Legislature(2003 - 2004)
05/01/2003 08:06 AM House STA
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* first hearing in first committee of referral
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HB 149-LOBBYING BY NONPROFITS CHAIR WEYHRAUCH announced that the next order of business was 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." CHAIR WEYHRAUCH announced that before the committee is SSHB 149, 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 2712 REPRESENTATIVE KELLY WOLF, Alaska State Legislature, spoke as the sponsor of SSHB 149. Representative Wolf began by explaining that a 501(c)(3) nonprofit organization is a charitable organization to which one can contribute funds and the [contributor] can deduct the contribution from their taxes. There are various types of nonprofit organizations throughout Alaska and the nation, nearly 5,000 501(c)(3) nonprofits within Alaska and 850,000 nationwide. Representative Wolf explained that [this legislation arose from his concern] that when one contributes to a 501(c)(3), the contributor is contributing to support a specific purpose, such as saving cutthroat trout. The contributor is entrusting an organization governed by a board of directors to use contributions to promote the mission of the organization. This legislation would require that 501(c)(3) organizations that choose to lobby the legislature or take up legislative activity, which is limited under the Internal Revenue Service (IRS) code to those efforts classified as insubstantial lobbying efforts, to post a public record within 14 days before or after the lobbying effort. Representative Wolf noted that there were some concerns with the original legislation and thus he introduced the sponsor substitute because he didn't want to restrict 501(c)(3) organizations, which are allowed to lobby. However, the lobbying efforts can only amount to an insubstantial amount, as specified by the IRS which has the authority to governor 501(c)(3) organizations. He clarified that he didn't want to infringe on the constitutional amendment of freedom of speech. However, he stressed the need to maintain full disclosure and public trust with individual contributions to nonprofits. Number 2515 REPRESENTATIVE WOLF acknowledged that there are many sources from which a contributor can review where the contributions to nonprofits are being spent. One can even request this information from the IRS. He said he was sure that everyone was aware how wonderful it is to work with the IRS and how speedy it is. Therefore, this legislation allows the public to have an understanding of a nonprofit's budget, the effort being proposed, and the list of [contributors]. He mentioned that to place a notice in the Anchorage Daily News would cost about $100 or so. REPRESENTATIVE SEATON pointed out that this legislation would require two notices be printed within eight days. Therefore, each time an organization flies someone to Juneau, $200 would have to be added to that individual's expenses to cover the notice requirement. REPRESENTATIVE WOLF nodded in the affirmative. REPRESENTATIVE SEATON moved that the committee adopt Version 23- LS0354\H for discussion purposes. There being no objection, it was before the committee. REPRESENTATIVE WOLF, in response to Representative Berkowitz, said that he didn't have a list of 501(c)(3) nonprofits in Alaska, but that information could be garnished from the Department of Commerce & Economic Development (DCED). REPRESENTATIVE BERKOWITZ explained that he asked because he has received a letter from AARP who is in opposition to this legislation. Therefore, he wanted to know what organizations would be impacted by this legislation. He asked if Representative Wolf had the federal definition of "lobbying expenditure" that is referenced on page 2, lines 26-27. REPRESENTATIVE WOLF said that although he didn't have the federal definition with him, [it should include] travel and lodging expenditures incurred when lobbying. He mentioned that the definition could be clarified in the legislation. REPRESENTATIVE WOLF informed the committee that AARP is a 501(c)(4) nonprofit that operates a 501(c)(3) nonprofit. He explained that a 501(c)(4) nonprofit is a social welfare organization whereas a 501(c)(3) nonprofit is a charitable organization. He pointed out that contributions to a 501(c)(4) nonprofit aren't tax deductible, and furthermore a 501(c)(4) nonprofit is specifically designed for lobbying efforts. REPRESENTATIVE BERKOWITZ noted that members of the [State] Chamber of Commerce are present and he wondered if any of the members are going to testify on this legislation. He recalled that members of the State Chamber of Commerce have been outspoken with regard to the requirements for lobbyists of for profit organizations. Therefore, he wondered if the chamber had similar concerns when adding a burden to nonprofits. CHAIR WEYHRAUCH said that members of the State Chamber of Commerce haven't signed up to testify. Number 