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Revision to the Charitable Organization and Solicitations Act

Status
Fact Sheet
Issues
Background

Status

September 14, 2004

As passed by the Senate, the following is a summary of SB 1115:

Requires charitable organizations and professional fund-raisers to register with the Attorney General (rather than be licensed by the Attorney General)
Changes the licensing requirement for charities that solicit and receive contributions in excess of $8,000 during a 12-month period to requiring registration only for charities that solicit and receive contributions in excess of $25,000 during a 12-month period
Adds the following registration fees for charities:
- No fee if the gross receipts were less than $25,000
- $20 if the gross receipts were more than $25,000 but less than $100,000
- $50 if the gross receipts were at least $100,000 but less than $500,000
- $100 if the gross receipts were at least $500,000 but less than $1,000,000
- $200 if the gross receipts were $1,000,000 or more
Mandates that the registration fees and all other fees/fines from this act must go to the state treasurer to deposit in a charitable organization and solicitations fund, which shall only be directed to gathering and providing the public with information regarding persons subject to this act. The Attorney General must report to the Michigan legislature regarding how the funds will be used
Increases the misdemeanor fine from $500 and/or imprisonment for up to six months to a fine of $5,000 and/or imprisonment for up to six months for certain activities. In addition a person who is found guilty of a felony, for violations of sections of this bill, may be imprisoned for not more than five years and/or fined $20,000.
For charities and fundraisers the bill specifies certain types of practices that would be prohibited, and violation of these provisions could result in denial, suspension or revocation of registration, or a civil fine of up to $10,000
In addition to financial statements, an organization would be required to submit the following information:
- Whether the organization or any of its officers, directors, or principals is, or has ever been enjoined, fined, convicted or subject to any other sanction or penalty as a result of soliciting contributions in any state or country, or whether such proceedings are pending
- Whether an officer, director or employee of the charity owns a 10% or greater interest in a professional fundraiser, or is an agent or contractor for a professional fundraiser, during a period of time when the professional fundraiser is under contract with the charity to solicit funds
- Financial information for the Attorney General to prepare reports for the legislature or the public if the information was not included in the organizations IRS Form 990
- Completed IRS Form 990 for the immediately preceding tax year, if the organization does not file a 990, it must file a version of the 990 with the Attorney General
- Financial statements reviewed or audited by a CPA depending on the charities amount of contributions received during a given year. If the amount of contributions reported on the 990 is more than $200,000 but less than $500,000 an organization must submit financial statements reviewed by an independent CPA. If the reported contributions are $500,000 or more, the organization must submit financial statements audited by an independent CPA
For fundraisers, the bill requires the following:
- Requires fundraisers to register with the state, instead of applying for a license
- Revises the definition of a fundraiser to exclude, in most cases, a person whose activities are limited to providing training, advice, research, preparation of grant or contract applications, or design, writing, or production of solicitation materials.
- Implements a fee of $200 to register as a fundraiser in Michigan
- Mandates that specific information be submitted to the Attorney General on the registration form regarding the fundraisers business activities, contracts and clients
- Increases the amount of a bond that a fundraiser must post from $10,000 to $25,000
- Instructs fundraisers, within 90 days after a solicitation campaign is completed or on the anniversary of the completion of a solicitation campaign lasting more than one year, to provide a report to the Attorney General detailing gross revenue and itemized expenses incurred on behalf of the charitable organization

July 1, 2004

An analysis of SB 1115, as passed by the Senate, can be viewed at http://www.michiganlegislature.org/documents/2003
-2004/billanalysis/senate/pdf/2003-SFA-1115-F.pdf

The Michigan Senate passed SB 1115 (S-3) today. Out of the 38 Senators, there were 36 yes votes and 2 votes excused. Many of the issues that MNA were concerned about regarding the bill as introduced were addressed in the Substitute bill which passed the Senate. MNA will continue to work over the summer with the legislature and the Attorney General’s office on remaining concerns. The bill as passed by the Senate, can be viewed at http://www.michiganlegislature.org/documents/2003-2004/
billengrossed/senate/pdf/2004-SEBS-1115.pd f

