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Chapter 3: Philanthropy and Public Policy

Public Policy, Not Partisan Politics

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public policy Concern about public policy proposals to regulate private giving prompted the establishment of the Council of Michigan Foundations (CMF). Ongoing interest in the impact of public policy on the operations of nonprofits energized the founding of the Michigan Nonprofit Association (MNA). The Michigan Community Service Commission (MCSC) was created as the result of advocacy by nonprofits and foundations for a statewide – and national – champion to support volunteering. Some of the primary functions of the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University are to provide unbiased data to support the development of sound public policy, program design and evaluation, and continuing professional education for practitioners on how to engage in advocacy. An emphasis for each of the Michigan nonprofit infrastructure support organizations is to assist in the development of public policy for the common good – without being influenced by partisan politics.

“Look at the model that we have in our state which is like no other state – and believe me, I've lived in other places – and that model is the ability to work with people outside of your group. Right? So, whatever that group may be. It's nonpartisan; it's apolitical; it's a-religious. It doesn’t matter. It's in the goal of insuring that all people have a good life. And that's really what people in the state of Michigan get together and say – ‘what can we do make it better?’” - Julie Fisher Cummings

Advocacy and Legislation Supporting the Philanthropic Sector

CMF organized in direct response to the U.S. Tax Reform Act of 1969 that imposed a number of new regulations and restrictions on foundation giving. One of the first official acts of CMF was the development of a “public policy agenda.” CMF also began programs of professional education aimed at improving the conduct of foundations that had – often unwittingly – stepped outside of the boundaries of good practice.

VideoVideo:  Watch leaders discuss the relationship between CMF and Public Policy.

[videocluster tag="cmf-and-public-policy"] After deliberation, CMF developed a policy statement that reflected what the grantmaking community would like to have changed. Then CMF, through its members, worked on each of the public policy agenda items. Success wasn’t measured in individual congressional or legislative sessions, or even in presidential or gubernatorial terms. Success sometimes took many years, but CMF kept working on an agenda item until the identified policy was implemented.

Issues of interest from the Tax Reform Act of 1969 and the results of CMF’s (and others) efforts were:

  1. Restrictions on private foundation ownership of company stock (excess business holdings). Find out more about taxes on excess business holdings.
  2. For private foundations, reduction in required payout in grants as a percent of assets (minimum payout requirement). Find out more about required payout.
  3. Designation of a community foundation as a public charity and the development of the public support test to assure the IRS of public charity status. As a practical matter, this meant that charitable gifts to community foundations were fully (up to 50%) deductible, while charitable gifts to private foundations were only partially (up to 30%) deductible. It also meant that community foundations, like all other 501(c)(3) organizations, would have to pass the public support test. In very simplified terms, this meant that community foundations needed to show, over any rolling four-year period, that at least one-third of their income was derived from public sources. 
Prior to the Tax Reform Act of 1969, there was little restriction on the management and grantmaking activities of foundations. As a result of abuses in the field, both real and imagined, Congress passed the Tax Reform Act to regulate the behavior of foundations. The Tax Reform Act included provisions that responsible members of the field felt were damaging to the future management and grantmaking of foundations. Among the new provisions that were damaging were a requirement of a 6% payout of net asset value annually, and other restrictions. This payout level, for example, would result in the long-term decline of the endowed asset of the foundation because over time, foundations did not earn an average of 6% when adjusted for inflation.

VideoVideo:  Watch leaders discuss the Tax Reform Act of 1969.

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Working, many times in close cooperation with Congress and regulators, the foundation community organized, educated their representatives, and worked toward changes in those aspects of the Tax Reform Act of 1969 that had the most negative effects on the field – dropping, for example, the payout requirement from 6% to 5%. Over the last 40 years, other major public policy items on the CMF agenda have been:

Michigan Community Foundation Tax Credit

Passage of the Michigan Community Foundation Tax Credit. This tax credit allowed up to $100 per taxpayer ($200 for a joint return) to be deducted directly from the taxpayer’s tax liability when a gift was made to a Michigan community foundation. During the lifetime of the tax credit (beginning in 1989 through 2011), a 1999 study found “the tax credit increased individual donations an average of $27,393.18 per foundation, and business donations an average of $45,396.37 per foundation.” In 1999, there were 105 community foundations or community foundation geographic affiliate funds certified with the Michigan Department of Treasury.

