BILL ANALYSIS                                                                                                                                                                                                    







           ---------------------------------------------------------- 
          |Hearing Date:May 12, 2008      |Bill No:AB                |
          |                               |624                       |
           ---------------------------------------------------------- 


               SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC  
                                     DEVELOPMENT
                          Senator Mark Ridley-Thomas, Chair

                          Bill No:        AB 624Author:Coto
                        As Amended:May 7, 2008   Fiscal:  No

          
          SUBJECT:    Foundations: diversity.
          
          SUMMARY:  Requires private, corporate or public operating  
          foundations with assets over $250 million to collect race  
          and gender related data related to their governance  
          structure and domestic grantmaking and post this  
          information on their websites.

          Existing law:

          1)State law regulates the administration of nonprofit  
            corporations via the Nonprofit Public Benefit Corporation  
            Law (Corporations Code  5110 et seq.) and charitable  
            solicitations, including financial disclosure  
            requirements for charitable solicitation organizations  
            (Business and Profession Code 17510 et al).

          2)Federal law also regulates nonprofit corporations and  
            private foundations, and defines "private foundation" to  
            mean an organization which, among other things, is  
            organized and operated exclusively for religious,  
            charitable, scientific, literary or educational purposes  
            (26 U.S.C.  509).

          This bill: 

          1)Requires private, corporate and public operating  
            foundations incorporated in California to collect the  
            following information: 

             a)   By number and percentage, the race and gender  




                                                                     AB 624
                                                                     Page 2



               composition of its board of directors.

             b)   By number and percentage, the race and gender  
               composition of the foundation's staff.

             c)   By number and percentage, the contracts awarded to  
               businesses owned by specified racial minorities.

             d)   If applicable, the number of grants and grant  
               dollars awarded to organizations specifically serving  
               specified racial and sexual orientation minority  
               communities, disabled communities and all other  
               under-represented communities.

             e)   The number of grants and grant dollars awarded to  
               organizations where the majority of the board members  
               and full-time equivalent staff are ethnic minorities. 

             f)   The number of grants and grant dollars awarded to  
               predominantly low-income communities.

          2)Requires the collected information under item #1) to be  
            posted on each private foundation's website, if  
            available, and included in its annual report under a  
            section labeled "DIVERSITY."

          3)Specifies that these requirements only apply to  
            foundations with assets over $250 million and only  
            applies to a foundation's domestic grants.

          FISCAL EFFECT:  This bill has been keyed non-fiscal by  
          Legislative Counsel.

          COMMENTS:
          
          1.Purpose.  According to the  Greenlining Institute   
            (Sponsor), AB 624, the Foundation Diversity Transparency  
            Act, is designed to "simply shed more transparency on  
            giving to the poor and racial/ethnic groups.  This  
            legislation does not require foundations to invest in  
            minority communities, and it does not create racial  
            quotas for grantmaking and employment.  This legislation  
            is a simple attempt to get foundations to disclose key  
            data related to diversity on an annual basis."  






                                                                     AB 624
                                                                     Page 3




            The Author also asserts the following:

               AB 624 is not the solution that will diversify foundations.  
                But it is an important tool.  Minority groups are expected  
               to comprise fully half of the U.S. population by 2050.   
               This demographic shift has already been realized in  
               California which became the first large majority minority  
               state in 2000.  The failure to develop and standardize  
               diversity best practices threatens the effectiveness and  
               viability of foundations to achieve their missions.  With a  
               more systematic and measurable approach to diversity,  
               foundations can better prepare themselves for the  
               demographic changes ahead.  Most importantly, foundations  
               that embrace diversity will be able to produce a stronger  
               impact on societal change.  AB 624 will standardize how  
               foundations in California track, gather, and disclose  
               diversity data. 

          2.Background.  This measure was introduced in response to a  
            number of studies that, according to the Sponsor, detail  
            the lack of diversity in foundation grantmaking and  
            governance, including a 2006 Greenlining Institute report  
            titled, "Investing in a Diverse Democracy: Foundation  
            Giving to Minority-Led Nonprofits."  According to this  
            report, the top 50 foundations in the United States  
            provided only 3% of their grant dollars to minority-led  
            organizations.  This report also noted that only 10% of  
            foundation executive directors and board of directors are  
            minorities.  

