Document Type

Article

Publication Date

March 2004

Abstract

This piece was inspired by the increasing tendency of State attorneys general – backed up by courts and legislatures – to effectively confiscate the assets of wealthy nonprofits through overreaching enforcement actions. The article develops a legal framework for ascertaining the proper State role. It reviews many case studies including, most notoriously, the thwarted diversification of the Milton Hershey School Trust out of Hershey Foods Corporation (an investment worth over $5 billion) – thereby preserving the local operations of a publicly traded company. While few state attorneys general have the funding and inclination to engage in aggressive charity enforcement, the very lack of state involvement with the organization and operation of nonprofit entities might explain how legislatures, attorneys general, and even courts can misconstrue their proper roles in the regulation of charities and other nonprofits. Assets of nonprofit organizations are not governmental assets. Rather, a given nonprofit serves the indefinite class of beneficiaries chosen by its creators, funders, governing board, and, in some cases, members – but not by the local community, the state, or any other public that constitutes the constituents of an attorney general, a legislature, or a judge. Inevitably, if the proper legal bounds of legitimate enforcement do not become clearer, the role of charities in society could suffer. Charities facing state attorney general inquiry worry about loss of donations, loss of contracts and patronage, and retention of staff and volunteers. If, though, charities too quickly accede to state demands over matters of discretionary governance, the sector as a whole can see a degradation in charities' willingness to take risks, and in volunteer board members' willingness to serve.

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