BILL ANALYSIS                                                                                                                                                                                                    

                                                                    AB 2855

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          Date of Hearing:  April 12, 2016 


                                   Ed Chau, Chair

          AB 2855  
          (Frazier) - As Amended April 7, 2016

          SUBJECT:  Charitable solicitations:  financial disclosures

          SUMMARY:  Requires a charity's website and marketing materials  
          to include a prominent link to the Attorney General's (AG)  
          website for charitable solicitations, and requires the Attorney  
          General to publish consumer education information online about  
          charities.  Specifically, this bill:  

          1)Requires a charity's website home page to include a prominent  
            link that directs consumers to the AG's website containing  
            information about consumer rights and protections and charity  
            research resources. 

          2)Requires a charity's materials used for charitable  
            solicitations to include the AG's website address for  
            information about consumer rights and protections, and charity  
            research resources.

          3)Requires, no later than July 1, 2017, the AG to develop and  
            publish on the AG's website, information about consumer rights  
            and protections and charity research resources that will  
            better prepare potential donors to research a charity before  


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            making a decision to give.

          EXISTING LAW:  

          1)Generally provides the AG with supervisory and enforcement  
            powers over charitable corporations, trustees, commercial  
            fundraisers, fundraising counsel and commercial co-venturers  
            who solicit or hold property for charitable purposes through  
            the Supervision of Trustees and Fundraisers for Charitable  
            Purposes Act (Act)  (Government Code Section  (GC) 12580 et  
          2)Requires charities to register and file annual financial  
            reports with the AG, with certain exceptions, such as schools,  
            hospitals, and churches.  (GC 12585 et seq.)

          3)Requires a person working for a charity to provide a  
            prospective donor with a card or other printed materials that  
            list, among other things, the name and address of the charity  
            or the fundraiser, the organization's tax or non-tax exempt  
            status, and the percentage of the gift or purchase that may be  
            deducted on the donor's tax return.  No disclosure is required  
            if the person is a volunteer who is 18 or younger and the  
            organization is a 501(c)(3) nonprofit. (Business and  
            Professions Code (BPC) Section 17510.3)

          4)Requires a charity to maintain financial records using  
            generally accepted accounting principles as defined by the  
            American Institute of Certified Public Accountants, the  
            Governmental Accounting Standards Board, or the Financial  
            Accounting Standards Board. (BPC 17510.5)


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          5)Prohibits an individual, corporation, or other entity that  
            solicits funds for a charity from retaining more than 50  
            percent of the net proceeds collected as a fee for fundraising  
            services. (BPC 17510.87)

          6)Requires any charity that collects more than 50% of its annual  
            income and takes in more than one million ($1,000,000) in  
            charitable contributions from California donors in California  
            in a calendar year, and that spent more than 25% of its annual  
            income on "nonprogram activities" (i.e., salaries,  
            fundraising, travel expenses, and overhead associated with  
            managing and administering the charity), to submit a report to  
            the AG detailing its nonprogram activity expenses as well as  
            the salaries of the five highest compensated employees; and  
            requires the AG to make these reports available to the public.  
             (BPC 17510.9)

          7)Requires the AG to publish an annual report on charities  
            registered with the AG.  (BPC 17510.95)
          8)Establishes civil penalty of up to $1,000 for a first  
            violation of the Act, a fine of up to $2,500 for subsequent  
            violations, and a civil penalty of up to $10,000 for a  
            violation of the Act with intent to deceive or defraud any  
            charity or individual, and authorizes the AG to suspend the  
            registration of a charity that violates the Act.  (GC 12591.1  
            et seq.)

          FISCAL EFFECT:  Unknown



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           1)Purpose of this bill  .  This bill is intended to give consumers  
            more information about how to research a charity before making  
            a gift by requiring charities to provide a link in their  
            solicitation materials to the AG's website containing  
            information about charitable giving, and by requiring the AG  
            to publish educational materials specifically about consumer  
            rights and protections and charity research resources.  This  
            measure is author-sponsored.   