            Following the release of the Greenlining study, a joint  
            hearing of the Latino Legislative Caucus, Legislative Black  
            Caucus, and Asian Pacific Islander Legislative Caucus was  
            convened on April 24, 2006, to discuss philanthropic giving to  
            communities of color.  The Author reports that legislators  
            listened to over 20 witnesses in a two-hour period.  Several  
            leaders from minority-led nonprofit organizations discussed  
            their experiences trying to obtain funding from foundations.   
            The legislative caucuses also invited over 75 private  
            foundation presidents to testify at the hearing.  Two private  
            foundation Presidents, Jim Canales of the Irvine Foundation,  
            and Dr. Robert Ross of the California Endowment accepted, as  
            did two other high-ranking private foundation executives.   






                                                                     AB 624
                                                                     Page 4



            Corporate funders were also invited by the legislative  
            caucuses to discuss their experience funding minority  
            nonprofit organizations.  

          3.Philanthropic Community Response to AB 624.  The introduction  
            of this measure sparked many discussions over the last year  
            between the Author and Sponsor and the state's philanthropic  
            community, as well as concrete efforts to improve diversity in  
            grantmaking.  Shortly after the bill was introduced, the  
            California Regional Associations of Grantmakers (comprised of  
            the Northern California Grantmakers, Southern California  
            Grantmakers and San Diego Grantmakers and hereafter referred  
            to as Grantmakers, representing approximately 400  
            institutional foundations and giving programs, contacted the  
            Author to express serious concerns about the legislation and  
            to open a dialog about how to strengthen philanthropic support  
            for communities of color.  

            Along with the Grantmakers, a number of large foundations,  
            including the  California Endowment  , the  California Wellness  
            Foundation  and the  David and Lucille Packard Foundation,  as  
            well as the  California Association of Nonprofits  , informed the  
            Author of their concerns about the bill and requested that it  
            not move forward while they worked with the Author and Sponsor  
            on alternative solutions.  The measure was held in the  
            Assembly in 2007 and became a two-year bill.

            Since the measure's introduction, the Grantmakers and  
            foundations have taken a number of steps to address the lack  
            of diversity in foundations and to increase grantmaking to  
            communities of color including hiring a recognized independent  
            research institution to assess the current landscape of  
            nonprofits led by and/or serving people of color in  
            California.  They have also created an advisory committee of  
            community leaders to contribute input to the research  
            initiative and provide feedback and analysis of the findings  
            and recommendations.  The committee includes noted non-profit  
            and community leaders who work closely on issues of diversity  
            and minority communities.  The Grantmakers argue this approach  
            is superior to the proposed bill, which they contend lacks  
            clarity and could have negative unintended consequences for  
            investments in communities of color as well as the growth of  
            philanthropy generally.  







                                                                     AB 624
                                                                     Page 5



            In May 2007, the Grantmakers commissioned the Foundation  
            Center, a research center on philanthropy based in New York  
            and with a branch office in San Francisco, to conduct research  
            on the issue of diversity in philanthropy in California. This  
            work is being conducted in partnership with the University of  
            Southern California's Center on Philanthropy and the  
            University of San Francisco. 

            The Foundation Center's research initiative includes an  
            analysis of grants awarded by the top 50 foundations in  
            California; surveys of 600 foundations in order to gather  
            additional data from a broader range of institutions and  
            surveys of nonprofit organizations in the state. The research  
            project will compile data on the populations served by  
            nonprofit organizations; determine the percentage of  
            minority-led nonprofits in the state; and determine what data  
            (if any) foundations and nonprofits are currently collecting  
            to evaluate progress towards diversity-related goals. The  
            Grantmakers and foundations assert this review will provide an  
            accurate overall picture of board and staff diversity of  
            California foundations and the communities served by grants  
            given by the top 50 California foundations.  This project is  
            expected to be completed by mid- 2008.