June 25, 2004

Last week the Senate Committee on Economic Development, Small Business and Regulatory Reform reported with substitute SB 1115. Supported in concept by MNA, An analysis of the substitute is available at http://www.michiganlegislature.org/documents/
2003-2004/billanalysis/senate/pdf/2003-SFA-1115-F.pdf .MNA continues to work with Senate staff and the Attorney General’s office to address concerns. If you have any questions, please contact Erin Skene at 517/492-2400.

June 2, 2004

On Wednesday, June 2 the Senate Committee on Economic Development, Small Business and Regulatory Reform heard testimony on SB 1115, proposed revisions to the Charitable Organization and Solicitation Act. MNA provided testimony on this bill, as did the Michigan Association of United Ways; Michigan League for Human Services; and the Community Economic Development Association of Michigan. The Committee is expected to take action on this bill in the coming weeks. Visit http://www.mnaonline.org/revision.asp to view the letter submitted to the Senate Committee and background information on this bill. The Senate Committee analysis of this bill can be viewed at http://www.michiganlegislature.org/documents/
2003-2004/billanalysis/senate/pdf/2003-SFA-1115-S.pdf Although MNA does support the concept of this bill, MNA staff is working with the bill sponsor’s office (Senator Tom George) and the Attorney General’s office to address some of MNA’s concerns.

March 2004

SB 1115 was introduced by Senator Tom George and 14 other senators on March 18, 2004. The bill has been referred to the Senate Committee on Economic Development, Small Business and Regulatory Reform. The last time this act was revised was in 1975. However, in 1999 there was an attempt to revise the Charitable Organization and Solicitations Act, which was sponsored by former Representative Gerald Law. HB 4259 passed the House of Representatives, however it was not addressed by the Senate.

As one of four statutes administered and enforced by the Attorney General’s office, the Charitable Organization and Solicitations Act currently imposes a charitable solicitation license requirement on charities and fundraisers that wish to solicit contributions from Michigan sources. With the exception of some charities currently most 501(c)(3) organizations, whose gross contributions solicited and received during any 12-month period exceed $8,000, are required to obtain a license from the Attorney General.

MNA has supported a similar version of this bill in 1999 and is in support of revising this statute. MNA is working with the Senator’s office on the details of this bill and has provided the following issues listed below as concerns. Also, through the Nonprofit Council for Charitable Trusts (advisory committee to the Attorney General, which is staffed by MNA), MNA is working with the Attorney General’s office on this issue and the Council has requested that the Attorney General’s office provide the Council and the sector with a report regarding how current funds are being utilized in the Charitable Trust Section of the Attorney General’s office and a report on how the funds raised through proposed fees would be used.

Fact Sheet

Click here to view the Senate Floor Analysis of SB 1115 (with S-2 as reported by the Committee)

Click here to view the Senate Committee analysis of this bill as introduced http://www.michiganlegislature.org/documents/
2003-2004/billanalysis/senate/pdf/2003-SFA-1115-S.pdf

