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U.S. State Issues: April 2004 Public Policy Update

Arizona

Arizona House Bill No. 2514 would expand the registration requirements for the solicitation funds for charitable purposes. Existing law states that before soliciting its first contribution, whether through a contracted fundraiser or otherwise and each September thereafter, a charitable organization is required to file a registration statement with the secretary of state in a format that is prescribed and adopted by the Secretary of State by rule. This bill includes the filing of either a registration statement or a 'unified registration statement' with the Secretary of State.

Arizona House Bill No. 2228 would revise the existing statute pertaining to charitable gift annuities. Existing law requires that when charitable organizations enter into an agreement for a qualified charitable gift annuity, the charitable organization is required to provide written notice to the donor in the annuity agreement stating that the charitable gift annuity is not insurance under the laws of the state, is not subject to regulation by the director, and is not protected by any state guaranty fund. This bill would include additional provisions. Specifically, the bill would mandate that when a charitable organization enters into an agreement for a charitable gift annuity, the charitable organization must satisfy the following prerequisites: it must have a minimum of $300,000 in unrestricted cash, cash equivalents or publicly traded securities, exclusive of assets funding the charitable gift annuity agreement; it must have been in continuous operation for at least three years or is a successor or affiliate of a charitable organization that has been in continuous operation for at least three years; and it must have had an annual audit of its operations conducted by an independent certified public accountant for the past two fiscal years.

In addition, House Bill No. 2228 would require that any person offering a charitable gift annuity in this state provide the following information in writing to a prospective donor before entering into an agreement for a charitable annuity or receiving any transfer of cash or property from the donor: (1) the name and address of the charitable organization offering the charitable gift annuity to the donor; (2) a description of the charitable organization offering the charitable gift annuity, including its state of organization, its date of organization and its current operations; (3) a statement, conspicuous and printed in at least ten point bold-faced type, stating that the charitable organization will make additional financial information, including its most current audited and interim financial statements, available to the donor on request; (4) a disclosure that the charitable gift annuity is not insurance under the laws of this state, is not subject to regulation by the director, and is not protected by any state guaranty fund; a disclosure that this state and the department have not approved or disapproved of the charitable gift annuity being offered and have not determined whether any of the information provided to the donor is truthful or complete.

House Bill No. 2228 would also include a provision for the failure to comply with the above stated requirements. As such, the donor can bring an action within two years of the date the donor discovered or reasonable discovered that the charitable gift annuity transaction did not comply with the section in a court of competent jurisdiction. The donor may recover the amount of consideration paid for the charitable gift annuity, plus interest, taxable court costs and reasonable attorney fees, less the amount of any income received from ownership of the charitable gift annuity, on tender of the charitable gift annuity or the agreement for it.

Furthermore, House Bill No. 2228 provides that with regard to the solicitation or negotiation of a charitable gift annuity, a person may not directly or indirectly pay or accept a commission, fee or other form of compensation contingent on the donation or amount of the charitable gift annuity.

California

California Senate Bill No. 1262 would provide several modifications to the existing law pertaining to charitable organizations. Presently, the Supervision of Trustees and Fundraisers for Charitable Purposes Act governs charitable organizations, trustees, commercial fundraisers, fundraising counsel, and commercial coventurers who hold or solicit property for charitable purposes over which the Attorney General has enforcement and supervisory powers. This bill would require that the Attorney General establish and maintain a register of charitable corporations and trustees subject to the act.

Existing law also mandates that solicitors or sellers of any solicitation or sales solicitation for charitable purposes comply with certain disclosure requirements. Any person, firm, corporation, partnership or association, or any employee or agent thereof who violates these provisions is guilty of a misdemeanor. In addition, under the Supervision of Trustees and Fundraisers for Charitable Purposes Act, commercial fundraisers are required to register with the Attorney General's Registry of Charitable Trusts and to file an annual financial report of funds solicited on behalf of each tax-exempt organization or for each charitable purpose, and requires that every charitable corporation and trustee subject to the act also register and file with the Attorney General specified periodic reports.