            Despite the efforts of the Grantmakers to address the concerns  
            of the Author and the Sponsor, the Greenlining Institute  
            argues that this bill is still necessary to ensure progress is  
            made on increasing foundation support to minority-lead  
            organizations.  The Greenlining Institute argues that had it  
            not been for the introduction of AB 624, the Grantmakers would  
            not be engaging in a research project to examine philanthropy  
            and minority communities and if the Grantmakers want to avert  
            legislation, they should disclose the top 50 foundations  
            diversity efforts related to board and staff composition and  
            grantmaking.

          4.Diversity Disclosure in Other Industries.  The Federal  
            government has required other entities that receive  
            direct tax benefits to provide diversity date on an  
            annual basis.  For example, the Home Mortgage Disclosure  
            Act (HMDA) of 1975 requires banks to submit diversity  
            data related to home mortgage lending.  HDMA disclosures  
            have revealed wide disparities in loan approval rates for  
            minorities.  In response to this information, many  






                                                                     AB 624
                                                                     Page 6



            lenders have strengthened their fair lending compliance  
            programs and expanded their outreach to underserved  
            communities.  Collecting and publicly reporting race and  
            gender data has led to viable public and private  
            partnerships to address disparities in homeownership  
            rates across race lines.

            At the state level, the California Public Utilities Commission  
            (CPUC) requires regulated utilities to disclose diversity of  
            top employee management, along with data on supplier  
            diversity.  In addition, the CPUC holds an annual hearing to  
            discuss diversity issues with its regulated utilities.

          5.Arguments in Support.  Many organizations (see complete  
            list on page 7) submitted letters to the Committee in  
            support of AB 624 stating that they support efforts to  
            encourage diversity within private foundations and that  
            this measure is an important tool for establishing  
            transparency and accountability in an industry that has  
            been largely unregulated.  They also assert that the 
          data collection and posting required within this measure  
            will help forge new and stronger relationships between  
            foundations and community advocates, resulting in more  
            innovative, flexible and experimental programs to address  
            the needs of diverse communities and will enable  
            Grantmakers and all stakeholders to identify and correct  
            disparities in the dissemination of very important  
            resources.    
            
            The  Council of Asian American Business Associations  also  
            writes in support of this bill stating that "while there  
            are some differences of opinion as to the amount of  
            discrepancy in giving to minority communities, there is  
            no difference of opinion when it comes to the fact that  
            foundations are not doing enough for this growing segment  
            of the population.  

            The  Mexican American Community Services Agency, Inc  . also  
            supports the measure because they believe ethnically led  
            organizations are more effective in their services in the  
            area of cultural competency, their ability to speak  
            multiple languages and have a natural ability to engage  
            in and advocate for their specific ethnic focus.  They  
            further state that foundations play a critical role for  






                                                                     AB 624
                                                                     Page 7



            nonprofit organizations as they fund critical start-up  
            programs, capital projects, innovative programming and  
            other indirect costs that support nonprofits'  
            infrastructures.  They assert that as the population  
            moves toward a majority of ethnicities, ethnically led  
            organizations should be empowered and have the capacity  
            to grow, lead and serve their communities.

            The  Orange County Community Housing Corporation  writes in  
            support of the bill as they have worked for thirty years to  
            establish a minority-led nonprofit and as a result, believes  
            it has a more complete understanding of its shareholders and  
            their needs.  They believe this legislation will force  
            foundations to recruit leaders that will better reflect the  
            communities they are supposed to serve.

          6.Arguments in Opposition.  Many charitable organizations  
            and nonprofits (see complete list on page 8) submitted  
            letters in opposition to this measure stating charitable  
            organizations provide much needed social safety net  
            services and are under growing financial pressure to  
            supply additional programs and activities that are being  
            jeopardized because of the State's budget crisis.  They  
            argue that the data collection requirements imposed by  
            this bill are unnecessary and will create significant new  
            costs which will ultimately detract from organizations'  
            charitable purposes.  Under this bill, they believe  
            service funds would be diverted to reporting expenses and  
            to support their regulatory administrative  
            infrastructures.  They believe this measure will not  
            improve foundation governance or grantmaking and is  
            economically and socially irresponsible.  They also  
            believe this measure will negatively impact philanthropy  
            generally as it would restrict a donor's confidence and  
            ability to direct their donations to organizations of  
            their choice.  