The following is a fact sheet on SB 1115 as introduced in March

Charities

Changes the licensing requirement to a registration requirement.
Changes the licensing requirement for charities that solicit and receive contributions in excess of $8,000 during a 12-month period to requiring registration only for charities that solicit and receive contributions in excess of $25,000 during a 12-month period
Deletes current exemptions for:
Adds the following registration fees for charities:
The registration fees and all other fees/fines from this act must go to the state treasurer to deposit in a charitable organization and solicitations fund, which shall only be directed to gathering and providing the public with information regarding persons subject to this act. The Attorney General must report to the Michigan legislature regarding how the funds will be used
Increases the fine from $500 and/or imprisonment for up to six months to a fine of $5,000 and/or imprisonment for up to six months for violating the act
For charities, fundraisers and vendors the bill specifies certain types of practices that would be prohibited, and violation of these provisions could result in denial, suspension or revocation of registration, or a civil fine of up to $10,000
In addition to financial statements, an organization would be required to submit the following information:
- Whether the organization or any of its officers, directors, or principals is, or has ever been enjoined, fined, convicted or subject to any other sanction or penalty as a result of soliciting contributions in any state or country, or whether such proceedings are pending
- Whether an officer, director or employee of the charity owns a 10% or greater interest in a professional fundraiser, or is an agent or contractor for a professional fundraiser, during a period of time when the professional fundraiser is under contract with the charity to solicit funds
- Financial information for the Attorney General to prepare reports for the legislature or the public if the information was not included in the organizations IRS Form 990
- Completed IRS Form 990 for the immediately preceding tax year, if the organization does not file a 990, it must file a version of the 990 with the Attorney General
- Financial statements reviewed or audited by a CPA depending on the charities amount of contributions received during a given year. $100,000 - $249,000 – must submit financial statements reviewed by an independent CPA. $250,000 or more must submit financial statements audited by an independent CP

Fundraisers

Requires fundraisers to register with the state, instead of applying for a license
Deletes consultants as being under the registration requirement
Implements a fee of $200 to register as a fundraiser in Michigan
Mandates that specific information be submitted to the Attorney General on the registration form regarding the fundraisers business activities, contracts and clients
Increases the amount of a bond that a fundraiser must post from $10,000 to $25,000
Instructs fundraisers, within 90 days after a solicitation campaign is completed or on the anniversary of the completion of a solicitation campaign lasting more than one year, to provide a report to the Attorney General detailing gross revenue and itemized expenses incurred on behalf of the charitable organization

Vendors

Adds a registration requirement for vendors
Prior to conducting a charitable sales promotion or solicitation campaign, a vendor must register with the Attorney General
Requires vendors to pay a $50 registration fee
Upon registration, vendors would be required to submit information regarding their business, contact information for the charities they have contracted with, principle methods by which the vendor will conducts its charitable sales promotion or solicitation campaign, etc
Vendors must report to the Attorney General the total dollar sales of each sales promotion or campaign conducted in the state with its renewal registration or within 30 days after the conclusion of a sales promotion or campaign if no further promotions/solicitations is intended
The bill also requires that certain information be displayed on the devises used for the charitable sales promotion or solicitation campaign

Issues

The following are letters submitted by MNA in regards to SB 1115 and contain concerns regarding the bill.

June 16, 2004

The Honorable Alan Sanborn
State Senator
Chair, Senate Committee on Economic Development, Small Business and Regulatory Reform
P.O. Box 30036
Lansing, MI 48909

Dear Senator Sanborn:

Thank you for the opportunity to comment on the proposed substitute for SB 1115, revision to the Charitable Organization and Solicitations Act. As we have mentioned before, the Michigan Nonprofit Association (MNA) continues to support the concept of this bill and appreciates the willingness of the Senate and the Attorney General’s office to work with us on this bill to meet the needs of donors and nonprofit organizations.

Last week, MNA participated in a working meeting called by Senator George to review possible changes to the bill. Again, we appreciate that many of our suggestions were included in this substitute. Our major concern continues to be in regards to the introduction of registration fees which is not currently required of charities. To date, funding of the Charitable Trust Section has been the responsibility of government. Nonprofits are willing to share in this burden, however considering that this will be a financial burden on organizations that are already struggling to make ends meet, the sector needs to be provided information regarding how these fees will be used to enhance activities of the Charitable Trust Section and not used to replace existing funds as currently appropriated by the legislature.

Specifically, the sector needs to be provided an analysis of how current funds are being utilized for the Charitable Trust Section, projected costs for amendments to the current statute and a return on investment analysis for how the registration fees would be utilized to increase the capacity of the Charitable Trust Section of the Attorney General’s office. Again, it is imperative that the fees provided by the nonprofit sector not be used to replace existing General Funds appropriated to the Attorney General’s office.

