BILL ANALYSIS
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|Hearing Date:May 12, 2008 |Bill No:AB |
| |624 |
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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
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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."
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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.
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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.
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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
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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
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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
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(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
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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
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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
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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
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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