Existing law requires a solicitor or seller, prior to any solicitation or sales solicitation for charitable purposes, to provide the prospective donor or purchaser with certain disclosures, including, among others, the name and address of the combined campaign, each organization or fund on behalf of which money collected will be utilized, and the percentage of the total gift or purchase price that may be deducted as a charitable contribution under both federal and state law. Under existing law, a violation of certain advertising restrictions, including charitable solicitation requirements, is a crime.

This bill would require an Internet Web site produced by, or on behalf of, a charity Clarity, as specified, to contain an Internet Web page that includes a disclosure of the charitys administrative overhead expenses and a copy of the charitys most recent Internal Revenue Service Form 990 filing and would further require each Internet Web page on the Internet Web site to contain a direct link to that financial disclosures Internet Web page, as specified. The bill would also require a document produced by, or on behalf of, a charity for solicitation for charitable purposes to include a disclosure statement indicating the percentage of the charitys funding spent on those administrative overhead expenses, as specified. a prominent link to the Attorney Generals Internet Web site which contains information about consumer rights and protections and charity research resources. The bill would also require any solicitation document produced by a charity to also include the address for the Attorney Generals Internet Web site. As a violation of these requirements would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law requires certain disclosures to be made a solicitor or seller, prior to any solicitation or sales solicitation for charitable purposes. purposes, to provide the prospective donor or purchaser with certain disclosures, including, among others, the name and address of the combined campaign, each organization or fund on behalf of which money collected will be utilized, and the percentage of the total gift or purchase price that may be deducted as a charitable contribution under both federal and state law. Under existing law, a violation of certain advertising restrictions, including charitable solicitation requirements, is a crime.

This bill would make a nonsubstantive change to this provision. require an Internet Web site produced by, or on behalf of, a charity to contain an Internet Web page that includes a disclosure of the charitys administrative overhead expenses and a copy of the charitys most recent Internal Revenue Service Form 990 filing and would further require each Internet Web page on the Internet Web site to contain a direct link to that financial disclosures Internet Web page, as specified. The bill would also require a document produced by, or on behalf of, a charity for solicitation for charitable purposes to include a disclosure statement indicating the percentage of the charitys funding spent on those administrative overhead expenses, as specified. As a violation of these requirements would be a crime, this bill would impose a state-mandated local program.

Existing law requires certain disclosures to be made prior to any solicitation or sales solicitation for charitable purposes.

This bill would make a nonsubstantive change to this provision.

Date of Hearing: May 11, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2855

Author:(Frazier) – As Amended Ver:April 7, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMAR

This bill:

1. Requires a charity’s website home page to include a prominent link directing consumers to the Attorney General’s (AG’s) website for information about consumer rights and protections and charity research resources, and requires a charity's written solicitation materials to include this AG website address.
2. Requires the AG, no later than July 1, 2017, to develop and publish on its website, information about consumer rights and protections and charity research resources that will better prepare potential donors to research a charity before making a decision to donate.

FISCAL EFFECT:

One-time costs could exceed $150,000 for the AG to develop and adopt regulations to implement the bill's requirements. This would require one attorney position and support staff. There could be additional costs following adoption to modify the AG's website and respond to compliance-related inquiries from charities. Enforcement costs would likely be absorbable. The AG's Charitable Trust Unit currently has seven investigative auditor positions.

Given the depth and breadth of opposition to this bill, and the history of litigation regarding nonprofits and compelled speech, it is reasonable to assume that the state could incur significant legal costs if this bill was enacted.

COMMENTS:

1. Purpose. 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. The author cites recent examples of improprieties by several charities—the Cancer Fund of America, Cancer Support Services, Children's Cancer Fund of American, The Breast Cancer Society, the Kids Wish Network, and Wounded Warrior Project.
2. Current Oversight and Regulation of Charities. Most charities in California must file annual financial reports with the AG’s Registry of Charitable Trusts. 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 (www.guidestar.org) 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: www.oag.ca.gov/charities. The Registry Search tool allows a charity’s public filings to be viewed and downloaded from the Registry database.

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.

1. 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 steroids.” A similar letter of opposition was signed by almost 500 nonprofits.
2. Comment. The requirement to include the AG's website address on every written solicitation document seems unduly onerous, particularly for a charity that would be providing a link to the same information on its homepage. In addition, the July 1, 2017, mandate on the AG may not provide sufficient time to complete the regulatory process.
3. Prior Legislation. AB 2118 (Butler), Chapter 544, Statutes of 2012, in part required household goods carriers to add links to their websites directing consumers to the Public Utilities Commission’s website containing consumer education information for customers of moving companies.

