New California Law Takes Aim at Private Charities

Should the state have the power to decide how a private charity distributes money and services?

A new law proposed in the California State Legislature seems to be aimed at that objective.

The bill, AB 624, would require private, corporate, and public operating foundations, and charitable trusts, to collect and publish a mass of racial, ethnic, and sexual data pertaining not only to their own boards of directors and employees, but also to those of organizations and community groups receiving grants and charity.^[1]

The Assembly has passed the bill, which is now being studied by State Senate policy committees. If the Senate passes it, and agrees with the Assembly on the latest amendments, AB 624 will then go to Governor Arnold Schwarzenegger for his signature. According to a legislative source, this process could take another two or three weeks.

Is the proposal really a threat to the independence of private charities in California?

In an effort to answer this question, Chalcedon has studied the text of the bill and interviewed one of its sponsors in the Assembly.

The Text

The new law would only apply to “a private, corporate, or public operating foundation with assets over $250 million,” according to the text. “That would be the 30 biggest foundations in California,” explained Mike Welch, legislative director for Assembly Member Joe Coto, the bill’s chief sponsor.

“The bill would require [such an entity] to collect specified ethnic, gender, and sexual orientation data pertaining to its governance and domestic grantmaking,” says the text. The information would include “the racial and gender composition of the board of directors and staff of the foundation, the number of grants and percentage of grant dollars awarded to organizations serving ethnic minority communities and lesbian, gay, bisexual, and transgender communities, and the number of grants and percentage of grant dollars awarded to organizations where 50% or more of the board members or staff are ethnic minorities or are lesbian, gay, bisexual, or transgender …” All of this information would have to be published on a foundation’s website and be included in its annual report.

We are examining the latest amended version of the bill, as of February 12. The February 12 amendments made a significant change in the bill.

Earlier versions required foundations and charitable trusts to collect and publish information on the sexual orientation of a foundation’s board and staff—a provision that was viewed by the bill’s critics as an intolerable invasion of privacy. This provision has been deleted.

Section 1 of the bill requires foundations and trusts to collect and report the racial, ethnic, and gender data on their own boards and staff; the percentage of business contracts awarded to businesses owned by an assortment of “minorities,” including “lesbian, gay, bisexual, or transgender people”; the number of grants and percentage of grant dollars awarded to organizations serving various minority groups; the number of grants and percentage of grant dollars awarded to organizations where 50% or more of board members and staff “are ethnic minorities or are lesbian, gay, bisexual, or transgender people”; and has been amended to include language including “predominantly low-income communities.”

Section 2 repeats all of this language for application to charitable trusts.

What Does It Mean?

Legislative verbiage is difficult for laymen, so we discussed the bill with Mike Welch. Mr. Welch has been in charge of drafting and amending the bill for his chief, Assembly Member Coto.

Welch denied that the purpose of the bill is to pressure charities.

“It’s a sunshine bill, nothing more,” he said. “The state is not going to do anything with this information. But once it’s collected and published, the foundations themselves can take a look at how their giving works.

“Are they doing a whole and diverse job of giving? For instance, only four-tenths of 1% of the money given by the top 30 foundations in California goes to Pacific Islanders. Is that the kind of figure these foundations really want? The foundations all say they embrace diversity, and information like this will help them to do a better job of implementing their giving programs.”

He rejected the foundations’ objection that collecting the data would be costly, onerous, and unproductive. “They have indicated that they believe in the concept,” he said, “but to date have made no commitment to self-reporting. We’re just helping them to do what they say they want to do.”

Welch admitted that earlier versions of the bill “contained some absurdities” that had to be amended out. In particular, asking foundation board members and staff to publicize their personal sexual proclivities, he said, had to be deleted from the bill.

“That arose because people from the Lesbian-Bisexual-Gay-Transgender Caucus came to us and reported that their communities were not receiving grants proportionately to their numbers,” Welch said. “So we are trying to rectify that.”

Why, we asked, should the state have any oversight at all on how a private charity distributes grants or services?

“The organizations covered by this bill,” Welch said, “all have 501(c)(3) status—that is, they’re tax-exempt. Their collective tax exemption is worth $30 billion a year in California. We have a $14 billion deficit in this state, and we wouldn’t have it if we didn’t exempt this $30 billion in taxes.”

Welch denied that the state has any interest in pressuring foundations to redirect their activities according to a social or political agenda.

“This bill is about sunshine, nothing more,” he said. “What happens after the information is published is not the legislature’s concern.

“If, for instance, a local paper looked at the information on a particular foundation, and ran an editorial saying there’s a problem with this foundation’s pattern of giving or awarding contracts—well, then the foundation would have to deal with that.”

