Legislature(2003 - 2004)
05/07/2003 08:03 AM House STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 149 - LOBBYING BY NONPROFITS Number 2712 CHAIR WEYHRAUCH announced that the next order of business would be HOUSE BILL NO. 149, "An Act requiring nonprofit corporations under the Alaska Net Income Tax Act to provide prior public notice of lobbying expenditures and an annual report of lobbying expenditures to the Department of Revenue; providing for a civil penalty for failure to provide the notice; and providing for an effective date." [Before the committee was Version 23-LS0354\H. Although this document is entitled and referred to as a sponsor substitute, it was not officially such and thus the document only exists in the committee packet.] Number 2733 REPRESENTATIVE KELLY WOLF, Alaska State Legislature, sponsor, informed the committee that in Alaska there are 5,366 501(c)(3) organizations that are considered domestic and a total of 5,700 domestic and foreign nonprofit organizations currently registered in the state. A foreign a corporation is considered to be one that is outside the borders of the Alaska. With regard to the request for a list of the nonprofits, there is a $50 fee for the list for each corporation. He pointed out that the committee packet should include information regarding new disclosure [requirements] are incorporated in federal law, and that the Internal Revenue Service (IRS) is encouraging that widely advertised information be disclosed. REPRESENTATIVE WOLF emphasized that 501(c)(3) organizations are becoming an issue with regard to concerns over disclosure. He clarified that he didn't want to prohibit freedom of speech of the 501(c)(3) organizations in the state; instead, the legislation merely requests the disclosure of lobbying activities in order to provide accountability to constituents and contributors. He reminded the committee that lobbying activities of 501(c)(3) organizations are listed as "insubstantial" activities per the IRS code. He also reminded the committee that this legislation doesn't impact 501(c)(4) organizations because they are social welfare organizations specifically established to lobby. [Chair Weyhrauch turned the gavel over to Vice Chair Holm.] VICE CHAIR HOLM asked if Representative Wolf had seen the letter from the Fairbanks Native Association (FNA), which questions the timing of this legislation. He said that the letter expressed concern because one would need to contact a newspaper twice, waiting for as much as three weeks, "before you could be legally permitted to spend, hoping to affect legislation." REPRESENTATIVE WOLF responded that the FNA must be referencing the original legislation, the sponsor substitute strictly removes that provision and specifies that [the organization must contact a newspaper] within 14 days before or after the lobbying activity. Therefore, there is a 28-day window. TAPE 03-54, SIDE B Number 2997 REPRESENTATIVE SEATON directed attention to page 2, line 6 - which read, "the notice not fewer than two times in eight days" - and asked what its purpose is. REPRESENTATIVE WOLF noted that the above language was included by Legislative Legal and Research Services in order to provide a guideline with regard to when a posting would take place. Basically, the thought is that there would be one posting in each week of the 15-day period before or after the lobbying activity. [Vice Chair Holm returned the gavel to Chair Weyhrauch.] REPRESENTATIVE GRUENBERG asked if the sponsor would be willing to accept an amendment requiring newspapers to publish this without a fee. REPRESENTATIVE WOLF replied yes and offered his belief that most radio stations and all public newspapers do allow nonprofit organizations to post this information free of charge. REPRESENTATIVE DAHLSTROM asked whether it would be feasible for rural newspapers to provide this service free of charge. REPRESENTATIVE WOLF relayed that currently, nonprofit organizations can send information regarding activities to local radio stations and newspapers, which will then post that information. Furthermore, some television stations also provide this service. He recalled that the Kenai Peninsula Clarion posted this type of public-notice information on page 3 of the paper. Number 2698 REPRESENTATIVE SEATON remarked that as a free community service, newspapers provide announcements of nonprofit [sponsored] events. He characterized the notice required under this legislation as no longer being a public service notice, but rather as being an announcement notice. Therefore, he said, he doubted that the newspapers would offer that much free advertisement space. REPRESENTATIVE WOLF, in response to a question, estimated that there wouldn't be more than 100 such advertisements. REPRESENTATIVE SEATON turned attention to page 2, lines 17-23, which specifies that a nonprofit corporation exempt from tax liability under proposed AS 43.20.025 shall file an annual report of all lobbying expenditures. The aforementioned