In addition, we urge the Committee to make the following changes prior to the bill being reported from the Committee on Economic Development, Small Business and Regulatory Reform. Please note these issues were discussed at the working meeting called by Senator George and to the best of our knowledge was agreed to by the relevant parties:

Page 11, Section 2(b), lines 8-17 – MNA proposes that financial statements prepared according to generally accepted accounting principles that have been audited by an independent certified public accountant only be required for organizations that have received contributions of $500,000 or more during its fiscal year (the substitute currently is for $250,000 or more). It would then follow that organizations with contributions of $100,000 or more but less than $500,000 would be required to file financial statements either reviewed or audited by an independent certified public accountant. Changing the amount in SB 1115 will further promote accountability, avoid cumbersome reporting requirements and unnecessary costs for small organizations and will streamline the Michigan law with requirements being discussed by other states and the federal government.

Pages 15 & 16, Section 2 – MNA urges the committee to replace this existing section with the language suggested by the Attorney General’s office. The following addresses MNA’s concerns regarding the need for organizations to be provided an opportunity to respond in a reasonable time to emergency suspension and for the burden of proof to be on the Attorney General to show noncompliance:

“The attorney general may suspend or rescind the registration of a charitable organization, professional fund-raiser, or vendor and an agent or representative of a charitable organization, professional fund-raiser, or vendor for violation of this act, after reasonable notice and opportunity to be heard in accordance with the Administrative Procedures Act.

The attorney general may summarily suspend on an emergency basis the registration of a charitable organization or professional fund-raiser if the attorney general specifies in a notice the reasons and grounds indicating a violation of this act or a rule promulgated under this act that constitutes the emergency. The notice shall set forth that within 48 hours, at a designated time and place, the registrant has an opportunity to be heard at a hearing on whether the suspension should continue.

The charitable organization, professional fund-raiser, or vendor shall have a reasonable opportunity to rebut the attorney general’s allegations and to produce evidence to show compliance with this act or the rules promulgated under this act. The attorney general has the burden of proof in establishing noncompliance at a hearing following an emergency suspension under this subsection. The Administration Procedures Act shall apply to such hearings.”

Other changes that we understand will be discussed with the legislature and the Attorney General’s office over the summer include the following:

Page 4, lines 12-13 – the undefined term “restricted” should be deleted. A “restricted” grant is typically defined by the sector as one that is provided to support a particular program area, whereas an “unrestricted” grant from a foundation is provided to support the general operation of the organization. Since, the purpose of this line in the statute is to exempt foundation grants (not just restricted grants) from being included in the definition of contribution, the term “restricted” should be deleted to clarify the purpose of the definition.

Page 16, Section 6, lines 10-13 – currently subjects a charity to penalties if it fails to provide the attorney general, within 30 days, of any change in information previously submitted. However, there are small adjustments to an organization’s make-up, such as membership to its board of directors which may not need to be updated more than on an annual basis. Mandating additional reporting requirements for small details would place an unnecessary burden on nonprofit organizations.

MNA recommends that additional reporting only be required for those changes that would impact an organization’s eligibility for registration.

Page 35, Section 19b (a), lines 9-11 - this subsection addresses the penalties for individuals that fail to file registration papers required in this act.

With a high turn-over rate for nonprofit staff and board members, it may be possible that failure to submit the proper registration forms may be due to oversight or ignorance. Hence, a charity should be given notice that it must register by a certain deadline and only those who do not register after this warning should be prosecuted.

Thank you again for considering revisions to this important statute. Again, we look forward to working with the legislature to see passage of a bill that increases enforcement, enhances donor education and promotes nonprofit awareness of regulations. If you or your staff have any questions, please feel free to contact me or Erin Skene, Director of the Michigan Public Policy Initiative, at 517/492-2400.

Sincerely,

Sam Singh
President and CEO
Michigan Nonprofit Association

This letter was submitted to Senator Sanborn and the Senate Committee on Economic Development, Small Business and Regulatory Reform on June 2.