The Critics

Critics have been forceful in their denunciations of the bill.

“The bill appears designed to pressure large charities such as the Salvation Army, the Boy Scouts, the Bill and Melinda Gates Foundation, Habitat for Humanity, and many others to hire more minorities and homosexuals, and to steer grants toward entities controlled by such individuals,” says a press release from the Pacific Justice Institute.^[2] PJI’s president, Brad Dacus, calls the bill “a thinly-veiled power grab by the state.”

Meredith Turney, with Capitol Resource Family Impact, said the bill was an attempt by liberal legislators to sidestep Proposition 209, approved by California voters in 1996, which bans affirmative action by race and gender. Ultimately, she said, this legislation is aimed at all private charities, great and small.

“Right now, the cutoff point is $250 million in assets,” she said. “Next year they’ll come back and amend the law to include smaller groups; and the year after that, smaller still. It’s a slippery slope. It’s the kind of incremental tactic that liberals always use. Eventually the law will apply to groups that have only very small amounts of money. That’s why we have to stop it now.

“Right now it’s just reporting, just collecting information. But ultimately the state will use this information to demand that charities give more to these ‘oppressed minorities.’ When that happens, some of the big foundations might leave California, rather than be forced to award grants that are completely averse to the purpose of some of these organizations. Pro-family, Christian charities may have to either shut down or leave.”

Southern California Grantmakers and the Council on Foundations, two large organizations to which many of California’s foundations and trusts belong, have publicly opposed the legislation. “The bill could serve as an impediment of philanthropy in the state,” said Grantmakers, and “places onerous reporting requirements on nonprofit organizations.”^[3] The Council on Foundations called it “unnecessary” and “burdensome.”^[4]

Both organizations proclaimed “a deep commitment to diversity” (Grantmakers) and “the goals of diversity” (COF), while expressing concern that the bill’s provisions would violate privacy rights—as indeed they would, had the legislation retained the requirement to inquire into board and staff members’ sexual practices.

The Diversity Crusade

“Once again,” Meredith Turney said, “we have to stand up to the liberals in the legislature and oppose this. The rest of the nation is counting on us. If this bill becomes a law in California, it won’t be long before something similar is proposed in other states.”

We find that Mr. Welch’s remarks, rather than disarming the bill’s criticisms, actually reinforce them. Especially, the proposed law would indeed expose private charities to political pressure.

In plain language, the legislators are looking to the media and to professional agitators to do their dirty work for them. Making public a foundation’s demographics is an open invitation to homosexual activists and race hustlers to select it as a target. It is not possible that the bill’s backers are unaware of this.

Also telling is Welch’s comment on the charities’ 501(c)(3) status. It seems he is proposing a quid pro quo: We have exempted you for $30 billion in taxes, so of course we have a right to expect you to do our bidding.

This should not surprise us. The statist worldview is totalitarian at heart. Churches, philanthropic organizations, and other private charities compete with the state in what political scientist Karl Deutsch calls “the authoritative allocation of values”—any values.^[5] Statists prefer to be the ones who decide how charity is distributed, and to whom. Naturally, they look upon any grant of 501(c)(3) status as giving them some kind of claim on the recipient of tax exemption.

The foundations that proclaim their “commitment to diversity” have only themselves to blame when the state demands some evidence of that commitment. Did they think the social-engineering statists in the legislature would be satisfied forever with empty words? For whatever their reasons, they enlisted in the diversity crusade; and now they have received their marching orders.

The essence of charity has always been its voluntary character. If we wish to set up a charitable foundation that awards grants solely to African-American single mothers and to no one else, we have every right to do so. We should not have to worry about someone in the legislature accusing us of “discrimination” and maybe taking us to court to “rectify” our decision not to donate to homosexuals or Pacific Islanders.

Among the absurdities contained in the original bill were provisions that, hypothetically, might have required the Salvation Army, having hired a private contractor to overhaul the electrical wiring of one of its office buildings, to inquire into the sexual practices (“orientation,” in the language of the bill) of the contractors’ employees. This intrusive foolishness has been deleted by amendment; but the fact that it was ever in the bill at all speaks volumes of the legislators’ mindset.

In short, AB 624 is not the blameless “sunshine law” its sponsors make it out to be, but rather more likely a first step toward exerting state control over the giving and business practices of private charities. That this control will at first be exerted not by the state itself, but by its surrogates among the media and activist communities, is no comfort.

We hope the people of California, and the big foundations themselves, can exert enough pressure on the governor to veto this bill after the legislature passes it.