led and serving minority and “marginalized” groups. The bill required foundations to report on the race and gender of their board members and it wanted reports on whether the foundation assisted charities serving seven designated minority groups. A California legislator withdrew the bill from consideration by the legislature only after the big foundations promised to voluntarily share this information and increase their giving to these specified groups.

Recently the leftist National Center for Responsive Philanthropy issued a report that also called upon foundations to be “inclusive,” which it defined as 1) giving 50% of their money to low-income groups, “communities of color” and other “marginalized” groups and 2) giving at least 25% of their money to advocacy groups promoting “equity, opportunity and justice” in our society.

This appears to be the start of an organized pressure campaign by activist groups working in concert with politicans to shakedown grantmakers. In its starkest terms, gifts to Jesse Jackson’s Operation Push could count as support for inclusive and marginalized giving; gifts to the Heritage Foundation won’t. One might also expect the zoo, the opera and the local historic preservation society to adapt their missions to include support for and representation from preferential groups in order to stay solvent. They and their donors will have an incentive to remain within the giving guidelines of the Greenlining Institute, the National Center for Responsive Philanthropy and potentially the California state legislature.

Glenn Lammi, legal counsel at the Washington Legal Foundation and a speaker at the Bradley symposium, said government oversight of charities is traditionally intended to assure donors that charities and foundations are fulfilling their chosen missions and that their managers are not using their positions to benefit themselves. But the new efforts to narrow the definition of what is in the ” public interest” or the interest of the “underserved” constitutes an attack on democratic pluralism and individual freedom. Lammi asks:

“Will the poor and disadvantaged really benefit from the political logrolloing and special interest favors that will ultimately result from a politicization of charity?”

To read Lammi’s statement, click here. (Word file)

Robert Huberty

Robert Huberty served as vice president of the Capital Research Center.
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