24 June 2009

Colorado Amendment 54 Stayed

A Denver judge has put on hold the donation ban contained in Colorado Amendment 54, passed by 51% of voters in November, which would have prohibit certain government contractors and all public sector unions with a contract from making campaign contributions.

I am one of who argue that it is unconstitutional (see also November 6, 2009, November 13, 2008 and February 19, 2009). I also opposed I when it was being considered by the voters. See, e.g. October 1, 2008, and October 2, 2008.

The problem is not so much the notion of prohibiting "pay to play," as it is the vast overreach of the prohibition beyond this narrow situation so that political speech is barred without a clear nexus to the alleged influence on government contracts that results.


Michael Malak said...

What do you think about Senator LBJ's law that prohibits non-profits from free speech?

I incorporated my school as for-profit to a) avoid that issue and b) retain control rather than hand it over to a board. Financially, there wasn't much difference between for-profit and non-profit. Money (if there is any) can be extracted from a non-profit in the form of salary. As an S-Corp, I can deduct losses from my taxes just as I could deduct donations to a non-profit.

What I've since been discovering, though, is that grants are usually given only to non-profits. Most annoyingly, hosting a booth at the People's Fair on Capitol Hill is $2500 for for-profit and $100 for non-profit.

There is this huge bias out there against for-profit organizations that I think is unfair in light of the free speech issue.

Andrew Oh-Willeke said...

First off, it is the charitable contribution deduction, and not the lack of taxes on profits that is the big boon in dollar terms. Few non-profits are very profitable anyway (nor are many for profits at an entity level).

Second, I think that the 527 model (taxation on investment income and unrelated business income, but no tax on donations and no charitable deduction) is probably the one for all non-profits. We shouldn't subsidize politics or religion or opera or other high art or Harvards, yet all are operated as a non-profits. A narrow charitable deduction for aid to the poor might make sense, in contrast.

Third, non-profits can engage in political activism in the form of limited lobbying and issue advocacy, th main limitation is on partisan candidate advocacy, and an institution like a school shouldn't have enough money to spend on that for excesses over those limits to matter if it is well run. Corporations, including S coroprations are subject to major limits on campaign contributions as well (hence the PAC).

In short, I think that your choice of entity is ill advised, and that your free speech concerns are overblown. Nothing prohibits principals in organizations from engaging in any sort of political activity (other than Amendment 54 and to a much lesser extent Amendment 41).

Michael Malak said...

Church pastors have gotten in trouble for advocating particular candidates. It is possible that in one of our parent education classes, I might end up advocating for or against a particular candidate, especially as it pertains to funding of and curriculum in public school systems (our competitors).

Except for the pro-life issue, I typically emphasize candidates over issues since almost all politicians are liars and/or on the take (slave to campaign contributions), and I like to advocate for the few who are not (regardless of their stance on issues outside the pro-life issue).

As for collecting deductible contributions, I plan to set up a separate 501(c)(3) for scholarships.

The other reason I went for-profit was to avoid a board of directors. I just came from a meeting with all the other heads of Montessori schools in the region, and the chit-chat was all about having to deal with boards who may not be familiar with either Colorado regulations or the Montessori pedagogy.

Andrew Oh-Willeke said...

The Colorado Independent has a good play by play report on the hearing.