language says "all" lobbying expenditures, not just those over $500. He said he recalled that Representative Wolf had an amendment to address that. REPRESENTATIVE LYNN asked if there is a newspaper of public record for legal notices, and if so, would an organization have to pay for those advertisements. REPRESENTATIVE GRUENBERG answered that a publication of general circulation, mentioned in Rule 4 of the Alaska Rules of Civil Procedure, would have to be used. The court system maintains a list of those newspapers that qualify as a newspaper of general circulation. He confirmed that a fee would be paid for the advertisement. REPRESENTATIVE DAHLSTROM asked Representative Wolf for his thoughts on an amendment that would require reporting of only those 501(c)(3) organizations with a gross income of $5 million or $10 million. REPRESENTATIVE WOLF said he would be interested in reviewing such an amendment. Number 2309 REPRESENTATIVE HOLM made a motion to adopt Amendment 1, labeled 23-LS 0354\H.1, Craver, 5/1/03, which read: Page 1, lines 2 - 3: Delete "and an annual report of lobbying expenditures to the Department of Revenue" Page 1, lines 7-8: Delete ", civil penalty, annual report" Insert ", civil penalty" Page 2, lines 17-23: Delete all material. Reletter the following subsections accordingly. REPRESENTATIVE SEATON objected. REPRESENTATIVE WOLF explained that Amendment 1 would remove the requirement of providing an annual report to the Department of Revenue. He said that he didn't want [nonprofits] to take on the additional burden of filing papers. REPRESENTATIVE HOLM recalled from an earlier meeting that there was no fiscal note because there would not be active oversight by the state. REPRESENTATIVE WOLF explained that currently, the IRS is the only agency that governs 501(c)(3) nonprofit organizations and he didn't intend to place an additional burden on the state. He reiterated that this legislation only attempts to provide disclosure to the constituency of the 501(c)(3) nonprofit organizations. He noted that he would be willing to entertain an amendment such as that suggested by Representative Dahlstrom. REPRESENTATIVE BERKOWITZ asked if this legislation would impact political parties. REPRESENTATIVE WOLF pointed out that a political party is a 501(c)(4) organization [and therefore this legislation wouldn't impact political parties]. REPRESENTATIVE SEATON withdrew his objection. Number 2041 CHAIR WEYHRAUCH ascertained that there were no further objections. Therefore, Amendment 1 was adopted. REPRESENTATIVE GRUENBERG turned to the letter from Robert Briggs, Staff Attorney, Disability Law Center of Alaska, dated May 6, 2003. He pointed out that the Mr. Briggs has highlighted some potential constitutional problems involving free speech and equal protection issues. Therefore, Representative Gruenberg expressed the need to obtain a legal opinion regarding the constitutionality of whatever version moves out of the House State Affairs Standing Committee. REPRESENTATIVE WOLF acknowledged that concerns over the issue of freedom of speech have been raised. REPRESENTATIVE SEATON directed attention to page 1, lines 10-13, and relayed his belief that the requirement in that language will create a fiscal impact for the department. REPRESENTATIVE WOLF acknowledged that point. Number 1873 REPRESENTATIVE SEATON made a motion to adopt Conceptual Amendment [2], as follows: Page 1, lines 10-13: Delete "A corporation subject to this section shall send to the department a copy of the newspaper's certificate of publication with a copy of the notice published and the dates of publication within seven days after the last publication of the notice." REPRESENTATIVE WOLF said he viewed that as a friendly amendment. Number 1810 CHAIR WEYHRAUCH asked whether there were any objections to Conceptual Amendment [2]. There being no objection, Conceptual Amendment 2 was adopted. REPRESENTATIVE SEATON said he is still concerned with regard to what appear to be conflicting requirements on page 2, line 6, and page 2, line 11. REPRESENTATIVE DAHLSTROM relayed that she would like to work with the sponsor on an amendment tying the reporting requirement to a specific income level. Number 1700 ANDY HARRINGTON, Arctic Alliance; Executive Director, Alaska Legal Services Corporation, announced that he is in opposition to HB 149. The IRS already heavily limits and regulates lobbying expenditures by 501(c)(3) organizations. Therefore, passing a state law that may establish standards that are inconsistent or unnecessary with the federal government's standards doesn't seem to be a good idea. He pointed out that any grantors already have lobbying-expenditure reporting requirements. Furthermore, most lobbying to the legislature is done by nonprofits that aren't 501(c)(3) organizations, but are exempt under other subsections of 501(c). MR. HARRINGTON said that most 501(c)(3) nonprofits are more than willing to provide lobbying expenditure information to donors and grantors, upon