Rules of the Road: Why Foundation and Nonprofit Law Is Getting New Attention

photo: Nataly Reinch/shutterstock

photo: Nataly Reinch/shutterstock

There's been a lot of change in philanthropy lately. Major new funders are entering the scene on a regular basis, regional and local giving is on the rise, and fallout from the 2016 election has led to important changes in how some funders operate.

As we often report, many foundations and donors have swung behind efforts to push back against Donald Trump's agenda. Others are making grants to register and mobilize new voters, especially in communities of color and among younger demographics. Money is also flowing for journalism to investigate Trump, his administration, and his family business.

Meanwhile, many conservative funders are also working with new urgency, looking to capitalize on an era of unprecedented GOP dominance at the national and state levels to score policy wins. 

It's hard to recall a comparable moment when so many funders have mobilized for political battle. Yet for every foundation or donor backing new advocacy or mobilization efforts, plenty of others are steering clear of controversial issues.

Legal concerns are one reason that foundations have historically been skittish about engaging too deeply in public policy and electoral politics. After all, these are 501(c)(3) institutions that must comply with the law that governs what nonpartisan charitable organizations can and cannot do. 

Exactly what the law really says, though, can be hard to figure out. And many foundations and major donors don't understand this area as well as they should. Today, as philanthropy and politics becomes more entwined, it's a good time to get up to speed in this area. 

One place to start is on the redesigned website for Learn Foundation Law, an effort that's been around for a while, but which has lately become a lot more relevant. 

In 2010, when a group of four funders first developed a series of online trainings on foundation law, national politics looked quite different. But in the world of philanthropy, many of the trends we talk about all the time—new donors, more politicized giving, budding social movements—were already well underway. Of course, funders have long worked to shape public policy, and there's a rich history of debates over just how far philanthropy can go in this regard. In addition, a range of other legal questions regularly come up at foundations. 

At the Gates Foundation, the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, and the Gordon and Betty Moore Foundation, a group of in-house lawyers asked themselves: why not put together an easily digestible resource summing up the rules for funders?

Learn Foundation Law is intended for new entrants to grantmaking, whether they're greenhorn funders themselves or newly-hired foundation staff. The courses are free online and cover all the basics, from how foundations should interact with government officials to expenditure responsibility and prohibitions on electioneering. There’s even a course on the rules surrounding program-related investments.

Now, as Learn Foundation Law debuts a website redesign, another course has gone online. This one is geared toward grantees, not funders, and lays out the rules for public charities seeking foundation funding for advocacy work. Check it out here

According to Elizabeth Peters, Hewlett’s general counsel and corporate secretary, “We saw the need for an advocacy course for grantees—to help organizations navigate the rules around advocacy and lobbying, and to explain how private foundations can fund public policy work.” 

The resource is no doubt welcome, especially as nonprofits cry out for the general support that’ll help them build movements and break through political deadlock. The larger question, though, is whether foundations should be so close to the levers of policy in the first place.

In a recent interview, Hewlett President Larry Kramer evinced deep concerns about the state of American democracy, worries that play out in the foundation’s grantmaking for projects like the Madison Initiative. Kramer isn’t sure whether philanthropy can fix the potential erosion of American civic institutions. However, he said, “we have to try.”

But is philanthropy also contributing to that erosion by distorting the power balance of civil society in favor of the rich? And by bankrolling so many fiercely ideological voices? We've raised these questions often. 

Over the past four decades, foundations and major donors have exerted new influence over public policy by underwriting a vast infrastructure of think tanks, advocacy groups, litigation shops, and voter mobilization outfits. Philanthropic dollars have also been used to finance campaigns to smear political leaders and spread disinformation. This development has coincided with increased polarization and growing public disenchantment with political life. As an ever-larger army of sophisticated funders seeks to put their thumb on the scale of public life, many ordinary Americans have withdrawn, complaining that their voices don't count. 

With trillions of dollars set to flow into philanthropy in coming decades, do we really want to help even more foundations and donors get comfortable with giving for advocacy and electoral work? 

As we've often pointed out, and as groups like the Alliance for Justice have been saying for years, foundations and nonprofits can be more involved in public policy and elections than many realize. Would it really be a good thing if more players in civil society operate more aggressively to shape who's in government and what it does? 

We'll leave these larger questions for another time. In the meantime, see if you get nervous reading a piece we wrote titled "7 Tips for Using Tax-Exempt “Charitable” Gifts to Get Your Candidates Elected," or this one: "Meet the Tax-Exempt Nonprofit Behind the "Corrupt Hillary" Narrative—And Its Funders." When funders really know the law, and really push the envelope, it's pretty unnerving just how effective they can be in arenas where philanthropy shouldn't have a role. 

To be sure, Learn Foundation Law is a worthwhile effort in an era when lots of funders and nonprofits are wondering what they can and cannot legally do. But it's important to keep in mind the larger context about power and philanthropy when economic inequities have translated into deep civic inequities.