June 1, 2004

The Honorable Alan Sanborn
State Senator
Chair, Senate Committee on Economic Development, Small Business and Regulatory Reform
P.O. Box 30036
Lansing, MI 48909

Dear Senator Sanborn:

On behalf of the Michigan Nonprofit Association and our 700 members, I want to thank you for the opportunity to comment on SB 1115. As you may already know, revising the Charitable Organization and Solicitation Act has long been a priority of the Michigan Nonprofit Association. We look forward to working with the legislature to provide the nonprofit sector with revisions that are both meaningful and effective. In light of this we hope that passage of this bill will not be rushed, it is imperative to allow the sector the opportunity to respond accordingly, and to provide for adequate time to garner additional public support for changes.

In addition to the eight concerns outlined below our major concern is regarding the introduction of registration fees which is not currently required of charities.

To date, funding of the Charitable Trust Section has been the responsibility of government. Nonprofits are willing to share in this burden, however considering that this will be a financial burden on organizations that are already struggling to make ends meet, MNA can not support these fees unless the nonprofit sector is provided information regarding how these fees will be used to enhance activities of the Charitable Trust Section and not used to replace existing funds as currently appropriated by the legislature.

Additional comments on this version of SB 1115 are listed below. Please note that these comments are preliminary. It is still desired to have additional input from the Nonprofit Council for Charitable Trusts (advisory committee to the Attorney General) and Michigan Nonprofit Association members.

Section 2(e), page 4, line 24. After “nominal monetary value.” MNA proposes that the following sentence be inserted, “A contribution includes that portion of a payment from any person that exceeds the fair-market value of goods and services received from a charitable organization.” This proposed language reflects the IRS definition of a contribution.

Section 2(e)(i), page 4, lines 26-27. The undefined term “restricted” in the beginning of line 27 should be deleted. A “restricted” grant is typically defined by the sector as one that is provided to support a particular program area, whereas an “unrestricted” grant from a foundation is provided to support the general operation of the organization. Since, the purpose of this line in the statute is to exempt foundation grants (not just restricted grants) from being included in the definition of contribution, the term “restricted” should be deleted to clarify the purpose of the definition.

Section 2(g), page 5, line 22. This portion of the current statute has often been interpreted to require grant writers, writers of fund-appeal letters and others who provide professional services to charities to register as professional fund-raisers. Since these individuals are not those directly soliciting or receiving contributions from the public, the ability to interpret the statute in this manner merely diverts attention from the contractors that the Attorney General must monitor. In addition, with the proposed registration fees, this broad language places an unnecessary cost on these individuals and the organizations they serve. MNA proposes the following language to address this concern: After “research or,” delete the term “writing” and add, “training, design, writing or production of solicitation materials, preparation of grant or contract applications, or other services, but who do not directly solicit or receive contributions from the public,”

Section 5(2), page 15, line 22 through page 16, line 11 – this section refers to the emergency suspension, without hearing, of registered organizations, professional fundraisers or vendors. The language included in this section would take away a charity’s right to solicit funds without a prior hearing and without clear definition of what constitutes an “emergency”. Denial, suspension or revocation of a registration to solicit can not be treated lightly since the livelihood of an organization depends on its ability to fundraise.

This issue becomes even more serious since this bill makes solicitation of funds, following a suspension or revocation of registration, a misdemeanor punishable by a fine of not more than $5,000 or imprisonment for not more than six months. Considering the severity of these actions, it is imperative that organizations be given the opportunity to respond prior to suspension and that the burden of proof be on the Attorney General to show noncompliance. In substitution of the language included in SB 1115, we propose the following:

“The attorney general may initiate suspension on an emergency basis of the registration of a charitable organization, professional fund-raiser, or vendor if the attorney general specifies in the notice the reasons and grounds indicating a violation of this act or a rule promulgated under this act that constitutes the emergency. The notice shall set forth that within 48 hours, at a designated time and place, a hearing shall be held on whether the registration should be suspended or rescinded. The charitable organization, professional fund-raiser, or vendor may show compliance with this act or the rules promulgated under this act. The attorney general has the burden of proof in establishing noncompliance.”