request, because keeping donors informed and pleased with the product of the nonprofit is an important part of its mission. A move to burden nonprofits while the legislature simultaneously moves towards loosening some of the standards for all other individuals and agencies to be able to get their views to the legislature delivers the wrong message, he said. Moreover, he said he seriously doubted that newspapers would publish a legally required advertisement for free. Also, if the scope of the statute is too broad and the enforcement mechanisms are largely removed, then there is a situation in which the more conscientious of the nonprofits would be those most burdened. MR. HARRINGTON, in response to Representative Gruenberg, agreed with the understanding that a nonprofit that isn't an Alaskan nonprofit would be legally located in the home state of the specific nonprofit. He further agreed that per the language on page 2, line 8, an out-of-state nonprofit would be required to publish the notice in a newspaper in the nonprofit's home state. REPRESENTATIVE SEATON inquired as to the number of 501(c)(3) nonprofits in Alaska that have over $1 million in contributions each year. MR. HARRINGTON said that he could obtain that information from the Arctic Alliance. Anecdotally, he relayed that any organization that does a significant amount of lobbying is apt to form an affiliated 501(c)(4). Mr. Harrington informed the committee that Alaska Legal Services [Corporation] has an overall budget of about $3 million, that it provides the report to anyone interested, and that having to prepare a second report or publish and advertise would be more burdensome. Number 1363 PATRICK LUBY, Legislative Representative, AARP, relayed that AARP is in opposition to HB 149, and that two letters sent to the committee have tried to address AARP's concerns. The legislation would make it more expensive for small nonprofit organizations to participate in the lobbying process. However, because many excellent legislative recommendations come from small, United Way organizations, such should be encouraged rather than discouraged. MR. LUBY informed the committee that he has worked for AARP for over 30 years and has participated in the legislative process in several states. He noted that he has been able to brag to colleagues in other states regarding how open Alaska is for citizens to participate in the legislative process. He pointed out that nowhere else in the nation is there such a system of Legislative Information Offices (LIOs), which allow any citizen to come and share his/her views with elected officials. The spirit in Alaska is to welcome citizen participation by individuals as well as by nonprofits. However, HB 149 is counter to that spirit. Therefore, AARP requests a "No" vote on HB 149. Number 1230 MATT FELIX, Director, Juneau Affiliate, National Council on Alcoholism and Drug Dependence (NCADD), informed the committee that the Juneau Affiliate is one of the oldest nonprofits in the state. He relayed that the NCADD board requested that he register as a lobbyist because the nonprofit is located in Juneau and he testifies quite a bit on health care legislation for various agencies. He opined, however, that testifying on legislation isn't lobbying. CHAIR WEYHRAUCH argued that testifying before a committee is considered lobbying. REPRESENTATIVE BERKOWITZ clarified, "With the caveat that if the individual is invited to do so by members of the committee, it's not lobbying; it's only if they're doing it on their own." MR. FELIX agreed that there is a subtle difference and remarked that there are many subtle differences with regard to what is considered lobbying versus merely providing information. He informed the committee that as a registered lobbyist he reports monthly to APOC when the legislature is in session and quarterly when the legislature isn't in session. MR. FELIX indicated that the agency for whom he works reports quarterly each year and that an annual outside audit showing where the nonprofit's funds come from and where they go is sent to the state. Moreover, as a 501(c)(3), the organization has reporting requirements to the federal government. He characterized the current reporting requirements as onerous, and therefore he didn't see the need for HB 149 because there is already full disclosure for most nonprofit agencies under existing statutes. REPRESENTATIVE WOLF asked how many individuals contribute to NCADD. Number 1043 MR. FELIX answered that hundreds contribute an amount ranging from $1 to $10. REPRESENTATIVE WOLF asked how NCADD shows its contributors where contributions go. MR. FELIX explained that as a nonprofit agency, NCADD is required, through its bylaws, to have an annual meeting during which all income and expenditures are disclosed and a report and outside audit [is presented]. He added that only a small percentage of the membership attends the annual meeting, but all of the membership is sent a copy of the report. He asked if the legislation