Sunday, November 22, 2009

Government, Civil Society, Charity, and Public Benefit

Have you ever wondered why you give to charity? If so, have you ever wondered why you give to certain causes, but not to others? Have you ever wondered about what kind of things are important to you when you give? What kinds of things do you wish you could know about a charity to which you want to give? What factors motivate you, or contribute to your motivation to donate to a charity or cause?

In my last post, Alexis de Tocqueville and Civil Society, I discussed the definitional problem with respect to civil society and suggested that the most common understanding of civil society is that it reflects the complex set of a dense network of civil associations that is said to promote the stability and effectiveness of the democratic polity through the association of citizens’ “habits of the heart.” In our post-modern context, as I wrote in my last post, we think of civil society as that part of the public sphere set apart from the State and the market, that is, apart from the political sector and the commercial and business sector, replacing the State’s service provision and social care.

But, I am not sure that this is a completely accurate description to how most people think of civil society. It is not simply the case in countries in which the polity tends toward a form of socialism. It is not the purpose of this post to provide an argument for or against socialism, no matter how it is defined and understood. Assuming, however, that socialism, and specifically democratic socialism, refers to a strong welfare state, fiscal redistribution or some form of redistribution of income through effective management of the economy, and some nationalism, could there be an understandable conflict between the role of government and civil society organizations as they are currently conceived?

If any form of socialism were to prevail, why not just let the government take care of everything, of our needs, our wants, and our cultural and educational aspirations? Does it make any difference if the need for welfare and social services can be met by government, either by direct action, by contract, or by grant to a private organization? After all, who has the ultimate responsibility, if any, for our health, welfare, education, cultural life, for taking care of the poor and the disenfranchised? How about natural or man-caused disasters? Should not governments from around the world, multilateral organizations, such those of the UN or the EU, provide the necessary rescue, emergency relief, development?

Where does giving to the church fit into all this? Do church sponsored social welfare organizations and activities, such as hospitals and medical clinics, homeless shelters, soup kitchens, tutoring programs, alcohol and drug recovery centers, and employment centers relieve the government of responsibility to attend to these needs? Should religious activities of churches be recognized by the government with special tax-related benefits, either by tax exemptions from income or property taxes, or by permitting deductions for donations given to the church?

Have you ever wondered how much more effective, cost-efficient, responsible, and easier it would be to simply have the government take care of all the welfare, charitable, and public benefit purposes that the government determines are worthy of support? For example, if there is a tsunami in some far-away place, or an earthquake in Central America, why should there be any charitable activity by public benefit voluntary associations or organization to address the damage, destruction and loss of life when governments from around the world can provide the necessary relief? Assuming they can, can they do so in a timely manner, particularly democratic societies? And, what would this all mean to the ideals of liberty, freedom, self-determination, and personal responsibility?

Moreover, have you ever assumed that governments are simply more transparent and accountable than charities or non-government organizations? How do governments reflect transparency and accountability, however these terms are defined, to the general public or even to people who inquire about specific government activities? Are all governments equally transparent and accountable to their citizens with respect to the projects they undertake and money they spend? Are governments sufficiently transparent and accountable to accurately regulate and monitor the nonprofit sector and the civil society movement, especially when that sector is in conflict with that government or with its declared public policies?

According to Transparency International's Global Corruption Barometer for 2009, governments around the world are not the greatest models of transparency, accountability, and freedom from corruption. For example, Transparency International 2009 Global Corruption Barometer reported that the U.S. government disclosed that $6.4 billion in stimulus money went to 440 nonexistent congressional districts, “creating or saving” around 30,000 phantom jobs. Further, the White House admitted in July that billions of dollars spent in Troubled Asset Relief Program funds might not be traceable.

Assuming that governments at all levels give tax benefits to churches and nonprofit organizations, such as tax exemption from income and property taxes, and the deductibility of contributions by donors, to what extent should governments regulate and monitor the activities of the sector, and of specific nonprofit organizations? After all, governments regulate all sorts of economic activities from corporations and business entities, and may in some places regulate, although lightly, the activities of the nonprofit sector. If the regulatory and monitoring scheme is undertaken by the tax authorities, or indeed some specific government agency that might regulate business activities, what level of expertise would you expect to be exercised by those authorities with respect to religious matters, medical care and health concerns, social services, and the like? This will be addressed in a future post forum.

