Funding Nonprofit Advocacy: The Increasing Role of Foundations

"Such poverty as we have today in all our great cities degrades the poor, and infects with its degradation the whole neighborhood in which they live. And whatever can degrade a neighborhood can degrade a country and a continent and finally the whole civilized world, which is only a large neighborhood." George Bernard Shaw (1856-1956)

America’s nonprofit organizations have played a vital role in nearly every important social development in this country. Over the years, thousands of nonprofits have worked to assure that their constituencies’ interests are understood and acknowledged by policymakers. Civil rights groups, environmental organizations, consumer advocates and other public interest groups often have provided the only voice for underrepresented communities.

Today, the role of nonprofits is as vital as ever; some would say even more so. Yet, we live in times of diminishing nonprofit and foundation resources, government spending cuts and increasing community needs. If left unchecked, public policy will serve the biggest and strongest interests, which too often means those with financial influence. Enabling nonprofit organizations to participate in the public policy arena is the most effective way to give voice to people who often go unheard, help nonprofits and foundations fulfill their missions and bring about lasting change

Why Foundations Should Support Advocacy

By giving financial support to charities that lobby – and encouraging the rest to contemplate lobbying – philanthropy increases the odds of achieving its central purpose of improving the lives of ordinary Americans and the communities in which they live. Wider participation in the public policy process by all segments of society generates a greater commitment to solving problems in communities and society at large. When grantmakers and nonprofits work together, there are greater resources and opportunities for their voices to be a part of the public debate.

Consider, for example, a nonprofit legal clinic that represents low-income immigrants in domestic relations cases. The nonprofit’s domestic relations work consists primarily of helping women secure court orders to protect them from abusive spouses. Let’s say the U.S. Congress were to propose legislation that stipulated that in order for an immigrant to obtain U.S. citizenship on the basis of marriage to a U.S. citizen, the marriage must be legal and valid for a minimum of two years. Immigrant women might feel compelled to remain in an abusive marriage just to maintain their documented status. The legal clinic would obviously want victims of domestic violence to be exempt from the proposed legislation, but unless the nonprofit can lobby Congress for this minor change, its efforts to protect women from domestic violence are inherently undermined.

By helping nonprofits expand their advocacy efforts, foundations can put a variety of issues—racism, allocation of resources for the poor, environmental policies, community development—at the center of public policy debates. Nonprofit advocacy is a critical tool for leveraging foundation dollars on behalf of resource-thin populations, in turn benefiting disenfranchised communities and the public at large. Nonprofit organizations are known for their passion and knowledge. As a nation, we need their expertise and insight, but the key is for foundations to let their grantees use grant funds exercise their legal right to advocate. As the President of the Minneapolis Foundation, Emmett D. Carson, accurately pointed out, “It is not enough to support the service delivery arm of hard-working nonprofit organizations. We’ve got to do more, and we’ve got to recognize that educating public policy makers is part of our responsibility and is crucial to our success.”

Foundations Can Support Advocacy by Nonprofits

While the rubric of advocacy is broad, the term is most often associated with lobbying activities. Under the tax code, direct lobbying is communication with a legislator, legislative staff or other government official, that takes a position on specific legislation. Grass roots lobbying is communication with the general public that takes a position on specific legislation and encourages the recipients to take action by contacting their legislators or other government officials who will be considering or voting on the legislation.
Public foundations, which are treated the same as public charities under the tax code, legally can lobby. They also can support lobbying through general support and specific project grants.

Private foundations cannot lobby, without incurring a taxable expenditure. They may, however, support lobbying through general support and specific project grants to 501(c)(3) organizations without incurring a taxable expenditure simply by following a few rules.

The first rule for private foundations is that they cannot earmark grants specifically for lobbying. This is different from prohibiting the grantee from lobbying. Funders often confuse the requirement of not earmarking funds with an all-out restriction against lobbying, which is unnecessary, since public charities may lobby.

