Episode 141: The Shifting Nonprofit Legal Landscap

Welcome to another edition of "Around with Randall" your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett. Can't thank you enough for joining me on this edition of around with Randall.

Recently I was at the Summer Symposium of the Giving Institute. Privileged to be asked because it's invitation only, basically, and number two to be able to speak. And if you're not familiar, the Giving Institute is a collection of nearly 200 different firms, consulting firms, in the non-profit space and we are there in a three-day session to figure out how we do our job better to serve nonprofits. To be asked is really an honor and I felt so, and and learned so much. But one of the sessions caught my attention which caused me to think about having this conversation. And to be candid, I love this, but I'm going to make this only a once every other year or so Edition because we're going to talk about the law and nonprofits.

Now I love this conversation because I find it interesting about how people think they're either legislative actions or a court action affects what's going on in the world in terms of social policy and behaviors. Well we have a number of moving pieces in the nonprofit world that you probably should be at least aware of. So I'll save you a 50 or 75 minute conversation or presentation and do it here in about 15 minutes, and just some high points. All of this starts at least in terms of the news cycle in what's happened with the Supreme Court in its recent decision of the students for fair admissions versus Harvard. And in that case, basically, they were saying that the ability to weight certain parameters of race, religion, gender, national origin, things of that nature are in violation of the constitution in terms of fair treatment, that it should be more blind in terms of aptitude, in terms of what the college's, Harvard being one, but many do. And the court came back and said we believe that that's unconstitutional, which is going to change the admissions process for universities.

So that was the, that's a large, noticeable, very well discussed issue in non-profits. But what's interesting out of that case is that now there's conversations. Recently the federal government, through the Department of Education, says well wait a minute if that's the case then maybe we should be looking at some other factors that shouldn't be part of the admissions process at universities, things like wealth of parents. Recent studies showed that you are far more likely to get into an Ivy League school if you come from a wealthy family, or alums, or here we go, donors. So someone makes a donation, their child's more easily admitted into a university, all the way to potentially athletic scholarships, indicating that if you're an athlete and that gives you an inside track for admissions and university is that legal.

We also had a case in Minnesota over the last several years. The Otto Bremer Trust, which is a bank and they have a very unique only one of a kind in the country where the charity actually owns the bank, and the Attorney General from the state of Minnesota went in and said I don't believe that you're acting in the best interest of being a charity from a state law perspective. And the court basically threw that out and then removed one of the trustees, and for which there's a lot of questions as to why that one, but what I'm getting to is that the world of nonprofit, the industry, the sector that we work in is being looked at more carefully by state legislatures and courts, in particular state legislatures. I just want to give you a sense of what's kind of going on from a governmental perspective when we talk about the law.

So let's start with probably the most important thing that's applicable to you and this is, if you're in health care or if you're in education or if you're in Social Service or in your church, it doesn't make any difference. There is a enormous push in the states for data privacy rules but the interesting thing is they're not all the same. So Colorado recently passed and gave nonprofits a three-month window to implement, which basically was going to be impossible, a whole lot of changes to data privacy, including things like how they use personal data, and how people can opt out of that data being collected, and how it's you a person or an entity can have the option to delete data.

So let me give you an example. You have a donor who gives you, gave you money, and you keep it in the database and they say, well you got to delete it. But the IRS says you're supposed to keep good records for a period of time to ensure compliance with IRS standards. How does that work? Nobody knows. Or how you use personal data in healthcare. It's very common from a grateful patient perspective to use data. HIPAA complaint. Six pieces coming from the hospital, they're articulated by CMS. Are you allowed to use that data in Colorado? Not sure. Other states that are having similar conversations, maybe not as specific, Connecticut, Utah, Iowa, Tennessee, and Washington. On the other side of the equation is we have a two government legislature, legislative tours, who've just passed laws saying that the data information from nonprofits is more restricted and that's Missouri and Indiana, meaning that they don't have to disclose as much. So you have these competing interests. Colorado also has passed recent regulations and statutes that indicate that nonprofits have to be more formalized and open about providing information about Community benefit, what is it you do. Kentucky as another example has put a limit on the number of special events you can have and not charge sales tax, so if you're selling something an auction or you're maybe doing book sales you get two after two you have to start charging six percent sales tax, which has caught a lot of nonprofits in Kentucky like how do we do that?