Have you ever wondered about your giving to a non-government organization that receives subsidies from the government, either direct grant or by contract? If most commonly understood definitions and characteristics of civil society regard it as a network of voluntary associations, set apart from the State, that have a presence in public life and that express the interests and values of their members based on ethical, cultural, political, scientific, religious, philanthropic, and social welfare central to the common good of society, how does government entanglement with the sector, and with specific nonprofit organizations, jeopardize the public benefit purposes of the sector or of specific organizations, or does it? How does government balance the public benefit concerns of the sector and its benefit to society, and important public policies as identified in laws, regulations, and governmental proclamations?

For example, an organization is providing a valuable civic public benefit that under some theories of political philosophy may be asserted to properly be the functions of the government. What happens when the government enacts a law that places conditions on non-government organizations for the receipt of government funds through grants or contract when such conditions are contrary to the nature and character of that organization? Have you ever wondered what it would be like to advise or lead such an organization when those conditions would require the organization to violate its fundamental and principled character in order to receive funds from the government or retain its tax exempt status? Have you ever wondered, or faced the decision about giving to such an organization, that must violate its essential and fundamental public benefit and faith-based character in order to retain its tax exempt status? I have used three examples in which to explore some of these issues.

There was the recent situation in Washington, D.C. that illustrates the problems posed by these questions. For many years, Catholic Charities, a religious charitable organization, had received both government grants and contracts from the government of Washington, D.C. At issue was $18-20 million in city funds for 20 to 25 programs run by Catholic Charities. A medical clinic in the Spanish Catholic Center served 3,000 people. This clinic received approximately 60 percent of its budget from the city. Another program provided tutoring services for people preparing to take general education development (GED) tests received 35 percent of its budget from the city. Foster care and adoption placement services received 90 percent of its funding from the city. In addition to these services, Catholic Charities received funds from the city to offer mental health services, to operate nine homeless shelters, and during winter, to run hypothermia shelters.

The conflict between the city of Washington, D.C. and Catholic Charities, and indeed, between the city and the Catholic Archdiocese of Washington arose when the city government proposed changes in the city laws to provide a same-sex marriage law. Under this proposed law, religious organizations, including the churches, would not be required to perform or make space available for same-sex marriages.

However, according to reports on the proposed law, such organizations would have to obey the city laws prohibiting discrimination against gay men and lesbians. There was no exception in the proposed law for religious beliefs and practices. Many of the religious leaders of all denominations in Washington, D.C. opposed this proposed law, and for the most part, the public opinion polls run against this proposed law. Roman Church officials and Catholic Charities stated that they would have to suspend all its social services work for the city, if it would otherwise be required to provide employee benefits to same-sex married couples or allow them to adopt because these requirements were contrary to Church teaching.

A diverse group of approximately 150 prominent religious leaders, scholars, and civil society leaders, met in late 2009, to draft and announce a declaration of firm opposition to current and future laws impinging on the sanctity of life, marriage, faith, and liberty. The Manhattan Declaration stated in pertinent part:

While the whole scope of Christian moral concern, including a special concern for the poor and vulnerable, claims our attention, we are especially troubled that in our nation today the lives of the unborn, the disabled, and the elderly are severely threatened; that the institution of marriage, already buffeted by promiscuity, infidelity and divorce, is in jeopardy of being redefined to accommodate fashionable ideologies; that freedom of religion and the rights of conscience are gravely jeopardized by those who would use the instruments of coercion to compel persons of faith to compromise their deepest convictions.
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Because we honor justice and the common good, we will not comply with any edict that purports to compel our institutions to participate in abortions, embryo-destructive research, assisted suicide and euthanasia, or any other anti-life act; nor will be bend to any rule purporting to force us to bless immoral sexual partnerships, treat them as marriage or the equivalent, or refrain from proclaiming the truth, as we know it, about morality and immorality and marriage and family. We will fully and ungrudgingly render to Caesar what is Caesar’s. But under no circumstances will we render to Caesar what is God’s.

The drafters and signatories released this Declaration in Washington, D.C. on 20 November 2009 as a statement of first principles that are timeless. The timing of its release was affected by the policy proposals of the new administration and Congress and their effects on churches and civil society institutions and entities, as well as on American society generally.

A little context might serve to suggest the impact of the policy issues that are being addressed in the Manhattan Declaration. First, some statistics. Admittedly, these statistics reflect activity in the United States third sector only, and the fact that the Declaration is a document addressed to the American context may mean limited application of these ideas outside the United States.

