Supreme Court rejects California Nonprofit Donor Disclosure Act: NPR

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The US Supreme Court on Thursday sided with wealthy donors and their desire to remain anonymous against a state law designed to monitor the finances of charities and other non-profit organizations.

By 6 to 3 votes on ideological grounds, the court struck down a California law requiring nonprofits to submit a list of their major donors to the state. Court said the law exposed the donors to potential harassment, horrifying their speech in violation of the First Amendment

Under California law, tax-exempt groups were required to attach their files with the state to a copy of their IRS form reporting the names and addresses of all donors who gave more than $5,000 or 2% of the organization’s total donations.

The case was brought by Americans for Prosperity, a tax-exempt nonprofit founded by Charles Koch and his brother David Koch, who died in 2019, as well as the Thomas More Law Center, another conservative group.

In his view of the court’s conservative majority, Chief Justice John Roberts said the court was applying strict scrutiny, not rigorous scrutiny, to the analysis of California’s procedure.

“While rigorous scrutiny does not require detection systems to be the least restrictive means to achieve its ends, it does require that they be narrowly tailored to the government’s demonstrated interests,” he wrote.

Historically, state prosecutors have been the ones to keep tabs on charities, and in California, which has 115,000 charities, that’s a big job.

Jan Masaoka, CEO of the California Association of Nonprofit Organizations, compares California’s system to the regulation system of the Federal Aviation Administration. Just as the Federal Aviation Administration needs information from aircraft manufacturers and airlines to ensure safety in air travel, California and other states need information from charities to detect fraud and self-deal.

“We all — nonprofits and donors — want to have that confidence that the rules are being enforced, and we need to [state] the prosecutor to do so,” Masaoka says.

“This fight is a skirmish in a larger war,” notes Sean Delaney, who headed up similar law enforcement in New York state. Whether the New York statute or similar provisions in other states can remain in effect remains an open question now that the California law has been struck down by the Supreme Court.

In her dissent, Justice Sotomayor wrote: “Today’s analysis ranks reporting and disclosure requirements a bull’s-eye. Regulated entities wishing to avoid their obligations could do so by brandishing vaguely toward First Amendment ‘privacy concerns’. … It doesn’t matter if he doesn’t take risks. One individual experience one retaliation from disclosure, or if the vast majority of those affected would gladly comply. This is all irrelevant to the court’s decision that California’s Schedule B requirements are ostensibly unconstitutional. Neither precedent nor common sense supports such an outcome.”

Most important is the effect on federal and state laws that require public disclosure of campaign contributors. In the political context, the Supreme Court has long held that such disclosure is constitutional because it serves the important public interest of accountability by revealing who is at play in the game of influencing government policy. In fact, public disclosure may be the only remaining check on political contributions, and some political contributors would like to remove it as well. Indeed, this is what some members of the conservative wing of the Supreme Court are also doing.

At the same time, tax regulators want to tighten oversight rules to prevent tax-exempt charities from being used for partisan purposes.

Thursday’s decision, however, could put the kibosh on that idea. In fact, the decision is likely to make the task of any watchdog agency more difficult.

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