Section 6, page 16, line 15 – currently subjects a charity to penalties if it fails to provide the attorney general, within 30 days, of any change in information previously submitted. However, there are small adjustments to an organization’s make-up, such as membership to its board of directors which may not need to be updated more than on an annual basis. Mandating additional reporting requirements for small details would place an unnecessary burden on nonprofit organizations. MNA recommends that additional reporting only be required for those changes that would impact an organization’s eligibility for registration.

Section 19(d), page 36, lines 11-24 – similar to other state and IRS reporting requirements and fees associated with late reporting, MNA recommends that language be included to allow the attorney general to waive late fees if satisfied that the lateness was due to a reasonable cause.

Section 23(b), page 41, lines 20-24 – this subsection addresses the penalties for individuals that fail to file registration papers required in this act. With a high turn-over rate for nonprofit staff and board members, it may be possible that failure to submit the proper registration forms may be due to oversight or ignorance.

Hence, a charity should be given notice that it must register by a certain deadline and only those who do not register after this warning should be prosecuted.

Section 23(c), page 41, lines 25-27 – although we understand the need to prevent organizations from raising money deceptively, the phrasing of this section is too broad and could prevent organizations from using funds for similar types of activities within its mission.

For example, a charity may raise funds to build a homeless shelter for women, however, the project may have cost less than initially expected and the group chooses to spend the surplus on building a homeless shelter for men. We assume that this type of activity is not the target of this subsection. To avoid this interpretation of the proposed statute, we recommend that the language be changed to read, “Solicits funds under a registration and diverts the funds to purposes substantially different from those other than that for which the funds were contributed.”

Sincerely,

Sam Singh
President and CEO
Michigan Nonprofit Association

MNA has submitted the following letter to Senator George and has shared the following additional concerns with the Attorney General’s office.

Letter submitted to Senator George

April 22, 2004

The Honorable Tom George
State Senator
P.O. Box 30036
Lansing, MI 48909

Dear Senator George:

On behalf of the Michigan Nonprofit Association and our 700 members, I want to thank you for the opportunity to comment on SB 1115. As you may already know, revising the Charitable Organization and Solicitation Act has long been a priority of the Michigan Nonprofit Association. We look forward to working with your office to provide the nonprofit sector with revisions that are both meaningful and effective. In light of this we hope that passage of this bill will not be rushed, it is imperative to allow the sector the opportunity to respond accordingly, and to provide for adequate time to garner additional public support for changes.

One of the vehicles for response regarding this bill is the Nonprofit Council for Charitable Trusts. Formed earlier this year, the Nonprofit Council advises the Attorney General on issues related to charities and charitable giving in Michigan. Attached for your review is a listing of Council members. Chaired by the Chief Deputy Attorney General Carol Isaacs, JD., the Council focuses on the following objectives:

Provide feedback, as needed, on existing and emerging regulations affecting the nonprofit sector.
Assist the Attorney General with educating donors and citizens about charities and charitable giving.
Enhance the effectiveness and efficiency of collecting data about charities and fundraisers.
Promote a more accountable, efficient and responsive sector through compliance with relevant regulations and promoting best practices.

A sub-committee of the Nonprofit Council will be meeting in May to provide feedback to the Attorney General’s office on SB 1115. However, the full Council will not have an opportunity to address this issue until its July meeting. Input from this Council will be pivotal to accomplishing our goal of revising the Charitable Organization and Solicitation Act.

At the May Nonprofit Council sub-committee meeting, MNA will share with the group the Association’s initial observations regarding the bill. As you may already know, MNA’s overarching goals for revision is to effectively enforce the law by closing loopholes within the Act that make it difficult to track noncompliant organizations, to provide consumers with quick and easy access to information on nonprofits and to ease the frustration of nonprofits trying to comply with the differing IRS and Attorney General requirements.

