Non-profit non-disclosure

An interesting item appears on this Tuesday’s City Council agenda.  The Council will be asked to spend $10,000 to establish a non-profit 501(c)(3) organization to support City projects and programs.  According to the staff report “the sole charitable purpose of the entity would be to lessen the financial burdens of the City through solicitation and acceptance of charitable contributions from the public.”  “Having such an entity in place would allow individuals and organizations to support the City or specific City programs and projects and realize the tax benefits that come from donating to a 501(c)(3).”

This strikes me as a bit odd.  According to the IRS website, Section 170(c) of the Internal Revenue Code provides that donations to a government entity like the City are already deductible, as long as that the donation is made exclusively for a public purpose.  And there are already a host of non-profits that help support City programs and projects – the Walnut Creek Open Space Foundation, the Friends of the Walnut Creek Library, the Gardens at Heather Farm, the Walnut Festival Association, the Diablo Regional Arts Association, and the Friends of Civic Arts Education Foundation, to name a few.  What can this new 501(c)(3) do that the others can’t?

Well, actually I think I may have gotten that question backwards.  Perhaps the question should be “what can a 501(c)(3) do that the City Council can’t?”

The City Council is prohibited from spending public funds to run a campaign in favor of a ballot measure (like, for example, a ballot measure to raise taxes).  The staff report for this Council consideration states that the proposed 501(c)(3)  will “be prohibited from engaging in any political activities”, but this might simply be a matter of semantics.  A 501(c)(3) is specifically prohibited from backing a political candidate.  But 501(c)(3)’s engage all the time in ballot measure campaign activities such as publicly endorsing ballot measures, organizing volunteers to gather signatures on petitions, registering voters and urging them to vote on a particular measure, or contributing money to ballot measure campaigns.

Of course, the City Council isn’t going to direct the activities of this 501(c)(3) … they are only providing seed money (with public funds) to get the foundation started.  There will be an independent (wink, wink) Board of Directors, appointed by the Council, and how this new foundation decides to best accomplish their mission of lessening the City’s financial burdens, whether that be by running a campaign to pass new taxes (wink, wink) or some other strategy, will be totally up to the Board.

It’s illegal for the City Council to allocate public funds to finance a campaign to raise your taxes.  Maybe it should be illegal for them to use public funds to finance a non-profit that just might (wink, wink) engage in ballot measure campaigning.