Senate Bill No. 1262 would amend these provisions to require a charitable organization, including a commercial fundraiser, to include specified disclosures in any written or oral solicitation or any other means not involving direct personal contact and would provide that a charity may accept contributions only for a charitable purpose that is expressed in the solicitation for contributions and that conforms to the charitable purpose expressed in the articles of incorporation or other governing instrument of the charitable organization and to apply the contributions only in a manner consistent with that purpose.

Senate Bill No. 1262 would also apply the Supervision of Trustees and Fundraisers for Charitable Purposes Act to unincorporated associations and other legal entities holding property for charitable purposes and would require that every charity subject to the act file with the Attorney General within 30 days after the corporation, unincorporated association, or trustee initially receives any property, except as to future interests in a charitable trust. The bill would also contain a provision stating that charities receiving or accruing a gross revenue of more than $2 million or more in any fiscal year prepare annual financial statements that are audited by an independent certified public accountant pursuant to standards for auditor independence and to appoint an audit committee as specified.

The bill would also provide that not less than 10 working days prior to the commencement of each solicitation, campaign, event, or service, a commercial fundraiser is required to file a copy of the written contract between the commercial fundraiser and the charitable organization with the Attorney General's Registry of Charitable Trusts. It would also prohibit a commercial fundraiser from soliciting in this state on behalf of a charitable organization unless it is registered in this state or is exempt from registration with the Attorney General's Registry of Charitable Trusts.

Senate Bill No. 1262 would also require that contracts for services between a charitable organization and a fundraising counsel be in writing and be filed by the fundraising counsel with the Attorney General's Registry of Charitable Trusts at least 10 working days before the performance of the contract and would provide that the contract between a charitable organization and a commercial fundraiser or fundraising counsel contain specified provisions and are subject to cancellation requirements. The bill would also require a fundraising counsel to register with the Attorney General's Registry of Charitable Trusts and would require both a commercial fundraiser and fundraising counsel to maintain specified records for 10 years that are required to be available for inspection upon demand by the Attorney General.

The California Senate Judiciary Committee approved S. 1262, the Nonprofit Integrity Act, on Tuesday, April 20.

In a positive move for nonprofits and fundraisers, the committee made two key changes to the bill: 1) The annual revenue floor for triggering an audit was increased from $500,000 to $2 million. 2) The provision requiring an "accurate" estimate of funds raised at the time of a particular solicitation was changed to requiring a "reasonable" estimate should the fundraiser be asked by the potential donor.

AFP applauds the committee for making those changes and thanks members for sending letters to the Judiciary Committee and their state Senators. However, AFP believes a few more changes are still necessary to ensure the bill provides value to the public and the government while not unduly burdening charities and the fundraising process.

The bill is still working its way through the Senate and has yet to be considered by the Assembly. AFP is working with a coalition of organizations to advocate for additional changes in the bill. AFP will keep members informed of our progress and if additional letters and contacts to the California state legislature are necessary.

New York

New York Assembly Bill No. 10415 would amend the existing executive law to include that any individual engaged in fundraising activities on behalf of a professional fundraiser complete a course of instruction in the law and ethics of fundraising and philanthropy. Pursuant to this bill, an acceptable course includes a 'formal program of learning which contributes to the professional knowledge of the law and ethics relating to the financial and business practices of fund raisers engaged in fund raising activities on behalf of charitable organizations registered with the attorney general pursuant to section one hundred seventy-two of this article and which meets the standards prescribed by regulations of the commissioner of education.' See 2003 NY A.B. 10415 (SN).

In addition, Assembly Bill No. 10415 would add a provision to the registration requirement regarding the completion of a course of instruction. Existing law provides that applications for registration and re-registration are in writing, under oath, in the form prescribed by the attorney general, and accompanied by an annual fee of $800. This bill would include a provision that each application filed also contain verification under oath that all course work, as stated above, be completed.