Although we have specific remarks regarding some language contained in the bill, our most pressing concerns are about the sections that would threaten the ability of a nonprofit to carry out its mission without proper notice, hearing and ability to respond to charges of noncompliance. Currently, MNA has the following concerns regarding SB 1115:

Section 5(2), page 15, line 22 through page 16, line 11 – this section refers to on an emergency basis the suspension, without hearing, of registered organizations, professional fundraisers or vendors. The language included in this section would take away a charity’s right to solicit funds without a prior hearing and without clear definition of what constitutes an “emergency”. Denial, suspension or revocation of a registration to solicit can not be treated lightly since the livelihood of an organization depends on its ability to fundraise.

Section 6, page 16, line 15 – currently subjects a charity to penalties if it fails to provide the attorney general, within 30 days, of any change in information previously submitted. However, there are small adjustments to an organization, such as membership to its board of directors which may not need to be updated more than on an annual basis. Mandating additional reporting requirements for small details would place an unnecessary burden on nonprofit organizations. MNA recommends that additional reporting only be required for those changes that would impact an organization’s eligibility for registration.
Section 19(d), page 36, lines 11-24 – similar to other state and IRS reporting requirements and fees associated with late reporting, MNA recommends that language be included to allow the attorney general to waive late fees if satisfied that the lateness was due to a reasonable cause.
Section 23(b), page 41, lines 20-24 – this subsection addresses the penalties for individuals that fail to file registration papers required in this act. With a high turn-over rate for nonprofit staff and board members, it may be possible that failure to submit the proper registration forms may be due to oversight or ignorance. Hence, a charity should be given notice that it must register by a certain deadline and only those who do not register after this warning should be prosecuted.
Section 23(c), page 41, lines 25-27 – although we understand the need to prevent organizations from raising money deceptively, the phrasing of this section is too broad and could prevent organizations from using funds for similar types of activities within its mission. For example, a charity may raise funds to build a homeless shelter for women, however, the project may have cost less than initially expected and the group chooses to spend the surplus on building a homeless shelter for men. We assume that this type of activity is not the target of this subsection.

To avoid this interpretation of the proposed statute, we recommend that the language be changed to read, “Solicits funds under a registration and diverts the funds to purposes substantially different from those other than that for which the funds were contributed.”

Again, thank you for the opportunity to respond. We look forward to working with your office on this important revision. If you have any questions, or would like additional comments, please feel free to contact me at 517/492-2400 or via e-mail at skeneeri@mnaonline.org

Sincerely,

Erin Skene
Director, Michigan Public Policy Initiative
Michigan Nonprofit Association

Cc: Ronda King, Department Analyst, Michigan Attorney General

Additional concerns shared with the Attorney General’s office

Please note that these comments are preliminary. It is still desired to have input from the Nonprofit Council for Charitable Trusts, Michigan Nonprofit Association (MNA) members and the MNA Board of Trustees.