            Many of California's large foundations like the  
             California Endowment  ,  California Wellness Center  , and the  
             James Irvine Foundation  , write in opposition to this  
            measure as they have a strong commitment to diversity  
            that is reflecting in their respective foundations'  
            missions, grantmaking activities and board and staff  
            composition.  Additionally, the  Foundation Coalition   






                                                                     AB 624
                                                                     Page 8



            (representing the aforementioned organizations as well as  
            the  Ahmanson Foundation,   Annenberg Foundation  ,  Ralph M.  
            Pearsons Foundation  ,  William and Flora Hewlett  
            Foundation,   Unihealth Foundation  and the  Weingart  
            Foundation  ) asserts that this measure will do nothing to  
            help foundations empower communities of color or  
            low-income communities because it fails to address  
            underlying systemic issues which include the lack of  
            capacity for many minority-led organizations and other  
            grassroots community-based organizations to compete for  
            funding from large foundations, the need for additional  
            investment in capacity building and leadership  
            development targeted organizations and leaders of color  
            and the nonprofits' access issues to larger foundations.

            The  California Regional Associations of Grantmakers,   
             Independent Sector  , a national nonpartisan charitable  
            organization representing over 600 public charities, and  
            the  Philanthropy Roundtable  , an association of over 550  
            national grantmakers, oppose this bill stating that while  
            well intentioned, the legislation would have the  
            following three unintended negative consequences on the  
            philanthropic community: They cite the bill will serve as  
            an impediment to philanthropy as the necessary regulatory  
            framework for foundations should be flexible and  
            innovative to allow the grants to stay consistent with  
            donor intent and foundation missions.  They also argue  
            this measure would violate the privacy rights of their  
            clients and places onerous reporting requirements on  
            small and medium sized organizations that operate with  
            limited staff and resources.

            The  California Broadcasters Foundation  also opposes the  
            measure because they believe it will jeopardize  
            charitable funds for statewide educational and vocational  
            training programs for high school and college students.   
            Similarly, the  Deterding Arts Resource  Team,  ICEF Charter  
            School in Los Angeles  and the  Pacific Charter School  
            Development  oppose this measure for the same reason as  
            they believe it could jeopardize funding for school  
            programs designed to improve the academic and creative  
            development in children. 

             Community Advocates, Inc  . states in opposition to this  






                                                                     AB 624
                                                                     Page 9



            bill that the universe of the underserved is not defined  
            by race, ethnicity disability or sexual orientation and  
            that the poor and disadvantaged cross all societal  
            classifications.  They believe the ultimate goal of AB  
            624 is to direct where charitable grants are given by  
            private foundations and that focusing on selected groups  
            looks more like special pleading and identity politics  
            than true concern for the disadvantaged.  

            The  California Chamber of Commerce  also writes in  
            opposition to this measure on the grounds that  
            organizations are traditionally evaluated by foundations  
            for support based on their missions, effectiveness and  
            positive impact in the community and how those elements  
            align with the mission of the foundation.  They believe  
            this legislation will result in an environment where race  
            and gender will govern foundation funding decisions and  
            become more important than the overarching philanthropic  
            itself and as a result, this bill will adversely impact  
            the ability of foundations to make grants and the ability  
            of worthy organizations to receive them.  
             
             The  Capitol Resource Family Impact  opposes the measure  
            because they believe it establishes a double standard by  
            forcing private philanthropic organizations, "the groups  
            that should be caring for minorities and the poor and not  
            the government, to discriminate where the government is  
            prohibited from doing so." 

            The  Charles and Helen Schwab Foundation  and the  David and  
            Lucile Packard Foundation  also oppose this measure as it  
            may slow or reverse the growth of philanthropy in  
            California, may inadvertently channel resources toward  
            nonprofit organizations even if they are not the most  
            effective at serving the needs of their constituents and  
            exclude support to needy communities that do not fall  
            within the bill's parameters.  Further, the  Packard  
            Foundation  states that the measure does not take into  
            full account the number of diversity programs it supports  
            because it excludes reporting requirements for its  
            international work, which account for one third of its  
            grantmaking fund.