Another rule for private foundations is that a project grant cannot exceed the non-lobbying portion of the project budget. For example: if the project budget equals $100,000 and $40,000 is allocated to lobbying (leaving $60,000 for non-lobbying expenses), the foundation’s grant cannot exceed $60,000 (the non-lobbying portion of the project budget). Even if the grantee exceeds the amount budgeted for lobbying, the foundation will not be penalized. If two separate foundations each award $50,000 for the project, neither will incur a taxable expenditure, since neither has exceeded the non-lobbying portion of the budget.
While these two rules are easy enough to follow, arguably the easiest and best way to support advocacy is through general support grants. With general support grants, no budget review is required, there is no risk to the foundation even if the grantee lobbies and the grantee has maximum flexibility.

Whether, and how much, you support advocacy may depend largely on the comfort level at your foundation about lobbying and advocacy. To that end, the more you know, the easier it is to convince your foundation’s decision makers of the necessity of examining internal policies, so that supporting advocacy can become an integral part of your grantmaking process and mission.

How and Where to Start

A major obstacle for many nonprofits is the grant agreement letter. Although federal tax law does not require foundations to include a lobbying prohibition in grants to public charities, grant agreement letters that forbid lobbying are commonplace. This is why the Council on Foundations recently identified educating foundations on lobbying rules as one of five “priority areas.”

Instead of saying, for example, “No part of any grant may be used for a political campaign, or to support attempts to influence legislation of any governmental body…,” try, “This grant is not in any way earmarked to support or carry on any lobbying or voter-registration drive. If this grant is restricted to a specific project, Grantee hereby reaffirms that the project’s current budget accurately reflects Grantee’s present intentions to expend at least the amount of this grant on project non-lobbying and non-voter registration activities….”
The difference is subtle, but key when it comes to supporting advocacy. In the first example, the grantee is prevented from using your grant funds or anyone else’s for advocacy. Further, it does not just restrict lobbying, but potentially other forms of advocacy that do not constitute lobbying or taxable expenditures. For instance, several categories of advocacy are specifically excluded from the definition of lobbying in the tax code (nonpartisan analysis, study or research; requests from legislative committees for technical advice or assistance; self defense (against proposed legislation that affects the organization’s existence or tax-exempt status); examinations and discussion of broad social, economic and similar problems; and litigation). Since these exceptions do not constitute lobbying, foundations may directly fund these activities.

When it comes to the grant agreement, the simple truth is “less is more.” (For a complete set of guidelines for drafting effective agreement letters, see Myth v Fact: Foundation Support of Advocacy by Thomas R. Asher, published by the Alliance for Justice in 1995). Funders should examine their grant agreement letters to ensure that they do not create an obstacle for your grantees.

Additionally, nonprofits may need to be reminded how easy it can be to lobby and to remain in good legal standing. Unfortunately, fewer than 3 percent of all nonprofits avail themselves of the generous lobbying opportunities that exist in the tax code. The so-called “501(h) election” is the main avenue for nonprofits to expand their involvement in the legislative process. Groups that choose the 501(h) route tell the IRS that they want to take advantage of the clear definitions and generous limits on lobbying that were added to the IRS Revenue Code in 1976. In return, groups agree to adhere to specific lobbying limits based on a group’s annual budget.

To exercise the 501(h) election, an organization merely has to complete a one-page form that asks for the name, address and the first tax year to which it wants the election to apply. This lobbying-friendly 501(h) election also reassures foundations that may view the 501(c)(3) lobbying rules as vague—or at least subject to narrow interpretations by staff auditors and attorneys. Hence, the 501(h) option offers foundation decision makers more clarity, guidance and reassurance. Also, the IRS has made it known that it encourages filing the 501(h), and it will not increase chances of an audit.

Foundations Can Make a Difference

Arguably the greatest obstacle to supporting advocacy is foundation culture, which often takes a dim view of activities deemed too political. “The issue is not that foundations are policy-shy,” says Thomas Layton, president of the San Francisco-based Gerbode Foundation. “They are controversy-shy and policy advocacy is associated with controversy.” Yet, Layton tellingly adds, “Investing in policy is essential to having an impact.”

Do not let widespread misconceptions prevent your foundation from having a profound impact on the issues you support. Good laws are essential to good public policies, and nonprofits and foundations can work together to make them happen.

Nan Aron is the founder and president of the Alliance for Justice, a national association of public interest advocacy organizations. The Alliance’s Foundation Advocacy Initiative works with grantmakers to strengthen foundation support of advocacy. Its publications are trusted resources for funders and nonprofits across the country.

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