Analysis Prepared by: Chuck Nicol / APPR. / (916) 319-2081

Date of Hearing: April 19, 2016

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Ed Chau, Chair

ABPCA Bill Id:AB 2855 (

Author:Frazier) – As Amended Ver: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 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 seq.)
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)
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

COMMENTS:

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 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)

1. 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.

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 (www.guidestar.org) 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: www.oag.ca.gov/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.

1. 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.
2. 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 assisting them in researching charities, whether they are using those dollars to buy consumer products and services or make a charitable gift.
3. 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.

1. 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 steroids.”

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 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.”

1. Reconsideration vote. This bill failed passage in this committee on April 12, 2016, but was granted reconsideration.
2. 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 conduct.

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 Act.

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

Support

None on file.

Opposition

Actors and Others for Animals

AgLantis

Alameda Homeless Network/Midway Shelter

Alliance for Nonprofit Excellence

Alliance of Arizona Nonprofits

American Sports Institute

Angels Nest TLP

Arkansas Nonprofit Alliance

Arts for LA

Arts for Oakland Kids

Aspire Creative Arts Program

Autism Advocates in Action Support Group

Axis Advocacy

Balboa Park Cultural Partnership

Berkeley Organizing Congregations for Action

Berkeley Student Cooperative

Black Arts Los Angeles, Inc.

California Aquatic Therapy & Wellness Center, Inc. DBA Pools of Hope

California Arts Advocates

California Association of Nonprofits (CalNonprofits)

California Association of Private School Organizations

California Budget & Policy Center

California Hepatitis C Task Force, Inc.

California Partnership to End Domestic Violence

California Professional Firefighters

California ReLeaf

California State Alliance of YMCAs

California Symphony

Care of the Soul Foundation, Inc.

Catholic Big Brothers Big Sisters, Inc.

Center for Human Services

Center for Nonprofit Advancement

Center for Non-Profits

Center for Sierra Nevada Conservation

Center for Volunteer & Nonprofit Leadership

CFIDS & Fibromyalgia Self-Help Program

Chamberlain’s Children Center

Chimineas Ranch Foundation

Chinese Performing Arts of America

Citadel Ministries, Inc.

City Garage Theatre

Coastal Kids Home Care

Colorado Nonprofit Association

Community Action Agency of Butte County

Community Counts Inc.

Community Housing Partnership

ConnectHealthcare

Connecticut Connuity Nonprofit Alliance, Inc.

Contra Costa Youth Council

Cope Family Center

Del Norte Child Care Council

Del Norte Senior Center, Inc.

Delaware Alliance for Nonprofit Advancement – DANA

Descanso Gardens Guild, Inc.

EarthShare California

Faith in Action: Interfaith Volunteer Caregivers of Solano County

Fallbrook Citizens’ Crime Prevention Committee

Fighting Back Partnership

Folsom’s Hope

Forefront

Foundation for Successful Solutions

Foundation for Sustainable Development

Four Paws To Freedom

Fresno Food Commons

Glenwood Dads Club

Global Citizen Year

GSA Network

Hawaii Alliance of Nonprofit Organizations

Health Connected

Healthy Adventures Foundation

Hope for Santa Maria

Hopkins Bank and Orchestra Boosters

Humboldt Skatepark Collective

Icthus International

Idaho Nonprofit Center

Infectious Disease Association of California

Inland Temporary Homes

Institute for Wildlife Studies

Kennedy King Memorial Scholarship Fund

Kentucky Nonprofit Network

KidWorks Community Development

LA Harbor International Film Festival

Lake County Theatre Company

LA’s BEST After School Enrichment Program

Latino Educational Fund

Legal Aid Association of California

Library & Literacy Foundation for San Joaquin

Life Charities, Inc. DBA Rescue Task Force

Lions Sight & Hearing Foundation of Southern CA

Lodi Community Art Center

Long Term Care Ombudsman Services of San Luis Obispo County

Louisiana Association of Nonprofit Organizations

Lummis Day Community Foundation

Maine Association of Nonprofits

Maryland Nonprofits

Marin Villages

Mateel Community Center

McKinleyville Community Collaborative

Meals on Wheels Santa Maria Valley

Michigan Nonprofit Association

Minnesota Council of Nonprofits

Mission Peak Wind Symphony

Mississippi Center for Nonprofits

Montana Nonprofit Association

Mount Diablo Interpretive Association

Mountain Ranch Youth Alliance

Mountain Valley Elder Care

Museum of Teaching and Learning

Music in the Vineyards Inc.