2252 STEVE CONN, Alaska Public Interest Research Group (AkPIRG), informed the committee that he is standing in for Steve Cleary, Executive Director of AkPIRG, a 501(c)(3), and Director of AkPIRG Lobby, a 501(c)(4). Mr. Conn suggested that the public notice provision that would cost, what he estimated to be more than $200 for every $500 expenditure when visiting legislatures and speaking directly in support of opposition to legislation, would be a tremendous hardship on a 501(c)(3). The consequence of HB 149 is that it places onerous restrictions on the right to petition in exceptional circumstances by typical charities. The legislation really won't impact entities that are ongoing in terms of their interest in public issues because most of those are organized both as a 501(c)(3) and a 501(c)(4) and perform most of the work that would fall under the IRS definition of lobbying under the 501(c)(4). Of course, these entities would have the motivation to perform all of their work under that definition. MR. CONN noted that he was just in the hearing on HB 293, which is about the statewide sales tax. During that hearing, he said he could see a range of issues that will impact members of a typical charity in this state. For example, exemptions for food, prescription drugs, and businesses. He highlighted that these are things that directly and indirectly impact elders, children, and others. Mr. Conn characterized this as an unanticipated consequence. Therefore, Mr. Conn urged the committee to reject HB 149 for two reasons. Firstly, the notice requirement is so punitive that it'll block simple lobbying activities that aren't even covered under [HB 157], but do fall under the IRS definition. In exceptional cases, charitable lobbying would be more regulated than other forms of lobbying. Secondly, one needs to think of this in context and with regard to one's constituents. He hoped that the sponsor from the Kenai will think about the fact that elders' groups and many charitable groups will be concerned with regard to the impact and equity of a statewide sales tax on their livelihood and economics. Should this legislation pass, the aforementioned groups may find it as a tremendous barrier to their ability to reach out to the lawmakers. Number 1972 REPRESENTATIVE GRUENBERG asked if the following nonprofits would be impacted by this legislation: Native nonprofits, the Outdoor Council, the NRA, the American Diabetes Association, the American Heart Association, the Alaska Municipal League, the Boys and Girls Club, the Boy and Girl Scouts, religious organizations, the YMCA, and veterans' groups. MR. CONN answered that to the best of his knowledge all of the above referenced groups are nonprofits. However, the above referenced groups illustrates that this impacts various charitable and public education endeavors on all sides of the political spectrum. REPRESENTATIVE GRUENBERG noted a conflict of interest and disclosed that he is a member of a board of directors for Alaska Common Ground, a 501(c)(3) corporation. REPRESENTATIVE LYNN noted a conflict of interest and disclosed that he is a member of the Alaska Right to Life, a 501(c)(3) organization. REPRESENTATIVE DAHLSTROM related that some of the organizations that Representative Gruenberg mentioned earlier are actually 501(c)(4) organizations. REPRESENTATIVE SEATON noted a conflict of interest and disclosed that he is a member of a 501(c)(3) organization. REPRESENTATIVE BERKOWITZ noted a conflict of interest and disclosed that he is a member of a 501(c)(3) organization. CHAIR WEYHRAUCH noted a conflict of interest and disclosed that he is a member of various 501(c)(3) organizations. There was objection to all of the above disclosures, and therefore all members were required to vote. Number 1770 REPRESENTATIVE WOLF reiterated that under the IRS code a 501(c)(3) can only spend an insubstantial amount [when lobbying]. He related his understanding that the insubstantial amount is 5 percent or less of their entire annual budget, which is the concern that led to the introduction of this legislation. The legislation doesn't intend to prevent these organizations from lobbying, it merely maintains the public trust. REPRESENTATIVE BERKOWITZ said it seems constitutionally problematic that this legislation proposes to establish different standards for nonprofits. For example, he wasn't sure that the ExxonMobil Corporation would be required to perform public notification that it was coming to Juneau to lobby whereas a 501(c)(3) would be required to do so. He asked if this disparate treatment creates a constitutional question. MR. CONN replied that he was sure that a 501(c)(3) will challenge this legislation as a potential violation of the organization's right to petition. REPRESENTATIVE WOLF highlighted that many 501(c)(3) nonprofit organizations have 501(c)(4) organizations with which they work. He emphasized that this legislation doesn't address 501(c)(4) organizations because they are a lobbying