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The Need for Financial Disclosure of Religious Fund Raising and Solicitation Practices, 9 Loy Loyola University Chicago Law Journal Volume 9 Article 4 Issue 4 Summer 1978 1978 A Reconsideration of the Religious Exemption: The eedN for Financial Disclosure of Religious Fund Raising and Solicitation Practices Bruce J. Rakay Chief, Charitable Foundations Section, Office ofh t e Ohio Attorney General Roger P. Sugarman Assist. Attorney General, Charitable Foundations Section, Office ofh t e Ohio Attorney General Follow this and additional works at: http://lawecommons.luc.edu/luclj Part of the Religion Law Commons Recommended Citation Bruce J. Rakay, & Roger P. Sugarman, A Reconsideration of the Religious Exemption: The Need for Financial Disclosure of Religious Fund Raising and Solicitation Practices, 9 Loy. U. Chi. L. J. 863 (1978). Available at: http://lawecommons.luc.edu/luclj/vol9/iss4/4 This Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola University Chicago Law Journal by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. A Reconsideration Of The Religious Exemption: The Need For Financial Disclosure Of Religious Fund Raising And Solicitation Practices BRUCE J. RAKAY* ROGER P. SUGARMAN** INTRODUCTION Public awareness of abuses in the administration of charitable fund raising practices has increased over the past twenty years., This has resulted in the promulgation of state registration and re- porting statutes,2 together with increased supervision of charities and enforcement by the state attorneys general.3 By the end of 1977, thirty-four states and the District of Columbia had enacted statutes requiring financial disclosure of contributions and fund raising costs by charitable organizations which solicited money from the public., However, virtually every state, with the recent exceptions of North Carolina and Maryland,5 has followed the Uniform Supervision of * Chief, Charitable Foundations Section, Office of the Ohio Attorney General, Columbus, Ohio; B.A., Case Western Reserve University 1970; J.D., Boston University School of Law, 1973. ** Assistant Attorney General, Charitable Foundations Section, Office of the Ohio Attor- ney General, Columbus, Ohio; B.A., Vanderbilt University 1972; J.D., University of Toledo College of Law, 1975. This article does not necessarily reflect the views of the Office of the Ohio Attorney General. However, the authors thank Attorney General William J. Brown for his permission to write this article. 1. See, e.g., Hynes v. Mayor of Oradell, 425 U.S. 610 (1976); Heslin v. Korean Cultural & Freedom Found., Inc., No. 208480 (Super. Ct. Hartford Co., Conn., Aug. 26, 1977); State v. Lake, No. 77-19982, C.P. (Circuit Ct. Ingham Co., Mich., Mar. 9, 1977); Hyland v. Con- gress of Racial Equality (C.O.R.E.), No. C-5087-75 (Super. Ct. Essex Co., N.J., Mar. 10, 1977); Heslin v. Martin, No. 211882 (Super. Ct., Hartford Co., Conn., June 16, 1977); Brown v. Pallottines, Inc., No. 76-CV-12-5068 (CCP, Franklin Co., Ohio, Dec. 1, 1976); State v. Nordmark & Hood Presentations, Inc., No. 421683 (Dist. Ct., Ramsey Co., Minn., Aug. 23, 1977); Kelley v. Routley, No. 77-20879 CCP (Cir. Ct., Ingham Co., Mich., temporary restrain- ing order issued Oct. 18, 1977); Brown v. National Fed. of the Blind, No. 76-CV-12-5365 (CCP, Franklin Co., Ohio, Dec. 21, 1976). 2. Report of the Ohio Attorney General to the Commission on PrivatePhilanthropy and Public Needs: The Status of State Regulation of Charitable Trusts, Foundations and Solicitations, Vol. V at 2705, Research Papers Sponsored by the Commission on Private Philanthropy and Public Needs (1977) (hereinafter cited as Report of the Ohio Attorney General); State Regulation of Charitable Trusts and Solicitations, National Association of Attorneys General Foundation (August 1977). 3. Report of the Ohio Attorney General, supra note 2, at 2755-61. 4. Abernathy, Guide to State Laws Regulating Fund Raising, GRANTSMANSHiP NEws (Oct. 1976) (hereinafter cited as Abernathy). 5. N.C. GEN. STAT. §§ 108-75.1. et seq. (1977 Supp.); MD. CODE ANN. art. 41, §§ 103A et seq. (1977 Supp.); see text accompanying notes 124-42 infra. 863 Loyola University Law Journal [Vol. 9 Trustees for Charitable Purposes Act6 and exempted religious or- ganizations from these requirements. Broad exemptions for religious charities stem from the belief that, in the absence of an exemption, insurmountable constitutional difficulties would be encountered. The Pallottine scandal in Baltimore provides a recent and graphic example of the type of abuse which disclosure statutes may prevent. In 1976 it was revealed that of the $20 million raised in contributions by this Roman Catholic order less than four cents of each dollar was spent on the charitable purposes for which donations were solicited.7 The Pallottines' annual direct mail fund raising campaign adver- tised that "money donated will be used to support Pallottine mis- sions in underdeveloped countries around the world."' The twofold purpose of this article is (1) to explore the constitu- tional boundaries of permissible governmental regulation of reli- gious charities which publicly solicit contributions;9 and (2) to rec- ommend that fund raising by religious groups, like that of secular groups, be subject to registration and financial reporting require- ments. 