Washington passed a a law that indicates that the maximum term for a board member and a nonprofit's five years. Then there's my favorite, California. And while you may say, well I'm not in California you might want to listen for just a minute. California has passed a number of laws regarding nonprofits in the last year year and a half. One of which is the what I think of is paid transparency, and you might say well I'm not, I'm in Rhode Island what do I care. Well if someone applies for it from California they're interpreting that as you have to openly just to disclose the pay range. So all of a sudden anybody that's tied to California that might apply somewhere else in the United States, California is saying they're going to come after you. And you have to comply with their rules. Another one is the web reg, web registration, that if you're soliciting online and you may say well I'm in Wisconsin what difference does it make. Their interpretation of their law is well they have citizens in California so we're going to add more rules and regulations to online platforms that solicit our citizens even if they don't give, even down to the state level or the city level, excuse me, municipalities. Long Beach, California is in a process where they're reviewing conversations around making nonprofits register as advocacy or, like, trying to figure out how do we get nonprofits to register when they're advocating for a particular position, lobbying. The nonprofits are like we're not lobbying, we're just saying we do this. How do we work together?

You throw on top of this the 50 state Register, different registrations that are required for any nonprofit to solicit in another state and to be candid I'm not sure how nonprofits actually do this. Yeah there are 50 different states and 50 different regulations as to what is required for a nonprofit to solicit mail, email, online their particular donors, prospects or those interested in states. And if you're the American Red Cross it's easy. You just do it. You're big. But if you're a smaller nonprofit, let's say a secondary private school of alums all over the country, you can't even figure out there are laws alone about how to register for them, and then you add hospitals and others that do this.

I'd be remiss if I also didn't look forward a little bit and I want to give credit to the learning experience I had at the Giving Institute Summer Symposium. There's some things coming down the road from the federal government as well one of which is a regulation from the FCC that is placing restrictions on robocalls, for the first time for nonprofits, that if you leave a message - and they're not defining Robo calls as necessarily by a robot but a calling process - so if you're doing calling outreach, or you pay someone to do calling outreach some of these rules are going to apply. So number one is if you call you have to leave a number where person can opt out. Number two you have to give them easy access to opt out. Number three you're only allowed to make three calls per month to any one number, landline, and there's some more detail in all of that. We also have a proposal out of Congress which is called the Nonprofit Shareholder Engaging and Advocacy Together Act and what it wants to do, and there's some thought because there's bipartisan support on this particular Act, is to create an office within the executive branch in the white house that would be the connector to the nonprofit sector.

In some ways this makes sense because the nonprofit sector is two percent of GDP and close to 20 percent of all jobs in the United States. So if you think about philanthropic giving being two percent and twenty percent of all employees this is a big sector that when things are adjusted legislatively or economically has a big effect on our country. The other thing it would do is create a portal for all, as I mentioned a few minutes ago, all 50 states having different ways of registering creating a portal for one registration point which I think a lot of nonprofits would back, and it would also create an avenue for a little more oversight by the federal government of the nonprofit sector. Now there are some people who don't like that and they're not actually sure what it means. Just from a legislative standpoint it would remove the 990 easy so everyone have to fill out a little more detailed form so there is congressional action on this. What will happen, don't know.

Interestingly enough, because it was proposed with bipartisan support early on in this particular Congressional session. And the Congressional session really doesn't end until the end of 2024 when the election cycle is over. There's time for this to get some momentum. There's also conversation in Congress to bring back the universal charitable deduction when the 2017 tax code changes allowed for more people to file just a standard deduction, they weren't itemizing. There was a noticeable drop in the number of people donating to charity, making charitable gifts, being philanthropic. What they want to do is they want to allow people who take a standard deduction to also have an additional tax credit for certain percentage or amount of charitable gifts on top of those standard deductions. A third of the value of the, it, would be deductibility. It would be deductible of a gift. Thirty percent of the total could be itemized and that this would actually include gifts to Donor advised funds.