Historical_DocsHistorical Document: Read notes from a 1987 Council of Michigan Foundation’s board meeting for a background on the Michigan Community Foundation Tax Credit.

VideoVideo:  Watch leaders discuss the Michigan Community Foundation Tax Credit.

[videocluster tag="tax-credit"] Just recently, the state of Michigan eliminated the Michigan Community Foundation Tax Credit. Considering the benefits the tax credit had on increasing capacity for CMF’s community foundation members, CMF produced a report using research and statistics from the Johnson Center’s Community Research Institute to look at the effects of this change. Read the full 'Impact of Tax Policy on Charitable Giving' report at the CMF website.

Passage of legislation allowing 16 and 17 year olds to serve on nonprofit boards with a vote

This legislation allowed young people to serve, not just as nonvoting advisory boards to nonprofit organizations, but also on their governing boards, with a full voice and a full vote – just as adults do. This legislation has provided an important means of attracting young people to serve as volunteers in nonprofit organizations and provides early hands-on training for a life of nonprofit service.

VideoVideo:  Watch leaders discuss the movement to give youth a voice in the public and nonprofit sectors.

[videocluster tag="youth-vote"] The legislation continues to support an increasing number of young people serving on community foundation boards of trustees with a vote. The increase in numbers of young people (under age 18) serving on other nonprofit boards has not been tracked. The Michigan Nonprofit Association (MNA) has advocated for legislation, as well. MNA partnered with the Council of Michigan Foundations in 2004 to form the Michigan Nonprofit Council for Charitable Trusts, which advises Michigan’s attorney general. This council acts as a communication liaison from the nonprofit and philanthropic sector to the attorney general, as well as assists in educating the general public about charities and charitable giving.

VideoVideo:  Watch Rob Collier discuss the relationship between Michigan’s nonprofit sector and the Office of the Attorney General.

[videocluster tag="attorney-general"] Again in 2009, MNA and CMF worked together alongside the Michigan Association of United Ways to create the Michigan Nonprofit Caucus. This caucus is a bipartisan, bicameral forum for lawmakers and nonprofit leaders to discuss legislative/regulatory challenges and opportunities for the sector, and was the second such caucus formed in the country.

VideoVideo:  Watch Rob Collier discuss the Michigan Nonprofit Caucus.

[videocluster tag="caucus"] In both of these cases, Michigan’s infrastructure organizations came together to not only engage with the public sector, but also to create a lasting framework for greater collaboration and communication going forward.

VideoVideo:  Watch leaders discuss the relationship between MNA and Public Policy.

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Using Non-Partisan Politics to Support the Sector

There is a great diversity of interests and points of view in the nonprofit sector. Many charitable organizations are diametrically opposed to one another on specific issues. John Gardner has described this diversity as one of the strengths of democracy in the United States. When there is not broad social agreement on an issue, the independent, voluntary, nonprofit organizations can take up their cause and begin to educate the population about an issue from their point of view. An opposing point of view, or multiple points of view, is often espoused by different organizations. Through their interaction over time, a consensus may emerge that is sufficiently acceptable to a majority of Americans, which can then be developed into new governmental policy. This energy around ideas for improving society brings dynamism to the process of citizen engagement. One of the most visible recent examples of such citizen engagement comes from nonprofit organizations that provide services and advocacy around issues involved in women’s reproductive health. Robust and ongoing debate about the balance of interests in protecting environmental resources (air, water, land, animals) with the need for business and industry is another good example. The list of areas of controversy is long. This would lead an observer to guess there is a great boiling controversy among the members of the leading foundation and nonprofit advocacy organizations in the state. Nothing could be further from the truth.

VideoVideo:  Watch leaders discuss the importance of open dialogue and non-partisan politics in the philanthropic sector.

[videocluster tag="nonpartisan-politics"] One stunning quality (and a critical factor for success) of the internal discussions on public policy within the Council of Michigan Foundations (CMF) and the Michigan Nonprofit Association (MNA) is the degree of civility and thoughtful deliberation that is demonstrated by each individual. Another critical factor for success in public policy advocacy is the degree of local organization of the members of these associations in reaching out to their public representatives at the local, state, and national levels. The focus of CMF and MNA on public policy strengthens the third sector itself by moving public policy education out of the realm of political partisanship. While the sector represents many different political perspectives, the United States citizenry’s commitment to private action for public good – in other words, philanthropy – continues to result in overall support that strengthens and supports the sector.

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