DATELINE: May 1, 2008, Chicago
All too often we see people suggest that the ban that prevents Section 501(c)(3) entities from intervening in political campaigns should be repealed. That would pose gigantic problems for charities, as the Wall Street Journal's Michael M. Phillips aptly demonstrates today in Payday Lender Presses Charity to End Support for Tighter Bills. The story involves lobbying rather than a campaign intervention, but the lesson is the same. Phillips reports that the Ohio Association for Second Harvest Foodbanks (OASHF) endorsed legislation coming out of the Ohio legislature that would have capped the interest charged on pay-day loans at 28% per annum. The endorsement appears to have been somewhat indirect. OASHF had joined the Ohio Coalition for Responsible lending, an organization that supported the legislation in question. OASHF's named appeared on the Coalition's Web site.
We suspect that many might conclude that this is...
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a legitimate endorsement for a food bank to make. After all, charging what are often low-income borrowers an exorbitant interest rate reduces their available disposable income, making it more difficult to buy necessities such as food. That, of course, leads to greater demand for the food bank's already scarce resources. While OASHF seemingly denies that this is the reason it joined the Ohio Coalition for Responsible Lending, a 2006 survey by OASHF showed that about 15% of the families who sought assistance from foodbanks had taken out pay-day loans.
Ah, but potentially good intentions and that sort of logic have adverse consequences. It turns out that Rent-A-Center (you've probably have seen their ads on television) is becoming a major player in the pay-day loan industry. Rent-A-Center was also a contributor to America's Second Harvest, the national organization with which OASHF is apparently affiliated. It had made a $500,000 pledge to America's Second Harvest, payable in four $125,000 annual payments. If you think President Bill Clinton was angry when he heard that New Mexico Governor Bill Richardson had endorsed Barack Obama several weeks back, you can only imagine the reaction of Rent-A-Center when they saw the Ohio affiliate's name on the Web page for the Ohio Coalition for Responsible Lending. The Journal article is a little jumbled on this point, but Rent-A-Center apparently contacted both OASHF and America's Second Harvest to complain about the endorsement.
OASHF apparently got the message. OASHF Chairwoman Anne Goodman sent an e-mail to a subordinate informing the subordinate that, "We must have our name taken off the Web page for the Ohio Coalition for Responsible Lending." Goodman told the Journal's Phillips that endorsing the legislation was an error because the legislation was not directly hunger related.
We like the high-minded spokesperson for the Ohio Coalition for Responsible Lending, who told the Journal that is "out of bounds" for a corporate donor to force a charity to change a position it has taken on a matter of public policy. The spokesperson said, "Their just trying to buy people off." Sorry, but OASHF and Rent-A-Center are both private enterprises. Rent-A-Center has every right to choose who it gives it money to. In our view, it was quite generous and had a right to object.
As it turns out, Rent-A-Center did not threaten to cease payments under the terms of it pledge. It simply told Second Harvest and OASHF that it expected its donation to be used to feed hungry people and that unless OASHF withdrew from the coalition, it did not want its money used in the State of Ohio.
The Journal spoke with Charles W. Hall, a tax lawyer with Fulbright & Jaworski, about whether Rent-A-Center's pressure on OASHF could cost Rent-A-Center its deduction for the charitable contribution. Hall said this was a gray area. On the facts as reported, we must disagree with Hall. At first, we wondered whether this might be recharacterized as a payment for lobbying activity—non-deductible. But on second thought, we see nothing wrong with what Rent-A-Center did. In fact, we think if anyone is in the wrong here, it is OASHF. By becoming involved in an advocacy organization that was not focused on hunger issues, was OASHF wasting charitable assets? Moreover, was it misapplying charitable funds that donors had given with the expectation (based on marketing and solicitation materials) that the funds would be used to feed the hungry. In a sense, Rent-A-Center was acting no differently than Representative Henry Waxman by demanding that money that is given for a cause be used for that cause. The only difference is that pay-day lending is viewed by many as a predatory lending practice. That, in many people's minds, means that entities engaged in these practices should have no rights. We disagree. Like any other donor who believes that their gift is not being properly applied, Rent-A-Center has the right to ask questions about whether the donation is being used in accordance with solicitation materials. That should not cost it a tax deduction. Let's not forget, the pledge had already been made so it is not as if Rent-A-Center had said "We suspect that legislation unfavorable to us will be introduced in the legislature. If you come out against it, we will give you money."
Charities like a foodbank must understand that the desire to provide food to hungry people cuts across all political spectrums. That means that unless the charity wants angry donors who threaten to stop contributing, the charity had better stick to its knitting.
Now let's move from lobbying to political activity. Imagine this were two months ago, during the heat of the Ohio Democratic primary. Further imagine that charities were not subject to the prohibition on campaign interventions. First things first. We imagine that nobody at OASHF would have gotten any work done. They would have been too busy fielding phone calls from the Obama and Clinton campaigns asking for an endorsement and money. Now suppose OASHF had endorsed Obama. We suspect that angry Clinton supporters would have been on the phone threatening to curtail their contributions to OASHF. Just to be clear, had the endorsement gone to Clinton, we suspect it would have been angry Obama supporters on the phone.
As we noted in a debate last year, OASHF and all other charitable organizations are better off with the prohibition on campaign intervention. It avoids both angry donors and resources meant for charity being diverted for attack ads. What the OASHF/Rent-A-Center incident demonstrates is that charities must also be careful about advocacy activity.
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