New York plans charity law reform to cut red tape

Tue Apr 26, 2011 3:45pm EDT

* New York nonprofits employ 500,000, more than finance

* Tough policing doesn't mean extra burdens for charities

By Michelle Nichols

NEW YORK, April 26 (Reuters) - New York Attorney General Eric Schneiderman announced plans on Tuesday to reform cumbersome laws and regulations burdening the state's charities in a bid to ease what he called a looming funding crisis.

Schneiderman said he would form a working group of nonprofit, government and labor representatives to develop proposals and recommend reforms. He also appealed to New York City's corporate leaders to take a role.

New York's nonprofits employ 500,000 people -- up to 18 percent of the state's workforce -- while finance and insurance companies in New York City employ about 341,000 people.

"New York's statutory requirements governing charities are so burdensome that one leading not-for-profit lawyer has stated that it is essentially malpractice to advise a not-for-profit client to incorporate in New York," Schneiderman told the nonprofit Association for a Better New York.

There are about 2 million nonprofits in the United States. Of that number, just 20,000 receive about 85 percent of the $300 billion in U.S. donations made annually, experts said, while many smaller charities rely on city or state funding.

"The economy may have bottomed out in many areas, but for New York's not-for-profits, the effects of cuts at every level of government have yet to be felt," Schneiderman said.

Schneiderman told members of ABNY that tight federal and state budgets could mean "a looming crisis in this incredibly important sector."

Many U.S. states are facing financial hardships stemming from the U.S. recession of 2007-2009, which has limited their budgets for law enforcement and other services.

U.S. tax authorities grant groups charitable status, exempting them from taxes, but most laws governing nonprofits are at state level from the attorney-general.

Schneiderman said that if a charity received funding from six city or state agencies it could be subject to six separate audits. Nonprofits in New York with revenues of more than $250,000 also have to conduct annual audits, while in other states such as California the threshold is $2 million.

"We can be as tough or tougher on policing fraud without imposing unnecessary burdens," Schneiderman said. "But in hard economic times, we can't afford to force (charities) to spend 15 or 20 percent of their resources on compliance costs."

Experts said last week that U.S. authorities, particularly in cash-strapped states, have not devoted enough resources to policing nonprofit groups. High-profile charities run by U.S. singer Madonna and best-selling author Greg Mortenson have this year been involved in controversies. [ID:nN20179668]

The Human Services Council, which represents human service nonprofit groups in New York, said it was pleased that Schneiderman had recognized the economic contribution of the state's nonprofit sector.

"We are looking forward to partnering with him on efforts to strengthen these critical organizations," the council said.

Doug White, of New York University's Heyman Center for Philanthropy and Fundraising, said the proposals by Schneiderman were "a start" as "the reporting requirements are far too onerous and we should have a higher ceiling." (Editing by Mark Egan and Eric Walsh)

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