By Joel A. Dolci, CAE
Charitable nonprofits (such as colleges and universities, hospitals and nursing homes, museums and foundations, usually tax-exempt under Internal Revenue Code Section 501(c)(3)), are commonly publicly-funded through donations and government contracts. They also have the benefit of numerous state tax and other incentives to sustain their activities. As a result, they merit a high level of governmental oversight.
Member-based nonprofits (such as associations and chambers of commerce classified under Code Section 501(c)(6)) neither require nor merit such governmental intrusion, as the members, through the association's governing board and the bylaws, are responsible for their oversight.
As part of his budget bill, Governor Andrew Cuomo included changes to New York law, which would have done away with the decades-old distinction between these two types of nonprofits. NYSAE was successful in getting those changes dropped from the budget, with assistance from Nixon Peabody LLP.
The current focus is the legislative proposal implementing Attorney General Eric Schneiderman's report from his Leadership Committee for Nonprofit Revitalization. While the AG's recommendations do alleviate some of the corporate burdens in the nonprofit sector, they also impose new regulatory requirements, such as those on executive compensation, audits, conflicts of interest, mandatory whistleblower policies, and other restrictions intended to strengthen public trust in charities.
By definition these concerns do not arise for associations, which rely upon their members for oversight. Even associations formed as Code Section 501(c)(3) organizations largely restrict fundraising to their members, thus distinguishing them from other public charitable institutions. Many associations have adopted these types of measures as a matter of best practice, but would like to avoid governmental regulation.
Preserving the distinction between public benefit and mutual benefit nonprofit corporations will be an important task over the next year.
The Board invites NYSAE members to support our efforts in minimizing or avoiding the imposition of inefficient or unnecessary government regulation on associations in New York State.
Joel A. Dolci, CAE, is president and CEO of NYSAE.