            The  California Association of Nonprofits  and the  State Bar  






                                                                     AB 624
                                                                     Page 10



            Nonprofit & Unincorporated Organizations Committee and  
            California Family Council  oppose this measure as it will not  
            improve corporate governance of foundations, may intrude on an  
            individual's right to privacy, places huge administrative and  
            cost burdens on foundations and grant recipients and may  
            affect the ability of nonprofits to obtain grants from  
            foundations.

          7.Unaddressed Policy Issue.  AB 624 requires foundations with  
            assets over $250 million to comply with specified date  
            collection and reporting requirements but does not state which  
            government agency or department will be responsible for  
            policing the foundations' websites to ensure compliance with  
            this law nor does it impose any penalties on foundations who  
            do not comply with the requirements of this law.  The Author  
            should consider amendments that clarify this policy issue.


           Note  :  Double referral to Judiciary Committee (second). If  
          this bill is passed by the BP&ED Committee, it will be  
          referred to the Senate Judiciary Committee.


          SUPPORT AND OPPOSITION:
          
           Support:  

          Greenlining Institute (Sponsor)
          American Federation of State, County and Municipal  
                  Employees
          Antioch Baptist Church
          Black Business Association
          Black Economic Council
          California State Conference of National Association for the  
                  Advancement of
            Colored People
          Cento Center for Training and Career, Inc.
          Centro Legal de la Raza
          Chicana/Latina Foundation
          Community Resource Project, Inc.
                                                                                      Council of Asian American Business Associations
          Cultural Odyssey
          El Concilio Del Condado de Ventura
          Hmong American Political Association






                                                                     AB 624
                                                                     Page 11



          Kearny Street Workshop
          Latino Issues Forum
          Mexican American Community Services Agency, Inc
          National Federation of Filipino American Associations
          Orange County Community Housing Corporation
          San Francisco African American Chamber of Commerce
          Southeast Asian Community Center
          Search to Involve Pilipino Americans
          Two individuals

            Opposition:  

           Association of Independent California Colleges and  
                     Universities
           Ahmanson Foundation
           California Association of Nonprofits
           California Broadcasters Association
           California Chamber of Commerce
           California Coalition for Youth
           California Consumers United
           California Endowment
           California Regional Association of Grantmakers
           California Wellness Foundation
           Capitol Resource Family Impact
           Carrie Estelle Doheny Foundation
           Catholic Healthcare West
           Charles and Helen Schwab Foundation
           Claremont McKenna College
          Community Advocates, Inc.
           Council on Foundations
           David and Lucille Packard Foundation
           Deterding Arts Resource Team
           Evelyn and Walter Haas, Jr. Fund
           Foundation Coaliton
           ICEF Public Schools
           Independent Sector
           James Irvine Foundation
           Jewish Public Affairs Committee of California
           Koret Foundation
           Law Enforcement Chaplaincy - Sacramento
           Lucille Packard Children's Hospital
           Mills College
           Mimi and Peter Haas Fund
           Mount St. Mary's College






                                                                     AB 624
                                                                     Page 12



           Nonprofit and Unincorporated Organizations Committee of  
                     the State Bar
           Northern California Citizens Against Lawsuit Abuse
           Otis College of Art and Design
           Pacific Charter School Development
           Pacific Justice Institute
           Pacific Union College
           Parents Protecting California
           Philanthropy Roundtable
           QueensCare
           Ralph M. Parsons Foundation
           Richard and Rhoda Goldman Fund
           San Luis Obsipo County Community Foundation
           Southern California Grantmakers
           Thomas and Stacey Siebel Foundation
           Unihealth Foundation
           University of La Verne
           University of San Diego
           Valley Industry and Commerce Association
           Weingart Foundation
           William and Flora Hewlett Foundation
          Several individuals


          Consultant:Sieglinde Johnson