6. 9C U.L.A. 208. See also "An Act to Regulate Individuals and Organizations Engaged in Charitable Public Solicitation", Ad Hoc Committee to Review State Legislation of the National Health Council (1973). This model legislation also contains a religious exemption. A critique of the Ad Hoc Committee's Model Act is found in Report of the Ohio Attorney General, supra note 2, at 2763. 7. Wilson, Charity Scandals: 'Self-Policing Can't Work,' Wash. Post, Jan. 10, 1978, at A19, col 1. The National Conference of Catholic Bishops, the Leadership Conference of Women Religious, and the conference of Major Superiors of Men of the Catholic Church have recently collaborated on new fund raising rules for all Catholic agencies and affiliates, mainly in response to the Pallottine Missionaries scandal. Principlesand Guidelines for Fundraising in the United States Archdiocese, Archdiocesian Agencies and Religious Institutes (1977). The Pallottines solicited $20.4 million through a direct mail campaign during an 18-month period ending December 31, 1975. Only $500,000 was used for charitable purposes. For a concise history of voluntary financial disclosure on the part of the American Catholic Church and its affiliates, see Scheets, The Church Needs More Open Fiscal Policies, NATIONAL CATHO- LIC REPORTER (February 20, 1976). 8. Archbishop Eyes Fund-Raising Law, Wash. Post, May 4, 1976, at Cl, col. 6. For discussions concerning other fund raising abuses see MacRaye, The Lord Will Provide, Wash. Post, Sept. 1, 1974, at Al, col. 6; Sept. 2, 1974, at Al, col. 5; Sept. 3, 1974, at Al, col. 5; M. LARSON & C. LOWELL, THE RELIGIoUs EMPIRE (1976); H. KATZ, GrvE! WHO GETS YOUR CHARITY DOLLAR? (1974); ALFRED, THE RELIGIous BusINEss (1974); Charities:Don't Feel Guilty About Unwanted Gifts, Christian Science Monitor, Feb. 20, 1974, at F4, col. 1; Rashke, Fundraising "Smell" Ignored 7 Years, National Catholic Reporter, Jan. 30, 1976, at 6; $1 Billion Fund Drive Set By Evangelicals, N.Y. Times, Nov. 15, 1977, at 19, col. 2. 9. It is necessary to recognize the distinction between public contributions and sacramen- tal offerings or congregational dues. The latter monies are generally allocated for spiritual well-being, propogation of the faith, or worship, and come from donors who are members of or have a direct connection with the donee religious organization. Public contributions are those which are donated by persons outside the direct membership of the religious organiza- tion. 1978] Religious Exemptions-Disclosure GOVERNMENTAL REGULATION AND THE FREE EXERCISE CLAUSE An analysis of the constitutional parameters of permissible gov- ernmental regulation of religious charities includes consideration of financial disclosure statutes" and legislation implementing the tax- ation authority of federal, state, and local governments." While legislation in the first category generally requires charitable organi- zations to describe the ongoing financial nature of their fund raising, administrative and service activities," tax statutes contain no spe- cific charitable solicitation regulations. 3 Disclosure statutes almost 10. In addition to the state and territorial statutes mentioned in Abernathy, supra note 4, and Report of the Attorney General, supra note 2 at 2755, there are numerous municipal ordinances which require some form of registration and reporting on the part of charities soliciting within the confines of the municipal jurisdiction. At the present time no federal statutes govern interstate solicitations by public charities per se although the Postal Service does have jurisdiction to prosecute instances of civil and criminal fraud, of either a commercial or charitable nature. 39 U.S.C. § 3005, 3007 (1970 & Supp. IV 1974); 18 U.S.C. § 1341 (1970). Charities which use the mails to solicit contributions are subject to disqualification from the preferential rates they receive for all classes of mail. 39 C.F.R. §§ 132.3(f), 132.8 (1975) (special second class permits); 39 C.F.R. § 134.5(d),(f) (1975). No permit is required for the fourth class rate, 39 C.F.R. § 135.2(a)(5) (1975). There have been a number of proposals for federal regulation of charitable solicitations introduced in the last three sessions of Congress. H.R. 1123, 94th Cong., 1st Sess. (1975) (VanDeerlin bill, originally introduced as H.R. 11991); S. 1153, 94th Cong., 1st Sess. (1975) (the Truth in Contributions Act, introduced in 1975 by Senator Mondale); H.R. 4689, 94th Cong., 1st Sess. (1975) (introduced by Representative Karth); and H.R. 41, 95th Cong., 1st Sess. (1977) (originally H.R. 10922, reintroduced in 1977 by Representative Wilson). The Wilson bill is the only federal proposal which, if enacted with its present provisions, would not exempt religious organizations from the disclosure requirements incumbent upon secular charities soliciting by means of the U.S.
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