In 2007, Americans gave a staggering $306 billion to charity. This figure did not include more than $100 billion given to religious organizations, such as churches, foreign mission organizations, church-operated local food kitchens and homeless shelters, and large religious organizations, such as the Salvation Army, the Roman Catholic Church and its subsidiary charitable activities, and the Church of Jesus Christ of the Latter Day Saints (Mormon Church).

What is also significant is that 85 percent of all households in the United States gave to charity, of which the total number of givers in the United States with annual incomes lower than $100,000.00 was 65 percent. If the published statistics are accurate, giving by individuals comprise 75 percent of all giving in the U.S., totaling more than $222.89. Studies reflect the fact that religious organizations are the largest recipients of giving and religious motivation is one of the strongest impulses for giving. Moreover, according to a recent study reported by Independent Sector, 85 percent of all religiously-motivated giving households support secular organizations. What these studies tell us is that faith-based generosity, whether measured in terms of dollars or time, is real, measurable, and carries considerable impact.

The prior administration of President Bush launched a faith-based initiative in which religious charities could seek federal funds to combat problems like drug addiction and homelessness. The executive orders prohibited the use of any of the federal funds for specifically oriented religious purposes, such as, distribution of Bibles, proselytizing, and the like. The initiative also provided for some relief from regulations that made it difficult for private organizations to seek federal funds. The changes in the laws also permitted donors to give to charity and claim deductions on the tax return although they took the standard deduction which did not otherwise permit itemized deductions. This would have, according to the announcement, encouraged billions of dollars to public service organizations thus reducing dependence upon the federal government.

As would have been expected, this initiative was somewhat controversial. The main objection was that it would have blurred the lines separating church and state. However, there was also an objection within certain religious communities that accepting funds under this program would open up the opportunity for the government to intrude into the policies and affairs of the religious charitable organizations.

President Obama immediately modified the faith-based initiative program by opening it up secular groups. However, he also changed some of the substantive provisions of the prior faith-based initiative. For example, where previously religious organizations were permitted to obtain federal funds but were engaging in hiring discriminatory practice based on religious beliefs, the current faith-based initiative would not permit religious charities to discriminate on the basis religious beliefs, such as is the case in the current Washington, D.C./Catholic Charities dispute. Thus, if a religious charity required new hires to affirm the religious beliefs,of the hiring religious charity, or did not provide spousal benefits to unmarried couples, or same-sex couples, they would not be eligible for federal funds. Indeed, the fear among some religious communities was that churches that espoused their religious beliefs on moral issues, or religious charities that did not provide support for programs that advanced abortion, same sex marriage, or medical research techniques that violated their Biblically-based policies and teachings, would lose their tax exempt status. As was the case in President Bush’s faith-based initiative, this modification of the initiative is also controversial.

Now, the second example of the issues arising out of the interaction between government and the civil society sector. The Canadian government denied the charitable status of Dutch-based environmentalist group, Greenpeace Environmental Foundation in 1999 on the grounds that Greenpeace served no public purpose. But first, a little history. Greenpeace was launched in Vancouver, Canada in 1971 by a group of environmental activists to protest U.S. nuclear testing off the coast of Alaska. It was registered as a charity in 1976. In 1989, Greenpeace lost its Canadian charitable status on the basis of concern that it was not a true charity and was not providing a discernable public benefit. As a result, Greenpeace no longer had its tax exempt status and donors to Greenpeace could no longer claim deductions for the amounts given to Greenpeace.

Greenpeace responded by establishing Greenpeace Canada Charitable Foundation which was legally distinct from Greenpeace, International, but not functionally so. This organization lost its charitable status. The basis was its noncompliance with Canadian tax laws on charitable organizations and the Income Tax Act. Greenpeace responded then by establishing Greenpeace Environmental Foundation, which lost its tax exempt charitable status in 1999. According to Revenue Canada, although environmentalism is recognized as a public purpose charitable activity, the Greenpeace foundation did not qualify because its stated purpose was “public awareness." However, the general belief in Canada was that the Revenue Canada decision against Greenpeace was due to its extensive lobbying activity against the Canadian forestry experts.

A number of years ago, Bob Jones University, a private religious university, in the United States lost its tax exempt status as a result of a dispute with the government over asserted public policies that, according to the University, violated its religiously based policies and practices. The University, although not affiliated with any specific Christian denomination, was dedicated to teaching and propagating its religious beliefs as both a religious institution and as an educational institution, both of which were criteria for tax exemption under section 501(c)(3) of the U.S. Tax Code.