Section 2(e), page 4, line 24. After “nominal monetary value.” MNA proposes that the following sentence be inserted, “A contribution includes that portion of a payment from any person that exceeds the fair-market value of goods and services received from a charitable organization.” This proposed language reflects the IRS definition of a contribution.
Section 2(e)(i), page 4, lines 26-27. The undefined term “restricted” in the beginning of line 27 should be deleted. A “restricted” grant is typically defined by the sector as one that is provided to support a particular program area, whereas an “unrestricted” grant from a foundation is provided to support the general operation of the organization. Since, the purpose of this line in the statute is to exempt foundation grants (not just restricted grants) from being included in the definition of contribution, the term “restricted” should be deleted to clarify the purpose of the definition.
Section 2(g), page 5, line 22. This portion of the current statute has often been interpreted to require grantwriters, writers of fund-appeal letters and others who provide professional services to charities to register as professional fund-raisers. Since these individuals are not those directly soliciting or receiving contributions from the public, the ability to interpret the statute in this manner merely diverts attention from the contractors that the Attorney General must monitor. In addition, with the proposed registration fees, this broad language places an unnecessary cost on these individuals and the organizations they serve. MNA proposes the following language to address this concern: After “research or,” delete the term “writing” and add, “training, design, writing or production of solicitation materials, preparation of grant or contract applications, or other services, but who do not directly solicit or receive contributions from the public,”
Section 5(2), page 15, line 22 through page 16, line 11 – this section refers to the emergency suspension, without hearing, of registered organizations, professional fundraisers or vendors. The language included in this section would take away a charity’s right to solicit funds without a prior hearing and without clear definition of what constitutes an “emergency”. Denial, suspension or revocation of a registration to solicit can not be treated lightly since the livelihood of an organization depends on its ability to fundraise.

Section 6, page 16, line 15 – currently subjects a charity to penalties if it fails to provide the attorney general, within 30 days, of any change in information previously submitted. However, there are small adjustments to an organization’s make-up, such as membership to its board of directors which may not need to be updated more than on an annual basis. Mandating additional reporting requirements for small details would place an unnecessary burden on nonprofit organizations. MNA recommends that additional reporting only be required for those changes that would impact an organization’s eligibility for registration.
Section 19(d), page 36, lines 11-24 – similar to other state and IRS reporting requirements and fees associated with late reporting, MNA recommends that language be included to allow the attorney general to waive late fees if satisfied that the lateness was due to a reasonable cause.
Section 23(b), page 41, lines 20-24 – this subsection addresses the penalties for individuals that fail to file registration papers required in this act. With a high turn-over rate for nonprofit staff and board members, it may be possible that failure to submit the proper registration forms may be due to oversight or ignorance. Hence, a charity should be given notice that it must register by a certain deadline and only those who do not register after this warning should be prosecuted.
Section 23(c), page 41, lines 25-27 – although we understand the need to prevent organizations from raising money deceptively, the phrasing of this section is too broad and could prevent organizations from using funds for similar types of activities within its mission. For example, a charity may raise funds to build a homeless shelter for women, however, the project may have cost less than initially expected and the group chooses to spend the surplus on building a homeless shelter for men. We assume that this type of activity is not the target of this subsection. To avoid this interpretation of the proposed statute, we recommend that the language be changed to read, “Solicits funds under a registration and diverts the funds to purposes substantially different from those other than that for which the funds were contributed.”

Background

As nonprofits raise funds for their organizations, ensuring accountability and ethics are top priorities. Hence, it is imperative that a potential donor know if a charity is legitimate, how much of the proceeds are going to a charity and how much is going to a fundraiser, whether contributions are staying in the local community or going to an out-of-town or out-of-state agency, and so on.

The purpose of the 1975 Act

< http://www.michiganlegislature.org/documents/mcl/pdf/mcl-act-169-of-1975.pdf> is to regulate organizations and persons soliciting or collecting contributions for charitable purposes. However, due to loopholes within the Act, it's difficult to track noncompliant organizations. Also, consumers do not have quick or easy access to information on nonprofits.

The Act needs to be revised to effectively enforce the laws, to prevent misleading information regarding nonprofits from being given to consumers and to ease the frustration of nonprofits trying to comply with the differing IRS and Attorney General requirements.

Revisions may include:

Development of a registration system for charitable organizations, fund-raisers and vendors that replaces the current licensing provisions;
Raising the threshold of the amount nonprofits may raise and be exempt from the Act's licensing and financial reporting requirements; and
Creating a dissemination plan from the collected registration fees and fines to inform the public on information about Michigan nonprofits; e.g. a toll-free hotline for consumers.

HB 4259, a revision of the Act, was introduced in 1999. The bill unanimously passed the House and was reported favorably with substitute from the Senate Committee on Gaming and Casino Oversight.