will require the national organization to report, or just the Juneau Affiliate. REPRESENTATIVE SEATON asked if Mr. Felix read the legislation to mean that even though he is a lobbyist, he would still have to publish two notices in the newspaper. MR. FELIX replied yes, and informed the committee that the Juneau Empire doesn't publish legal notices free. REPRESENTATIVE WOLF remarked that one shouldn't be required to pay for publishing legally required public notices Number 0855 LAUREE HUGONIN, Executive Director, Alaska Network on Domestic Violence & Sexual Assault (ANDVSA), indicated her agreement with Mr. Felix's comments. She noted that ANDVSA files a federal report that lists all expenditures, projects, et cetera, and that it must be kept available in the office so that any member of the public can review it. Furthermore, federal audits are conducted annually. She noted that she reports to APOC on a monthly basis and that ANDVSA reports on a quarterly basis. The only expenditure that ANDVSA has that amounts to over $500 is its legislative reception, which totaled $778 this year. Therefore, the cost necessary to advertise in the Juneau Empire would be an additional cost. She added that the event is publicized. MS. HUGONIN explained that ANDVSA doesn't have individual contributors, rather it's a membership organization agency and thus local rape crisis centers and shelters belong to ANDVSA as organizations. Most of the funds ANDVSA receives are federal grant funds. The ANDVSA, as an organization, doesn't receive state dollars and requires that membership dues not be paid with state dollars. She informed the committee that currently, ANDVSA's grants total about $1.2 million; those grants are project specific and can't be used for any lobbying efforts. The ANDVSA has to sign disclosure forms regarding lobbying efforts that are then submitted along with the federal grants. Therefore, ANDVSA is already heavily regulated and the information is public for people to see, although the information is reported after the event has occurred. Number 0665 ROBERT BRIGGS, Staff Attorney, Disability Law Center of Alaska, informed the committee that the Disability Law Center of Alaska is a 501(c)(3) nonprofit that operates four offices in the state. The Disability Law Center of Alaska is, through a series of federal grants, the protection and advocacy system for Alaskans with disabilities. The federal legislation authorizing the federal grants requires that the protection of the advocacy system be independent of any state agency. Furthermore, the federal legislation also requires that the advocacy system be able to provide for the education of policymakers. The Disability Law Center of Alaska is organized as a 501(c)(3) nonprofit, and in order to avoid questions regarding the organization's activities in the legislature, when the organization has decided to be active in [legislative] matters, Mr. Briggs has registered as a lobbyist. MR. BRIGGS referred to a letter [dated May 7, 2003] in which he highlighted some of the federal rules that provide limitations on the operation of 501(c)(3) nonprofits. In particular, the letter relates that if a nonprofit elects to file a particular form with the IRS, it's possible for that organization to spend up to 20 percent of its budget on lobbying. In prior hearings there has been discussion of a 5 percent limit, but such would be vague legally with regard to whether it would be an absolute limit or not. There is a case from 1955 in which a court found that an organization that spent under 5 percent of its revenues on a similar activity prescribed by 501(c)(3), issuing propaganda, wasn't a substantial activity. MR. BRIGGS said he wasn't aware of any published court opinion or regulation that defines what is considered to be substantial activity. However, Congress's passage of the Lobbying by Public Charities Act indicates that Congress feels that it's a good public policy to permit 501(c)(3) organizations to spend up to 20 percent of their budget on lobbying activities. Mr. Briggs urged the committee to not pass HB 149 in its current form. He noted that he has drafted a proposed amendment that might lessen the impact of the legislation. MR. BRIGGS offered his opinion that HB 149 would cause extra expense for an organization or members of an organization that choose to engage in free speech and the right of free petition to communicate with legislators. One way to prevent the aforementioned is to lessen the expense of the reporting requirements. He said that the reporting requirement shouldn't get in the way of the communication that people want to have with their legislator, and therefore he said he believes that the reporting should occur after the lobbying takes place. REPRESENTATIVE GRUENBERG pointed out that the final [portion of] Mr. Briggs proposed amendment was already adopted as Amendment 1. CHAIR WEYHRAUCH indicated that the HB 149 would be held over
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