Fall 2004

Policymaking by Consensus?


Written by: Jeff Krehely

Date: November 30, 2004

After months of rumors—and much hand-wringing in the nonprofit and philanthropic sectors—the U.S. Senate Finance Committee finally held hearings on the string of recent scandals plaguing both nonprofits and foundations alike, and the current state of government oversight of the sectors. On June 22, 2004, 13 individuals on three different panels testified before the committee. Those testifying included Internal Revenue Service Commissioner Mark Everson, state-level charity officials, witnesses whose identities were kept hidden, and executives from mostly national nonprofit organizations, including NCRP Executive Director Rick Cohen.

The several-hour-long event was congenial—no one was raked over the proverbial senatorial coals. Most of the committee’s members did not even attend the hearings, or attended only for a few minutes. Sen. Olympia Snowe might have set a record for the briefest attendance at a committee hearing ever when she walked in, turned her nameplate up, came within inches of actually sitting in her chair, and then stood up and walked out. Apparently, she is still a contender for the Senate’s perfect attendance award at the end of this session.

Considering the marked absence of most of their colleagues, the Republican chair of the committee, Sen. Charles Grassley of Iowa, and the ranking Democrat, Max Baucus of Montana, ran the show. Nothing new or terribly controversial was revealed over the course of the hearings, which concluded with Grassley stating that he would like to introduce legislation to toughen regulation of the nonprofit and philanthropic sectors, perhaps within months. But considering the upcoming elections and the ongoing political stalemate in the Senate, the chance of anything significant happening this session seems rather small, at best.

In an effort not to lose whatever momentum the formal hearings generated, the Finance Committee staff, led by Dean Zerbe, produced a white paper that provides an overview of the various reforms being considered. Zerbe also organized a round-table discussion in late July to allow other nonprofit and philanthropic experts to put their spin on the issues discussed at the hearings and in the white paper. NCRP was initially invited to submit a paper and make a presentation at the round table, but was uninvited at the last minute, because this event was supposed to be an opportunity to speak for people and organizations that had not testified at the formal hearings. Apparently the committee staffer who caught Rick Cohen’s name on the list of speakers for the round table did not also notice that of Independent Sector’s chief executive officer, Diana Aviv, who testified on June 22 and was also allowed to submit a paper and address the round table in July.

Considering that 18 people provided their opinions at the round table, an entire issue of RP—let alone one article—would not be able to capture all of the commentary provided. As of this writing, each of the papers submitted by these individuals is still available at the Senate Finance Committee’s Web site ( Unfortunately, no one who spoke was from an organization that represented the interests of smaller nonprofit organizations and their constituents in the nation’s communities and neighborhoods. If and when another round table is scheduled, perhaps its organizers will be mindful of the lack of input from the kinds of organizations that make up the majority of the sector.

At the same time, however, the hearings and round table raise the question of how much input and feedback are needed before this process can move from discussion to action. Considering the remarkable diversity of the organizations in the nonprofit and philanthropic sectors, it is impossible for lawmakers to translate the wide-ranging needs, concerns and priorities of these organizations into policy with which everyone agrees. Most policy decisions—i.e., lawmaking and rulemaking—produce winners and losers.

Of course, it’s not politically palatable for lawmakers to appear to be punishing nonprofits and foundations—especially in an election year. Most members of the media and public assume that these organizations are do-gooders, and imagine that the groups are run by individuals with halos on their heads and wings on their backs. Most of us who work within the sector know that these notions are simply untrue, and that tax status does not determine whether an organization is run and managed in an ethical and law-abiding manner. The easy thing for Congress to do at this point is to jump on the “self-regulation” bandwagon, which would make the leaders of the trade groups that represent the sector quite happy.

But it’s not the right thing to do. The abuses in both nonprofits and foundations that caught the Senate’s eye are real. More importantly, they violate the public’s trust and, in some cases, state and federal laws. They’ve taken place because savvy people know that the ability of the Internal Revenue Service and state governments to regulate these organizations is laughable. Congress has effectively defunded the IRS’s oversight function, and some state governments do not have enough funding to devote even one full-time employee to tax-exempt oversight.

Policymakers face a stark choice. They can continue to allow leaders of national, multimillion-dollar organizations to weaken efforts to strengthen government oversight of foundations and nonprofits. Or they can reassert the government’s right and duty to police the nonprofit and philanthropic sectors and the sectors’ control of trillions of tax-exempt, quasi-public dollars. It’s not an exaggeration to say that the path taken will impact the lives of millions of the nation’s most disadvantaged people and communities, as well as show just how responsible—or dysfunctional—Congress has become.