California’s Dangerous Nonprofit Warning Label Bill – AB 2855 – Will Not Advance

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5/28/16 Update: Costly bill that would have required charities in California to post a “warning label” on their websites and fundraising documents was held in committee and will not advance.

AB 2855 was a dangerous bill that threatened nonprofits raising funds in California and reflected the lack of understanding of its author/sponsor, California Assemblymember Jim Frazier (D –Oakley), of the nonprofit sector’s work, influence, and scope. Had this bill passed, it would have ranked among the worst laws in the country in its characterization and treatment of nonprofits. The bill was considered by the Assembly’s Appropriations Committee on May 11. Thanks to the strong advocacy efforts of over 700 nonprofits led by CalNonprofits and to members of the Appropriations Committee and its Chair Lorena Gonzalez (D-San Diego), AB 2855 was held in committee on May 27 and will not advance.

For more information about the dangers of bills like AB 2855, read our Senior Counsel Erin Bradrick‘s article The Ongoing Overhead Myth and the Dangers of Overly Zealous State Legislators in The Nonprofit Quarterly (4/14/16).

Our original analysis of AB 2855 (before it was shelved)

Background of the Bill – Mandated Overhead Disclosures

AB 2855 originally was drafted to require charities operating or engaging in charitable solicitations in California to post their administrative overhead expenses or a link to such information on each and every one of their web pages and on the first page of each and every fundraising document.

Requirements of the ‘Warning Label’ Bill

Likely because of Constitutional issues related to compelling such speech, AB 2855 was amended to delete the overhead disclosure requirement and replace it with a requirement for charities to include what CalNonprofits terms a warning label, more specifically:

  1. a required prominent link on charities’ websites to “the Attorney General’s Internet Web site which contains information about consumer rights and protections and charity research resources”; and
  2. the Web site address of such Attorney General’s Internet Web site on all charities’ fundraising documents (including old ones) used to solicit in California.

AB 2855 would require hundreds of thousands of charities operating or engaging in charitable solicitations in California (regardless of what state in which they are based) to put a link to a California Attorney General website with unknown content that would also be freely available to the public without such link. And it would require those charities to put the Attorney General website address on tens of millions of fundraising documents that are distributed within California.

First Amendment Issues

A general principle of the First Amendment requires a court to review any government regulation of the content of a person’s or organization’s speech with strict scrutiny. Generally, this involves asking two questions:

  1. Does the regulation further a compelling governmental interest?
  2. Are the means used narrowly tailored to accomplish that governmental interest?

The government’s interest, according to the Legislative Analysis, is “to give consumers more information about how to research a charity before making a gift ….” The additional substantive information would be required of, and provided by, the Office of the Attorney General. Such information would be accessible to the general public without requiring charities to add any information to their communications. But advocates of the bill appear to be making an argument that giving consumers an easier time to find such information on a government web address is the compelling government interest requiring the consumer protection ‘warning label’ on what would amount to tens of millions of documents.

Requiring hundreds of thousands of charities fundraising in California to include such website addresses and links on all of their websites and fundraising documents will require much work. It’s difficult to see how proponents of the bill will claim that the bill is narrowly tailored particularly in relation to the rather narrow goal of making information on the Attorney General’s website easier for the general public to find. It would be the first law of such nature governing charities in the country and a strong signal of the state government’s distrust of the charitable sector based on a minuscule fraction of charities involved in scandals picked up by the media. It essentially would put charities in the same category as tobacco companies that are required to put a warning label on their products. And it would undermine the incredibly valuable work of the charitable sector, the sector most trusted by the public.

The U.S. Supreme Court dealt with content-based regulation of speech in a charitable solicitation context in Riley v. National Federation of the Blind, 487 U.S. 781 (1988). In Riley, the Court held that the North Carolina Charitable Solicitations Act was unconstitutional content-based regulation of speech. Members of the Assembly Committee should be fully aware of this case and how the Supreme Court protects free speech before voting on compelling the speech of nonprofits in the manner described by AB 2855.

Imagine if all states had the same requirements. Every charity raising funds in all states would have 50 links to include on their website and on all of their national fundraising documents.

Opposition

See CalNonprofits letter to Assemblymember Lorena Gonzalez, Chair, Appropriations Committee:

The impact of AB 2855 – and thus any effort to ensure compliance with its requirements – would be far-reaching. AB 2855 would require every charity to include what feels to nonprofits like a “warning label” on their website in a “prominent” location and also requires nearly every document they produce to direct donors and others to the state’s top law enforcement’s website. Mandating content in the ways proposed by AB 2855 would be expensive and burdensome, and would detrimentally interfere with nonprofits’ ability to communicate with their constituents and the public. AB 2855 arguably compels speech in an unconstitutional manner by dictating specific content to be included on nonprofit websites and documents and seems ripe for challenge on this basis.

See CalNonprofits revised letter to the Honorable Ed Chau, Chair, Assembly Privacy and Consumer Protection Committee:

The AG’s office is already communicating this information to the public – their web site is the first listing in a Google search for “California charities.” Burdening nonprofits in and beyond California with required speech on “any document” which seeks donor support to simply advertise what the public can easily find is unnecessarily punitive without serving any compelling public interest. Imagine all the “documents” that non-profit organizations create to solicit funds to support their mission-based work: signs on coin collection jars, private letters to individual donors, billboards and other large-scale outdoor advertisements, flyers posted in laundromats, neighborhood association newsletters, to name just a few. And AB 2855’s provisions would apply to any charity – regardless of where they are based – that solicits donations from Californians. So, every inbound piece of mail from any charity in the world would have to include this unnecessary disclosure. The additional cost of including this provision on “any document” would be extraordinary.

Also see the Opinion piece by Tim Delaney, chief executive of the National Council of Nonprofits, in The Chronicle of Philanthropy:

The bill, as amended late last week, would force every nonprofit in the country that seeks funds in California to put a link on its home page – plus a disclosure on all other solicitation materials directing potential supporters to  the California Attorney General’s Office.  That office is instructed to provide “information about charities, informational materials containing consumer rights and protections and charity research resources to allow donors to become informed about a charity before making a decision to give.” Such legislative  language puts nonprofits at the mercy of an elected partisan’s changing views on what’s “appropriate” on such things as overhead, compensation, and advocacy – as well as which charitable causes are worthy. It probably will prompt copycat legislation in other states, transforming nonprofit website homepages into huge advertisements for the offices of state charity regulators, rather than the mission of the actual nonprofit.

Burdens and Costs to the State Government

AB 2855 will create substantial burdens for the State’s Office of the Attorney General in developing a website with appropriate information on how to research a charity (a very complex matter approached in myriad ways by grantmakers), developing regulations related to the law (including determining the minimum contacts required to fall within AB 2855 – e.g., a “donate” button on a passive website clicked by 5 California residents?), educating the public about the law and its associated regulations, re-designing registration and registration renewal forms, enforcing the law in audits, defending litigation on the constitutionality of the law (which would be expected in light of the almost universal opposition by the nonprofit sector).

You can access the May 11, 2016 Bill Analysis for the Appropriations Committee (which includes the comment “unduly onerous”) here.

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