Napa Valley Community Housing

National Council of Nonprofits

Neuropathy Action Foundation

New Advances for People with Disabilities

New Door Ventures

New Hampshire Center for Nonprofits

New Morning Youth & Family Services

New York Council of Nonprofits

Nipomo Area Recreation Association

Nonprofit Association of the Midlands, Omaha NE

Nonprofit Finance Fund

North Carolina Center for Nonprofits

North Dakota Association of Nonprofit Organizations

North Peninsula Food Pantry & Dining Center of Daly City

O’Hanlon Center for the Arts

Oklahoma Center for Nonprofits

Operation SafeHouse

Orchard Valley Fine Arts Foundation, Inc.

Our Healing Hearts

Pacifica’s Environmental Family

Pasadena YouthBuild

PDAP of Ventura County, Inc.

Peninsula Family Service

Pennsylvania Association of Nonprofit Organizations

People Acting in Community Together

Philharmonic Society of Orange County

Pittsburg Community Theatre

Point Arena Lighthouse

Presidio Graduate School

Program for Torture Victims

Progressive Employment Concepts, Inc.

Project High Hopes

Providers’ Council Massachusetts

Rebuilding Together Silicon Valley

Recovery Café San Jose

Redbud Audubon

Redwood Bluegrass Associates

Redwood Cove Community Center, Inc.

Redwood Parks Association

Riverside Museum Associates

Rock School Scholarship Fund

Role Players Ensemble

Rona Barrett Foundation

Sacramento Area Bicycle Advocates

Sacramento International Gay & Lesbian Film Festival

San Diego Hua Xia Chinese School

San Diego Youth Symphony and Conservatory

San Francisco SAFE, Inc.

San Francisco SPCA

Sanchez Art Center

Santa Clara City Library Foundation & Friends

Save Mount Diablo

School of Unity and Liberation

SCRAP

Serving People in Need (dba SPIN)

SF-Marin Food Bank

Sickle Cell Disease Foundation of CA

Slavic Chorale

Solano Symphony Orchestra

Sons of Charity Inc.

SoundVision Productions

South Carolina Association of Nonprofit Organizations

Southeast Symphony Association, Inc.

Southern California Center for Nonprofit Management

Special Kids Foundation, Inc.

Spirit Awakening Foundation

Spirit House Center for Attitudinal Healing

St. John Boys Home, Inc.

Sunny Hills Services

Susan G. Komen Orange County

Sustainable Agriculture Education (SAGE)

Symphony of the Redwoods

Teacher Resource Center of the North Bay

Tenderloin Neighborhood Development Corporation (TNDC)

The Arc and United Cerebral Palsy California Collaboration

The Bolsa Chica Land Trust

The Center for Healthy Generations

The Down Syndrome Connection of the Bay Area

The Eel River Multigenerational Center

The Foraker Group – Alaska’s State Nonprofit Association

The Humane Society of the United States

The Network of Care

The Nonprofit Association of Oregon

The OMI Cultural Participation Project

The Place Within Counseling Folsom

The River Otter Ecology Project

The Soldiers Project

The Taylor Family Foundation

Theatre Bay Area

Transition House

Traverso Santana Design

Tri-City Hospital Foundation

Trips for Kids

Triumphant Life

Tustin Preservation Conservancy

United Way of Kern County

United Ways of California

Utah Nonprofits Association

Washington Nonprofits

Villa Esperanza Services

Volunteer Council of the East Bay (VCEB)

We Are the Next

West Oakland Environmental Indicators Project

West Virginia Nonprofit Association

Women’s Economic Ventures

World of Children Wyoming Nonprofit Network

Youth 2 Leaders Education Foundation

Analysis Prepared by: Jennie Bretschneider / P. & C.P. / (916) 319-2200

Date of Hearing: April 12, 2016

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Ed Chau, Chair

ABPCA Bill Id:AB 2855 (

Author:Frazier) – As Amended Ver: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 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 seq.)
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)
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

COMMENTS:

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 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)

1. 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.

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 (www.guidestar.org) 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: www.oag.ca.gov/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.

1. 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.
2. 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 assisting them in researching charities, whether they are using those dollars to buy consumer products and services or make a charitable gift.
3. 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.

1. 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 steroids.”

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 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.”

1. 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 conduct.

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 Act.

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

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

Support

None on file.

Opposition

California Arts Advocates

California Association of Nonprofits (CalNonprofits)

California Association of Private School Organizations

Save Mount Diablo

Analysis Prepared by: Jennie Bretschneider / P. & C.P. / (916) 319-2200