Then we have the biggie and this is the one that we probably will be talking about for the next decade as we kind of figure it out. The overall discussion around artificial intelligence has never been higher in the United States and I'm not talking about for non-profits and I'm talking about it in general. The thing is that I don't think it's going to get smaller. It's going to get larger more robust louder the interesting thing is is that there's two things that are happening from a legislative perspective that apply to nonprofits and artificial intelligence. Number one is that there is a conversation around a federal data Privacy Act in Europe, particularly within the European Union. They have standardized data practices and made nonprofits instead of an opt out scenario so the ability for the person whose data is being used or held to opt out of being engaged like we have in the United States. They reversed it and you have to go get the permission of the person to use their data by opting in, so the standard is completely reversed. That has had some implications in terms of comparisons, the way we handle data privacy in the United States, and they're trying to figure out how to set standards and they are not going to exempt non-profits.

So when we talk about privacy, is data the for-profit world Banking and we have obviously the breach with Experian and others who basically, it seems, like once a week or once every other week you get a notification something was breached, not only with for-profit companies they're talking about non-profit companies as well. There's a very good chance that something is going to happen in the next 18 months during this Congressional session. There's absolutely no consistency on what that's going to be but it's going to apply to us. The second thing is that they're putting together a blue ribbon Commission on artificial intelligence and how it's used and what the restrictions are going to be. Again nebulous in terms of outcome.

What does all of this mean to kind of bring it towards the Tactical? So I've just talked about all these states and they apply to us. They don't apply. US federal government, supreme court cases, here's your Tactical whether you think this is good or not. Whether you think this is sexy or not, whether you think this is applicable or not, I'm telling you and recommending you need to pay attention. Some simple things you can do. Number one, don't run from the reading if you have connections to the Nonprofit Times or the Chronicle Philanthropy. Read about this. Become more knowledgeable on your own. Don't have to be a nerd like me. Just know it. Number two is we're getting to the point we're on an annual basis, your board or your nonprofit, so it depends on your size and scope. If you have a legal counsel, like you're a large hospital system, you should be having a conversation in the legal department about what's going on in the nonprofit space, legally, compliance-wise, and be able to kind of think about these things and say how does this apply to us. What do we need to worry about if you're a little bit smaller, don't have a legal department? Then having someone on your board who's a lawyer who can not be an expert, no one's suing anybody, but to say can you go in and dig a little bit and come back and help us be better informed as to what should happen. Just that, those two steps if you just read a little bit more and you annually or ever maybe basically every two years are asking questions like what applies to us. You'd be surprised how much more ready you'll be for these things.

Now I've nerded out for about 17 and a half minutes. I love this stuff. I think it's fascinating how people get to these decisions and then the implications, particularly the unforeseen consequences that come from legislation, court orders, regulations, things of that nature. Very few people are like me and so my counsel to you on the podcast, the Tactical is you got to pay attention. And if nothing else ask your local AFP or your local AHP or whatever Association you belong to APRA, hey is anybody looking into this. Could we have someone come in and talk about it? The more you're informed the better you're going to be and the better you are as a leader. There's your board member or staff member. The better you can ask the right questions inside your organization.

Don't forget check out the podcast or the blogs, excuse me the blog. 90 second reads two a week at hallettphilanthropy.com. And if you want to communicate with me easy podcast@hallettphilanthropy.com. All of these legal things and the changing shifting world seems to be under our feet are indicative of some of the chaos that's going on where we're at as a nonprofit industry is we're plugging holes and they are big ones, which makes what you do every day really, really important. Healthcare, Social Service, education, whatever you are of value to people that are struggling that need help, that need a hand up. Remember my all-time favorite saying, some people make things happen, some people watch things happen, then there are those who wondered what happened. You're someone who's making things happen and by paying attention to the legalese as much as you don't want to it gets you out of the head to serve those who are wondering what happened, and that's a great calling in a professional career. And I hope you feel that each and every day. Legal session ended. Class closed. We'll move on to something a little more interesting, maybe from your perspective, next time right back here on "Around with Randall" and don't forget make it a great day.