New Jersey

New Jersey Senate Bill No. 1451 would make it permissible for charities to renew registration by verification statement rather than by filing a complete registration statement. This bill provides that charitable organizations entitled to file a short form registration statement under the 'Charitable Registration and Investigation Act,' P.L. 1994, c.16 (C.45:17A-18 et seq.), which include those that receive gross contributions of $25,000 or less during a fiscal year raised by volunteers soliciting contributions, may file an annual verification statement, as opposed to a complete registration statement, if the information filed with their last registration statement has not changed.

In addition, a charitable organization filing a verification statement must also file a copy of its most recently filed Internal Revenue Service Form 990 and Schedule (A) 990 if required by the Attorney General. For any charitable organization which received gross contributions in excess of $10,000 during a fiscal year, the bill requires a $5.00 fee for the filing of such a verification statement.

South Carolina

South Carolina Senate Bill No. 1140 would include additional provisions pertaining to a bona fide charity or nonprofit corporation which is named a beneficiary of a life insurance policy. Present law states that a bona fide charity or nonprofit corporation which is in compliance with the Solicitation of Charitable Funds Act has an insurable interest in the life of an insured under a policy in which the charity or corporation is irrevocably named as a beneficiary provided that the application for insurance is signed by the insured. The bill would contain the same provision; however, it would replace the words 'bona fide charity' or 'nonprofit corporation' with the word 'charitable organization' and defines charitable organization in three ways.

First, it is a bona fide charity or nonprofit corporation which is in compliance with the Solicitation of Charitable Funds Act. Second, it is an organization to whom a charitable contribution could be made pursuant to Section 170( c)(1), 170(c )(2), or 170(c)(3) of the Internal Revenue Code. Third, it includes a trust, partnership, limited liability company, or similar entity approved in writing by an organization with the written consent of the individual insured, procures or causes to be procured the combination of an insurance policy and annuity contract on the life of the individual, provided that the form of the written consent that the individual signs is filed with the director or his designee.

Furthermore, Senate Bill No. 1140 would include a provision stating that the charitable organization has an insurable interest in the life of the insured whether the charitable organization originally purchased the insurance or the insurance is later transferred to the charitable organized by the insured or by another person.

Utah

Utah House Bill No. 195 would modify the Charitable Solicitations Act to amend certain requirements for an application for registration in order to enable electronic filing. Whereas existing law provides that an applicant for registration or renewal of registration as a charitable organization is required to submit a written application verified under oath on a form approved by the division with certain information, this bill would delete the 'written' application and 'verification under oath' requirements. As such, an applicant could register electronically.

House Bill No. 195 provides for an additional exemption to the Charitable Solicitations Act. Specifically, it would exempt any corporation established by an act of the United States Congress that is required by federal law to submit an annual report on the activities of the corporation, including an itemized report of all receipts and expenditures of the corporation and to the United States Secretary of Defense to be audited and submitted to the United States Congress.

House Bill No. 195 would also expand the definition of a telephone solicitation and telephone solicitor in order to comply with the Telephone Prevention Act and to be consistent with other statutes. Pursuant to this bill, telephone solicitation would also include 'telephone solicitation' as defined by U.C.A. Section 13-25a-102 which encompasses the initiation of a telephone call or message for a commercial purpose to seek a financial donation, including calls (a) encouraging the purchase or rental of, or investment in, property, goods, or services, regardless of whether the transaction involves a nonprofit organization; (b) soliciting a sale of or extension of credit for property or services to the persons called; (c) soliciting information that will be used for the direct solicitation of a sale of property or services to the person called; or an extension of a credit to the person called for a sale of property or services; or (d) soliciting a charitable donation involving the exchange of any premium, prize, gift, ticket, subscription, or other benefit in connection with any appeal made for a charitable purpose.

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