organization. He also emphasized that those funds contributed to a 501(c)(4) organization aren't tax deductible whereas those contributions to a 501(c)(3) are. Number 1583 REPRESENTATIVE BERKOWITZ remarked that the more he thinks about this, the more problematic it becomes. If the state was to impose these requirements on businesses in this state, it would add substantial costs to the businesses and nonprofits of the state. Furthermore, Representative Berkowitz said that he didn't see a great public good being advanced by this requirement. He asked if there is a particular problem or anecdote that is driving this legislation. REPRESENTATIVE WOLF explained that one of the concerns is that when predator control issues have been brought up in Alaska, nonprofit organizations, under the guise of a 501(c)(3), have raised large amounts of revenue on an emotionally charged issue of saving the wolves in Alaska. The public trust is at the heart of this matter; full disclosure isn't something that true 501(c)(3) organizations should fear. He pointed out that this legislation focuses on a nonprofit organization not a business. Number 1436 REPRESENTATIVE SEATON directed attention to page 2, lines 17-23, which specifies that every 501(c)(3) nonprofit shall file a annual report of all its lobbying expenditures in the previous year whether the organization spends over $500 or not. Representative Seaton questioned how there could be a zero fiscal note when this requirement will result in the Department of Revenue processing an additional report from each 501(c)(3) in the state. REPRESENTATIVE WOLF explained that currently 501(c)(3) nonprofits are required to file an annual tax report with the IRS declaring expenditures for the year. Therefore, the state's report would be a duplicate of that. REPRESENTATIVE SEATON related his understanding that the language in the legislation refers to a detailed report of "all lobbying expenditures" rather than a composite of the expenditures. Therefore, he said he believes it will be quite an onerous report. REPRESENTATIVE WOLF said that isn't the intent. The report required in the legislation is supposed to be a composite of the organization's total lobbying efforts, a duplicate of what the 501(c)(3) issues to the IRS. Therefore, he remarked that he would accept an amendment to change that to reflect the intent. Number 1209 CHAIR WEYHRAUCH expressed interest in having someone from the Department of Revenue present at the next hearing in order to discuss the zero fiscal note and the filing of this report. He related his belief that there will have to be agency time spent reviewing these reports. Chair Weyhrauch asked if currently a 501(c)(3) nonprofit has to report lobbying expenditures to the federal government. REPRESENTATIVE WOLF replied yes. CHAIR WEYHRAUCH related his further understanding that if 501(c)(3) nonprofits don't report their lobbying expenditures or spend more than a substantial portion on lobbying efforts, those nonprofits would be subject to federal prosecution. REPRESENTATIVE WOLF replied yes. However, he said that verbal comments from IRS representatives have been that the IRS doesn't have the time or funds to pursue such [prosecutions] when there are 850,000 501(c)(3) nonprofits. Number 1137 REPRESENTATIVE BERKOWITZ remarked that if the federal government doesn't have the funds or the time and Alaska has about 1,000 501(c)(3) nonprofits, then seemingly there will be an expenditure of time and funds to do this in the state. REPRESENTATIVE WOLF explained that originally the intent of the legislation was for 501(c)(3) nonprofits to pursue public notice in order to have full disclosure. However, Legislative Legal and Research Services felt that a report should go to the Department of Revenue. REPRESENTATIVE WOLF said that he would entertain a friendly amendment to eliminate the report to the Department of Revenue. REPRESENTATIVE BERKOWITZ returned to the notion that those expending more than $500 would become entangled in the lobbying laws. He asked if Representative Wolf would be willing to extend that universally in the state. REPRESENTATIVE WOLF expressed concern with such an expansion. REPRESENTATIVE BERKOWITZ commented, "If it's good for the goose, it's good for the gander." REPRESENTATIVE WOLF explained that the concern [that lead to this legislation] is that a 501(c)(3) is using other people's money on a trust issue and the contributors write that contribution off of their taxes. REPRESENTATIVE BERKOWITZ characterized that as a matter between the contributor and the 501(c)(3). Shouldn't the government stay out of that relationship, he asked. REPRESENTATIVE WOLF reiterated that his original intent was to avoid involving the Department of Revenue. He highlighted that in Alaska there is a growing distrust with regard to what 501(c)(3) nonprofits do with their funds. CHAIR WEYHRAUCH announced that HB 149 would be held over.
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