           2)Author's statement  . According to the author's office, "In  
            recent years, there has been a focus on calling for greater  
            transparency of the financial activity of charities that  
            solicit donations from individuals seeking to contribute to a  
            good cause.  The Federal Trade Commission recently charged the  
            Cancer Fund of America, Cancer Support Services, Children's  
            Cancer Fund of America and The Breast Cancer Society of  
            operating sham charities than bilked $187 million from  
            consumers.  According to the FTC's press release on the  
            matter, individuals donating to their causes were told they  
            'would help cancer patients, including children and women  
            suffering from breast cancer, but the overwhelming majority of  
            donations benefitted only the perpetrators, their families and  
            friends, and fundraisers.'  The executive leadership [of these  
            organizations] 'used the organizations for lucrative  
            employment for family members and friends, and spent consumer  
            donations on cars, trips, luxury cruises, college tuition, gym  
            memberships, jet ski outings, sporting event and concert  
            tickets, and dating site memberships.'  The FTC further noted  
            that the charities 'hired professional fundraisers who often  
            received 85% or more of every donation.' "

           3)Exposing questionable activities of charities  .  According to  
            the author, many charities have been criticized in media  
            reports for making questionable financial decisions with the  
            money donated to them to fulfill their stated missions.  CNN  
            called The Kids Wish Network "the worst charity in America"  
            because it raised "millions of dollars in donations in the  


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            name of dying children and their families" while spending  
            "less than 3 cents on the dollar helping kids."  According to  
            the CNN report, the charity directed $110 million in donations  
            to its corporate sponsors and an additional $4.8 million to  
            the charity's founder and his consulting firm.  ("Above the  
            law: America's worst charities," CNN, June 13, 2013)

            The Wounded Warrior Project has also garnered attention from  
            the media for spending only 60% of its funding on veterans  
            while other veteran charities such as the Disabled American  
            Veterans Charitable Service Trust and the Fisher House spend  
            96% and 91% fulfilling their mission to serve veterans.   
            According to a CBS report, Wounded Warrior Project spent $26  
            million on conferences and meetings, which was "about the same  
            amount the group spends on combat stress recovery -- its top  
            program."  ("Wounded Warrior Project accused of wasting  
            donation money," CBS, January 26, 2016)

           4)Charities currently submit annual public financial reports to  
            the AG  .  Most charities in California must file annual  
            financial reports with the Attorney General's Registry of  
            Charitable Trusts (Registry).  These reports must be filed by  
            all public benefit corporations and charitable trusts, unless  
            they are exempted by statute.  Currently, only hospitals,  
            schools, and churches are exempt from the annual filing  
            requirements.  In addition, all charitable trustees and  
            fundraising professionals are required to register and file  
            annual financial disclosure reports with the Registry. 


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             Registered charities are required to file a copy of their tax  
            Form 990 on an annual basis with the Registry, as well as with  
            the Internal Revenue Service (IRS).  Through a partnership  
            with the IRS, GuideStar ( publishes the  
            electronically-filed Form 990s submitted to the IRS. 

            The Registry is accessible through a Registry Search tool on  
            the AG's existing webpage for charities:  
    The Registry Search tool allows a  
            charity's public filings to be viewed and downloaded from the  
            Registry database.  These public filings include a copy of the  
            annual IRS return (Forms 990, 990-PF, and 990-EZ) filed with  
            the Registry, as well as registration forms and documents that  
            organizations are required to file with the AG.  In addition,  
            the Registry maintains a current index of all registered  
            California charities.  

           5)The AG investigates and prosecutes bad actor charities and  
            fundraisers  .  The AG is responsible for regulating charities  
            and the professional fundraisers who solicit on their behalf.   
            The attorneys and auditors of the AG's Charitable Trusts  
            Section investigate and bring legal actions against charities  
            and fundraising professionals that misuse charitable assets or  
            engage in fraudulent fundraising practices.  Charities that  
            violate California's laws are subject to suspension,  
            revocation and civil fines. 

           6)Prior legislation applied a similar requirement on moving  
            companies  .  In 2012, the Legislature passed and the Governor  
            signed AB 2118 (Butler), Chapter 544, Statutes of 2012, which  
            required household goods carriers to add links to their  
            websites that direct consumers to the Public Utilities  
            Commission's website containing consumer education information  
            for customers of moving companies.  

          Similarly, the author contends that it makes good sense to help  
            consumers ensure that their dollars would be well spent by  


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            assisting them in researching charities, whether they are  
            using those dollars to buy consumer products and services or  
            make a charitable gift.  

           7)Recent amendments revise and recast the bill  .  This bill was  
            amended on April 7, 2016, to delete the existing provisions of  
            the bill and insert the current language.  

          This bill would now require charities to provide a link on their  
            website to the AG's webpage with consumer resources for  
            charitable giving.  The bill would not require a charity to  
            create a website, but if the charity has an existing website,  
            then the website must contain a link on the homepage to the  
            AG's website.  

