How Public is Private Philanthropy? Separating Reality from Myth
Chicago-Kent College of Law
John E. Tyler III
Ewing Marion Kauffman Foundation
February 27, 2012
Philanthropy Roundtable, Forthcoming
In recent years we have increasingly heard the claim that government should have a bigger role in directing philanthropies and their assets because the money held by charities is “public money.” This monograph presents a comprehensive analysis of the public money claim and concludes, on the basis of the numerous applicable legal precedents, that the public money assertion is largely myth. This second edition considers the implications of an important decision from the United States Supreme Court rendered since the first edition and of a growing volume of activity at the state level that increasingly seem to be encroaching on philanthropic autonomy and independence.
The authors examine the three major legal arguments made by the public money advocates. First, these advocates say philanthropic assets are public money because of the charitable tax exemption and deduction, which are subsidies to charities and thereby give government the right to direct charities’ governance and operations. However, the authors find no evidence that the charitable preferences arose from an agreement under which government would directly subsidize charities in exchange for control over them. Instead, the bargain between charities and government is the one stated in the Internal Revenue Code: Government indirectly supports charities with tax preferences in exchange for the charities’ promise to devote their assets to charitable purposes. Later authorities, interpreting the meaning of the charitable tax preferences, have endorsed the latter view of the original “bargain.”
The authors also examine the argument that philanthropic assets are public money because charities are chartered by the states and, therefore, are public agencies, “state actors,” or at least public bodies subject to public access laws. However, the case law interpreting the relationship between a state and a state-charted private organization has rejected this argument except in very specialized circumstances.
Finally, the authors examine the argument that philanthropic assets are public money because philanthropies serve public rather than private purposes and are subject to the exercise of parens patriae supervisory authority by state Attorneys General. The authors find, contrary to this argument, that the law has treated charities as private entities that devote their assets to public purposes established by the charities themselves, not as quasi-public entities that must devote their assets to purposes established by the government.
The authors note that while advocates of more government control over charities may have other arguments to make for their position, these advocates cannot argue persuasively that government is entitled to more control over charities because charitable assets are “public money.” Moreover, the arguments of these advocates should be evaluated in light of both the immense contributions made by private philanthropy to the life of this country under the traditional, limited relationship between philanthropy and government and the fact that more government control could harm charities’ ability to make similar contributions in the future.
Number of Pages in PDF File: 95
Keywords: philanthropy, foundation, nonprofit, charity, exempt organization, public money, charitable deduction, tax exempt, NCRP, greenlining, Philanthropy Roundtable, John Tyler, Evelyn Brody
JEL Classification: H2, L3, P1
Date posted: April 29, 2012