Nonprofits and policy, Part 2

[Editor’s note: This is the second in series of articles looking at the policy work of nonprofits and philanthropic organizations.]

By Ret Boney

While prohibited by the IRS from lobbying, private foundations can and should work in a number of ways to influence public-policy decisions, experts say.

“In the funding community, if you want systemic change, the way to get it is through advocacy,” says Liz Towne, director of advocacy programs at the Alliance for Justice in Washington, D.C.  “Direct services solve the immediate problem, but systemic change is created through public policy.”

Lobbying is defined by the IRS as expressing a view on particular legislation to a legislator or encouraging citizens to do the same, and the IRS considers any effort by a private foundation to carry on propaganda or influence legislation as a “taxable expenditure.”

But if foundations want to have a broader impact on issues they care about, they can take steps to influence laws and regulations, Towne says.

While private foundations themselves cannot engage in lobbying, the IRS explicitly permits them to make general support grants that can be used for anything, including lobbying, assuming the grant is not earmarked specifically for lobbying.

And while many foundations believe they must include language in their grant agreement letters prohibiting grantees from using grant dollars for lobbying, Towne says, federal law does not require that.

“If the grant agreement prohibits use of the grant for lobbying, it creates a contract problem between the foundation and the grantee, even though there’s no violation of the law,” she says.  “That language isn’t necessary or required.”

To provide grantees with leeway to lobby, she suggests, foundations can rewrite their standard grant agreement letters to include the language: “no grant funds are earmarked for purposes of influencing legislation.”

In addition, foundations themselves can engage in a wide variety of non-partisan, election-related activities that fall short of actual lobbying and therefore are permitted by the IRS.

Foundations can meet with politicians and candidates to educate them about various issues, or organize and host debates between political candidates, Towne says.

Private foundations can hold or fund nonpartisan voter-education drives and get-out-the vote drives, assuming they follow specified rules, and they can host or fund sessions to educate the public about getting involved in the political process.

Foundations also can release nonpartisan reports or hold community forums that present different sides of an issue, providing individuals with information they can use to come to their own conclusions, says Kelly Simone, staff attorney for the Council on Foundations, a Washington, D.C.-based membership group of about 2,000 foundations and corporate funders.

But foundations cannot endorse candidates, either explicitly or implicitly, and cannot make campaign contributions or spend any foundation money on behalf of candidates.

However, when it comes to pending legislation that directly affects their ax-exempt status or operations, Simone says, foundations are permitted to lobby lawmakers “in self defense.”

The rules for public and community foundations, all of which are classified by the IRS as “public charities” because they raise money from a variety of sources, have more flexibility.

Similar to the IRS rules for nonprofits, public and community foundations may earmark grants for lobbying and may do some lobbying themselves, provided they don’t exceed certain spending limits outlined by the IRS.

They may also engage in the same election-related activities as private foundations and are prohibited from endorsing, opposing or funding candidates.

“There are varied opinions on public policy, but it’s important for grantmakers to know it’s a tool they can use if they’d like,” says Simone.

Whether or not to engage in public policy involves many issues for a foundation, including the group’s mission and the policy landscape at a given moment, Simone says, but she is seeing progress among community foundations.

“Community foundations are taking a greater look at what they can be as community leaders,” says Simone.   “And part of that for some will involve engaging in or funding public policy efforts.”

For information on what foundations can and cannot do, contact the Alliance for Justice or the Council on Foundations.

Other stories in series:

Part 1: Policy and advocacy should be part of nonprofit toolkit, experts say.
Part 3: Advocacy critical to fulfilling nonprofits’ missions, experts say.

Stories in related series:

Part 1: Tight budgets, lack of flexible funding deter many nonprofits. 
Part 2: Lack of staff capacity and skills limit policy work by many nonprofits.
Part 3: Fear of retribution stifles voices of many charities, experts say.

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