Charities Mixed on Law Ruling

A federal judge’s decision gutting the county’s laws aimed at preventing charity fraud was long overdue, according to critics, who maintain that the right to free speech includes nonprofit fund-raising and that local regulations were widely considered excessive.

But in a national debate sparked by the Jan. 14 ruling, others predicted a chilling effect on openness and honesty that could eventually undermine philanthropic groups’ credibility.

So far, the ruling in a case filed by a Rowland Heights rescue mission has had little effect on local groups, who would still be required to register before conducting campaigns.

Even before the ruling, a national coalition of nonprofit groups was preparing to challenge the Los Angeles city ordinance, one of the nation’s oldest and most stringent local regulations.

“It would have happened sometime soon,” said Seth Perlman, a New York lawyer who was preparing the legal challenge against Los Angeles. He argues that the city’s law conflicted with three U.S. Supreme Court rulings from the 1980s that strongly linked 1st Amendment protections to charitable solicitations.

Yet others decried the ruling, which they see as damaging efforts to boost public confidence in charities by forcing them to disclose financial information.

“There are things in there that are startling,” said Dan Langan, spokesman for the National Charities Information Bureau, which publishes standards for nonprofit performance and rates groups.

“Public scrutiny is what charity is all about,” Langan said. “The way we look at it is that the charity is merely the custodian or steward of the money. It is still the money of the person who donated it until it is hopefully used for a good cause.”

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The ruling came in a suit filed by Gospel Missions of America against both the city and county of Los Angeles after sheriff’s deputies searched five of its properties in 1994 looking for evidence of fraud. No charges were ever filed. While seeking damages for loss of property and emotional distress, the mission also challenged the city and county ordinances on constitutional grounds.

Though she acknowledged that government has a legitimate role in preventing and prosecuting charity fraud, U.S. District Judge Kim M. Wardlaw ruled that the laws exceed the discretion allowed by the constitutional protection of free speech. She said their wording was “vague” and the rules “overly burdensome” on nonprofit organizations.

Los Angeles Deputy City Atty. Miguel Dager said a decision may not be made for two weeks whether to appeal the ruling or merely rewrite the city’s law.

Dager said he does not consider the changes demanded by the ruling “that significant” and that they may be resolved by eliminating what he characterized as “loose language” seeming to give the city wide discretion that it has not exercised in practice. In some cases, for example, the law says government officials can demand any information they deem necessary to determine whether a nonprofit group is legitimate.

A private attorney who represented the county in the case did not return calls.

Los Angeles city officials, meanwhile, continued last week to process applications for charitable benefits and appeals and said that for now, they would still require a city certificate called an “information card” to be shown during all solicitations. That could change, however, when the parties return to court to settle the mission’s damage claim. No date has been set.

A financial accounting of each fund-raising event or campaign still must be filed within 30 days of its conclusion, said Shirley Flucus, general manager of the charitable solicitation section of the Los Angeles Police Commission. The report of results lists the expenses for the event and how much money was raised.

Flucus said that in response to the ruling, her office will stop collecting a $3,000 annual fee from commercial fund-raisers--those who get paid to gather money for nonprofits--and will no longer require registered charities to supply annual financial statements and rosters of board members.

In one of the most controversial points of the decision, Wardlaw threw out the exemption of “evangelical, missionary or religious” organizations from the city’s ordinance, saying it involved the city in “excessive government entanglement” in religion.

Flucus said the city will now require registration of religious organizations that were previously not regulated, though so far, she said, only one group, the Hands of God Ministry in Wilmington, had applied for an information card.

The registration of religious groups will not extend to churches passing the plate on Sunday, Flucus said.

“It’s when they go door-to-door and stuff like this,” Flucus said. “It’s the guys you see out at the airport and they say they’re a church, that’s what this is opening up.”

At several large, well-known nonprofit organizations in Los Angeles last week, the prospect of any changes ultimately adopted by the city and county in response to Wardlaw’s ruling provoked little reaction.

Those organizations routinely provide federal tax returns, lists of board officers and detailed financial statements to anyone who asks.

“From our standpoint, we have those things ready to go at a moment’s notice,” said Ron Fowler, director of annual campaigns for the American Heart Assn. “It’s not a hardship for us. We’re prepared to comply with any regulations anybody puts in front of us because we want to show we’re a reputable organization.”

In a response to the Wardlaw decision published on the Internet, John Orr, co-director of the University of Southern California’s Center for Religion and Civic Culture, argued that the reputation of the region’s charitable organizations may suffer across the board if the local rules are substantially weakened.

“Although city and county officials have not uncovered any significant number of fraudulent practices in the past few years, their regulatory practices have created a climate of trust among individuals who donate to charitable enterprises,” Orr wrote on the center’s home page.

But the city’s ordinance, which dates at least to the 1940s, has been targeted for challenge by national fund-raising organizations that use mass solicitation techniques such as mailings and broadcast ads.

Ann Kaplan, research director for the New York-based American Assn. of Fundraising Council, said the requirement to include the city information card in a national mailing is costly and imposes an undue administrative burden.

“The reporting requirements for charities conducting appeals is already incredibly byzantine,” Kaplan said. “You often need to hire somebody just to comply with all the registration requirements at the state level.”

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Perlman, who represents a nonprofit coalition called Charities USA, said it is focusing on Los Angeles because its ordinance, once a rarity, has been recently spreading “like a plague” with similar regulations popping up in places like Columbus, Ohio, and Jackson County, Tenn.

If every city and county had such a law, “you would have, in essence, 7,000 places where you would have to register,” Perlman said. “Effectively, that could shut down the ability of charities to raise funds in this country by any mass means.”

Perlman said the Supreme Court in three decisions during the 1980s broadly defined the free speech protections for charities, invalidating laws that prohibited too much money being spent on fund-raising, or that even forced solicitors to inform donors of the percentage of their money that would go to expenses.

“They felt the simple numbers didn’t really tell people whether there was some sort of violation of law occurring, somebody becoming unduly enriched,” Perlman said.