As stated by the IRS, the exempt purposes set forth in section 501(c)(3) of the Internal Revenue Code, and organization must be organized and operated exclusively for exempt purposes set forth in that section and none of the earnings may inure to any private shareholder or individual. The exempt purposes set forth in this section are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sport competition , and preventing cruelty to children or animals. "The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; . . . .”

The faculty members were all required to be devout Christians and taught courses according to a Biblical worldview. Entering students were screened as to their religious beliefs, and their public and private conduct was strictly regulated by standards issued by the University. For the most part, these beliefs were identified as consistent with widely held orthodox Biblical doctrines. There was no question in any of the litigation that the beliefs espoused by the University were religiously based beliefs and sincerely held by the University.

There were two matters in dispute with the Internal Revenue Service, one which had tax consequences, but did not involve the loss of tax exempt status, and the other which did. In the first, the university provided housing for some faculty members and its faculty members ate meals from time to time in the university dining room with students. The theory was that faculty members should be able to mentor and model for students better through this informal interaction with the students outside the classroom. The case before the courts was a withholding tax case concerning the excludability of the fair market value of the lodging and meals and had nothing to do with the alleged racial discriminatory policy at issue in the loss of the tax exempt status in the other dispute.

The thrust of the university’s argument in the first instance was that its primary character was that of a religious organization, and that it had expected its faculty and staff to be role models for students of proper Christian living. The appellant court held that the value of the University’s provision of lodging and meals was not excludable because residing in University housing and taking meals in the University dining hall or at subsidized meals in personal residences to permit interaction with students was not a condition of employment. Therefore, with the exception of the dormitory counselors, the value of the lodging and meals were includable within the taxable gross income. This decision was primarily based on the factual record rather than some complex legal analysis.

However, the real issue that attracted government attention and protracted litigation was a University policy that denied admission to applicants engaged in interracial marriages and which also prohibited interracial dating and marriage based on certain asserted interpretations of the Bible. Bob Jones University had received a ruling letter from the Internal Revenue Service (IRS) in 1942 confirming its tax exempt status notwithstanding the existence of this marriage and dating policy. Whether one would agree with that interpretation of the Bible today or not is not the point here. In November 1970, the IRS notified the University that the IRS was revoking the University’s tax exempt status as a “religious, charitable . . . or educational” institution. In response, the University filed a lawsuit to have the IRS decision enjoined.

The United States Supreme Court in Bob Jones University v. United States, held that the “common law” public interest requirement could be properly read into the relevant tax statutory provision governing tax exempt charitable status. In this instance, according to the Supreme Court, the “common law” public interest was the common community conscience, that is, the eradication of racially discriminatory practices in education.

The University argued that the plain language of the statute guaranteed it tax-exempt status, and that the absence of any language in the statute expressly requiring all exempt organizations to be “charitable” in the common law sense precluded such a reading. In light of the disjunctive language in the tax exemption, where “charitable” was merely listed as one of the possible qualifying exempt purposes, there was nothing in the plain language of that section that would have applied the “charitable” qualification to all listed exempt purposes. The Court of Appeals rejected this argument, as did the United States Supreme Court on appeal.

In sustaining the action of the IRS to revoke the tax exempt status of the University, the Court said that:

Such an examination [of the framework of the Internal Revenue Code against the background of the congressional purpose] reveals unmistakable evidence that, underlying all relevant parts of the Code, is the intent that entitlement to tax exemption depends on meeting certain common-law standards of charity – namely, that an institution seeking tax exempt status must serve a public purpose and not be contrary to established public policy.

. . . Congress sought to provide tax benefits to charitable organizations, to encourage the development of private institutions that served a useful public purpose or supplement or take the place of public institutions of the same kind.

When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect or vicarious “donors.” Charitable exemptions are justified on the basis that the exempt entity confers a public benefit – a benefit which the society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions and advances the already supported by tax revenues.

That Bob Jones University was a religious educational institution and that policy of the University which prohibited interracial marriage and dating was based on firmly held religious beliefs did not matter. Here, the governmental interest at stake, namely, the eradication of discrimination based on race in education, was so compelling that it outweighed any claims of burden to the University due to the denial of tax benefits asserted by the University in its free exercise of religion protected by the Free Exercise Clause of the First Amendment to the Constitution.

