AFP Submits Letter to Rhode Island General Assembly on Charitable Solicitations Bill

AFP has sent a letter to the chair of the House Committee on Corporations outlining its opposition to House Bill 7195 that would enact a series of new and overly burdensome regulations on charitable fundraising.

H. 7195 includes a mandate requiring the disclosure of fundraising costs and expenses before any solicitation is made, a proposal that has been ruled unconstitutional by the Supreme Court on several occasions.

The bill also tries to establish a simple bright-line test for fundraising costs without explaining what any of it means and contains several logistical and timing provisions that don’t make sense in the context of certain types of fundraising.

The bill was subsequently not reported out of committee.

The text of AFP’s letter can be found below.

The Honorable Robert B. Jacquard
Chairman
House Committee on Corporations
Rhode Island General Assembly
Room 203
82 Smith Street
Providence, RI  02903

Dear Chairman Jacquard:

On behalf of the AFP Rhode Island Chapter, I am writing to express the concerns of the Association of Fundraising Professionals (AFP) with House Bill 7195, related to the regulation of charitable solicitations.

As the largest association of charities and charitable fundraisers in the world, AFP understands the need for the regulation of fundraising. We have worked with Congress, state legislatures and many regulatory bodies to develop legislation and regulations that protect the donor and giving public while allowing charities to raise the money they need to advance their missions.

However, we are very concerned with H. 7195, as it includes an unconstitutional mandate requiring the disclosure of fundraising costs and expenses before any solicitation is made. We are also concerned about the lack of any context about the information that is required to be disclosed, particularly around administrative/fundraising costs. We have found that every charity is different. Every charity has different administrative and fundraising costs necessary to fulfill their mission, so it is impossible to establish a bright-line test.

We appreciate the committee looking at the issue of charitable fundraising—philanthropy and giving have become an increasingly important part of the American social fabric. But H. 7195 would potentially harm and reduce public trust in legitimate charities, the philanthropic organizations who contribute mightily to those in need throughout Rhode Island without truly increasing charitable accountability. We encourage the committee to oppose the bill.

AFP Background

For more than 55 years, AFP has provided guidance and standards to those engaged in the philanthropic process.  AFP’s considerable expertise in the legislative field is based upon the combined experience of its 33,000 members across North America and around the world.

AFP members are required annually to sign our Code of Ethical Principles and Standards of Professional Practice, which were first developed in 1964.  AFP instituted a credentialing process in 1981 – the CFRE, Certified Fund Raising Executive designation to aid in identifying for the giving public fundraisers who possess the demonstrated knowledge and skills necessary to perform their duties in an effective, conscientious, ethical, and professional manner. We also have a strong ethics enforcement policy that can result in the revocation of credentials and expulsion of members who engage in prohibited behavior.

This background is cited to emphasize the importance that AFP and its members place on ethical fundraising.  We very much support Rhode Island in its efforts to improve charity accountability and fundraising regulation. AFP looks forward to working with the House Corporations Committee in fashioning legislation that provides benefits to the public while not placing unnecessary restrictions and burdens on the nonprofit sector.

H. 7195 Concerns

A. Unconstitutional Disclosure

The legislation requires that prior to an oral solicitation, or at the same time as a written solicitation, a professional solicitor and/or fundraiser must disclose their names, names of the entities that hired them, the fact that the solicitation is being conducted by a professional solicitor, and most critically, the percentage of the contribution to be retained by the fundraiser.

The Supreme Court has ruled on several occasions against limiting speech by charities and its agent, seeing “no nexus between the percentage of funds retained by the fundraiser and the likelihood that the solicitation is fraudulent.” The Court has also ruled that required disclosure of fees is also unconstitutional.

If a donor proactively requests this information, the Federal Communications Commission, the Federal Trade Commission and other entities require fundraisers and their agents to answer truthfully. The AFP Code of Ethical Principles stands in agreement on that idea as well. But it must be requested—the disclosure cannot be mandated under constitutional law.

B. Fundraiser Costs

It is almost impossible to establish a bright-line test for fundraising costs. Fundraising costs are complex and differ from charity to charity—the costs of a small neighborhood charity will differ greatly from a large international organization.

Determining a cost ratio is not simple. Fundraising campaigns based upon a set salary or fee for a particular job or campaign make percentage ratio costs difficult to determine at the time of solicitation. It is worth noting that a flat fee is the ethical means of paying for fundraising costs. AFP’s Code of Ethical Principles and Standards strictly prohibits percentage-based compensation in general, as a percentage-based regime encourage one to value their self-interest, their compensation, ahead of charitable mission when dealing with donors.

In addition, some campaigns may have different costs over time—some campaigns might have high fundraising costs in the first year when a new fundraising approach is implemented, but those costs may go down over subsequent years as the approach takes root and leads the organization to increased charitable contributions.

Some charitable organizations have missions that are more popular (e.g., the welfare of children), which makes fundraising easier; other organizations may have missions for a specific illness or cause that are less popular, which makes the cost of raising money higher because it takes more effort to attract donors.

In addition, the bill provides no context for the percentage of fundraising costs that would be disclosed. Some fundraising campaigns (such as acquisition campaign, seeking new donors) can be very expensive, but result in significant charitable contributions over time. It is difficult to provide that context in a soundbite. Requiring disclosure of costs at the very beginning of a call might immediately disincline donors to give before the solicitation even begins, without even giving the charity the opportunity to explain why such costs might be so high.

C. Logistical Concerns

We are also concerned about the exact language that is to be used in any solicitation featuring a professional fundraiser or solicitor:

"My name is [insert full name] and I am an employee of [insert name of fundraising company]. I am a paid representative soliciting charitable contributions on behalf of [insert name of charitable organization]. I am required by Rhode Island law to inform you that [insert name of fundraising company] receives no less than [insert percentage] percent of aggregate contributions.”

This language could place a chilling effect on giving, as the boilerplate language does not provide any context around the percent of aggregate contributions. Again, some highly effective charities in the State could have higher percentages of fundraising costs.

This text also does not work in the context of a written solicitation. Often, written solicitations will come from a volunteer or previous donor’s point of view, or perhaps that of a staff member of the charity, instead of the professional fundraiser. The proposed language is too restrictive.

We are also unsure about the definition of “contemporaneously” in the context of a written disclosure. Does that mean it just needs to appear anywhere in the written solicitation, which sometimes can be several pages or several different pieces?

Regardless, the text is problematic by creating the impression that fundraising costs are bad or unnecessary when the exact opposite is often the case.

Thank you for the opportunity to submit comments about H. 7195. As stated, AFP believes that fundraising and philanthropy are a critical part of our society, and that government should ensure a balance between the needs of charities to raise money and the desire to have donors and the public make wise, informed giving decisions. However, we feel H. 7195 does not meet this balance and should be opposed.

If AFP can be of further assistance as you examine this legislation or other fundraising and philanthropic issues, please do not hesitate to contact the chapter.