More than 50 individuals, companies and advocacy groups legally lobby San Jose each year about subjects including Google developments and cannabis.
Lobbying is governed by the city’s lobbying ordinance, which requires lobbyists to register, pay annual fees and file weekly reports disclosing conversations with city officials.
But 501(c)(3) nonprofits, or charitable nonprofits, are exempt from the ordinance, meaning any registered 501(c)(3) nonprofit can lobby the city with impunity. That exemption allows dozens of organizations—from small neighborhood associations to larger ones like Catholic Charities—to apply for funding from the city.
Charitable nonprofits aren’t required to disclose their dealings with the city as lobbyists do, but the IRS requires nonprofits to disclose any legislation lobbied, per the federal agency’s definition, at the city and state level.
“If you’re a not-for-profit, that will be disclosed somewhere,” said Jamie Court of Consumer Watchdog, a taxpayer and consumer rights advocacy group. These disclosures are found on the nonprofit’s publicly available tax returns.
For example, Catholic Charities of Santa Clara County entered into contracts with the city over the past few years, including support for San Jose’s flood relief program in 2017. The San Jose Downtown Association has contracts with the city going back to at least 2007. Both organizations are involved in efforts to provide aid, financial or otherwise, to small businesses and other charities during the COVID-19 pandemic.
In the case of the downtown association, its internal lobbyists are registered with the city though they’re failing to disclose the reasons for meetings with elected leaders and city officials — a requirement of the forms.
Former Councilmember Johnny Khamis proposed ending the exemption to force charitable nonprofits to disclose which city officials they speak to and what they speak about as far back as 2015, but his colleagues weren’t convinced.
“If we’re going to be transparent, let’s be transparent,” Khamis told San José Spotlight.
When Khamis was on the council, he said nonprofit groups lobbied him at least twice a week. “Millions of dollars go to nonprofits every year. Why shouldn’t we disclose who’s talking to who?” he said.
According to the IRS, no organization can qualify for nonprofit status if a “substantial part” of its activities is considered lobbying, which the IRS determines on a case-by-case basis using its “substantial part” test and its expenditure test. However, nonprofits are not completely barred from lobbying, so long as they pass both tests. The IRS can strip any charitable nonprofit of its 501(c)(3) status if it fails either test, and organizations must disclose actions made by paid lobbying staff.
Some charitable organization leaders such as Greg Kepferle, chief executive officer of Catholic Charities of Santa Clara County, believe that the city’s policy on nonprofits is transparent enough. He said the organization discloses city officials it speaks to through a press release or at a news conference.
“There are already quite a lot of disclosures with constant regular program audits and nonprofits subject to annual audits, including government contracts,” Kepferle said. He added that Catholic Charities’ relationship with the city has been “good, respectful, professional and collaborative” in addressing community needs.
In 2007, San Jose passed transparency laws requiring lobbyists to register with the city, pay annual fees and file weekly reports disclosing which city leaders and politicians they’re meeting with and why. Those disclosures should include emails or letters, scheduled or unscheduled phone calls and meetings.
501(c)(3) organizations in San Jose are exempt from the policy. 501(c)(3)s have repeatedly won exemptions from local laws and regulations, including an exemption on a real property transfer tax in Measure E, which passed early last year.
Court said that nonprofits regularly push elected officials to vote one way or another, and so long as nonprofits pass the IRS’s tests, they don’t have to disclose what they’re meeting about—and chances are they won’t disclose at all.
“It’s a policy that is not all that unusual,” he said.
But Khamis believes such a policy would actually be a major win for government transparency and accountability.
“I’m not accusing nonprofits of anything,” Khamis said. “In the spirit of transparency, millions of dollars go out the door for nonprofits. Why should they not have the same rules that other organizations have?”