The reasoning of the Bob Jones University v. United States decision has not been welcomed with unalloyed delight, in part because it reflects issues raised in each of these examples. First, the text the Supreme Court applied to the University, that is, an educational institution which engaged in certain practices determined to be at odds with some declared position of the government. According to the Court’s reasoning, this could not be seen as exercising a beneficial and stabilizing influence in community life, and was, therefore, not “charitable” within the meaning of Section 501(c)(3).

Secondly, there was the element of conformity that appeared to inform the Court’s analysis of the tax exempt status of an educational institution. According to the Court, the exempt organization must “demonstrably serve and be in harmony with the public interest,” must have a purpose that comports with “the common community conscience,” and must not act in a manner at odds with the declared position of the whole government. The dissenting opinion in Bob Jones University, agreed with this point, both on the basis of statutory interpretation and on the basis of the historical understanding of this section of the law, particularly by the IRS’s consistent interpretation Section 501(c)(3). With over one million registered charities in the United States, it would be impossible to believe that most of these organizations could prove that they “demonstrably serve and are in harmony with the public interest,” or that they are “beneficial and stabilizing influences in community life,” in a review of their tax exempt status by the IRS.

As stated in the concurring separate opinion in the Bob Jones University case, these tests suggest that the primary function of a tax exempt organization is to act on behalf of the government in carrying out governmentally approved policies. Moreover, as expressed in the concurring separate opinion, referring to an earlier Supreme Court decision, this view of Section 501(c)(3) is that the test ignored the important role played by tax exemptions in encouraging diverse, indeed often sharply conflicting activities and viewpoints.

Tax exempt private nonprofit groups receive tax exemptions because each group contributes to the diversity of association, viewpoint, and enterprise essential to a vigorous, pluralistic society that is one indispensable means of limiting the influence of governmental orthodoxy on important areas of community life.

Moreover, as stated in Transparency International’s Global Corruption Report 2009, civil society coalitions straddle borders, link grass-roots campaigners to policy experts and adopt a focus that is independent of national governments. As a result, civil society is able to play an essential role as a third force, ensuring that citizens and their interests are given due weight and oversight in policy-making. Thus, civil society groups act as independent watchdogs. They can serve as an important channel for citizens to engage with business and government leaders, and act as credible catalysts of multi-stakeholder actions on a large number of issues related to corruption. “Only strong civil society participation can build the societal consensus that is necessary to tackle corruption in all it forms.”

As noted by a former commissioner of the IRS, questions concerning religion and civil rights “are far afield from the more typical tasks of tax administrators – determining taxable income.” Indeed, the Supreme Court had often expressed concern that the scope of a government agency’s authorization be limited to those areas in which that agency fairly may be said to have expertise, and this concern applies to the asserted authoritative power of an agency that determines the scope of a public policy.

In another Supreme Court decision decided the same time as the Bob Jones University decision, the Court held that:

Both tax exemptions and tax deductibility are a form of subsidy that is administered through the tax system. A tax exemption has much the same effect as a cash grant to the organization of the amount of tax it would have to pay on its income.

If the tax exemption and deduction for contributions are forms of subsidy, then this would be a violation of the Establishment Clause of the First Amendment of the Constitution when applied to churches and religious charitable organizations. There is a troubling assumption about this, and that is the assumption that the government is the ultimate owner of all assets in a country, and it is only on the basis of some idea of stewardship by which the taxpayer is responsible for the management of assets the taxpayer has earned or obtained and which the government has generously allowed the taxpayer to possess for a time.

A danger inherent in the Bob Jones University decision is that if nonprofits are forced to comply with some public policy as articulated by a government agency in order to retain its tax exempt status, then any nonprofit organization, including a church, that disagrees with a government policy, for example, a war in Iraq or Afghanistan, or that provides sanctuary to aliens in violation of immigration laws, would be at risk of losing its tax exempt status. In that case, the power to tax religious institutions may be construed as the power to limit the free exercise of religion.

These examples and the problems they pose seem to direct our attention to the concept and role of civil society institutions and organizations. Do I as a taxpaying citizen interested in higher education, or in homeless shelters, soup kitchen, and tutoring services, or in environmental causes, have sufficient conviction in what is being accomplished by Bob Jones University, Catholic Charities, or Greenpeace International to give to those organizations and causes even though I cannot receive a tax deduction for my donation? What governments give to advance and support civil society, governments can take away, or deny in the first instance.

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