            In addition, the bill requires charities to include the AG's  
            website address in documents the charity uses to solicit  
            donations.  For example, if the charity mails a solicitation  
            letter or hands out a brochure to prospective donors, then the  
            letter or brochure would need to contain a link to the AG's  
            website where a consumer can find out more information about  
            charities. Materials that do not contain an overt solicitation  
            would not need to include the link. 

            Lastly, the bill requires the AG to develop and post on its  
            website educational materials for consumers, so that they can  
            learn about how to research charities to help determine  
            whether they should make a donation.
            While the prior version of the bill had more prescriptive  
            provisions than the current version, a coalition of nonprofit  
            organizations remain opposed to the bill, contending that  
            these requirements are a significant burden and would create  
            problems for most charities. 


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           8)Arguments in opposition .  The California Association of  
            Nonprofits (CalNonprofits) states in opposition to this bill  
            that, "AB 2855 (Frazier)?would require every charity seeking  
            funds to support their work to include on their web sites and  
            any document a charity produces which includes fundraising  
            language to include a link to the Attorney General's web site.  
             While the web site disclosure requirement in subsection (a)  
            is burdensome, expensive, duplicative, confusing and likely  
            both unconstitutional and unenforceable, the 'any document'  
            requirement in subsection (b) is all those things on  

            CalNonprofits further states that, "Burdening nonprofits in  
            and beyond California with required speech on 'any document'  
            which seeks donor support to simply advertise what the public  
            can easily find is unnecessarily punitive without serving any  
            compelling public interest.  Imagine all the 'documents' that  
            non-profit organizations create to solicit funds to support  
            their mission-based work: signs on coin collection jars,  
            private letters to individual donors, billboards and other  
            large-scale outdoor advertisements, flyers posted in  
            laundromats, neighborhood association newsletters, to name  
            just a few.  And AB 2855's provisions would apply to any  
            charity - regardless of where they are based - that solicits  
            donations from Californians.  So, every inbound piece of mail  
            from any charity in the world would have to include this  
            unnecessary disclosure.  The additional cost of including this  
            provision on 'any document' would be extraordinary."

            The California Association of Private School Organizations  
            states in opposition that this bill "will have little, if any,  
            impact upon unscrupulous operators while burdening legitimate  
            charities with a set of draconian requirements that invite the  
            perception of impropriety.  We say this because most sham  
            operations rely upon direct mail and telemarketers, rather  
            than websites, and those that utilize websites will simply  
            cease doing so if AB 2855 should become law.  While the bad  


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            actors can simply side-step AB 2855's provisions and continue  
            to prosper, legitimate charities such as the 1,450 nonprofit,  
            K-12 private schools served by our member organizations will  
            remain beholden to its onerous requirements."  
           9)Prior legislation  .  AB 556 (Irwin), Chapter 299, Statutes of  
            2015, expanded the definition of a "commercial fundraiser for  
            charitable purposes" in order to strengthen the AG;s ability  
            to enforce disclosure requirements for charity fundraisers,  
            and establishes a ten-year statute of limitations for  
            enforcement actions against charity fundraisers, consultants  
            and other third parties who engage in fraud or prohibited  

            AB 2327 (Feuer), Chapter 483, Statutes of 2012, enhanced the  
            penalties applicable to a violation of the Act and gave the AG  
            authority to suspend the registration of a charitable  
            organization that violates the Act. 

            SB 2015 (Sher), Chapter 475, Statutes of 2000, amended the  
            UETA to grant the AG additional enforcement tools and  
            resources, including: ability to assess late fees, authority  
            to suspend or revoke registrations, the ability to impose  
            criminal penalties for violations of the Act, and the  
            appropriation of all fines, penalties, attorney's fees and  
            costs to the AG for the administration and enforcement of that  

            SB 1262 (Sher), Chapter 919, Statutes of 2004, imposed audit  


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            requirements on charities that receive or accrue a gross  
            revenue of $500,000 dollars or more, require specific  
            disclosures during a solicitation or fundraising campaign, and  
            require specific provisions in written contracts between  
            fundraisers and the charitable organization.

           10)Double-referral  .  This bill was double-referred to the  
            Assembly Revenue and Taxation Committee, where it will be  
            heard if passed by this Committee. 


          None on file.


          California Arts Advocates

          California Association of Nonprofits (CalNonprofits)

          California Association of Private School Organizations

          Save Mount Diablo


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          Analysis Prepared by:Jennie Bretschneider / P. & C.P. / (916)