Fundraising, Federalism, and Donor Privacy

Fundraising, Federalism, and Donor Privacy

Since I’ve become a full-time fundraising consultant, I’ve been thinking a lot about federalism.

I hold a PhD in political science. You may at this point think:  “So that explains the federalism comment.  Who but a poli sci wonk would connect fundraising and federalism,” right?

But you’d be wrong. It hasn’t been the three-degrees-in-political-science-thing, but the state charitable registration thing that has had me thinking about federalism this past year. Guidestar and a couple of other organizations have attempted to raise our awareness about charitable registration requirements, running a articles about what the requirements are and about state’s increasing efforts to enforce the requirements.

I’ve spent the majority of my career in the nonprofit sector with very small nonprofit organizations, nonprofit organizations with budgets of less than $1 million—that, of course, is the majority of all nonprofits (90% of all nonprofits have a budget of less than $1 million). Guiding nonprofits about whether or not they need to register in the states that require registration are the “Charleston Principles,”  developed by the National Association of State Charity Officials. These principles offer some guidance about who is required to register and in which state one is required to register.

A nonprofit that is headquartered in one state, but conducts mail or email solicitations in another state or has a website that targets potential donors in another state would probably be required to register in that state. The problems for nonprofit organizations include that, despite the fact that the Charleston Principles attempted to clarify the rules and unify them across all states,

  • The precise language outlining who is required to register is codified in each state’s laws, and interpretation is up for debate. The Charleston Principles indicate that nonprofits that specifically target residents of a particular state in an “ongoing” or “substantial” way through their website, email, or mail campaigns must register in that state, even if they are not domiciled in that state.  The words “ongoing” and “substantial” are not clearly defined.
  • Further, many nonprofits (just like many businesses) don’t always know who on their email lists lives where. People often join email lists by providing gmail or yahoo addresses and give false (or no) information about city, state, first, and last name. We don’t always know who we are emailing.
  • I’ve spoken with more than one attorney who has interpreted the Charleston Principles in different ways and offered different conclusions and advice to organizations I’ve worked with. With nonprofits being unable to receive clear, consistent legal advice, how are they supposed to know what to do?
  • Many people are suggesting that the Charleston Principles should be interpreted in a rather broad way and that most nonprofit organizations, given that they have a website and run email and internet campaigns for donations, should register in all states that require registrations. The requirement to register in states throughout the country is a significant burden for small nonprofit organizations (which 90% of all nonprofit organizations are:  90% of all nonprofit organizations have a budget of $1million or less). The cost to register in all 40 states of the US that require registrations is somewhere in the neighborhood (depending on whether your organization files in-house and incurs staff labor costs or files by hiring a service) of about $4-$8K (if not more). For an organization that has a budget of $150K or $300K, this is a big bite.
  • Not only do small nonprofit organizations not have the money to register, they also do not have the time, tools, and personnel to manage the process efficiently.

Part of why I have thought about this often as a full-time consultant is that just as states have registration laws for nonprofit organizations, they also have them for nonprofit “consultants,” “solicitors,” “outside counsel” and “grant writers.” And part of the challenge with each opportunity to work with a nonprofit organization that you accept is that you have to research that particular state’s laws and determine “What would this state call me for this particular type of work?” and then determine “do I need to register?” Just as the costs are prohibitive for small nonprofits, they are similarly difficult for new and small nonprofit consultants.

At the heart of this fundraising issue is an issue of federalism:  specifically, the issue of inter-state commerce. The US Constitution not only empower Congress to regulate commerce between the states, it also has the power to bar action by individual states that unduly burden interstate commerce. As someone who has worked for small to medium size nonprofits for twenty+ years, I would argue that the expansive interpretation and enforcement of state charitable registration laws is, without doubt, an undue burden on interstate commerce.  None of us, no matter where we are domiciled, are local.

Experts on federalism argue that legal decisions about which professions and which trades are interstate and which are local are increasingly arbitrary and built on specious evidence. It’s become harder and harder for any line of work or any business to argue that it does not engage in inter-state trade.

Today, this issue is again on my mind because of the actions of California Attorney General Kemala Harris and the appeals for advocacy from Michael Rosen and Roger Craver. If you think that an action taken by a California Attorney general won't affect you or your nonprofit if your nonprofit isn't located in the state of California, think again.

The California Attorney General, Kemala Harris has announced his intention to begin requiring nonprofit organizations that want to register to operate in the state of California to provide their Schedule B from their Form 990. The IRS this schedule as “confidential” and allows your organization to redact the list before sharing it with others (for example, with Guidestar or with funders in grant applications) so forcing an organization to have to share it is highly unusual.

Respecting and protecting donor privacy has long been a tenant of fundraising best practice. Although it’s not absolute in the Donor Bill of Rights (the Donor Bill of Rights says that we will respect a donor’s privacy to the extent possible by law), we always seek to honor a donor’s wishes about whether or not their information is disclosed. 

Roger Craver, author of Retention Fundraising The New Art and Science of Keeping Your Donors For Life and the Editor of The Agitator fundraising Blog has called on as many nonprofits as possible to sign the amicus brief  prepared by the Free Speech Coalition to appeal the case challenging the California A.G.’s actions.  Regardless of the politics of this, whether you ideologically agree with the plaintiff or defendant is not the issue. As Michael Rosen highlights, a similar move, with the politics reversed, was attempted against the NAACP in 1958 by the state of Alabama. Then, as now, many leaders in the fundraising community were united in calling for the protection of donor privacy.

Until the day that we recognize that nonprofits are engaged in interstate commerce and the state-by-state system of charitable registration is unduly burdensome for us, especially for small nonprofits, many of us will have to register in California whether or not we actually reside in California. This will mean our organizations will have to hand-over our donor lists.

Moreover, if California succeeds in demanding these lists, which state will be next? New York? Alabama? Texas?  You can be sure, if California is the first, it won’t be the last. 

Craver asks for responses to his request to join in signing the Amicus brief by Friday, August 21st.  For more information, For more information or if you wish to refer your general counsel, CEO or someone else in your organization to the attorney in charge of building this coalition of the concerned, please contact Mark Fitzgibbons at 703-392-7676.

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