Many grantmakers historically shied away from involvement in lobbying, advocacy or public policy work, prompted in large part by strict federal laws; however, the tide appears to be changing, as a growing number of foundations in Minnesota and across the country have become more engaged in elevating the public dialogue on issues integral to their missions. Here are things all grantmakers should know about advocacy and public policy.
Public Policy: There is no single definition of "public policy." In this document, public policy refers to the principles guiding any level of government or its representatives on a given topic, as expressed in laws, administrative practices, regulations, funding priorities and executive or judicial orders.
Lobbying: Lobbying is one specific form of public policy engagement that is often a key strategy for making and changing laws. Lobbying is defined by federal tax law as any attempt to influence specific legislation. More specifically, lobbying is any attempt to influence public officials in support of, or in opposition to, any legislation that has been introduced, or any legislation that may be introduced, in any legislative body, such as a city council, state legislature or Congress. Lobbying includes communicating with legislators and their staff directly, and encouraging others to contact their legislators.
Direct Lobbying: Direct lobbying is a communication with a member or employee of a legislative body (or certain other government officials) that both (a) refers to specific legislation, and (b) reflects a view on the legislation.
Grassroots Lobbying: Grassroots lobbying is any attempt to influence the opinions of the general public about specific legislation. In order to be grassroots lobbying, a communication must (a) refer to specific legislation, (b) reflect a view on the legislation, and (c) encourage the recipient to take action, such as contacting his or her legislator.
Advocacy: The term "advocacy" covers a much broader range of activities to push for changes in public policy, and these activities may or may not include lobbying. One way of differentiating between lobbying and advocacy is to understand that lobbying always involves advocacy, but advocacy does not necessarily involve lobbying.
Private foundations are prohibited from expending funds "to carry on propaganda, or otherwise attempt to influence legislation." This rule prohibits both direct lobbying activities by the foundation and grantmaking to support lobbying.
Notwithstanding the restrictions on lobbying that apply to private foundations, there are many ways private foundations can participate in public policy and advocacy. First, they can participate in or make grants to support the activities described in this section that do not constitute lobbying. Here are other examples:
Project Support Grants: Private foundations may also make grants for a project that involves some lobbying activity as long as the amount of that grant, together with all other grants by the same foundation for the same project for the same year, does not exceed the amount budgeted by the grantee for project activities other than lobbying. In making this determination, the foundation can rely in good faith on the grantee's budget for the project. If, however, the foundation has reason to doubt the grantee's information or reasonably should doubt the grantee's information, then the foundation may not rely on the information.
General Support Grants: Another option is to make a general support grant to an organization that lobbies, as long as the grant is not earmarked to be used for lobbying. (A grant is earmarked if the grantee is required to use it for a specific purpose or recipient, or if the grantor has the right to impose such a requirement.) A private foundation may make a general support grant to a public charity even if the charity is known to engage in some lobbying activities and is likely to use some of the grant for that purpose. Unlike specific project grants, the regulations do not require a private foundation to seek information about a charity's lobbying budget when the charity applies for a general support grant.
Jointly Funded Programs: A narrow exception to the lobbying definition allows private foundations (but not their grantees) to present information to government officials about a program that is, or may be, funded by both the foundation and the government, provided that the communications are limited to the program.
Foundations that are interested in public policy and advocacy should keep in mind the following activities, which for tax purposes are not considered to be lobbying:
Nonpartisan Analysis, Study or Research: Certain educational or research activities are expressly excluded from the legal definition of lobbying. Nonpartisan analysis, study or research on a particular topic is not considered lobbying even if the research or report advocates a particular viewpoint, so long as there is a sufficiently complete and balanced discussion to enable members of the public to form their own opinions or conclusions on the issue. The nonpartisan analysis, study or research must be made widely available and cannot be distributed selectively to persons on only one side of the issue.
Discussions of Broad Social Problems: A related exception pertains to "examinations and discussions of broad social, economic and similar problems." Examinations and discussions of such problems do not constitute lobbying even if the problems are of a type with which government would be expected to deal ultimately, and even if the communications are made to legislators, so long as the discussions do not address the merits of a specific legislative proposal and do not directly encourage recipients to take action with respect to legislation.
Legislative Testimony and Technical Assistance: Providing testimony or other technical assistance to governmental bodies or committees is not lobbying if done in response to a written request by the body or committee and if the testimony or assistance is available to every member of the requesting body or committee.
"Self-Defense" Lobbying: Communications with legislative bodies about proposed legislation that would affect the existence of a charity, its powers and duties, its tax-exempt status or the deductibility of contributions is not considered lobbying.
Membership Communications: Communications by a public charity to its members that refer to legislation or reflect a view of direct interest to the organization and its members, but do not encourage the reader to lobby, are not treated as lobbying.
Public charities, such as community foundations, operate under lobbying laws and regulations that are somewhat less restrictive than those for private foundations. Public charities are allowed to lobby as long as "no substantial part" of the charity's activities consists of lobbying.
"No Substantial Part" Test: The IRS and the courts have consistently declined to provide a clear rule about how much lobbying constitutes a "substantial part" of a public charity's activities. Also, the "no substantial part" rule fails to define clearly what activities are considered to be lobbying or how much money a charity may spend on lobbying.
501(h) Election: If a public charity (other than a church) chooses, it may avoid the uncertainties of the "no substantial part" test altogether by making a section 501(h) election. Section 501(h) of the Internal Revenue Code sets financial limits for lobbying activities and also defines, in considerable detail, the activities that count against those limits. In general terms, total direct lobbying expenses for a given year may not exceed 20 percent of the first $500,000 of an organization's expenses, plus 15 percent of the second $500,000, plus 10 percent of the third $500,000, plus 5 percent of the remainder, subject to an overall $1 million limit. In addition, grassroots lobbying expenditures may not exceed 25 percent of the overall lobbying limit.
Advantages of 501(h) Election: The 501(h) election has a number of advantages. First, only expenditures are considered when analyzing whether an organization is in compliance with section 501(h). This means that activities undertaken by volunteers will not count toward the 501(h) limits, nor generally will the amount of time spent on the lobbying activities be considered. Second, the regulations are clear in defining what is and is not lobbying. Third, the expenditure limits are fairly generous. Fourth, the section 501(h) election is very easy to make. The organization files a simple one-page form (IRS Form 5768) with the IRS. Regardless of the date of filing, the election is effective as of the first day of the tax year during which the organization makes the election. The election continues in effect until the beginning of the year in which it is revoked. Finally, it is easy to revoke the section 501(h) election. The election may be revoked at any time by filing a second Form 5768.
Private foundations and public charities are prohibited by law from funding or engaging in activities that support or oppose candidates for public office. As 501(c)(3) organizations, foundations may not make campaign contributions, make expenditures on behalf of candidates, endorse candidates for public office, make resources such as space or office equipment available to candidates, or communicate anything that explicitly or implicitly favors or opposes a candidate.
Election-related activities foundations may support include:
Foundation officials and employees acting in their individual capacities may also work on political campaigns outside of work hours or using their available leave, but they may not use foundation facilities, equipment, personnel or other resources to provide support to, or oppose, a candidate or campaign.
For a variety of resources about the federal tax and other lobbying rules, see the Center for Lobbying in the Public Interest or the Alliance For Justice.
For information about the Minnesota campaign finance requirements, see www.cfboard.state.mn.us.
See also Frequently Asked Legal Questions: Lobbying.